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
Financial Statements
Year ended December 31, 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- )
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
(in thousands of Canadian dollars)
<PAGE>
February 15, 2000
Auditors' Report
To the Shareholders of
Consoltex Group Inc.
We have audited the consolidated balance sheets of Consoltex Group Inc. as at
December 31, 1999 and 1998 and the consolidated statements of earnings and
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1999 in accordance with
generally accepted accounting principles in Canada.
Chartered Accountants
/s/ PricewaterhouseCoopers LLP
Montreal, Canada
February 15, 2000
<PAGE>
Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the company's financial statements, such as the change described in Note 1h
to the consolidated financial statements. Our report to the shareholders dated
February 15, 2000 is expressed in accordance with Canadian reporting standards
which do not require a reference to such a change in accounting principles in
the auditors' report when the change is properly accounted for and adequately
disclosed in the financial statements.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Montreal, Canada
February 15, 2000
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(in thousands of Canadian dollars) 1999 1998
- -------------------------------------------------------------------------------------
Restated
ASSETS (Note 1-h)
Current assets
<S> <C> <C>
Cash $ 4,285 $ 3,883
Accounts receivable and prepaid expenses, net of
allowance for doubtful accounts of $2,028
(1998 - $2,411) (Note 2) 73,080 55,633
Inventories (Note 3) 130,180 110,382
Current portion of future income tax assets (Note 13) 650 792
- -------------------------------------------------------------------------------------
208,195 170,690
Fixed assets (Note 4) 162,403 162,106
Goodwill, net of accumulated amortization of $15,428
(1998 - $12,618 ) 117,963 74,091
Other assets, net of accumulated amortization of $12,318
(1998 - $8,765) 8,749 15,558
Future income tax assets (Note 13) 2,193 639
- -------------------------------------------------------------------------------------
Total assets $ 499,503 $ 423,084
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans (Note 5) $ 56,123 $ 42,515
Accounts payable and accrued liabilities (Note 6) 52,888 46,371
Income taxes payable 3,985 6,934
Current portion of long-term debt (Note 7) 79,376 10,714
Current portion of other long-term liabilities (Note 8) 8,149 --
Current portion of future income tax liabilities (Note 13) 9,231 4,039
- -------------------------------------------------------------------------------------
209,752 110,573
Long-term debt (Note 7) 173,184 202,026
Other long-term liabilities (Note 8) 15,618 4,687
Future income tax liabilities (Note 13) 23,962 31,526
Commitments and contingencies (Note 14)
Shareholders' equity
Share capital (Note 9) 95,628 92,998
Contributed surplus 3,076 --
Retained earnings 6,680 11,813
Deferred translation adjustment (Note 10) (28,397) (30,539)
- -------------------------------------------------------------------------------------
76,987 74,272
- -------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 499,503 $ 423,084
=========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year ended December 31
(in thousands of Canadian dollars) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
Restated Restated
(Note 1-h) (Note 1-h)
<S> <C> <C> <C>
Sales $ 510,343 $ 481,299 $ 509,447
- --------------------------------------------------------------------------------------------------------
Cost of sales 396,819 368,244 398,100
Selling and administrative expenses 56,229 49,296 50,141
Foreign exchange (gain) loss (Note 11) (110) 3,434 (509)
Depreciation and amortization 25,182 21,077 19,256
- --------------------------------------------------------------------------------------------------------
478,120 442,051 466,988
- --------------------------------------------------------------------------------------------------------
Earnings from operations 32,223 39,248 42,459
Other expense (Note 12) (4,435) (255) --
- --------------------------------------------------------------------------------------------------------
27,788 38,993 42,459
Financing costs:
Interest expense -
Banks loans 4,491 3,660 1,213
Long-term debt 23,531 22,207 21,537
- --------------------------------------------------------------------------------------------------------
28,022 25,867 22,750
Factor expenses (Note 2) 2,317 2,290 2,411
Amortization of deferred financing expenses 2,341 1,749 2,843
- --------------------------------------------------------------------------------------------------------
32,680 29,906 28,004
- --------------------------------------------------------------------------------------------------------
Earnings (loss) before income tax expense (4,892) 9,087 14,455
Income tax expense (Note 13) 241 3,631 3,625
- --------------------------------------------------------------------------------------------------------
Net earnings (loss) for the year (5,133) 5,456 10,830
Retained earnings (deficit) at the beginning of the year
as previously reported 15,889 12,824 3,384
Effect of an accounting change (Note 1-h) (4,076) (6,467) (7,262)
- --------------------------------------------------------------------------------------------------------
Retained earnings (deficit) at beginning of year - restated 11,813 6,357 (3,878)
Share issue costs, net of income tax benefits of $364 (Note 9) -- -- (595)
- --------------------------------------------------------------------------------------------------------
Retained earnings at the end of the year $ 6,680 $ 11,813 $ 6,357
=======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
(in thousands of Canadian dollars) 1999 1998 1997
- ---------------------------------------------------------------------------------------
Restated Restated
(Note 1-h) (Note 1-h)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) for the year $ (5,133) $ 5,456 $ 10,830
Depreciation 19,941 16,288 14,822
Amortization of goodwill 3,957 2,220 2,081
Amortization of other assets 1,284 2,569 2,353
Amortization of deferred financing expenses 2,341 1,749 2,843
Future income tax benefit (2,399) (1,083) (1,616)
Gain on disposal of fixed assets -- (745) --
- ---------------------------------------------------------------------------------------
19,991 26,454 31,313
Changes in -
Accounts receivable and prepaid expenses
Inventories (7,261) 1,640 4,278
Accounts payable and accrued liabilities (14,630) (4,856) (1,152)
Income taxes payable (689) (3,600) (9,606)
(3,714) (1,580) 4,964
- ---------------------------------------------------------------------------------------
Cash flows from (used in) operating activities (6,303) 18,058 29,797
Cash flows from investing activities:
Purchase of fixed assets (15,848) (21,203) (20,231)
Proceeds on sale of fixed assets -- 328 --
Business acquisitions (Note 16 ) (54,262) -- --
- ---------------------------------------------------------------------------------------
Cash flows from (used in) investing activities (70,110) (20,875) (20,231)
- ---------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Increase in bank loans 13,608 15,357 (1,873)
Payment of long-term debt (10,412) (9,100) (10,020)
Proceeds from issuance of long-term debt 62,058 -- --
Increase (decrease) in other long-term liabilities 965 1,604 (69)
Decrease (increase) in other assets 4,890 (2,068) (4,002)
Issuance of share capital 2,630 33 6,120
Capital contribution 3,076 -- --
Share issue costs -- -- (959)
- ---------------------------------------------------------------------------------------
76,815 5,826 (10,803)
- ---------------------------------------------------------------------------------------
Increase (decrease) in cash 402 3,009 (1,237)
- ---------------------------------------------------------------------------------------
Cash:
At the beginning of the year 3,883 874 2,111
- ---------------------------------------------------------------------------------------
At the end of the year $ 4,285 $ 3,883 $ 874
-------------------------------------
Supplemental disclosures of cash flow information
Interest paid $ 27,645 $ 26,611 $ 23,670
=====================================
Income taxes paid $ 3,088 $ 6,047 $ 3,039
=====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLTEX GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, unless otherwise noted)
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Consoltex Group Inc. (the "Company"), is a North American textile company with
activities divided between its Polypropylene and Textile Operations. Consoltex
is vertically integrated from the production of yarn, in the Polypropylene
Operations, through to weaving, dyeing, printing, finishing and coating, as well
as, cutting and sewing operations for certain product lines. The Company also
conducts its own research and development and maintains its own sales, marketing
and distribution network throughout Canada, the United States and Mexico. On
January 1, 2000, the Company's subsidiary, Consoltex Inc. was wound-up into
Consoltex Group Inc. As a result of this transaction, the Company subsequently
changed its name to Consoltex Inc.
The consolidated financial statements are expressed in Canadian dollars and have
been prepared in accordance with generally accepted accounting principles in
Canada which, in the case of Consoltex Group Inc., differ in certain respects
from those in the United States as explained in Note 19.
The consolidated financial statements reflect the following significant
accounting policies:
(a) The consolidated financial statements include the accounts of the Company
and its subsidiaries.
(b) Inventories are valued at the lowest of cost, determined using the average
cost methods, replacement cost and net realizable value. For finished
goods and work in process, cost includes the cost of raw materials, direct
labour and manufacturing overhead.
(c) The assets and liabilities of self-sustaining foreign operations are
translated at current exchange rates with the resulting gain or loss
recorded as a deferred translation adjustment which is a component of
shareholders' equity. Revenue and expense items of self- sustaining
foreign operations are translated at average exchange rates prevailing
during the period.
In all other cases, including hyperinflationary countries, monetary assets
and liabilities in foreign currencies are translated into Canadian dollars
at the exchange rates prevailing at the period-end dates. Revenues and
expenses in foreign currencies are translated into Canadian dollars at the
average exchange rates prevailing during the period. All gains and losses
on translation are included in net earnings for the periods except for
unrealized foreign currency gains or losses on long-term monetary assets
and liabilities. For long-term debt designated as a hedge to the net
investment in foreign self-sustaining operations, exchange gains and
losses are included in the deferred translation account. For the remaining
long-term monetary liabilities and assets denominated in a foreign
currency, exchange gains and losses are deferred and amortized over the
remaining lives of the related items on a straight-line basis and are
included in Depreciation and amortization. The Company has designated a
portion of the Senior Subordinated Notes as a hedge to the net investment
in its self-sustaining U.S. operations.
The Company manages its foreign exchange exposure on anticipated net U.S.
dollar cash flow to its Canadian operations, through the use of forward
exchange contracts. Resulting gains and losses are recognized when
realized and are included in Foreign exchange gain or loss.
(d) Fixed assets are stated at cost. Depreciation is provided for on a
straight-line basis over the estimated useful lives of the assets, which
are as follows:
Buildings 40 years
Machinery and equipment 3 to 20 years
(e) Goodwill is being amortized over periods ranging from 15 to 40 years. The
Company assesses at each balance sheet date whether there has been a
permanent impairment in the value of goodwill. This is accomplished in a
number of ways, including determining whether projected undiscounted
future cash flows from operations exceed the net book value of goodwill as
of the assessment date. Additional factors considered by management in the
preparation of the projections and in assessing the value of goodwill
include the effects of obsolescence, demand, competition and other
pertinent economic factors and trends and prospects that may have an
impact on the value or remaining useful life of goodwill.
(f) Other assets primarily include deferred financing expenses, long-term
receivables and unamortized foreign exchange losses on long- term debt.
Deferred financing expenses are amortized over the duration of the related
debt.
(g) The differentials to be received or paid under interest rate swap
contracts are recognized in earnings concurrently with the interest
expense on the underlying debt.
<PAGE>
ACCOUNTING POLICIES (cont'd)
(h) In 1999, the Company retroactively adopted the Canadian Institute of
Chartered Accountants' ("CICA") new recommendations for the accounting for
income taxes which requires the use of the asset and liability method.
Under this method, future income taxes are recognized for the future
income tax consequences attributable to differences between the financial
statement carrying values and their respective income tax basis (temporary
differences). Future income tax assets and liabilities are measured using
enacted income tax rates expected to apply to taxable income in the years
in which temporary differences are expected to be recovered or settled.
The effect on future income tax assets and liabilities of a change in tax
rates is included in income in the period in which the change occurs. The
amount of future income tax assets recognized is limited to the amount
that is "more likely than not" to be realized. As a result of these new
recommendations, retained earnings on December 31, 1997 decreased by
$6,467, net future income tax liability increased by $20,837, goodwill
increased by $19,002 and the deferred translation adjustment increased by
$4,632. The restatement of prior years statement of earnings resulted in
an increase in net earnings reported for the year ended December 31, 1998
of $2,391 (year ended December 31, 1997 - increase in net earnings by
$795).
In 1999, the Company retroactively adopted the CICA new recommendations
concerning the statements of cash flows. As a result of the new
recommendations, cash flows from financing activities for 1998 increased
by $13,966 (year ended December 31, 1997 - decreased by $3,396).
(i) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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. Actual results could differ from these
estimates.
(j) Certain comparative figures have been reclassified to conform with the
current year's presentation.
2. ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31
- --------------------------------------------------------------------------------
1999 1998
Trade receivables $67,213 $49,915
Other receivables 4,133 4,243
Prepaid expenses 1,734 1,475
- --------------------------------------------------------------------------------
$73,080 $55,633
==============================
The Company factors certain of its accounts receivable from customers in the
United States. The difference between the proceeds from factoring of receivables
and the book value is recorded as factor expenses under financing costs while
related commissions are included in selling and administrative expenses.
3. INVENTORIES
December 31
- --------------------------------------------------------------------------------
1999 1998
Raw materials $ 35,415 $ 24,211
Work in process 34,653 29,729
Finished goods 54,231 51,570
Spare parts 5,881 4,872
- --------------------------------------------------------------------------------
$130,180 $110,382
==============================
4. FIXED ASSETS
December 31, 1999
Accumulated Net book
Cost Depreciation value
- --------------------------------------------------------------------------------
Land and buildings $ 61,867 $ 11,040 $ 50,827
Machinery and equipment 198,458 86,882 111,596
-------------------------------------------------------------------------------
$260,325 $ 97,922 $162,403
=======================================
<PAGE>
4. FIXED ASSETS (cont'd)
December 31, 1998
Accumulated Net book
Cost depreciation value
- --------------------------------------------------------------------------------
Land and buildings $ 59,780 $ 8,841 $ 50,939
Machinery and equipment 180,652 69,485 111,167
- --------------------------------------------------------------------------------
$240,432 $ 78,326 $162,106
======================================
5. BANK LOANS
On October 25, 1999, the Company amended and restated its senior bank debt
facility providing it with a US$57.5 million working capital revolving credit
line maturing on October 31, 2000. The Company and all its material subsidiaries
may borrow under this syndicated facility. The working capital revolving credit
line is subject to certain financial covenants and restrictive conditions, is
secured by certain Canadian and United States accounts receivable and certain
inventory, and is guaranteed by all subsidiaries of the Company. Unless the
lenders under the senior bank debt facility consent in writing otherwise, the
working capital revolving credit line is repayable upon a change of control of
the Company. Interest is payable quarterly for base rate loans, at issuance for
bankers' acceptance loans and at maturity for LIBOR loans at the applicable rate
plus an applicable margin. The margin varies from 2.75% on LIBOR and bankers'
acceptance rate loans and 1.50% on base rate loans. At December 31, 1999, the
rate for outstanding LIBOR loans was 8.99%, 7.78% for bankers' acceptance rate
loans and 9.55% for base rate loans for a weighted average rate for the
borrowings under the working capital revolving credit line of 9.05% (1998 -
7.64%).
The unused portion at December 31, 1999 totalled $27,372 and bore an unused
commitment fee of 0.425% per annum.
Amounts outstanding under letters of credit totalled $7,732 at December 31,
1999, and are included as a reduction in arriving at the unused portion of the
working capital revolving credit line, as disclosed above.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31
1998 1999
- --------------------------------------------------------------------------------
Trade accounts payable $34,602 $29,934
Accrued salaries and benefits 2,947 1,193
Accrued interest 5,757 5,220
Other 9,582 10,024
- --------------------------------------------------------------------------------
$52,888 $46,371
====================
7. LONG-TERM DEBT
December 31
1999 1998
- --------------------------------------------------------------------------------
Series B 11% Senior Subordinated Notes maturing
September 2003. Interest payable semi-annually
on April 1 and October 1 (1999 and 1998 - US $120,000) $173,184 $183,660
Term Loan A, maturing October 2000
Interest payable quarterly at LIBOR plus 2.75%
(1999 - US$12,000; 1998 - US$19,000) 17,318 29,080
Term Loan B, maturing October 2000
Interest payable quarterly at LIBOR plus 3.00%
(1999 - US$43,000) 62,058 --
- --------------------------------------------------------------------------------
252,560 212,740
Less: Amounts due within one year 79,376 10,714
- --------------------------------------------------------------------------------
$173,184 $202,026
=====================
The Series B 11% Senior Subordinated Notes due 2003 (the "Notes") were jointly
issued by the Company and Consoltex (USA) Inc., (together the "Issuers"). The
Notes are unsecured, however they are guaranteed, on an unsecured senior
subordinated basis, by subsidiaries of the Issuers. The Notes are redeemable
under certain circumstances, including upon change of control of the Company.
Also, upon a change of control of the Company, the Issuers must make an offer to
each holder of Notes to repurchase all or any part of such holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest. The indenture governing the Notes contains some
limitations on the ability of the Issuers to incur certain types of
indebtedness. The Company has designated a portion of the Notes as a hedge to
the net investment in its self-sustaining U.S. operations.
<PAGE>
On March 19, 1996, the Company entered into a senior bank debt facility
providing it with a US$35 million five-year Term Loan A. The Company and all its
material subsidiaries may borrow under this syndicated facility. The Term Loan A
is subject to certain financial covenants and restrictive conditions, is secured
by certain fixed assets, and is guaranteed by all subsidiaries of the Company.
Unless the lenders under the senior bank debt facility consent in writing
otherwise, the Term Loan A is repayable upon a change of control of the Company.
The Term Loan A was repayable over five years in 20 installments, of which the
first eight quarterly installments are US$875, the next 11 quarterly
installments are US$1,750 and a twentieth and final installment in March 2001 is
US$5,000. During 1997, the Company repaid US$3,750 of the term loan from the
proceeds of a treasury share issue (see Note 9). On October 25, 1999, the
Company amended and restated the senior bank credit facility agreement resulting
in all outstanding balances at October 31, 2000 of this Term Loan A being
repayable on October 31, 2000.
Term Loan B is subject to all of the same terms and conditions as Term Loan A
except that the entire balance of Term Loan B is repayable on October 31, 2000.
Term Loan B was issued in two installments. US$25 million was issued on August
2, 1999 with respect to the acquisition of Marino Technologies Inc., while US$18
million was issued on November 19, 1999 with respect to the acquisition of the
assets of Atlas Bag Inc.
Long-term debt payments over the next five years, determined at December 31,
1999, are as follows: 2000 - $79,376; 2001 - Nil; 2002 - Nil; 2003 - $173,184;
thereafter - Nil.
8. OTHER LONG-TERM LIABILITIES
December 31
1999 1998
- --------------------------------------------------------------------------------
Remaining amounts owing on acquisitions $ 17,052 $ --
Unfunded pension liability 3,541 2,352
Obligations relating to equipment purchases 2,327 1,600
Provision for seniority premiums payable to employees 847 735
- --------------------------------------------------------------------------------
23,767 4,687
Less: Amounts due within one year 8,149 --
- --------------------------------------------------------------------------------
$ 15,618 $ 4,687
======================
The Company sponsors ten pension plans, of which five are unfunded defined
benefit plans, one is a funded defined benefit plan, and the remaining four are
defined contribution plans.
Payments of other long-term liabilities over the next five years, determined as
at December 31, 1999, will be as follows: 2000 - $8,149; 2001 - $6,037; 2002 -
$2,507; 2003 - $826; 2004 - $465; thereafter - $5,783.
9. SHARE CAPITAL
The authorized share capital of the Company consists of an unlimited number of
Multiple Voting Shares without par value, an unlimited number of Subordinate
Voting Shares without par value, (collectively called the "Equity Shares"), and
an unlimited number of First Preferred Shares and Second Preferred Shares
without par value issuable in series. The Equity Shares are identical in all
respects except that the Subordinate Voting Shares have one vote per share while
the Multiple Voting Shares have five votes per share and are convertible any
time into Subordinate Voting Shares on a share-per-share basis. The Equity
Shares rank junior to the First and Second Preferred Shares. Under certain
conditions, including a change of control of the Company, the Multiple Voting
Shares will automatically be converted into a like number of Subordinate Voting
Shares.
On October 20, 1999, all of the outstanding Subordinate Voting Shares of the
Company were acquired by AIP/CGI/NB Acquisition Corp. for $5.60 per share. As a
result of this transaction, the Company's equity increased by $5,698 including
$3,076 of contributed surplus by AIP/CGI/NB Acquisition Corp. and $2,622 from
the exercise of all outstanding stock options.
On January 13, 1997, the Company, through a private placement, issued 3.4
million Subordinate Voting Shares at a price of $1.80 per share. The net
proceeds from the share issue were used to repay a portion of the Company's term
loan. The share issue costs of $959 were charged directly to retained earnings,
net of income taxes of $364. Also on this date, 860,000 Multiple Voting Shares
were converted into a like number of Subordinate Voting Shares.
<PAGE>
9. SHARE CAPITAL (cont'd)
The number of outstanding shares and their aggregate stated value were as
follows:
December 31, 1999 December 31, 1998
=================================================
Number Number
of shares Amount of shares Amount
Multiple Voting Shares 3,140,000 $24,727 3,140,000 $24,727
Subordinate Voting Shares 14,887,551 70,901 13,897,717 68,271
- --------------------------------------------------------------------------------
18,027,551 $95,628 17,037,717 $92,998
=================================================
Share purchase loan program
On February 26, 1997, the Company implemented a Share Purchase Loan Program.
Under the Program, the Company and certain of its subsidiaries offered full
recourse interest-bearing loans up to a limit of $1,600 to Directors and to
selected employees for the purchase of Subordinate Voting Shares of the Company.
On October 20, 1999, all of the shares included in the Share Purchase Loan
Program were tendered as part of the privatization transaction. As a result, all
of the director and employee loans amounting to $768 were repaid to the Company.
Stock option plan
The Company had a stock option plan which contemplated the granting of options
to key employees of the Company and its subsidiaries 1and to directors of the
Company to purchase an aggregate number of Subordinate Voting Shares of the
Company which does not exceed 1,400,000 shares.
On October 20, 1999, those options outstanding under the Stock Option Plan that
had an exercise price below $5.60 per share became vested and were exercised as
part of the privatization transaction. Those options with an exercise price
above $5.60 per share were forfeited.
<PAGE>
9. SHARE CAPITAL (cont'd)
A summary of the changes to the number of outstanding options during the years
ended December 31, 1997, 1998 and 1999 is provided below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number average Number average Number average
of options exercise price of options exercise price of options exercise price
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at begining of year 1,211,000 $3.26 1,238,500 $3.29 281,500 $5.93
Granted -- -- 39,000 4.00 990,000 2.62
Exercised (989,834) $2.66 (12,500) 2.60 -- --
Forfeited (221,166) $6.21 (54,000) 4.68 (33,000) 5.75
--------------------------------------------------------------------------------------
Outstanding at end of year -- 1,211,000 $3.26 1,238,500 $3.29
======================================================================================
</TABLE>
10. DEFERRED TRANSLATION ADJUSTMENT
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
- -----------------------------------------------------------------------------------------------
Restated
(Note 1-h)
<S> <C> <C>
Balance at beginning of year $(30,539) $(30,899)
Effect of changes in exchange rates during the year on net investment
in self-sustaining foreign operations (6,013) 8,848
Effect of changes in exchange rates during the year on long-term debt
denominated in a foreign currency and designated as a hedge 8,155 (8,488)
- -----------------------------------------------------------------------------------------------
Balance at end of year $(28,397) $(30,539)
==========================
</TABLE>
11. FOREIGN EXCHANGE (GAIN) LOSS
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Effect of changes in exchange rates on net monetary assets in Mexico $ (580) $ 2,090 $(436)
Effect of changes in exchange rates on net monetary assets denominated
in United States dollars held by integrated subsidiaries 158 759 (73)
Realized loss on forward foreign exchange contracts 312 585 --
- ----------------------------------------------------------------------------------------------------------
$ (110) $ 3,434 $(509)
==============================
</TABLE>
12. OTHER EXPENSE
Other expense in 1999 represents charges of $4,435 (1998 - $255) related to the
privatization transaction.
<PAGE>
13. INCOME TAXES
Year ended December 31
1999 1998 1997
- --------------------------------------------------------------------------------
Earnings (loss) before income tax expense
Canada $ 3,584 $ 3,584 $ 12,032
United States (11,928) (10,074) (5,339)
Latin America 3,452 5,016 7,762
-------------------------------------------------------------------------------
$ (4,892) $ 9,087 $ 14,455
=================================
Current income tax expense (benefit)
Canada $ 1,402 $ 3,257 $ 3,853
United States (236) 317 1,050
Latin America 1,474 1,140 338
---------------------------------
$ 2,640 $ 4,714 $ 5,241
=================================
Future income tax expense (benefit)
Canada $ (807) $ 749 $ 66
United States (2,638) (1,845) (1,950)
Latin America 1,046 13 268
-------------------------------------------------------------------------------
$ (2,399) $ (1,083) $ (1,616)
=================================
Income tax expense $ 241 $ 3,631 $ 3,625
=================================
The composite of the applicable statutory corporate income tax rates in Canada
is 39.8% (1998 - 39.8%; 1997 - 39.6%). The following is a reconciliation of
income taxes calculated at the above composite statutory rate with the provision
for income taxes:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes (recovery) at the composite statutory rate $(1,947) $ 3,617 $ 5,724
Increase (reduction) attributable to:
Canadian manufacturing and processing credits (231) (880) (683)
Amortization of non-deductible goodwill 1,234 747 695
Large corporations tax and other minimum taxes 1,549 1,051 310
Stock option deduction (790) -- --
Non-deductible capital expenditures 328 289 519
Mexico inflationary and indexation adjustment - net 39 340 (1,375)
Benefit of non-deductible non-tax effected Latin American losses -- (2,432) (1,447)
Foreign exchange 772 828 (765)
Non-taxable amounts (219) (312) --
Foreign tax rate differences (24) (157) 150
Other - net (470) 540 497
- ------------------------------------------------------------------------------------------------------
$ 241 $ 3,631 $ 3,625
================================
</TABLE>
The portion of the Mexican losses and/or minimum tax carry-forwards for which no
future income tax assets has been recognized amounts to $1,301 (1998 - $4,569;
1997 - $10,679). These losses expire in 2005.
<PAGE>
13. INCOME TAXES (cont'd)
Future income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Future tax assets (liabilities) at December 31, 1999 and 1998
consist of the following tax effected temporary differences:
Year ended December 31
1999 1998
- --------------------------------------------------------------------------------
Current portion of future income tax assets:
Inventories $ 357 $ 540
Deferred financing 126 292
Accounts receivable 355 378
Others 125 --
------------------------
$ 963 $ 1,210
========================
Future income tax assets:
Accrued liabilities $ 986 $ 855
Net losses carried forward 8,992 2,738
Alternative minimum taxes 2,146 924
Retirement plans 1,262 715
Share issue costs 147 220
Intangibles 415 235
Others -- --
------------------------
$ 13,948 $ 5,687
========================
Current portion of future income tax liabilities:
Inventories $ (9,117) $ (4,107)
Deferred financing (67) (105)
Investment tax credits (180) (223)
Others (180) (23)
------------------------
$ (9,544) $ (4,458)
========================
Future income tax liabilities:
Property, plant and equipment $(32,596) $(33,320)
Deferred financing (588) (733)
Intangibles (339) (442)
Others (2,194) (2,233)
------------------------
$(35,717) $(36,728)
========================
After netting current assets with current liabilities and non-current assets
with non-current liabilities within each taxable entity for same tax
jurisdictions, future taxes are represented by :
1999 1998
- --------------------------------------------------------------------------------
Current portion of future income tax assets $ 650 $ 792
Future income tax assets 2,193 639
Current portion of future income tax liabilities 9,231) (4,039)
Future income tax liabilities (23,962) (31,526)
- --------------------------------------------------------------------------------
$(30,350) $(34,134)
=========================
Investment tax credits relating to scientific research and experimental
development have been accounted for using the cost reduction method, whereby the
expenditure is reduced by the credits. Investment tax credits were approximately
$200 for the year ended December 31, 1999 (1998 - $500; 1997 - $635).
<PAGE>
14. COMMITMENTS AND CONTINGENCIES
(a) Operating leases --
Minimum annual commitments under operating leases, determined as at
December 31, 1999 are as follows:
2000 $4,668
2001 $4,525
2002 $3,730
2003 $3,170
2004 $1,885
Total thereafter $5,179
Total rental expense amounted to $3,990 for the year ended December 31,
1999 (1998 - $2,813; 1997 - $2,577).
(b) Fixed assets --
At December 31, 1999 commitments to purchase fixed assets totalled $2,862.
(c) Contingencies --
Certain legal actions have been brought against the Company. Management is
of the opinion that the outcome of such actions will not have material
adverse consequences to the Company.
(d) Uncertainty due to the Year 2000 Issue -
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
<PAGE>
15. RELATED PARTY TRANSACTIONS
Fees charged by Clairvest Group Inc., a shareholder, under an agreement to
provide advisory services amounted to $351 for the year ended December 31, 1999
(1998 - $250). Fees charged by American Industrial Partners, a company
affiliated with a shareholder, under an agreement to provide advisory services
amounted to $396 for the year ended December 31, 1999.
16. BUSINESS ACQUISITIONS
1999 Acquisitions
Acquisition of Royalton
On February 25, 1999, the Company, through Consoltex Mexico S.A. de C.V.,
acquired all the issued and outstanding shares of Royalton Mexicana, S.A. de
C.V. ("Royalton"). Royalton is a Mexican apparel manufacturer of outerwear and
fashion apparel for the Mexican and U.S. markets.
Acquisition of Marino Technologies, Inc.
On July 1, 1999, the Company, through Consoltex (USA) Inc., acquired all the
issued and outstanding shares of Marino Technologies, Inc. ("Marino"). Marino is
a company primarily engaged in the manufacturing and distribution of
polypropylene-based flexible intermediate bulk container bags in the United
States and Mexico.
Acquisition of the assets of Atlas Bag Inc.
On October 1, 1999, the Company, through Marino, acquired the assets of Atlas
Bag Inc. ("Atlas Bag"). Atlas Bag is engaged in the manufacturing and
distribution of polypropylene-based flexible intermediate bulk container bags in
the United States.
The acquisitions were accounted for under the purchase method and the following
is a summary of the net assets acquired at assigned values and consideration
paid.
Net assets acquired:
Current assets $22,479
Fixed assets 6,239
Other assets 997
Goodwill (to be amortized over a period of 15 years) 53,416
--------------------------------------------------------------------------
83,131
Less: Liabilities (10,271)
--------------------------------------------------------------------------
$72,860
==========
Consideration paid:
Cash $54,262
Accounts payable (balance of sale payable over four years) 18,598
--------------------------------------------------------------------------
$72,860
==========
Assuming an effective acquisition date of January 1, 1999 and 1998 for the 1999
acquisitions, the pro-forma consolidated results of operations would have been
the following:
Year ended Year ended
December 31, December 31,
1999 1998
--------------------------------
(unaudited) (unaudited)
Sales $ 567,358 $577,178
================================
Net loss $ (5,182) $ 5,457
================================
<PAGE>
17. FINANCIAL INSTRUMENTS
(a) Interest rate swap contracts
The Company is party to several interest rate swap contracts with original
durations ranging from three to four years to hedge against interest
exposures on floating rate indebtedness. The contracts have the effect of
converting the floating rate of interest on US$5,000 (1998 - US$15,000) of
senior bank indebtedness to a fixed rate. Under the interest rate swaps,
the Company has agreed with the other parties to exchange, every three
months, the difference between fixed rate and floating rate interest
amounts calculated by reference to an agreed notional principal amount.
The following table indicates the receive and pay rates on the swaps:
December 31
1999 1998
---------------------
Notional principal amount US$5,000 US$15,000
Receive - floating rate LIBOR LIBOR
Pay - fixed rate (weighted average) 6.66% 6.56%
(b) Forward foreign exchange contracts
The Company mitigates the risk associated with foreign exchange
fluctuations related to U.S. dollar transactions from its Canadian
operations by entering into forward exchange contracts. Through these
contracts, the Company is committed to sell U.S. dollars and to receive
Canadian dollars in future periods at specific rates. Derivative financial
instruments are not used for speculative purposes. The Company entered
into contracts as detailed below:
<TABLE>
<CAPTION>
Average rate Contract amount
--------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------
(Canadian dollars) (thousands of U.S. dollars)
<S> <C> <C> <C> <C>
Forward foreign exchange contracts - 0 to 12 months $1.3711 $1.4318 $ 7,000 $ 7,800
Forward foreign exchange contracts - 13 to 24 months $1.3711 $ 7,000
</TABLE>
(c) Credit risk exposures
In addition to the carrying amounts of its assets the Company's exposures
to credit risk include favourable interest rate swap contracts and forward
foreign exchange contracts.
Concentrations of credit risk on trade receivables due from customers are
indicated in the following table by the percentage of the total balance
receivable from customers in the specified categories:
December 31
1999 1998
----------------
Textile industry 42.6% 43.7%
Companies and state agencies in Latin America 24.8% 26.7%
<PAGE>
17. FINANCIAL INSTRUMENTS (cont'd)
(d) Interest rate risk exposures
The Company's exposures to interest rate risk are summarized in the
following table:
<TABLE>
<CAPTION>
Fixed interest rate maturing in
===============================
Floating More Non-
interest 1 year 1 to 5 than bearing
rate or less years 5 years interest Total
=============================================================
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
Financial assets
Cash $ 4,285 $ -- $ -- $ -- $ -- $ 4,285
Trade receivables -- -- -- -- 67,213 67,213
Other receivables -- -- -- -- 433 433
-------------------------------------------------------------
$ 4,285 $ -- $ -- $ -- $ 67,646 $ 71,931
=============================================================
Financial liabilities
Bank loans $ 56,123 $ -- $ -- $ -- $ -- $ 56,123
Accounts payable and accrued liabilities -- -- -- -- 52,888 52,888
Long-term debt 79,376 -- 173,184 -- -- 252,560
Other long-term liabilities 10,436 -- -- 4,388 8,943 23,767
Interest rate swaps relating to long-term debt: (7,216) 7,216 -- -- -- --
-------------------------------------------------------------
$138,719 $ 7,216 $173,184 $ 4,388 $ 61,831 $385,338
=============================================================
</TABLE>
(e) Fair values of financial instruments
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
=============================================
Carrying Carrying
amount Fair value amount Fair value
=============================================
<S> <C> <C> <C> <C>
Long-term debt $252,560 $ 250,828 $212,740 $ 216,413
Other long-term liabilities 23,767 23,767 4,687 4,687
Interest rate swap - unfavourable -- (16) -- (379)
Forward foreign exchange contracts - unfavourable -- (557) -- (2,017)
</TABLE>
The following summarizes the major methods and assumptions used in estimating
the fair values of financial instruments:
Short-term financial instruments are valued at their carrying amounts included
in the balance sheet, which are reasonable estimates of fair value due to the
relatively short period to maturity of the instruments. This approach applies to
cash, trade receivables, bank loans, accounts payable and accrued liabilities.
Rates currently available to the Company for long-term debt with similar terms
and remaining maturities are used to estimate the fair value of existing
borrowings at the present value of expected cash flows if the debt instrument is
not publicly exchanged. Closing market quotes are used to calculate the fair
value of publicly- traded debt. The same approach is used for other long-term
liabilities.
The fair value of interest rate swaps generally reflects the estimated amounts
that the Company would receive or pay to terminate the contracts at the
reporting date.
The fair value of the forward foreign exchange contracts generally reflects the
estimated amounts that the Company would receive or pay to settle the contracts
at the reporting date, taking into account the unrealized gain or loss on open
contracts.
18. SEGMENT DISCLOSURES
<PAGE>
The Corporation operates in the two reportable segments described below. Each
reportable segment offers different products and services and requires different
technology and marketing strategies. The following summary briefly describes the
operations included in each of the Company's reportable segments:
Textile Operations - Includes the manufacture and distribution of nylon, acetate
and polyester-based fabrics and end products for Home Furnishings, apparel,
industrial and recreational markets.
Polypropylene Operations - Includes the manufacture and distribution of
polypropylene-based fabrics and bags and end-products for industrial and
agricultural markets.
The accounting policies of the reportable segments are the same as those
described in the note on Accounting Policies. The Company evaluates performance
based on EBITDA, which represents sales, reflecting transfer prices at market
value, less allocable expenses before American Industrial Partners management
fee, foreign exchange gain (loss), depreciation and amortization, other income
(expense), net, financing costs and income taxes. Intersegment sales are
transacted at market value. Segment assets are those which are directly used in
segment operations.
Beginning in 1999, the Company restructured its operations, resulting in the
combination of two previously reported segments into a new segment named Textile
Operations. Prior years statements have been restated to reflect this change.
<TABLE>
<CAPTION>
Year ended December 31
By Segment 1999 1998 1997
- -----------------------------------------------------------------------------------
Restated Restated
Sales: (Note 1-h) (Note 1-h)
<S> <C> <C> <C>
Textile Operations -
From external customers $ 317,087 $ 314,652 $ 329,950
Polypropylene Operations -
From external customers 193,256 166,647 179,497
- -----------------------------------------------------------------------------------
Consolidated sales $ 510,343 $ 481,299 $ 509,447
======================================
EBITDA:
Textile Operations $ 37,258 $ 42,662 $ 38,255
Polypropylene Operations 25,678 26,170 30,075
- -----------------------------------------------------------------------------------
Total for reportable segments 62,936 68,832 68,330
Corporate (5,245) (5,073) (7,124)
- -----------------------------------------------------------------------------------
Consolidated EBITDA 57,691 63,759 61,206
American Industrial Partners management fee (396) -- --
Foreign exchange gain (loss) 110 (3,434) 509
Depreciation and amortization (25,182) (21,077) (19,256)
Other income (expense), net (4,435) (255) --
Financing costs (32,680) (29,906) (28,004)
Income taxes (241) (3,631) (3,625)
- -----------------------------------------------------------------------------------
Consolidated net earnings (loss) $ (5,133) $ 5,456 $ 10,830
======================================
</TABLE>
<PAGE>
18. SEGMENT DISCLOSURES (cont'd)
Year ended December 31
1999 1998 1997
- --------------------------------------------------------------------------------
Capital expenditures:
Textile Operations $ 6,409 $ 7,698 $ 5,534
Polypropylene Operations 9,420 13,441 14,689
- --------------------------------------------------------------------------------
Total for reportable segments 15,829 21,139 20,223
Corporate 19 64 8
- --------------------------------------------------------------------------------
Consolidated capital expenditures $15,848 $21,203 $20,231
==================================
December 31
1999 1998
- --------------------------------------------------------------------------------
Restated
(Note 1-h)
Segment assets:
Textile Operations $216,171 $203,789
Polypropylene Operations 278,081 215,515
- --------------------------------------------------------------------------------
Total for reportable segments 494,252 419,304
Corporate 5,251 3,780
- --------------------------------------------------------------------------------
Consolidated total assets $499,503 $423,084
==========================
Year ended December 31
By Geographic Area 1999 1998 1997
- --------------------------------------------------------------------------------
Sales: (a)
Canada $ 84,994 $ 82,060 $ 83,867
United States 341,093 351,940 372,797
Mexico 80,156 41,076 45,026
Others 4,100 6,223 7,757
-------------------------------------------------------------------------------
Consolidated sales $510,343 $481,299 $509,447
===========================================
December 31
1999 1998
- --------------------------------------------------------------------------------
Restated
(Note 1-h)
Capital assets and goodwill:
Canada $ 65,746 $ 68,142
United States 174,280 132,622
Mexico 39,410 34,335
Others 930 1,098
- --------------------------------------------------------------------------------
Consolidated capital assets and goodwill $280,366 $236,197
========================
(a) Sales are attributed to countries based on location of customer.
<PAGE>
19. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) in Canada which, in the case of the
Company, conform in all material respects with GAAP in the United States, except
as set forth below.
(a) Earnings and balance sheet adjustments
<TABLE>
<CAPTION>
Year ended December 31
Earnings adjustments 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Restated Restated
(Note 1-h) (Note 1-h)
<S> <C> <C> <C>
Net earnings (loss) in accordance with Canadian GAAP $(5,133) $ 5,456 $ 10,830
Unrealized loss on translation of long-term debt and obligations (A) 4,784 (3,251) (2,689)
Reduction of depreciation (C) 395 395 395
Difference in determination of goodwill amortization of Balson Hercules (B) 190 -- --
Adjustments with respect to the purchase of Balson-Hercules (D) 53 53 53
Unrealized gain (loss) on foreign forward exchange contracts (F) 1,460 (1,298) (719)
Tax effect related to the above adjustments (570) (1,112) 1,223
- ----------------------------------------------------------------------------------------------------------
Net earnings in accordance with United States GAAP $ 1,179 $ 243 $ 9,093
================================
</TABLE>
<PAGE>
19. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) (cont'd)
<TABLE>
<CAPTION>
December 31
Balance sheet adjustments 1999 1998
- ----------------------------------------------------------------------------------------------------------
Restated
(Note 1-h)
<S> <C> <C>
Fixed assets, net, under Canadian GAAP $ 162,403 $ 162,106
Reduction of accumulated depreciation (C) 395 395
Cumulative impact of prior years, including foreign exchange (3,435) (3,830)
- ----------------------------------------------------------------------------------------------------------
Fixed assets, net, under United States GAAP $ 159,363 $ 158,671
=======================
Goodwill, net, under Canadian GAAP $ 117,963 $ 74,091
Difference in the determination of goodwill amortization - Balson-Hercules (D) 53 53
Difference in the determination of goodwill amortization - Balson Hercules (B) 190 --
Cumulative impact of prior years, including foreign exchange (1,995) (2,048)
- ----------------------------------------------------------------------------------------------------------
Goodwill, net, under United States GAAP $ 116,211 $ 72,096
=======================
Other assets under Canadian GAAP $ 8,749 $ 15,558
Unrealized gain (loss) on translation of long-term debt and obligations (A) 4,784 (3,251)
Employee loan to purchase Company shares (E) 1,383 99
Cumulative impact of prior years, including foreign exchange (8,262) (5,110)
- ----------------------------------------------------------------------------------------------------------
Other assets under United States GAAP $ 6,654 $ 7,296
=======================
Other long-term liabilities under Canadian GAAP $ 23,767 $ 4,687
Unrealized gain (loss) on foreign forward exchange contracts (F) (1,460) 1,298
Cumulative impact of prior years, including foreign exchange 2,017 719
- ----------------------------------------------------------------------------------------------------------
Other long-term liabilities, including short-term portion, under United States GAAP $ 24,324 $ 6,704
=======================
Future income tax assets (liabilities) under Canadian GAAP $ (30,350) $ (34,134)
Tax effect related to the above adjustments (570) (1,112)
Cumulative impact of prior years, including foreign exchange 1,413 2,525
- ----------------------------------------------------------------------------------------------------------
Future income tax assets (liabilities) under United States GAAP $ (29,507) $ (32,721)
=======================
Represented by:
Future tax assets $ 2,843 $ 1,431
=======================
Future tax liabilities $ (32,350) $ (34,152)
=======================
</TABLE>
<PAGE>
19. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) (cont'd)
<TABLE>
<CAPTION>
December 31
1999 1998
- -------------------------------------------------------------------------------------------------
Restated
(Note 1-h)
<S> <C> <C>
Shareholders' equity under Canadian GAAP $ 76,987 $ 74,272
Unrealized gain (loss) translation of long-term debt and obligations (A) 4,784 (3,251)
Reduction of accumulated depreciation (C) 395 395
Difference in determination of goodwill amortization of Balson Hercules (B) 190 --
Employee loans to purchase Company shares (E) 1,383 99
Adjustments with respect to the purchase of Balson-Hercules (D) 53 53
Unrealized gain (loss) on foreign forward exchange contracts (F) 1,460 (1,298)
Tax effect related to the above adjustments (570) (1,112)
Cumulative effect of prior years, including foreign exchange (14,296) (9,182)
- -------------------------------------------------------------------------------------------------
Shareholders' equity under United States GAAP $ 70,386 $ 59,976
======================
</TABLE>
(A) Under Canadian GAAP, unrealized exchange gains and losses arising on the
translation of long-term monetary items are deferred and amortized over
the life of such items whereas, under United States GAAP, such gains or
losses would be included in earnings as they occur.
(B) In Canada, there are no specific standards which require discounting of
non-interest bearing payables and imputing interest. Under United States
GAAP, such payables are discounted to their present value using the
prevailing market rate at the time of the issue and imputed interest is
included in earnings.
(C) In Canada, upon the acquisition of a company, the excess of the fair value
of the net assets acquired over the purchase price is applied to reduce
the values assigned to current and non-current identifiable non-monetary
assets. Consequently, upon the acquisition of Consoltex Canada Inc., a
portion of the excess of the fair value of the net assets acquired over
the purchase price was applied to reduce the value assigned to inventory
by $3,000. Under United States GAAP, the excess of fair value over
purchase price can only be allocated against non-current assets.
(D) Under Canadian GAAP, certain guaranteed remuneration to be paid over four
years in relation to the acquisition of Balson-Hercules was recorded as
part of the acquisition price. Under United States GAAP, such amounts
would be charged to earnings as they are incurred.
(E) Under Canadian GAAP, loans issued by the Company to its employees and
Directors for the purchase of Company shares are included in other
receivables. Under U.S. GAAP, these loans are classified as a reduction of
capital.
(F) Gains and losses arising on forward exchange contracts identified as
hedges of uncommitted transactions are included in earnings only at
maturity. Under U.S. GAAP, unrealized gains and losses on such contracts
are included in earnings as recognized.
<PAGE>
19. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP) (cont'd)
(b) Borrowings
During the year ended December 31, 1999, the average amount of short-term
borrowings outstanding was $61,616 (1998 - $45,397; 1997 - $34,683) and
the weighted average interest rate on such borrowings was 7.29% (1998 -
7.28%; 1997 - 7.66%); The weighted average interest rate on total
borrowings of the Company was 9.84% during the year ended December 31,
1999 (1998 - 9.93%; 1997 - 10.08%).
(c) Foreign exchange gains (losses)
The aggregate foreign exchange gain (loss) included in net earnings for
the year ended December 31, 1999 was $(869) (1998 - $(4,635); 1997 -
$760).
(d) Consolidated comprehensive income
Year ended December 31
1999 1998 1997
============================
Net earnings (loss) in accordance with U.S. GAAP $1,179 $ 243 $9,093
Foreign currency translation adjustments 2,142 (123) (234)
----------------------------
Consolidated comprehensive income (loss) $3,321 $ 120 $8,859
============================
(e) Impact of accounting pronouncements not yet implemented
Accounting for Derivative Instruments and Hedging Activities
In 1998, FASB 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued. The Company must adopt this statement in fiscal
2001 for United States reporting purposes. This statement outlines
accounting and reporting standards for derivative instruments and hedging
activities. Under this standard, all derivatives will be recognized at
fair value and will be accounted for depending on the intended use of each
derivative and its designation as a hedge. The impact of implementing this
standard on the Company's consolidated balance sheets and consolidated
statements or earnings and comprehensive income is not yet determinable.
20. FINANCIAL STATEMENTS OF CONSOLTEX (USA) INC. AND THE GUARANTOR
SUBSIDIARIES
The Notes are guaranteed, on an unsecured senior subordinated basis, by
active subsidiaries of the Issuers. Separate financial statements for
Consoltex (USA) Inc. and the guarantor subsidiaries (the "Guarantors") are
not included herein because (i) the Issuers and the Guarantors are jointly
and severally liable with respect to the Notes, (ii) the aggregate net
assets, earnings and equity of Consoltex (USA) Inc. and the Guarantors are
substantially equivalent to the net assets, earnings and equity of the
Company on a consolidated basis, and (iii) such separate financial
statements are not deemed material to investors.
