CONSOLTEX INC.
(formerly Consoltex Group Inc.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
CONSOLTEX INC.
8555, ROUTE TRANSCANADIENNE
SAINT-LAURENT, QUEBEC, CANADA
H4S 1Z6
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
CONSOLTEX INC.
(formerly Groupe Consoltex Inc./Consoltex Group Inc.
(Exact name of registrant as specified in its charter)
New Brunswick, CANADA
(Jurisdiction of incorporation or organization)
8555, route Transcanadienne, Saint-Laurent, Quebec, Canada H4S 1Z6
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act:
NONE
(Title of Class)
Securities registered or to be registered pursuant to Section12(g) of the
Act:
NONE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
11% Series B Senior Subordinated Notes due 2003
(Title of Class)
Indicate the number of outstanding shares of each of the registrant's
classes of capital or common stock as of the close of the period covered
by the annual report:
Issued and Outstanding
TITLE OF CLASS AS OF THE DATE HEREOF
Multiple Voting Shares 3,140,000
Subordinate Voting Shares 14,887,551
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the proceeding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X NO
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 X Item 18
<PAGE>
TABLE OF CONTENTS
EXCHANGE RATE DATA................................................
PART I............................................................
ITEM 1. DESCRIPTION OF BUSINESS...................................
General...................................................
Development of the Business...............................
Business Strategy.........................................
Business Sectors..........................................
Polypropylene Operations.............................
Textile Operations...................................
Product Development.......................................
Marketing..............................................
Raw Materials.............................................
Equipment and Technology..................................
Capital Expenditures......................................
Employees.................................................
Regulatory Environment....................................
Environmental Regulation..................................
ITEM 2. DESCRIPTION OF PROPERTY...................................
ITEM 3. LEGAL PROCEEDINGS.........................................
ITEM 4. CONTROL OF REGISTRANT.....................................
ITEM 5. NATURE OF TRADING MARKET..................................
ITEM 6.EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS....................................................
ITEM 7. TAXATION..................................................
Canadian Taxation.........................................
United States Taxation....................................
Payment of Interest on the Series B Notes...............
Sale, Exchange or Retirement of the Series B Notes......
Market Discount.........................................
Amortizable Bond Premium................................
Backup Withholding......................................
ITEM 8. SELECTED CONSOLIDATED FINANCIAL INFORMATION...............
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................
Overview..................................................
Performance by Sector.....................................
Results of Operation - Comparison of years 1999 and 1998..
Sales.................................................
Textile Operations Sales..............................
Polypropylene Operations Sales........................
EBITDA.....................................................
Textile Operations Sales................................
Polypropylene Operations Sales..........................
Foreign Exchange Gain or Loss...............................
Financing Costs.............................................
Income Taxes................................................
Comparison of years 1998 and 1997...........................
Sales...................................................
Textile Operations Sales................................
Polypropylene Operations Sales..........................
EBITDA......................................................
Textile Operations Sales................................
Polypropylene Operations Sales..........................
Foreign Exchange Loss.....................................
Financing Costs...........................................
Income Taxes..............................................
Liquidity and Capital Resources...........................
Capital Expenditures......................................
Financing Activities......................................
Risks and Uncertainties...................................
North American Textile Industry...........................
Raw Material Costs........................................
Interest Rates and Exchange Rates.......................
Year 2000 Issue.........................................
Forward Looking Statements..............................
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.....................
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS...................
Stock Option Plan.........................................
Pension Benefits..........................................
Management Incentive Plans................................
Directors.................................................
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES.............................................
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS...........
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED...............
PART III..........................................................
ITEM 15. DEFAULTS UPON SENIOR SECURITIES..........................
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES....................................
PART IV...........................................................
ITEM 17. FINANCIAL STATEMENTS.....................................
ITEM 18. FINANCIAL STATEMENTS.....................................
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS........................
SIGNATURES........................................................
CONSOLIDATED FINANCIAL STATEMENTS.................................
AUDITORS' REPORT..................................................
3
<PAGE>
EXCHANGE RATE DATA
.....Consoltex Inc. publishes its consolidated financial statements in
Canadian dollars. All amounts are expressed, unless otherwise specified,
in Canadian dollars. Commencing with its consolidated financial statements
for the first quarter of 2000, Consoltex Inc. will start publishing its
Consolidated Financial Statements in United States dollars.
.....The Company's primary currencies include the Canadian dollar, the
United States dollar and the Mexican peso.
.....The Canadian dollar is convertible into U.S. dollars at freely floating
rates, and there are currently no restrictions on the flow of Canadian
currency between Canada and the United States. The following table sets forth
certain exchange rate information (expressed in terms of U.S. dollars per
Canadian dollar)for the five years ended December 31, 1999. Such rates are the
inverse of the Noon Buying Rate in New York City for cable transfers as certified
for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate"). On June 21, 2000, the inverse of the Noon Buying Rate was
US$0.6789=Cdn$1.00.
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
<S><C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
Exchange rate at
end of period 0.7323 0.7296 0.6997 0.6534 0.6929
Average exchange rate
during period(1) 0.7307 0.7334 0.7233 0.6720 0.6712
Highest exchange rate
during period 0.7462 0.7526 0.7487 0.7067 0.6929
Lowest exchange rate
during period 0.7096 0.7212 0.6945 0.6378 0.6522
</TABLE>
(1) Average of the exchange rate on the last day of each month during the
applicable period.
.....IN THIS REPORT ON FORM 20-F, UNLESS THE CONTEXT OTHERWISE REQUIRES,
THE "CORPORATION" REFERS TO CONSOLTEX INC. AND "CONSOLTEX" OR THE "COMPANY"
REFERS TO CONSOLTEX INC. TOGETHER WITH ITS SUBSIDIARIES AND DIVISIONS AND
THEIR RESPECTIVE PREDECESSORS.
6
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
GENERAL
.....Consoltex is a North American textile and packaging company. Its
activities are divided between the Polypropylene and Textile Operations
located in the United States, Canada, Mexico and Costa Rica. Consoltex is
vertically integrated, from the production of yarn, in its Polypropylene
Operations, through to weaving, dyeing, printing, finishing and coating and
production of end products such as large bulk bags and small bags. It also
conducts its own research and development and maintains its own sales and
marketing network. Consoltex has 20 manufacturing plants and employs
approximately 7,100 associates. Consoltex supplements production from its
20 manufacturing facilities with fabric converted in the United States as
well as raw materials and fabric imported from Asia and Europe.
.....The Polypropylene Operations includes LINQ Industrial Fabrics, Inc.
("LINQ") in South Carolina, Marino Technologies, Inc. ("Marino") in Florida,
New Jersey, Illinois and Texas, Rafytek, S.A. de C.V. ("Rafytek"), Marino
Technologies de Mexico, S.A. de C.V. ("Marino Mexico") and VeraPak, S.A.
de C.V. ("VeraPak")in Mexico and Rafytica, S.A. ("Rafytica") in Costa Rica.
The Polypropylene Operations a) extrudes polypropylene yarn and weaves,
finishes, and distributes polypropylene-based fabrics for flexible
intermediate bulk containers ("FIBC"), agrotextiles, woven and non-woven
geotextiles, primary carpet backing and cotton bale and fibre wrap and
b)manufactures end products such as FIBC bags for the chemical, agricultural
and food industries and small bags for sugar, fertilizer, flour, animal feed,
and other uses.
.....The Textile Operations includes Consoltex Inc. in Canada, The Balson-
Hercules Group, Ltd. ("Balson-Hercules")in the United States and Royalton
Mexicana, S.A. de C.V. ("Royalton") in Mexico. The Textile Operations
manufactures, converts and imports a diverse range of man-made broad woven
fabrics. In Canada it manufactures primarily polyester, polyester rayon,
voile and nylon based fabrics in its Fashion, Home Furnishings, Outerwear
and Industrial divisions. In the United States it operates as an importer
and converter for its Craft Home Sewing, Apparel Linings, Seatex, and John
King divisions of Balson-Hercules Group. Royalton Mexicana, S.A. de C.V.
("Royalton")in Mexico makes garments primarily for the United States and
Mexican markets.
.....The registered office of Consoltex Inc. is at 44 Chipman Hill, 10th
Floor, Saint John, New Brunswick, E2L 4S6 and its principal office is at
8555, route Transcanadienne, Saint-Laurent, Quebec, Canada, H4S 1Z6.
.....The following chart sets forth the name and jurisdiction of
incorporation of the material subsidiaries of the Corporation as of the date
hereof, all of which are wholly owned.
[CHART OMITTED]
<PAGE>
DEVELOPMENT OF THE BUSINESS
.....Consoltex Inc. (formerly Consoltex Group Inc.) was incorporated under
the Canada Business Corporations Act by Certificate of Incorporation dated
September 16, 1992. By Certificate of Amendment dated December 17,1992,
the existing authorized share capital of the Corporation consisting of an
unlimited number of common shares was modified to (i) create an unlimited
number of Multiple Voting Shares, without par value, an unlimited number of
Subordinate Voting Shares, without par value, an unlimited number of First
Preferred Shares, issuable in series, without par value and an unlimited
number of Second Preferred Shares, issuable in series, without par value,
(ii)convert the 4,000,000 common shares then outstanding into 4,000,000
Multiple Voting Shares on a one-for-one basis and (iii) remove the
authorized class of unissued common shares. Consoltex Inc. was continued
under the Business Corporations Act, New Brunswick on December 16, 1999
and changed its name from Consoltex Group Inc. to Consoltex Inc. on
January 3, 2000.
In March 1993, the Corporation completed a $55 million initial public
offering of Subordinate Voting Shares in Canada and in September 1993 the
Corporation and its subsidiary, Consoltex (USA) Inc. (collectively, the
"Issuers"), completed an offering in the United States of Series A 11%
Senior Subordinated Notes due in the year 2003 (the "Series A Subordinated
Notes") for proceeds of US$120 million which were used to acquire LINQ and
to pay off Consoltex's fixed rate and working capital indebtedness. The
Series A Subordinated Notes are guaranteed by the Corporation's principal
subsidiaries.
.....On May 20, 1994, the Issuers completed an Exchange Offer in respect of
the Series A Subordinated Notes, whereby the Issuers exchanged such notes
for Series B 11% Senior Subordinated Notes (the "Series B Subordinated
Notes") which are identical in all material respects to the Series A
Subordinated Notes, except that the Series B Subordinated Notes are
registered under the Securities Act of 1933 (U.S.).
.....On March 19, 1996, Consoltex refinanced all its senior bank debt with
a US$85 million bank facility including a US$50 million working capital
revolving line of credit and a US$35 million five year term loan (the
"Senior Bank Facility"). The proceeds of the new facility were used to
repay all indebtedness at March 19, 1996 except the Series B Subordinated
Notes. This refinancing had no effect on the Series B Subordinated Notes.
.....On January 13, 1997, the Corporation issued, through a private
placement, 3.4 million Subordinate Voting Shares to Clairvest Group Inc.
("Clairvest") for $6.1 million. The net proceeds from this share issue
were used to repay a portion of Consoltex's term bank debt. At the same
time, Les Gantiers Holding B.V., the controlling shareholder, converted
860,000 Multiple Voting Shares on a one-for-one basis into Subordinate
Voting Shares and sold these shares to Clairvest.
.....On October 20, 1999, (and subsequently by way of the compulsory
acquisition provisions of the CANADA BUSINESS CORPORATIONS ACT) AIP/CGI
NB Acquisition Corp. ("AIP") acquired 100% of the Subordinate Voting Shares
of Consoltex Inc. (the "AIP Acquisition") for $5.60 per share. As a result,
100% of the Consoltex Inc. Subordinate Voting Shares, previously listed on
the Montreal and Toronto stock exchanges, are now held by AIP. Consoltex Inc.
accordingly ceased to be a reporting issuer with Canadian securities
regulatory authorities. Consoltex Inc. is still controlled by Les Gantiers
Holding B.V. through its ownership of 100% of Consoltex Inc.'s Multiple
Voting Shares. For more information on share ownership, refer to "Item 4-
Control of Registrant" of this Form 20-F.
<PAGE>
.....On January 1, 2000, the former subsidiary of the Corporation,
Consoltex Inc. (as it was then known) was wound up into the Corporation in
that the Corporation acquired all of the assets and assumed all of the
liabilities of the former Consoltex Inc. The former Consoltex Inc. is to
be dissolved.
.....Consoltex's sales grew from $446.9 million for the year ended December
31, 1995 to $510.3 million for the year ended December 31, 1999. This
growth was principally the result of the acquisitions (the "Acquisitions")
of certain assets of N. Erlanger Blumgart & Co., Inc. ("Erlanger Blumgart")
on May 1, 1996, Royalton on February 26, 1999, Marino on July 1, 1999 and
the assets of Atlas Bag on October 1, 1999. The Marino and Royalton
acquisitions were by way of share purchase and the Atlas acquisition was the
acquisition of the operating assets of Atlas Bag, Inc. by Marino, to become
a division of Marino. The Company financed these acquisitions through
additional term loans totalling US$43 million from its Senior Bank facility.
.....Earnings from operations increased slightly from $31.5 million for the
year ended December 31, 1995 to $32.2 million in for the year-ended December
31, 1999. From 1998 to 1999, earnings from operations decreased from $39.2
million to $32.2 million. The Company reported a loss of $5.1 million in 1999
compared to a profit of $5.5 million in 1998.
.....The decrease in the Company's 1999 earnings is principally caused by
a) $4.4 million in shareholder value enhancing costs incurred as part of
the process which resulted in the Company going private in 1999, b) 2.5%
decrease in sales (excluding the effect of the Royalton, Marino and Atlas
acquisitions) resulting from increased import competition on certain apparel
product lines, c) the negative impact of intense price competition in the
Polypropylene Operations, and d) the increase in both depreciation expense
on capital expenditures, and amortization charges relating to additional
goodwill and deferred financing expenses.
BUSINESS STRATEGY
.....Consoltex believes there are significant opportunities to expand its
market share and develop new businesses in the North American textile
industry. Consoltex's business strategy is three-fold: to emphasize high
quality differentiated and specialty man-made fabrics; to increase
penetration of fabric and fabric packaging in the United States; and to
continue growth through globalization.
.....EMPHASIZING HIGH QUALITY DIFFERENTIATED AND SPECIALTY MAN-MADE FABRICS.
Consoltex focuses its manufacturing, marketing and research and development
on high quality differentiated and specialty man-made fabrics which typically
have higher profit margins than commodity products. As a result of its
state-of-the-art technology, flexible manufacturing processes and experience
in developing specialized products, Consoltex's product lines are well-
positioned to capitalize on future growth in new and existing markets for
man-made fabrics. These fabrics are less susceptible to import competition
due to the significant level of customer interaction required to develop
fabrics of this type. In addition, these fabrics tend to be ordered in small
quantities and are well suited to the Company's short run capabilities.
.....Technological advances have resulted in man-made fibers outperforming
competing fabric types. This has resulted in the opening of many new markets
in environmental, military, safety, medical, construction, packaging,
transportation, industrial and technically driven end-use markets.
<PAGE>
.....Through research and development and through licensing and other
agreements, Consoltex is manufacturing and supplying unique proprietary-
type fabrics for specialized industrial and domestic uses and seeks to
continue to expand in this area.
.....INCREASED PENETRATION OF FABRIC AND FABRIC PACKAGING IN THE UNITED
STATES. Consoltex is actively pursuing increased penetration of the
substantially larger U.S. market from its subsidiaries in both Canada and
Mexico. This strategy capitalizes on Consoltex's vertical integration,
strong converting network, growing Mexican manufacturing capacity and
improving international sourcing contacts which provides Consoltex with
cost and service advantages in the U.S. market.
<PAGE>
.....This business strategy has been enhanced by the Free Trade
Agreement ("FTA") and North American Free Trade Agreement ("NAFTA")
which came into effect in 1989 and 1994, respectively. The FTA provided
for a decreased level of import tariffs for Canadian exports to the
United States. Consequently, the FTA permitted Consoltex to compete
against U.S. manufacturers and converters on a more equitable basis while
providing a major advantage for Consoltex over exporters from most
other countries to the U.S. market. The FTA was expanded by NAFTA which
enlarged the trading zone to include Mexico. As a result of the FTA's
staged duty reductions, which continued under NAFTA, Consoltex's Canadian
exports to the United States were duty free effective January 1, 1998, for
NAFTA origin goods, while imports into the United States from most other
countries were assessed a 16.2% duty in 1999. Duty on Mexican polypropylene
fabric exports to the United States, which were subject to a 2.6% duty rate
in 1998 ceased to exist on January 1, 1999.
.....Consoltex also obtains some benefits from the comprehensive U.S. quota
system which establishes quotas on the import of various fabrics from many
low cost countries into the United States, thereby limiting access of many
other countries to certain of Consoltex's target markets. These benefits
will, however, diminish as a result of the January 1, 1995 Agreement
on Textiles and Clothing (the "Transition Agreement")concluded during
the Uruguay Round of the General Agreement on Tariffs and Trade ("GATT").
The agreement provides that, at the end of the ten-year transition period
created for the integration of textiles and clothing into GATT rules,
the United States (and any other GATT member countries presently having
quotas) shall no longer have such quotas in place. However, as
indicated under "Regulatory Environment - Transition Agreement"
of this Form 20-F, Consoltex believes that it will be able to withstand
any increase in competition caused by regulatory changes.
.....CONTINUED GROWTH THROUGH GLOBALIZATION. Consoltex no longer
operates purely in a North American marketplace, but rather a global
marketplace, and Consoltex is adjusting its strategy in acknowledgement
of this reality. This concept of a global marketplace presents some threats
to the Canadian and U.S. textile industry, but it also affords
opportunities for growth. The increase in globalization means that
textile companies are facing new competitors on a daily basis. Today,
most countries produce textiles and apparel for a world market that has
grown moderately in the last 20 years. The low cost of skilled and
semi-skilled labour in many countries is causing these countries to become
major forces in the global economy. These foreign textile companies have
the ability to produce low cost, quality commodity textiles and
garments, but do not necessarily understand or have easy access to
the U.S. market. Consoltex, on the other hand, has developed a
strong sales, marketing and distribution system throughout the NAFTA
marketplace.
<PAGE>
.....There are several ways for Consoltex to enhance its global presence.
These include licensing, franchising, direct imports or exports,
contractual arrangements, joint ventures, investments and sourcing and
selling fabrics in countries with low cost labour. Consoltex seeks such
global opportunities that would provide it with the ability to use its
strengths, being modern production facilities, technological expertise,
strong management and a strong sales, marketing and distribution
network in North America. The "globalization" of Consoltex is
taking place as Consoltex's activities include both expanding sales offshore
and searching offshore for purchase of raw materials, such as polypropylene
resin, fabrics, and FIBC bags and nylon, polyester and other synthetic
yarns and semi-finished greige fabrics. Activities also include
importing finished fabric to supplement Consoltex's production capacity as
a service to Consoltex's North American customers. Consoltex is also
sourcing and shipping fabric off shore to destinations where garments
and other end products are being assembled for shipment to the United
States.
<PAGE>
BUSINESS SECTORS
.....The following chart sets forth the structure of Consoltex:
[CHART OMITTED]
.....Consoltex has two operations, namely, the Polypropylene Operations and
the Textile Operations. Each of these two operations functions as an
independent business unit responsible for its own strategy, research and
development, production, marketing and sales. The following table sets
forth each operation, together with its major product lines, major
customers, end uses and sales for the years ended December 31, 1999 and
1998.
<PAGE>
<TABLE>
<CAPTION>
Sales for Sales for
year ended year ended
Dec. 31, Dec. 31,
1999 1998
---------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Major
Product Major End Amount Amount
Lines Customers Uses $million/ $million/
percentage percentage
<S> <C> <C> <C> <C>
Polypropylene
Operations
=============
Woven FIBC Containers $193.2/37.9% $166.6/34.6%
fabrics manufacturers, for dry
for construction flowable
FIBC suppliers, goods,
bags, carpet construction
geotextiles, manufacturers, supplies,
agrotextiles, nurseries, carpets,
cotton cotton landscaping,
bale growers, cotton bale
wrap, chemical, and fiber
primary and wrap, mesh
carpet agricultural bags for
backing, companies, fruits and
non- sugar vegetables,
woven and flour bulk bags
fabrics producers and small
for and bags for
geotextiles, fertilizer chemicals,
FIBC manufacturers bulk
bags, foodstuff,
small agricultural
bags, and fertilizer
valve products
bags
and
fiber
boxes
Textile
Operations
==========
Polyester Apparel Men's and 317.1/62.1% 314.7/65.4%
and manufacturers ladies
polyester and designers, slacks,
blend home suits,
fabricss, furnishings skirts,
high manufacturers, coordinates,
twist retailers suites
polyester, Fabric and dresses;
microfiber wholesalers, children's
nylon industrial sportswear;
and and sport curtains,
polyester, manufacturers draps,
jacquard, and bedspreads
wide width retailers, and
polyester home sewing, home
voile, crafts and accessories
nylon and quilt Winter
acetate industries outerwear,
fabrics skiwear,
and outer
blends, jackets,
acetate, rainwear,
cotton and men's
polyester, and
craft women's
home suit
sewing linings,
printed printed
fabrics fabrics,
non-
apparel
and
industrial
nylon and
polyester
specialized
fabrics,
fabrics for
sports,
military,
medical,
industrial
and
recreational
products
------------- -------------
TOTAL $510.3/100.0% $481.3 100.0%
============================
</TABLE>
.....POLYPROPYLENE OPERATIONS
.....The Polypropylene Operations is comprised of LINQ in South Carolina,
Marino in Florida, New Jersey, Illinois and Texas, Rafytek, Marino
Mexico and VeraPak in Mexico and Rafytica in Costa Rica.
.PRODUCT RANGE. The Polypropylene Operations designs, manufactures,
distributes and sells polypropylene-based woven and non-woven industrial
textiles for specialty and commodity applications. The Polypropylene
Operations specialty industrial textiles consist of FIBC fabrics and bulk
bags, agrotextiles and geotextiles. The Polypropylene Operations has a
leading market share in each of its three specialty textile segments. Its
commodity industrial textiles include primary carpet backing; cotton bale
and fibre wrap; small bags for sugar, fertilizer, flour, animal feed and mesh
bags for fruits and vegetables.
.....FIBC fabric is used in the production of large, flexible, woven
polypropylene bags. FIBC bags are used to transport virtually any dry
flowable product. FIBC bags offer significant cost savings and enhanced
performance compared to alternative products because of their size and
ease of use. FIBC bags significantly decrease material handling costs
for users as (i) one FIBC bag holds approximately the same amount of
material as 4.5 steel or fiber drums; (ii) FIBC bags eliminate the need
for pallets, strapping or stretchwrap; and (iii) a single large FIBC bag
can be used instead of numerous smaller bags. FIBC bags provide
superior moisture and dust infiltration reduction compared to alternative
products. FIBC bags can be recycled, reused and easily reshipped once the
contents of the bag have been emptied.
.....Geotextile products are woven and non-woven fabrics used in the
construction industry to a) stabilize and prolong surface life of roads and
sidewalks, b) enhance drainage protection to maintain flow of
drains, and septic systems, c) contain and control soil during
excavations, d) provide strength for soil reinforcement, e) assist in
exposure control, and f) help contain environment waste in landfills.
.....Agrotextile products are woven fabrics used for ground cover,
winterization, and landscaping. Agrotextiles are primarily used to prevent
weed growth and allow water penetration. Needle-punched landscape fabrics
are designed to prevent the penetration of sunlight while allowing the
absorption of water into the underlying soil.
.....Primary carpet backing is a woven fabric used in the production of
household and industrial tufted carpeting. The carpet fiber is tufted into
a layer of this primary carpet backing.
.....Cotton bale wrap is a woven ultraviolet-stabilized fabric used to wrap
cotton bales and synthetic fibers. Since the early 1980s, woven
polypropylene bale wrap has replaced jute as the primary means for wrapping
cotton. Polypropylene provides superior protection from moisture, dirt and
other contaminants, thereby improving the quality of the cotton to the end
user.
.....The Polypropylene Operations' Mexican operations produce woven
polypropylene bags (also referred to as small bags) for the sugar,
fertilizer, flour, chemical and agricultural industries. Products include
25 to 50 kilogram sacks for packaging sugar, fertilizer and flour and open
mesh sacks used for agricultural produce. Other product lines ("Specialty
Products") include postal service bags, open mesh sacks, fiber boxes (cube
shaped bags for packing fiber), valve bags, FIBC bags and FIBC fabric.
<PAGE>
.....CUSTOMER BASE. The Polypropylene Operations' fabric customers are
comprised of both fabricators and distributors who resell the Polypropylene
Operations' products to end-users such as producers and manufacturers of
agricultural and industrial products. The Polypropylene Operations sells
FIBC fabric to more than 15 bag manufacturers in the United States and Mexico
who cut and sew the fabric into FIBC bags. The Polypropylene Operations
also makes and sells its own FIBC bags for sale to chemical,agricultural
and industrial companies. The Polypropylene Operations provides geotextiles
to construction supply companies and contractors through an extensive and
well-developed distributor network. Agrotextile fabric is sold to
distributors in rolls. The fabric is then cut into smaller quantities for
sale to nurseries, do-it-yourself retailers and landscaping stores. Customers
for commodity products are large carpet manufacturers, suppliers to cotton
gins as well as, agricultural, sugar, fertilizer, flour and chemical producers.
The Polypropylene Operations has over 1,000 customers located in the United
States, Mexico, Central and South America. The Polypropylene Operations's
largest customer accounted for 4% of the total sales in the Operations
during 1999 while the top five customers accounted for approximately 15% of
the Operations's total sales.
.....COMPETITION. In the U.S. market, as a manufacturer of polypropylene-
based woven and non-woven industrial textile products, LINQ is one of the
top three or four manufacturers in terms of sales in four of its five
product lines. In its FIBC fabric, cotton bale wrap and primary carpet
backing lines, LINQ competes primarily with Amoco Fabrics and Fibers Co.
("Amoco"). In FIBC fabrics, LINQ has the leading market share. In cotton
bale wrap, LINQ is one of only two major suppliers of polypropylene fabric
in this market. In geotextiles, LINQ is one of the four significant
producers. In agrotextiles, LINQ is within the top three of five
significant producers but is a market leader in woven landscaping fabric.
In primary carpet backing, LINQ's market share is now approximately 1% in a
market dominated by three significant producers. In FIBC bags, the
combined operations of Marino and Rafytek give the Polypropylene Operations
the leading market share in the fabrics market. Certain of the Polypropylene
Operations' U.S. competitors, including Amoco and Synthetic Industries, are
significantly larger and have substantially greater resources. The pricing
policies of the Polypropylene Operations' competitors have at certain times
in the past limited the Polypropylene Operations' ability to increase its
prices or have caused it to lower the prices of certain of its products.
.....In the Mexican market for small bags, Rafytek has over a dozen local
competitors. Rafytek is the largest manufacturer and supplier of small
bags in Mexico.
.....In the area of Specialty Products in Mexico, Rafytek has four other
major competitors but it is usually able to differentiate itself from its
competition through its technical, service and marketing capabilities.
.....TEXTILE OPERATIONS
.....The Textile Operations is comprised of Consoltex Inc. in
Canada including its Fashion, Home Furnishings, Outerwear and Industrial
Divisions, Balson-Hercules in the United States including its John King,
Seatex, Apparel Linings and Craft Home Sewing Divisions and Royalton in
Mexico.
.....PRODUCT RANGE. The Textile Operations specializes in the design and
manufacture of a diverse range of high quality, specialty fabrics made with
nylon and nylon blends, polyester and blends of polyester and rayon. A
variety of products are developed by using specialized yarns to produce
unusual two and three color yarn dye effects and utilizing looms equipped
with dobby attachments to create intricate patterns. With the recent
addition of narrow and wide-width jacquard looms, the Textile Operations
can produce intricate jacquard designed fabrics.
.....The Textile Operations also converts and imports a wide range of basic
nylon and specialized fabrics for cold and wet-weather apparel, athletic
wear, sports and recreation uses, medical uses, military uses and
various industrial applications. It also operates as a converter of
apparel lining fabrics such as acetate and Bemberg rayon for men's and
women's wear, and sells printed acetate, polyester and cotton fabrics to
the home sewing market. A converter is a purchaser of unfinished goods
from a weaving mill who subcontracts the dyeing, printing and finishing
required for such goods to a commission dyer and printer. The Textile
Operations also operates as an importer of finished and unfinished fabrics
into the United States from Asia and as a distributor of fabrics within
Asia and Europe to low cost labour countries where fabrics are cut and sewn
into garments and exported to the United States. Royalton manufactures
brand name outerwear garments in Mexico for sale in Mexico and private label
garments for distribution to the Textile Operations' existing customer
base in the United States.
.....For the home furnishings market, the Textile Operations pioneered the
production of wide-width voile in North America using polyester high twist
yarns and produces various weights and constructions of polyester, sheer
and poly-rayon blends with a variety of finishing techniques such as
"burnout" and "crushing". Wide-width voile is a curtaining fabric used for
large windows. It enables the fabric to be used sideways, avoiding seams
in curtains.
.....CUSTOMER BASE. Textile Operations' customer base consists primarily
of U.S. and Canadian skiwear, rainwear, golf bag, recreational and fashion
apparel manufacturers, with major end-uses being outerwear, skiwear,
industrial, military uniforms, women's, men's and children's-wear
manufacturers of sportswear, coordinates, pants, suits and dresses. The
Textile Operations also sells to the home furnishings market where it
supplies U.S. and Canadian wholesale distributors and manufacturers who
supply or make draperies, tablecloths, curtains, bedspreads and home
accessories. The Apparel lining business sells its products principally to
the major men's clothing manufacturers in the United States as well as
large retailers for the cut and sew market. The Textile Operations serves
a wide customer base with over 1,500 customers in Canada and over 4,000
customers in the United States. The Textile Operations' largest customer
accounted for 3.1% of the Textile Operations' total 1999 sales while the
top five customers accounted for approximately 13.4% of the Textile
Operations' total sales.
.....COMPETITION. The Textile Operations' competition in nylon and
technical fabrics and polyester-based apparel-fabric markets is fragmented.
U.S. converters, large U.S. mills and imported fabric manufactures are the
Company's primary competitors. Imported garments also compete indirectly
with certain of the divisions as they displace consumption of the products
of Consoltex's North American customers thereby reducing demand for
Consoltex's fabrics. The competition in high quality wide-width voile
fabrics is mainly from European producers while competition for other home
furnishings fabrics and accessories are from a wide range of Canadian,
Mexican and U.S. manufacturers.
PRODUCT DEVELOPMENT
.....Textile manufacturers generally engage in product development rather
than basic research. The Textile Operations' product development is carried
out on a divisional basis with specialists who focus their efforts on
process and product development to meet the specific needs of customers.
Product development involves ongoing plant trials, product testing, sample
preparations, reviews and fine-tuning with customers, suppliers and end-
users.
.....Textile Operations' emphasis on new product development extends
throughout its manufacturing operations where special equipment is
dedicated to making sample runs and product trials are given priority
status on weaving and finishing equipment.
.....In the Fashion and Home Furnishings divisions, in approximately 90% of
cases, the Company develops fabric patterns and finishes with the customer
selecting colours. The plants have their own product development center
for the development and testing of new fabrics, dyes and finishes. Product
development works closely with the merchandising department which is
responsible for researching fashion trends and developing new product lines
each season based on expectations of consumer preferences. Pattern and
finish combinations are analyzed by the product development group which
determines whether the plants have the capability to manufacture the fabric
and at what cost. These determinations, combined with an estimate of the
size of the market and expected selling price, enable management to decide
if the product is worth producing. In the Outerwear and Industrial
divisions, new products include improved waterproof breathable fabrics,
wicking fabrics, mechanical and LYCRA{<reg-trade-mark>} stretch fabrics,
fire retardant apparel fabrics, medical fabrics and anti-static fabrics.
For example, the Company has developed a static-proof camouflage netting
for the military to protect radar installations.
.....New fabrics sold by Consoltex's U.S. converting business are developed
by Consoltex's in-house stylists and through collaboration with third-party
weaving mills and finishing plants. Having the ability to choose among
third-party mills or finishing plants to develop a new fabric for its
customer provides Consoltex with a unique competitive advantage. Consoltex
also works actively with third-party Asian companies to develop new fabrics
for the U.S. sports, outdoor and recreational markets.
.....The Polypropylene Operations continues to develop new products based
on market needs. LINQ's recent innovations include reinforced circular and
anti-static fabrics for the FIBC market, needle-punch non-woven geotextile
fabrics, agrotextile fabrics with lower light transmissivity (resulting in
reduced weed germination) and fabric for recreational vehicles. LINQ's
current product development projects include new FIBC products, non-woven
fabrics and lightweight cotton bale wrap fabrics. LINQ strives to be a
technical leader in product development and has successfully developed
products such as CROHMIQ{<reg-trade-mark>}-Blue.
.....Electrostatic hazards range from simple nuisance shocks to major fires
and catastrophic explosions. With CROHMIQ{<reg-trade-mark>}-Blue, the
practical application of FIBC bags in hazardous
environments is now possible. CROHMIQ{<reg-trade-mark>}-Blue is a second-
generation product that evolved from the success of Baxon Blue fabric
(originally introduced by Exxon Chemical Company).
CROHMIQ{<reg-trade-mark>}-Blue contains a new anti-static fiber jointly
developed by LINQ and E.I. Dupont de Nemours and Company.
.....LINQ has a small full-time in-house staff dedicated to product
development. This staff is supplemented by third-party specialists
contracted in areas where LINQ wishes to develop new products.
.....Marino and Atlas product development focus is on manufacturing better
FIBC bags and developing new applications for such bags. New
applications for our Marino and Atlas FIBC bags include bags
for transportation of liquids, trees, pipe sacks, and slings for
unloading freight from freighters.
.....Rafytek focuses its product development on finding new uses for
existing products, determining customers' needs for new products and
developing new products to replace traditional packaging methods and
materials. Specifically, Rafytek has added printed designs on packaging
and liners that increase the efficiency and aesthetics of products to
accommodate their customers' needs and has developed new packaging for
transportation of potatoes.
.....Consoltex's research and development expenditures totaled $3.7 million
in 1999, $3.5 million in 1998 and $2.5 million in 1997.
MARKETING
.....The Textile Operations markets its products in Canada through its own
salesforce, operating from branch offices in Montreal, Toronto, Winnipeg
and Vancouver. U.S. sales are handled by a combination of Consoltex sales
representatives and independent selling agents located in New York,
California, Georgia and Utah. Latin American sales are handled through
independent selling agents located in Mexico, Brazil and Chile. European
sales are handled through agents in the United Kingdom. Consoltex's sales
associates sell only Consoltex products and are trained in technical areas
specific to their products. Independent agents offer Consoltex's products
alongside those of other non-competing companies and provide the Company with
representation over a wide geographic area.
.....The Polypropylene Operations has a dedicated sales force for each of
its product lines. The end users for each product operate in distinct
industries and require a high level of customer service. The Polypropylene
Operations also markets its products through a direct sales force and through
a network of independent third party representatives in the United States
and Mexico. Marino markets and sells its FIBC bags through Smurfit Stone
Container Corporation. Rafytek markets its product through a direct sales
force with sales offices located in Mexico City and several key local
markets throughout Mexico. Export sales from Mexico are handled by the
sales office in Mexico City and in conjunction with LINQ in South Carolina.
RAW MATERIALS
.....Yarn is the main raw material sourced by the Textile Operations and is
important in the production of cost-competitive and quality products. To
achieve the variety and quality required for its specialized product lines,
the Textile Operations source yarns from major producers in North America,
Asia and Europe. The major yarn types used by the Textile Operations are
nylon, polyester, acetate and a variety of fancy rayon, cotton and acrylic
blended yarns.
.....The Textile Operations has shifted a major part of its yarn sourcing
from Asia and Europe to North American suppliers to satisfy the NAFTA rules
of origin criteria which require the use of North American yarns for Canadian
produced fabric exports to qualify for tariff and quota free access to the
U.S. market. This has resulted in U.S. yarn sourcing increasing from 29% of
Consoltex Inc.'s total yarn purchases in 1990 to 53% in 1999. Canadian
sources represented 22% of Consoltex Inc.'s yarn supplies in 1999 while
European and Asian producers accounted for the remaining 25%.
.....Other raw materials used by the Textile Operations include greige
fabrics, dyes and chemicals. Consoltex Inc. purchases significant
quantities of chemicals and dyestuffs for its manufacturing processes and
is supplied by major producers.
.....Polypropylene resin, an inert plastic derived from petroleum, is the
basic raw material used in the manufacture of polypropylene products and is
supplied by petrochemical companies. Polypropylene resin is obtained in
pellet form and it is extruded into various types of yarns that are used to
manufacture woven fabrics. Polypropylene resin purchases account for
approximately 30% of the Polypropylene Operations' cost of sales for 1999.
The price of polypropylene resin fluctuates based on North American and
international supply and demand for this product. There was a substantial
increase in polypropylene resin prices which started in 1994 and peaked in
August 1995 and subsequently settled at a relatively lower price in early
1996. The price then rose again from early 1996 peaking in August 1996 and
has come down gradually from that date to July 1999. Since then it has risen
significantly, due in part to the rapidly increasing price of oil. Based
on the significant announced polypropylene resin capacity expansions over the
next few years and the expectation of gradually decreasing oil prices,
management does not currently expect prices of resin to rise significantly
over the next year.
EQUIPMENT AND TECHNOLOGY
.....The Textile Operations' strategic focus is on being a short-run
manufacturer of high margin, specialty fabrics. The majority of fabrics
sold are manufactured when the order is received. Textile Operations has
invested in modern equipment and has an experienced, flexible workforce
which permits it to manufacture a variety of fabrics through the innovative
use of many different yarns and the development of new weave patterns while
minimizing product change-over down-time. The Company has acquired
technologically advanced and versatile high-speed air jet weaving equipment
controlled by computerized dobby systems with quick change capabilities and
state-of-the-art high-speed jacquard looms. Further fabric variety and
special effects are achieved through advanced cross-dyeing techniques,
specialized finishing and coating applications, customized prints
and, crushing and burn-out techniques. Significant investments have
also been made in technologically advanced batch dyeing machines with
microprocessor controls. These investments have substantially increased
the number of product lines Consoltex is able to offer and have permitted
the introduction of many new fashion, home furnishings and
technically difficult industrial fabric blends, while maintaining
manufacturing efficiencies, quality and cost-competitiveness and improving
customer response time.
.....The Textile Operations' primary manufacturing facilities are located in
Canada. Consoltex's manufacturing processes include air texturizing, twisting,
beaming, weaving, dyeing, finishing and coating plants, and two cut and sew
garment manufacturing plants in Mexico which were part of the Royalton
acquisition in February 1999. Its manufacturing processes are specialized
to meet the production needs of each division, however, flexibility and
versatility are the prime requirements in equipment purchases. This enables
the Textile Operations to provide quick turnaround for short runs, repeat
orders and specialized niche products. It has also enabled the Company to
use equipment from one division to service another division's customers
depending on margins, available capacity and timing.
.....The Textile Operations' weaving facilities include a variety of
machinery types. The Company's looms include air jet, water jet, rapier
and jacquard. The majority of its weaving output comes from modern, high-
speed, shuttleless looms. The Textile Operations produces both regular and
wide-width fabrics ranging from 60 to 90 inches for apparel fabric markets
and 120 inches and 135 inches for certain wide-width applications such as
curtaining fabrics. Many of its looms are equipped with electronic
attachments which allow a wide range of specialized patterns to be woven
into the fabric. In addition, each weaving facility has computerized loom
monitoring systems which provide real time information and facilitate
production planning.
.....The Textile Operations' dyeing technologies include jet, beam, jig and
pad dyeing processes, and specialized wide-width dyeing and finishing
equipment. The dyeing operations are computer-controlled and have
computerized shade matching systems which permit colour consistency within
very stringent standards. Lot sizes range from 500 metres to 10,000
metres, providing important flexibility and enhancing Consoltex's servicing
capabilities. Dyeing and finishing operations are also specialized
according to divisional product/market characteristics but are centered on
batch processing technologies.
.....The Textile Operations' finishing operations employ a range of
specialized equipment to achieve specific fabric effects and appearances
such as brushed, sueded, sanded, crinkled and burnout looks. This
specialized equipment also enables it to perform advanced coating
operations which achieve very sophisticated performance capabilities in its
products, including fire-retardant, waterproof, shock resistant, radar
impenetrable or breathable characteristics.
.....The Polypropylene Operations' manufacturing capabilities include
extrusion, beaming, weaving, needle-punching and finishing and, in its
converting operations, also include cutting, stitching and printing of
small bags, valve bags and FIBC bags. All U.S. fabric
manufacturing is performed by LINQ and is done in Summerville, South
Carolina within a single facility. Two Mexican facilities in Rafytek also
produce fabric. The remaining 10 facilities manufacture small
bags, valve bags, mail bags and FIBC bags.
.....The Polypropylene Operations is vertically integrated and its
operations are extremely flexible, as there is a high degree of
interchangeability among its equipment. Equipment used to manufacture a
particular product line can be readily shifted into the manufacture of most
of its other product lines. LINQ's finishing operations include rewinding,
slitting, extrusion, coating, tentering (heat setting), and needle-
punching. LINQ's various finishing operations enable it to convert goods
into customer-specific products. Each of the Polypropylene Operations'
extruders is capable of manufacturing yarns for most of its product lines,
allowing for flexible production and efficient yarn inventory balancing.
LINQ's flat looms are capable of achieving full-width production ranging up
to 210 inches. It also has a number of large circular looms which produce
tubular fabric for the manufacture of FIBC bags. It is transferring these
large circular looms to Rafytek in 2000 as these looms are generally more
labour intensive to operate and can generate better returns by using
Polypropylene Operations' Mexican labour force. In 1998, LINQ also added a
new needle-punch non-woven manufacturing line for use in the geotextile
market.
.....The Polypropylene Operations' manufacturing in Mexico is performed by
Rafytek, VeraPak and Marino Mexico and in Costa Rica by Rafytica. Rafytek's
manufacturing operations, which include VeraPak, are vertically integrated
from the production of yarn through extrusion, beaming, weaving, rewinding,
slitting, extrusion coating and cutting, sewing and printing of fabrics into
small bags and FIBC bags. Rafytek's weaving facilities include 130 to 159
inch width flat looms and a few large and many small circular weaving looms.
Marino has one Mexican plant and four U.S. plants specializing in cutting,
sewing, printing and refurbishing of FIBC bags. Rafytica is a small
operation which sources its fabrics from Rafytek then performs the cutting,
sewing and printing of small and FIBC bags for sale in Costa Rica.
CAPITAL EXPENDITURES
.....Most textile mills are on a continuum of machinery replacement and it
is typical for textile mills to replace their equipment as its cost-
effectiveness diminishes. As such, Consoltex's capital expenditure
policies have resulted in a gradual replacement of equipment and are
focused on improving market-responsiveness and increasing cost-
competitiveness. Consoltex's recent investments in its Textile Operations
were principally oriented towards technologically advanced equipment for
both its weaving and finishing operations and specialized equipment for new
products. These investments in advanced manufacturing equipment and
processes have supported Consoltex's market-driven business strategy.
Recent expenditures in the Polypropylene Operations were directed towards
adding capacity as well as introducing new production capabilities such as
the manufacturing of needle-punched non-woven geotextiles.
.....In the three years ended December 31, 1999, Consoltex has invested
$57.3 million in the purchase of fixed assets.
.....In 1999, Textile Operations invested $6.4 million in the purchase of
fixed assets for its Canadian plants to expand curtaining fabrics production
capacity and upgrade the inspection process. Overall, these investments
enhance the Textile Operations' capacity to service the North American
textile market. In 1999, the Polypropylene Operations invested $9.4 million
to expand manufacturing capabilities for non-woven geotextiles, increase
extrusion capacity and upgrade its management information and production
system technology.
.....Consoltex's future investment plan is to continue to build on its
market-responsive capabilities, while lowering unit production costs.
Consoltex believes that capital expenditures over the next few years will
generate improvements in gross margins, enable it to enter new markets and
enhance its production capacity.
EMPLOYEES
....As of December 31, 1999, Consoltex employed 6,647 associates; 982 in
Canada, 1,151 in the United States 4,474 in Mexico and 40 in Costa Rica.
In Canada, 702 associates were represented by five collective
bargaining agreements, one expired in 1999 covering 45 associates, two expire
in 2000 covering 161 associates, one expires in 2002 covering 128 associates
and one expires in 2003 covering 368 associates. In the United States, 180
Florida associates are covered by a collective bargaining agreement which
expires on July 31, 2000 and one New York associate is covered by a
collective bargaining agreement. In Mexico, 4,361 associates are represented
by seven collective bargaining agreements which all expire in January 2002
with annual salary revisions conducted each January.
Consoltex has developed good relations with its associates, unions and
union representatives. Consoltex is not aware of any difficulties in
renewing any of the collective bargaining agreements it is a party to.
REGULATORY ENVIRONMENT
.....The North American textile and apparel industries have relied on the
General Agreement on Tariffs and Trade ("GATT"), to set the framework for
trading tariffs between countries. Prior to 1995, the Multi-Fiber
Arrangement ("MFA"), within the framework of the GATT, resulted in a large
number of bilateral agreements between developed countries, such as Canada,
the United States and less developed countries, which set quantitative
limits (quotas) on imports from less developed countries. In 1989, the FTA
was implemented between Canada and the United States, resulting in the
gradual phasing out of tariffs over a ten-year period on textiles traded
between the two countries. In 1992, the Canadian government implemented
the recommendation of the Canadian International Trade Tribunal ("CITT"), a
governmental administration trade tribunal which reduced tariffs on textile
fibers, yarns and fabrics. On January 1, 1994, NAFTA was implemented,
enlarging the trading zone under the FTA to include Mexico. In 1995, the
Transition Agreement concluded under the Uruguay Round agreements, replaced
the MFA. The Transition Agreement results in the reduction of tariffs and
the elimination of quotas on textiles among participating governments over
a ten-year period. Currently, Canada has significantly fewer quotas on the
importation of fabrics from less developed countries than Europe and the
United States, while the United States has strict quotas covering most
fabrics imported into the United States from many different countries.
.....FTA. Under the FTA, tariffs on most textiles and apparel products are
being phased out in 10 equal annual stages, the first of which began in
January 1989. Consequently, as of January 1, 1998, tariffs no longer exist
on textiles and apparel products produced within and traded between Canada
and the United States. The FTA has been an important and favourable
development for Canadian woven textile manufacturers such as Consoltex.
From its coming into force in 1989 to the end of 1999, annual export
shipments of Canadian woven textile fabrics to the United States have
increased by 379% from $175 million to $838 million. The Canadian apparel
industry, which is a major customer group for the Canadian textile fabric
industry, has shown a positive trade balance with the United States in
apparel garments made from woven textile fabrics since the FTA was
implemented. Exports to the United States of Canadian apparel made
from woven fabrics have risen from $92 million in 1989 to $1.1 billion in
1999, representing an almost eleven-fold increase.
.....CITT. In December 1992, the Canadian federal government announced its
decision to implement the 1990 CITT recommendations to reduce tariffs on
textile fibers, yarns and fabrics to maximum rates of 5%, 10% and 16%,
respectively. Current Canadian rates on these products are, on average,
8%, 13% and 25%, respectively. For imported man-made fabrics, other than
from the United States and Mexico, the reductions have been phased in at a
rate of 1.5% per year, beginning January 1, 1993 and in 1999 were 14.5%.
.....NAFTA. Under NAFTA, the trading zone under the FTA had been enlarged
to include Mexico. The provisions of FTA/NAFTA that are of primary
importance to the North American textile industry are tariff and quota
elimination, rules of origin for fabrics and apparel and exemptions to
these rules. The tariff elimination schedule, as set out in the FTA,
remained unchanged under NAFTA. Under NAFTA, tariff elimination commenced
January 1, 1994. Between Canada and Mexico, tariff elimination for textiles
is taking place over eight years and for apparel, over ten years. Between
the United States and Mexico, tariff elimination is taking place over six
years. The tariff rates are as follows:
<TABLE>
<CAPTION>
<S> <C>
<C>
TARIFF ELIMINATION SCHEDULE
---------------------------
<S>
</TABLE>
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C> <C>
Man-Made Textiles Canada to Mexico and vice versa NIL NIL
Man-Made Apparel Canada to Mexico 8.0% 6.0%
Man-Made Apparel Mexico to Canada 7.5% 5.0%
Man-Made Textile
or Apparel U.S. to Mexico and vice versa NIL NIL
Man-Made Textile
or Apparel Canada to U.S. and vice versa NIL NIL
</TABLE>
.....Specific rules of origin apply to textiles and apparel products
imported into North America from countries other than in North America.
These rules set forth the requirements to qualify for the preferential
North American tariff rates. For most products, the rule of origin is
"yarn-forward" which means that textile and apparel goods must be made from
yarn made in a NAFTA country in order to benefit from the preferential
treatment. NAFTA generally provides for stricter rules of origin than the
rules of origin outside of the applicability of NAFTA as NAFTA requires
greater sourcing of textiles in North America. However, exemptions to
these rules of origin have been agreed upon under NAFTA whereby a quantity
of fabric, a quantity of yarn and a quantity of apparel (such limits are
referred to as "Tariff Preference Levels" or "TPLs") can be made from non-
North American inputs and still qualify for the preferential tariff rates.
The impact of the stricter rules of origin under NAFTA will be offset in
part by increased TPLs. As a result of the implementation of NAFTA,
Canadian textile and clothing industries using offshore inputs under the
system of TPLs have longer-term improved access to the United States
market. Most TPLs increase by 2% per year for five years starting in 1994.
.....The implementation of NAFTA has resulted in increased trade among the
United States, Canada and Mexico. The elimination of tariffs among the
United States, Canada and Mexico, with respect to textiles and apparels,
will provide Consoltex with additional opportunities to export a variety of
its products into Mexico, particularly those from its specialty product
lines, as well as increase the export sales of Consoltex's Mexican
operations. As part of a NAFTA expansion, Canada has signed a Free Trade
Agreement with Chile ("CCFTA") which came into effect July 1997. The
agreement phases out Canadian and Chilean duties, for most man-made
textiles, on a five-year basis to become duty-free by 2001. Nevertheless,
the Canadian/Chilean duties are to follow the Canadian/Mexican duty rate,
in the case of any acceleration of tariff elimination between Canada
and Mexico. In such case, Canadian/Chilean duties will also be eliminated
regardless of what was scheduled. CCFTA should increase Canadian trade with
Chile.
.....TRANSITION AGREEMENT. In December 1993, the Uruguay Round of
Multilateral Trade Negotiations resulted in a series of agreements to
reduce tariffs and eliminate quotas. The World Trade Organization and a
common framework for international trade among 117 participating countries
was established. The final agreement embodying the new rules was
implemented on January 1, 1995. A key objective of the Uruguay Round was to
return the textile and apparel sectors to the GATT under improved rules,
and the participating governments agreed to do so over a ten-year period.
Thus, on January 1, 1995, the MFA regime was replaced by the Transition
Agreement which is effective for a period of ten years; during that time,
textile and clothing industry trade is integrated into the regular GATT
rules which provide for the elimination of quotas and prohibit bilateral
quantitative restrictions. Despite the gradual elimination of quotas
and reduction of tariffs (currently at 16.2% outside NAFTA in the U.S. and
16% outside NAFTA in Canada for man-made fabrics in 1999) under the
Transition Agreement, Consoltex believes that its status as a supplier of
specialty products requiring fast turnaround times will shield it from
competition resulting from greater imports into the Canadian and U.S.
markets from developing countries. The Company expects that its knowledge
of its customers' specialized needs should allow it to further increase its
customer base and withstand any increase in competition caused by regulatory
changes. Moreover, Consoltex will continue to enjoy duty-reduced or
duty-free access to the North American market, and Consoltex's physical
proximity to this market should allow it better response and delivery
times compared to its competitors abroad.
...Bilateral Agreement. A bilateral free trade agreement was signed between
Canada and Israel. The agreement came into effect on January 7, 1997, and
provided for immediate duty-free access to the Israeli market.
....U.S. TRADE LEGISLATION ON "CBI/SUB-SAHARAN AFRICA." Effective October
1, 2000, the U.S. Trade and Development Act of 2000, will provide duty-free
and quota-free entry into the United States for apparel assembled or made
in the Caribbean Basin or sub-Saharan Africa from U.S. fabrics made from U.S.
yarns (the "CBI/SS"). The Canada/U.S. FTA and NAFTA-enhanced opportunities
for Canadian textile producers exporting to the United States are diminished
by the CBI/SS. The provisions of the new program require the use of U.S.
fabrics and yarns in order for the apparel to benefit from duty-free and
quota-free entry. Canadian fabrics are not eligible under the program.
The CBI/SS is expected to decrease purchases of Canadian manufactured fabrics
by U.S. apparel manufacturers in favour of U.S. manufactured fabrics;
negatively affecting the Textile Operations' sales of Canadian-produced fabric
to the United States and positively affecting the Textile Operations'
fabric converting operations in the United States.
ENVIRONMENTAL REGULATION
.....Consoltex has a corporate environmental policy which recognizes
the importance of the relationship between Consoltex's business and the
environment. Consoltex has an environmental committee, reporting to the
Corporation's Board of Directors, whose responsibility it is to monitor
and review all of Consoltex's Canadian and U.S. plants for compliance
with existing and anticipated legislative requirements. Environmental
compliance by the plants in Mexico and Costa Rica is monitored by
local management of Rafytek, Marino, VeraPak and Rafytica, respectively,
and is reviewed by the Chairman of the Environmental Committee who, in turn,
reports to the Corporation's Board. To assist the Environmental Committee
and the Chairman of the Environmental Committee in carrying out their
responsibilities, a quarterly report is prepared for each plant on various
aspects of its operations as they relate to the environment.
......Based upon its current knowledge, Consoltex does not anticipate
that future environmental costs related to its existing operations will
have a material adverse effect on Consoltex's capital expenditures,
earnings or financial or competitive position.
ITEM 2 - .DESCRIPTION OF PROPERTY
.....The following list sets forth the addresses of the principal
properties OWNED by Consoltex.
<TABLE>
<CAPTION>
Address Types of Type of Approx.
Products Installation> Floor
Space
(sq.ft)
<S><C> <C> <C> <C>
400 Willard Fashion and home Dyeing, finishing 295,000
Cowansville furnishings and printing
Quebec fabrics
110 4th Avenue Outerwear, home Air-texturizing, 285,000
Montmagny furnishings and yarn and preparation
Quebec industrial fabrics and weaving
201 des Textiles Fashion and home Yarn preparation and 210,000
Cowansville furnishings fabrics weaving
Quebec
200 St. Georges Outerwear, home Dyeing, coating and 185,000
Alexandria furnishings and finishing
Ontario industrial fabrics
4015 Brodeur Home furnishings Yarn preparation, 60,000
Sherbrooke fabrics twisting, and
Quebec weaving
2550 West Fifth Polypropylene-based Extrusion, beaming, 690,000
North Street woven and non-woven weaving, coating,
Summerville industrial fabrics finishing and
South Carolina general and
sales office
Parque Industrial Polypropylene-based Extrusion, beaming, 431,600
Atlacomulco woven industrial weaving, finishing,
Mexico fabrics and small sewing and printing
bags
Fraccionamiento Polypropylene-based Extrusion, beaming, 131,900
Parque woven industrial weaving, coating,
Industrial fabrics and IBC finishing, sewing and
Santiago bags printing
Tianguistengo
Mexico
Avenida Homero None General and sales 2,333
1425-901 office
Colonia Polanco
Mexico
11560, D.F.
Mexico
APDO 714-1007 Polypropylene-cut Finishing, sewing 55,028
Centro Colon and sew small bags and printing
San Jose
Costa Rica
<PAGE>
The following list sets forth the principal properties LEASED by
Consoltex.
</TABLE>
<TABLE>
<CAPTION>
Address Types of Product Approx. Expiry
Floor Space Year
(sq.ft)
<S><C> <C> <C> <C>
</TABLE>
8555, route Head Office 37,500 2010
Transcanadienne
Saint-Laurent
Quebec
5585 Royal Mount Warehouse and sales 28,000 2003
Town of Mount-Royal office
Quebec
1040 Avenue of the General and sales 50,400 2003
Americas office
New York, New York
499 7th Avenue Sales office 4,500 2003
New York, New York
5432 E. Slauson Warehouse 24,863 2005
Commerce
California
5434 E. Slauson General, purchase 19,142 2005
Commerce and sales office
California
304 South Leighton Warehouse 10,000 2003
Anniston, Alabama
2490 West Fifth Polypropylene-fabric 50,400 2003
North Street warehouse
Summerville
South Carolina
217 Industrial Blvd. Polypropylene-fabric 34,600 2000
Summerville warehouse
South Carolina
13260 N.W. 45th Polypropylene-cut & sew 75,000 2001
Avenue FIBC bags
Opa-Locka,
Florida
4111 N.W. 47th Polypropylene-refurbishing 22,470 2001
Avenue FIBC bags
Opa-Locka,
Florida
13245 N.W. 47th Polypropylene-refurbishing 20,000 2001
Avenue FIBC bags
Opa-Locka,
Florida
13230 N.W. 45th Polypropylene-refurbishing 10,000 2001
Avenue and warehouse FIBC bags
Opa-Locka,
Florida
320 Highland Drive Polypropylene-cut and sew 50,700 2002
Westampton FIBC bags
New Jersey
1701 South Wintrop Polypropylene-cut and sew 92,000 2014
Des Plaines FIBC bags
Illinois
1730 Stebbins Polypropylene-cut and sew 40,000 2002
Houston, Texas FIBC bags
Av. 11 calle 39 Polypropylene-cut and sew 79,700 2004
Col. Pino Svarez small and FIBC bags
Cordoba, Veracruz
Av. 7 calle 11 Polypropylene-cut and sew 60,000 2001
Col. Centro small and FIBC bags
Cordoba, Veracruz
Av. 5, Col. Centro Polypropylene-cut and sew 25,000 2000
Cordoba, Veracruz small and FIBC bags
Parque Industrial Manufacture of garments 49,500 2009
Textil No. 20 and sales office
Naucalpan, State
of Mexico
Parque Industrial Manufacture of garments 8,600 2009
Proton No. 17
Naucalpan, State
of Mexico
Parque Industrial Polypropylene-cut and 114,000 2003
Pueblo Viajes sew FIBC bags
Carr San Luis
Zac 12.5
San Luis de Potosi
<PAGE>
.....Consoltex's plant facilities have all been configured and
equipped to be suitable for the manufacture of the products for each of
their respective operations. All of Consoltex's plants are being actively
utilized. In 1998 and 1999, the Textile Operations' investments were used
to expand curtaining fabrics production capacity. In order to address
capacity and extrusion constraints, investments were made to expand
manufacturing capabilities for non-woven geotextiles and increase extrusion
capacity. All of Consoltex's plants have sufficient capacity to service
existing demand.
ITEM 3 - LEGAL PROCEEDINGS
......From time to time, the Corporation and its subsidiaries are
involved in routine legal and administrative proceedings incidental to the
conduct of its business. Management does not believe that any of these
proceedings will have a material adverse effect on the financial condition
or results of operations of the Corporation.
ITEM 4 - CONTROL OF REGISTRANT
.....The outstanding capital stock of the Corporation is made up as to
approximately 82.6% of Subordinate Voting Shares and as to approximately
17.4% of Multiple Voting Shares. The Multiple Voting Shares and the
Subordinate Voting Shares are identical in all respects except that the
Subordinate Voting Shares have one vote per share and the Multiple Voting
Shares have five votes per share and are convertible at any time into
Subordinate Voting Shares on a share-for-share basis. At December 31, 1999
and to date, Les Gantiers Holding B.V. ("LGBV"), a Netherlands corporation
ultimately controlled by a trust for the benefit of certain children of
Richard H. Willett ("Trust"), owned approximately 17.4% of the
Corporation's outstanding capital stock and approximately 51.3% of the
voting power of the Corporation. The Corporation is not directly or
indirectly owned or controlled by a foreign government. LGBV, Les Gantiers
Limited, LGL and Trust have granted to AIP an irrevocable option ending on
October 1, 2003, to purchase all, but not less than all 3,140,000 Multiple
Voting Shares held by LGBV.
ITEM 5 - NATURE OF TRADING MARKET
.....The Corporation's Series B Notes are traded in the over-the-counter
market in the United States.
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
....Canada has no system of exchange controls. There are no foreign
exchange restrictions on the payments of interest or other payments to
holders of the Notes who are non-residents of Canada.
ITEM 7 - TAXATION
CANADIAN TAXATION
......Under the Income Tax Act (Canada) (the "Act"), the Regulations
adopted thereunder and the administrative practice of Revenue Canada, as
they exist as of the date hereof, the payments of interest on the Series B
Notes by the Issuers to a holder who is a non-resident of Canada and with
whom the Issuers are dealing at arm's length at the time of making the
payments will be exempt from Canadian withholding tax. No other taxes on
income (including taxable capital gains) will generally be payable by
holders who are neither residents nor deemed to be residents of Canada and
who do not use or hold and are not deemed or considered by such laws to use
or hold the Series B Notes in carrying on business in Canada in respect of
the holding or disposition of any Series B Note or in respect of interest
thereon. In certain circumstances, holders of the Series B Notes who are
non-resident insurers carrying on an insurance business in Canada and
elsewhere may, in particular, be subject to such taxes.
.......This summary, which deals only with Series A Notes and Series B
Notes that are or were held as capital property, is not exhaustive of all
possible income tax considerations.
UNITED STATES TAXATION
.........The following summary describes the material U.S. federal income
tax consequences to holders of the Series B Notes who hold the Series B
Notes as an investment and not for sale to customers in the ordinary course
of a trade or business. This discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), regulations,
rulings and judicial decisions now in effect, all of which are subject to
change. The following does not discuss all aspects of U.S. federal income
taxation that may be relevant to a particular investor in light of his
particular investment circumstances or to certain types of investors
subject to special treatment under the U.S. federal income tax laws (for
example, corporations, life insurance companies, tax-exempt organizations,
broker-dealers and others who do not hold their Series B Notes as
"capital assets" within the meaning of Section 1221 of the Code, taxpayers
subject to the alternative minimum tax and non-U.S. taxpayers) and does
not discuss any aspects of state, local or foreign tax laws or any estate or
gift tax considerations. Investors should consult their own tax advisors
regarding the United States federal, state, local, and foreign income
and other tax considerations of owning the Series B Notes.
<PAGE>
........PAYMENT OF INTEREST ON THE SERIES B NOTES.
A holder of a Series B Note is required to report as income for federal
income tax purposes interest earned on the Series B Note in accordance
with the holder's method of tax accounting. A holder of a Series B Note
using the accrual method of accounting for tax purposes is required to
include interest in ordinary income as such interest accrues, while a cash
basis holder must include interest in income when payments are received
(or made available for receipt) by him. Interest is considered to be 54.17%
from U.S. sources which is the extent of the portion of the Series B
Notes allocated to Consoltex (USA) Inc. under the Intercompany Agreement
and 45.83% from foreign sources which is the extent of the portion
of the Series B Notes allocated to the Corporation under such agreement.
..........SALE, EXCHANGE OR RETIREMENT OF THE SERIES B NOTES
A holder of a Series B Note generally would have a tax basis in
the Series B Note equal to the price paid for the Series B Note or the
Series A Note exchanged therefor. A holder of a Series B Note generally
will recognize gain or loss on the sale, exchange, redemption or retirement
of the Series B Note equal to the difference (if any) between the amount
realized from such sale, exchange, redemption or retirement and the
holder's basis in the Note. Such gain or loss will generally be long-term
capital gain or loss if the Note has been held for more than one year
(including any holding period with respect to a Series A Note exchanged
therefor) and otherwise will be short-term capital gain or loss (but see
discussion of market discount below). Non-corporate taxpayers should
consult their own tax advisors as it relates to the calculation of their
gains or losses.
..........MARKET DISCOUNT
A purchaser of either a Series A Note subsequent to its initial
issue or a Series B Note, in either case, at a price that is less than the
stated redemption price of the Series B Note at maturity will generally be
subject to the market discount provisions of sections 1276 through 1278 of
the Code. Market discount is generally equal to the excess of the stated
redemption price of the Series B Note at maturity over the holder's tax
basis in such Note. Market discount will be considered to be zero if such
market discount is less than 0.25% of the stated redemption price at
maturity of the Series B Note times the number of complete years to
maturity (that remain after the holder's acquisition of the Series B
Note).
.....If a holder realizes a gain upon disposition of a Series B Note,
the lesser of (i) the excess of the amount received on such disposition
over the holder's tax basis in the Series B Note or (ii) the portion of the
market discount that accrued while the Note was held by such holder
(including any holding period with respect to a Series A Note exchanged
therefor) and that was not previously included in income generally will be
treated as ordinary interest income at the time of disposition. If a
holder disposes of a Series B Note in any transaction other than a sale,
exchange or involuntary conversion (e.g., as a gift), that holder generally
will be treated as having realized an amount equal to the fair market value
of the Series B Note and will be required to recognize as ordinary income
any gain on disposition to the extent of the accrued market discount. As a
result, a holder could be required to recognize ordinary interest income,
even though the disposition would not otherwise be taxable. Market discount
will be considered to accrue ratably during the period from the date of
acquisition to the maturity date of the Note, unless the holder elects to
accrue on the basis of semiannual compounding.
.....A holder will generally be required to defer the deduction of all
or a portion of the interest paid or accrued on any indebtedness incurred
or maintained to purchase or carry such Note until the maturity of the
Series B Note or its earlier disposition in a taxable transaction.
.....A holder may elect to include market discount in income currently
as it accrues (on either a ratable or a semiannual compounding basis), in
which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Series B Note and regarding the
deferral of interest deductions will not apply.
.....AMORTIZABLE BOND PREMIUM
If a holder's tax basis in a Series B Note immediately after
such holder acquires it exceeds the amount payable at maturity, such holder
should consult a tax advisor to determine the availability of an election
to deduct the excess as amortizable bond premium pursuant to section 171 of
the Code.
BACKUP WITHHOLDING
A holder of a Series B Note may be subject to backup withholding
at the rate of 31% with respect to certain payments of principal, premium,
if any, and interest, on the Series B Notes, and to proceeds of the sale or
redemption of the Series B Notes, unless such holder (a) is a corporation
or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules. A holder of a Series B Note who does not provide the Corporation
with his correct taxpayer identification number may be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be
creditable against the holder's income tax liability.
<PAGE>
ITEM 8 - SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following Selected Consolidated Financial Data for the five
years ended December 31, 1999, have been derived from the audited
Consolidated Financial Statements of the Corporation, for such periods.
<TABLE>
<CAPTION>
<PAGE>
Consoltex Inc. (1)
------------------------------------------------------
<S> <C>
(in thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
1995 1996 1997 1998 1999
(2) (3) (3) (4)
------------------------------------------------
<S><C> <C> <C> <C> <C> <C>
EARNINGS
STATEMENT
DATA: (Restated)(Restated)(Restated)(Restated)
Sales $446,882 $494,352 $509,447 $481,299 $510,343
Cost of sales 352,330 $392,630 398,100 368,244 396,819
Selling and
administrative
expenses 44,130 46,231 50,141 49,296 56,229
Foreign exchange
(gain) loss 68 40 (509) 3,434 (110)
Depreciation and
amortization 18,895 20,127 19,256 21,077 25,182
------ ------ ------ ------ ------
Earnings from
operations 31,459 35,324 42,459 39,248 32,223
Other income
(expnese)-net 10,733 (910) -- (255) (4,435)
Financing costs 29,488 32,713 28,004 29,906 32,680
------ ------ ------ ------ ------
Earnings (loss)
before income taxes 12,704 1,701 14,455 9,087 (4,892)
Provision for
income taxes 3,967 2,357 3,625 3,631 241
----- ----- ----- ----- -----
Net earnings (loss) $8,737 $(656) $10,830 $5,456 $(5,133)
======= ======= ======= ======= ========
BALANCE SHEET DATA
(AT END OF PERIOD)
Working capital $37,980 $59,831 $63,576 $60,117 $(1,557)
Total assets 386,304 389,477 397,284 423,084 499,503
Long-term debt 186,401 204,048 198,646 202,026 173,184
Shareholders'
equity 52,939 52,037 68,422 74,272 76,987
</TABLE>
(1) No cash dividends on the Corporation's outstanding shares
were paid during the financial periods shown in this table.
(2) Includes the eight-month results of the Erlanger Blumgart
assets acquired by Balson-Hercules on May 1, 1996.
(3) In 1999, the Company retroactively adopted new recommendations for
the accounting for income taxes which requires the use of the asset
and liability method.
(4) Includes the results of the following acquisitions -
Royalton on February 26, 1999, Marino on July 1, 1999 and Atlas
on October 1, 1999.
<PAGE>
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
March June Sept. Dec. Year
31, 30, 30, 31, ended
1999 1999 1999 1999 Dec.
31,
1999
------------------------------------------------
<S><C> <C> <C> <C> <C> <C>
Sales $114,944 $126,604 $126,232 $142,563 $510,343
Earnings from
operations $8,909 $9,349 $7,964 $6,001 $32,223
Earnings (loss)
before income
taxes $1,652 $1,927 $(3,011) $(5,460) $(4,892)
Net earnings (loss)
for the period $1,134 $268 $(2,793) $(3,742) $(5,133)
</TABLE>
<PAGE>
DIVIDENDS
.....The Corporation currently intends to retain earnings to finance the
growth and development of its business and does not intend to pay dividends
on its Multiple Voting Shares and Subordinate Voting Shares (collectively,
the "Equity Shares") in the foreseeable future. Any future determination
as to the payment of dividends will be at the discretion of the Board of
Directors of the Corporation. In addition, the indenture pursuant to which
the Corporation issued the Series B Subordinated Notes and the
Corporation's senior credit facility both contain restrictions limiting the
payment of dividends on the Equity Shares.
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
.......The Company reported a loss of $5.1 million in 1999 compared to
net earnings of $5.5 million in 1998. The decrease in profitability is
principally due to a) $4.4 million of shareholder value enhancing costs
incurred as part of the process which resulted going private b) 2.5%
decrease in sales, excluding the effect of the Royalton, Marino and Atlas
acquisitions, resulting from increased import competition on certain
product lines, c) the negative impact of intense price competition in the
Polypropylene Operations, and d) the increase in both depreciation expense
and amortization charges relating to additional goodwill and deferred
financing expenses.
.....The Company successfully completed three acquisitions in 1999 -
Royalton on February 26, 1999, a Mexican apparel manufacturer of outerwear
and fashion apparel, and Marino and Atlas, effective July 1, 1999 and
October 1, 1999, respectively, FIBC bag manufacturers and distributors.
These acquisitions are all strategic for the Company's current and future
operations. Royalton is a strategic acquisition, in that it provides the
Company's U.S. fabric customers an alternative to enabling them to source
the garments in North America using the Company's fabrics, rather than
sourcing their garments in Asia where it is much more difficult to have
the Company's fabrics included as part of the garment construction. The
acquisition of Marino and Atlas are strategic as they give the Company
a secure market for its fabric sales, as well as catapults the Company
to be as the North American industry leader in this market.
<PAGE>
.....The Company continued to suffer in certain of its commodity segment
markets in 1999 as a result of severe import competition from both
imported fabrics and garments. This resulted in a decrease in sales and
operating profits in the Company's Canadian vertical textile facilities.
Consoltex is responding to this import challenge by focusing on fabrics
which are more import restrained, due to their technical nature and customer
service requirements, and by competition against imports through Consoltex's
U.S. converting and importing network.
.....In 1999, the Company retroactively adopted new recommendations by
the Canadian Institute of Chartered Accounts ("CICA") 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
statements 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 none" to be realized.
.....In 1999, the Company retroactively adopted the CICA's new
recommendations concerning statements of cash flows.
PERFORMANCE BY SECTOR
.....The Company conducts its business in two principal operating
businesses i) the Polypropylene Operations, which manufactures
polypropylene-based fabrics and bags for industrial and agricultural
purposes and ii) the Textile Operations, which manufactures,
distributes and imports polyester, polyester rayon, voile,
nylon and acetate-based fabrics for a wide variety of apparel, industrial,
home furnishings and recreational uses.
<PAGE>
The following table sets forth certain information summarizing segment
results for fiscal years 1999, 1998, and 1997.
<TABLE>
<CAPTION>
<S> <C>
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
(1) (1)
---------------------------------
<S> <C> <C> <C>
Sales :
Textile Operations $317,087 $314,652 $329,950
Polypropylene Operations 193,256 166,647 179,497
-------------------------------
Total : 510,343 481,299 509,447
-------------------------------
EBITDA(2):
Textile Operations 37,258 42,662 38,255
Polypropylene Operations 25,678 26,170 30,075
Corporate (5,245) (5,073) (7,124)
-------------------------------
Total : 57,691 63,759 61,206
-------------------------------
As a percentage of sales 11.3% 13.2% 12.0%
American Industrial Partners -
Management Fee (396) - -
Foreign exchange gain (loss) 110 (3,434) 509
Depreciation and amortization (25,182) (21,077) (19,256)
Other expense (4,435) (255) -
Financing costs (32,680) (29,906) (28,004)
Income tax expense (241) (3,631) (3,625)
--------------------------------
Net earnings (loss) $ (5,133) $ 5,456 $ 10,830
================================
</TABLE>
1 In 1999, the Company retroactively adopted new recommendations for the
accounting for income taxes which requires the use of the asset and
liability method. As a result of these new recommendations, prior
years' financial statements have been restated.
2 EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and foreign exchange (excluding non-recurring items and
the American Industrial Partners Management Fee).
RESULTS OF OPERATIONS
COMPARISON OF YEARS 1999 AND 1998
---------------------------------
SALES
.....Sales for the year 1999 totaled $510.3 million, an increase of
6.0% compared to the $481.3 million reported in 1998. Excluding the
additional sales from the Royalton, Marino and Atlas acquisitions in
1999, sales were 2.5% lower than in 1998.
<PAGE>
TEXTILE OPERATIONS SALES
.....Textile Operations sales increased by 0.8%, from $314.7 million in
1998, to $317.1 million in 1999. This increase is primarily a result of
the continued strong growth in demand for high margined curtaining fabrics,
the growth in the Seatex and John King nylon converting and importing
divisions and the growth in the Industrial division. This growth was
partially offset by weaker sales in the Fashion and Apparel Linings
divisions, which are being adversely affected by strong import competition
from Asian countries selling garments into North America. The increase in
imported fabrics and garments from overseas countries have significantly
reduced North American manufacturing activity for the apparel markets.
POLYPROPYLENE OPERATIONS SALES
.....Polypropylene Operations sales increased by 16.0%, from $166.6 million
in 1998 to $193.3 million in 1999. This increase is mainly attributable to
the Company's decision to buy two of its largest customers. Excluding the
effect on sales of the Marino and Atlas acquisitions, third party sales
decreased by 4.8%. Sales which were recorded as third party sales in 1998
to Marino and Atlas are now recorded as intercompany sales and are
eliminated on consolidation. This accounted for most of the 4.8% net
decrease in third party sales in 1999.
EBITDA
.....EBITDA totaled $57.7 million in 1999 compared to $63.8 million in
1998. Gross profits margins decreased from 23.5% in 1998 to 22.2% in 1999
due to lower volume in the Fashion division and the one time effect in 1998
of proceeds from an insurance claim relating to an ice-storm in January 1998
and its effect on the Textile Operations Canadian facilities.
.....Selling and administrative expenses, as a percentage of sales,
increased to 11.0% in 1999 from 10.3% in 1998 due to the impact of lower
sales volumes and certain fixed administrative expenses. Administrative
expenses include restructuring costs amounting to $2.0 million and severance
costs in our Textile Operations in Canada and the closure of a Textile
Operations' accounting office in Rhode Island.
TEXTILE OPERATIONS
.....EBITDA in the Textile Operations decreased from $42.7 million in
1998 to $37.3 million in 1999. The principal cause for the decrease was
the 30% reduction in Fashion division sales and the resulting effect on
lost margins and under-recovery of overhead and the $2 million of
restructuring costs incurred. The Balson-Hercules converting/importing
EBITDA increased in 1999 as it lowered its sourcing costs as it was
importing a greater quantity of fabrics from Asia at lower prices
resulting in improved margins.
<PAGE>
POLYPROPYLENE OPERATIONS
.....EBITDA in the Polypropylene Operations decreased from $26.2 million in
1998 to $25.7 million in 1999. This decrease, notwithstanding the partial
year benefits of the Marino and Atlas acquisitions, is primarily due to a)
the disruption at LINQ of installing an integrated enterprise resource
planning hardware and software system, b) severe price competition on both
fabrics and small and FIBC bags, and c)resin costs increasing rapidly in the
last half of 1999 and the inability of Polypropylene Operations to recover
this resin cost increase through increased selling prices.
<PAGE>
FOREIGN EXCHANGE GAIN OR LOSS
.....The foreign exchange gain of $0.1 million in 1999 resulted from an
exchange gain on net monetary assets in Mexico, partially offset by
realized losses on forward exchange contracts. The $3.4 million foreign
exchange loss in 1998 includes a $2.1 million loss related to the devaluation
of the Mexican peso on net monetary assets of the Company's Mexican
subsidiaries. Due to hyperinflationary accounting practices, these losses
in Mexico are charged to earnings and not the deferred translation
adjustment account. The balance of foreign exchange losses in 1998 include
a $0.7 million loss on net monetary assets denominated in U.S. dollars
held by integrated subsidiaries and a $0.6 million loss on forward foreign
exchange contracts.
FINANCING COSTS
.....Financing costs in 1999 increased to $32.7 million from $29.9 million
in 1998. Financing costs consist of two components i) interest expense,
including factor expense, which increased from $28.2 million in 1998 to
$30.3 million in 1999, and ii) amortization of deferred financing costs,
which increased from $1.7 million in 1998 to $2.3 million in 1999.
.....The increase in 1999 interest expense is primarily a result of the
impact of additional debt due to three acquisitions and slightly higher
average interest rates. Weighted average interest rates on debt were
9.8% in 1999 versus 9.9% in 1998. Average interest rates on bank debt were
9.1% in 1999 compared to 7.7% in 1998, while the interest rate on the
Company's Senior Subordinated Notes is fixed at 11%. Average U.S. dollar debt
levels rose to US$190.5 million in 1999 versus US$173.7 million in 1998.
.....The amortization of deferred financing costs was higher in 1999 as the
financing fees related to the new term loans for the 1999 acquisitions and
related amendments to the Senior Bank Facility is being amortized over the
period until October 31, 2000.
INCOME TAXES
.....Income tax expense in 1999 was $0.2 million compared to $3.6 million
in 1998. The difference between the effective tax rates for each of these
years and the composite statutory rate in Canada - of 39.8%
for 1999 and 39.8% for 1998 - arises largely from non-deductible amortization
of goodwill, non-deductible foreign exchange losses and large corporation
and alternative minimum taxes in Canada, the United States and Mexico.
The 1998 effective tax rates were also positively affected by the
application of tax loss carry forwards against earnings generated in Mexico
for which no benefits had previously been recorded.
<PAGE>
COMPARISON OF YEARS 1998 AND 1997
---------------------------------
SALES
.....Sales for the year 1998 totaled $481.3 million, a decrease of 5.5%
compared to the $509.4 million reported in 1997.
<PAGE>
TEXTILE OPERATIONS SALES
.....Textile Operations sales decreased by 4.6%, from $330.0 million in
1997, to $314.7 million in 1998. This decrease is mainly a result of lower
demand for our polyester and polyester blend fabrics due to changing
fashion trends and increased import competitions for fabrics and garments
in the North American market. Demand for apparel and nylon based outerwear
fabrics was also soft resulting from increased Asian import penetration
into the U.S. market. This decrease was partially offset by significant
growth in the Company's Home Furnishings curtaining fabrics through
increased export sales from Canada to the United States as well as increased
sales of industrial textiles, particularly military fabrics used to
produce garments for the Canadian Armed Forces.
POLYPROPYLENE OPERATIONS SALES
.....Polypropylene Operations sales decreased by 7.1%, from $179.5 million
in 1997 to $166.6 million in 1998. This decrease is mainly attributable to
the Company's decision to reduce sales of primary carpet backing fabrics
due to the low margins earned on these products and the need for significant
associated capital expenditures. Sales in Polypropylene Operations were also
affected by dry weather conditions in the southern United States and Mexico,
which lowered the demand for cotton bale wrap as well as agricultural and
fertilizer bags. Sales in Mexico increased by 4.7% while the Mexican operations'
bag conversion facilities increased their export sales by 58% over 1997. U.S.
dollar denominated sales from Mexico increased from 36% of Rafytek sales in
1997 to 47% in 1998.
EBITDA
.....EBITDA totaled $63.8 million in 1998 compared to $61.2 million in
1997. Despite the decrease in sales, gross profits increased as gross
margins grew from 21.9% in 1997 to 23.5% in 1998 due to the Company's focus
on eliminating low margin sales and increasing higher margin sales through
increased new product development and the benefit of an insurance claim
included in cost of goods sold.
.....Selling and administrative expenses, as a percentage of sales,
increased to 10.3% in 1998 from 9.8% in 1997 due to the impact of lower
sales volumes on certain fixed administrative expenses. Administrative
expenses include restructuring costs amounting to $1.0 million, offset by
the gain of $0.7 million on the sale of land adjacent to our Costa Rican
plant.
<PAGE>
TEXTILE OPERATIONS
.....EBITDA in the Textile Operations increased from $38.3 million in
1997 to $42.7 million in 1998. The Textile Operations successfully
developed and sold new higher margin fabrics, particularly curtaining
fabrics for home furnishings markets and industrial fabrics. Increased
sourcing of lower price yarn and fabrics from Asia, reduced sourcing prices
from U.S. mills and finishing plants for the Company's U.S. based
converting business and improved product mix towards home furnishings
fabric sales (which have a higher profit margin than the fashion and nylon
apparel fabrics) all helped to increase operating profits. The Textile
Operations also benefited from the impact of a weaker Canadian dollar
vis-a-vis the U.S. dollar on export sales from Canada to the United States.
POLYPROPYLENE OPERATIONS
.....EBITDA in the Polypropylene Operations decreased from $30.1 million in
1997 to $26.2 million in 1998. This decrease was primarily due to the
decision to reduce participation in the primary carpet backing market.
The number of square yards of fabric produced by the U.S.
manufacturing plant was approximately 23% lower in 1998 versus 1997,
resulting in higher fixed costs per unit. The impact of lower primary
carpet backing sales was in part offset by higher sales of non-woven
geotextile fabrics and sales of bulk bags by Rafytek, both of which
resulted in an increase in average gross margins for the Polypropylene
Operations.
FOREIGN EXCHANGE LOSS
.....The $3.4 million exchange loss in 1998 includes a $2.1 million loss
related to the devaluation of the Mexican peso on net monetary assets of
our the Company's Mexican subsidiaries. Due to hyperinflationary accounting
practices, these losses in Mexico are charged to earnings and not the
deferred translation adjustment account. The balance of these foreign exchange
losses include a $0.7 million loss on net monetary assets denominated in U.S.
dollars held by integrated subsidiaries and a $0.6 million loss on forward
foreign exchange contracts. The $0.5 million gain on foreign exchange in 1997
relates primarily to a gain on net monetary assets in Mexico.
FINANCING COSTS
.....Financing costs in 1998 increased to $29.9 million from $28.0 million
in 1997. Financing costs consist of two components i) interest expense,
including factor expense, which increased from $25.1 million in 1997 to
$28.2 million in 1998, and ii) amortization of deferred financing costs,
which decreased from $2.9 million in 1997 to $1.7 million in 1998.
.....The increase in interest expense is primarily a result of the impact
of the significantly weaker Canadian dollar on the predominately U.S.
dollar denominated debt of the Company. Also, in 1997 interest expense was
reduced by interest revenue of $1.6 million arising from an Investment
Tax Credit ("ITC") refund. Weighted average interest rates on debt,
excluding the ITC interest refund in 1997, were 9.9% in 1998 versus 10.1%
in 1997. Average interest rates on bank debt dropped from 7.9% in 1997
to 7.7% in 1998, while the interest rate on the Company's Senior Subordinated
Notes are fixed at 11%. Average U.S. dollar debt levels rose slightly to
US$173.7 million in 1998 versus US$171.5 million in 1997.
<PAGE>
.....The amortization of deferred financing costs was lower in 1998 as the
financing fees related to the revolving bank facility were fully amortized
in 1997.
INCOME TAXES
.....Income tax expense in 1998 was $3.6 million, the same as in 1997. The
difference between the effective tax rates for each of these years and the
composite statutory rate in Canada - of 39.8% for 1998 and 39.6% for
1997 - arises largely from: non-deductible amortization of
goodwill, non-deductible foreign exchange losses and alternative
minimum taxes in Canada, the United States and Mexico. The 1998 and 1997
effective tax rates were also positively affected by the application of tax
loss carry forwards against earnings generated in Mexico for which no
benefits had previously been recorded.
LIQUIDITY AND CAPITAL RESOURCES
.....The Company's total outstanding debt at year-end 1999 was
$304.4 million compared to $251.4 million in 1998 and $231.7 million in
1997. The ratio of debt to total capital (comprised of debt plus
shareholders' equity), including the deferred translation adjustment
("DTA" ), was 80% in 1999 compared to 77% in 1998 and 1997. The Company's
debt to total capital ratio changed in 1999 as the Company completed three
acquisitions, all financed with debt.
.....Operating lines of credit available from the Company's Senior
Bank Facility totaled $83.0 million on December 31, 1999, of which $27.4
million remained unused.
.....The Company's cash requirements consist principally of working
capital, payments of principal and interest on its outstanding indebtedness
and capital expenditures. The Company believes that cash flow from
operating activities, cash on hand, and periodic borrowings from existing
credit lines will be adequate to meet its operating cash requirements and
current maturities of debt for the foreseeable future. As the Company
is considered highly leveraged its ability to seek additional lines of
credit may be hampered.
.....The Company's overall cash needs in 1999 were provided primarily by
its cash flow from operations. Acquisitions were principally funded with
new term debt. Net cash flows from (used in) operating activities amounted
to ($6.3) million in 1999, $18.1 million in 1998 and $29.8 million in 1997.
The Company is currently negotiating with its senior lenders to extend
the maturity of its Senior Bank Facility which currently matures on
October 31, 2000. These discussions are ongoing and are expected to be
completed in the next few months.
CAPITAL EXPENDITURES
.....As part of its focus on improving operational efficiency, the Company
made substantial investments in capital expenditures, aggregating $57.3
million over the last three years. During 1999, additions to fixed assets
totaled $15.8 million compared to $21.2 million in 1998. In 1999,
capital expenditures in the Polypropylene Operations amounted to $9.4
million principally to increase extrusion capacity and modernize computer
systems. Expenditures in the Textile Operations amounted to $6.4 million
to expand curtaining fabrics production capacity and improve quality
control systems. Disposals of fixed assets in 1998 include the sale of
land adjacent to the Rafytica plant in Costa Rica for $1.3 million,
resulting in a gain of $0.7 million.
<PAGE>
FINANCING ACTIVITIES
.....In March 1996, the Company entered into a US$85 million Senior Bank
Facility providing it with a US$35 million term facility and a US$50 million
revolving credit facility. This facility increased the Company's available
lines of credit, reduced withholding taxes and provided for lower
annual interest cost. The proceeds of the facility were used to repay all
existing debt, excluding the Senior Subordinated Notes.
.....In 1999, the Company negotiated an amended and restated Senior Bank
Facility providing it with a US$57.5 million revolving credit facility and
term loans which totaled US$55 million. The principal reason for the amended
and restated Senior Bank Facility was to finance the three acquisitions
completed during 1999.
.....At December 31, 1999, the outstanding balance on the senior bank term
loan was US$55 million. Term loan repayments during 1999 amounted to
US$7.0 million.
RISKS AND UNCERTAINTIES
NORTH AMERICAN TEXTILE INDUSTRY
.....The North American textile industry is sensitive to changes in
economic conditions, competition from imports and changes in consumer
preferences. The industry is also subject to various North American and
international regulatory agreements. Under the Uruguay Round of the World
Trade Organization, many of the advantages currently available to the
Company as a result of the North American Free Trade Agreement will decline
over the ten-year period begun in 1995, which could eventually result in
additional competition in the North American market. In addition, the
CBI/SS may have a negative effect on sales of fabrics from the Textile
Operation's Canadian operations to the United States. Reference is made to
"Item 1 - Description of Business - Regulatory Environment" of this Form
20-F.
RAW MATERIAL COSTS
.....Consoltex's Polypropylene Operations are affected by the price of
polypropylene resin which fluctuates based on international supply and
demand for this product. To the extent that the market does not allow the
Company to pass on price increases to its customers, the gross profits of
the Company can be negatively affected.
INTEREST RATES AND EXCHANGE RATES
.....The Company had a portion of its bank borrowings at floating interest
rates on December 31, 1999, and is exposed to changes in interest rates in
Canada and the United States. The Company has contracted to hedge against
the interest exposure on US$5 million of its floating rate indebtedness,
which totaled US$90.3 million as at December 31, 1999.
.....The Company is also exposed to fluctuations in the value of the U.S.
dollar in relation to the Canadian dollar, as the Canadian operations
record over 50% of their revenues in U.S. dollars. All of the Company's
debt on December 31, 1999 was denominated in U.S. dollars. The Company
has a partial hedge for its U.S. dollar denominated sales from Canada to
the United States as the Canadian operations purchase a significant
portion of their raw materials and capital expenditures in U.S. dollars,
and payments of interest and principal on bank borrowings are also in U.S.
dollars. In order to mitigate the foreign exchange risk associated with
the future sale of excess U.S. dollar cash flows generated by the
Canadian operations, the Company from time to time, contracts to sell US
dollars and to receive payment in Canadian dollars in future periods, by
entering into forward foreign exchange contracts. At December 31, 1999,
US$7 million of such contracts remain outstanding.
.....To alleviate the exchange rate effect of U.S. dollar denominated debt
on the balance sheet, 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 is also exposed to the fluctuation in the value of the
Mexican peso as it has significant peso denominated net monetary assets.
Currently, U.S. dollar denominated sales from Rafytek are approximately
equal to its U.S. dollar denominated costs, being primarily polypropylene
resin and spare parts for equipment.
.....Between January 1, 1997 and December 31, 1998, Mexico was considered a
"hyperinflationary" economy for foreign exchange translation purposes.
This decision, by the Securities and Exchange Commission in the United
States, was reached primarily because the Country's cumulative inflation
rate was in excess of 100% over a three-year period. As a result, in 1997
and 1998, on consolidation, instead of valuing Rafytek assets and
liabilities at the current peso exchange rate and charging the change in
value to the DTA account in Shareholders' Equity, the gain or loss on
translation of peso denominated monetary assets or liabilities is
charged to the income statement. Non-monetary assets, such as fixed
assets, are pegged at the historical exchange rate of December 31, 1996,
and the DTA is locked-in at the amounts recorded at December 31, 1996.
Since January 1, 1999, the Mexican economy is no longer considered
hyperinflationary and therefore all future foreign exchange fluctuations on
peso denominated net assets will be reflected in the DTA account.
<PAGE>
YEAR 2000 ISSUE
.....The Company has prepared its information systems and production
equipment to deal with the issues related to the year 2000(the "Y2K Issue").
This was necessary because certain computer programs or microprocessors use
two digits rather than four to define the applicable year. Left uncorrected,
this could have generated erroneous data or caused systems to fail in
2000 because the year may not have been properly recognized as "2000", but
rather recognized as some other year such as "1900".
.....During 1998 and 1999, the Company undertook efforts to implement
its Year 2000 Compliance Plan throughout the organization. This included
modifying or replacing computer software, hardware and embedded systems
in shop floor equipment. Planned application and equipment updating was
completed. When appropriate, the Company's integrated applications,
process control software and embedded systems were represented to be compliant
by their respective vendors.
.....As of December 1999, the Company had spent approximately $2.5
million on the project since its inception of which $1.5 million was
capitalized as software development and $1.0 million as expense. The
total cost for addressing the Y2K Issue is estimated at approximately $5
million.
.....To date, no significant issues have arisen from the Y2K Issue.
In a related matter, however, the implementation of the integrated
Enterprise Resource Planning System at LINQ in 1999 took longer to
implement, was more costly than expected and resulted in some loss
of business during the implementation stage.
<PAGE>
FORWARD LOOKING STATEMENTS
.....The discussion of the Company's business and operations in this report
includes forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are based upon management's good
faith assumptions relating to the financial, market, operating, and other
relevant environments that will exist and affect the Company's business and
operations in the future. No assurance can be made that the assumptions
upon which management based its forward-looking statements will prove to be
correct, or that the Company's business and operations will not be affected
in any substantial manner by other factors not currently foreseeable by
management or beyond the Company's control. All forward-looking statements
involve risks and uncertainties, including those described in this report,
and such statements shall be deemed in the future to be modified in their
entirety by the Company's public pronouncements, including those contained
in all future reports and other documents filed by the Company with the
Securities and Exchange Commission.
<PAGE>
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
.....The names, municipalities of residence and principal occupations of
the directors of the Corporation as of the date hereof and the period
during which each director has served as such are as follows:
DIRECTORS
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION DIRECTOR
MUNICIPALITY SINCE
OF RESIDENCE
<S><C> <C> <C>
</TABLE>
Richard H. Willett Chairman of the Board, 1991
Philipsburg, Montana President and Chief
Executive Officer of the
Corporation
Kim A. Marvin Principal, American Industrial 2000
Denton, Maryland Partners
Steven D. Tarino Associate, American Industrial 2000
San Francisco Partners
California
Kenneth J. Diekroeger Principal, American Industrial 2000
San Francisco Partners
California
Theodore C. Rogers Partner, American Industrial 2000
New York, New York Partners
.....Each director was elected or appointed by the Shareholders on February
2, 2000 to serve until the next annual meeting or until their successors
are duly elected or appointed unless he shall resign his office or his
office shall become vacant by death, removal or other cause. The
Corporation does not have an executive committee. The Corporation has an
Audit Committee whose members are Messrs. Kim A. Marvin, Theodore C. Rogers
and Richard H. Willett. The Corporation also has a Management Resources
and Compensation Committee whose members are Messrs. Kim A. Marvin,
Theodore C. Rogers and Richard H. Willett.
<PAGE>
OFFICERS
.....The following table sets forth information concerning the executive
officers of the Corporation or others who perform policy-making functions
for the registrant.
<TABLE>
<CAPTION>
NAME MUNICIPALITY OFFICE AND
OF RESIDENCE PRINCIPAL
OCCUPATION
<S><C> <C> <C>
</TABLE>
Richard H. Willett Philipsburg, Chairman of the Board,
Montana President, and Chief
Executive Officer
Paul J. Bamatter New Canaan, Vice-President Finance
Connecticut and Chief Financial
Officer
Christopher L. New Canaan, President and Chief
Schaller Connecticut Executive Officer
of Textile Operations
Jay R. Tavormina North Charleston, President and Chief
South Carolina Executive Officer
of Polypropylene
Operations
Alex Di Palma Pointe-Claire, Vice-President, Taxation
Quebec
C. Suzanne Crawford Westmount, Vice-President, Legal
Quebec Affairs and Corporate
Secretary
Antoinette Lapolla Laval, Quebec Vice-President, Treasurer
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
.....The aggregate amount of compensation paid by the Corporation and its
subsidiaries to their officers and directors in 1999 was approximately
US$9,322,000. The aggregate amount set aside or accrued by the Corporation
and its subsidiaries in 1999 to provide pension, retirement or similar
benefits for directors and officers was approximately US$923,400.
STOCK OPTION PLAN
.....The Corporation had a Stock Option Plan (the "Option Plan") under
which options were granted to key employees and Directors of the
Corporation and its subsidiaries to purchase Subordinate Voting Shares of
the Corporation. The Option Plan was designed to motivate and encourage the
retention of high performance executive officers and Directors. The
selection of participants and the number of Subordinate Voting Shares
granted to a participant were based on the participant's degree of
responsibility and was determined at the discretion of the Board of
Directors of the Corporation upon the recommendation of the Management
Resources and Compensation Committee of the Board.
.....On September 21, 1999, the Board of Directors had approved an
amendment to options issued under the Option Plan to accelerate the vesting
of all unvested stock options for the purpose of allowing the holders
thereof to tender the Subordinate Voting Shares issued upon the exercise of
such options to the offer made by AIP resulting in the AIP Acquisition.
The Board of Directors had also approved the amendment of options issued
under the Option Plan to provide for the termination of any unexercised
stock options remaining after AIP took up and paid for the Subordinate
Voting Shares under the Offer. On October 20, 1999 the Option Plan was
discontinued as all the options were either exercised or terminated when
AIP took up and paid for the Subordinate Voting Shares under the Offer.
PENSION BENEFITS
.....Consoltex maintains a Canadian Pension Plan for its executive
employees (the "Canadian Pension Plan") which is a registered non-
contributory defined benefit plan.
.....Consoltex maintains Supplemental Executive Retirement Plans in Canada
and in the United States (the "Canadian SERP" and the "US SERP") for a
select group of senior officers to ensure proper retirement income. The
pension benefits payable under the plans are integrated with the benefits
payable under the Canadian Pension Plan or the US Pension Plan, as
applicable.
.....Under the US SERP, a participant will received a benefit, inclusive of
the part of the US Pension Plan to which the employer contributes, if
applicable, equal to 2% of the annual average salary in the last two
complete calendar years' prior to the event (retirement, death or
termination) for each year of complete years of service, to a maximum of 30
years. Salary is defined as base salary plus bonus under the Corporation's
Annual Incentive Plan.
.....Most of the Corporation's direct and indirect subsidiaries in the
United States maintain a 401(k) Plan for its employees, including executive
officers (collectively, the "US Pension Plan"). These are registered
contributory defined contribution plans.
.....In 1997, the Board of Directors, acting upon the recommendation of the
Management Resources and Compensation Committee, approved the creation of a
Share Purchase Loan Program (the "Program") to encourage greater long-term
share ownership by Directors and selected executives of the Corporation and
of its subsidiaries. Under the Program, the Corporation offered full
recourse interest bearing loans to outside Directors and to selected
employees as designated by the Management Resources and Compensation
Committee. On October 20, 1999 the Program was discontinued as all of the
shares held pursuant to the Program were tendered to the Offer and the
loans were repaid.
MANAGEMENT INCENTIVE PLANS
.....All executive officers of the Company participate in the Management
Incentive Plan. The purpose of the Plan is to tie each participating
manager's compensation to the financial performance of the Operations of
the Company the manager works for. Each eligible management position has a
target bonus based on level of responsibility. Annual financial performance
is determined on the basis of a combination of profits and return on net
assets achieved, as compared to objectives.
.....In the course of considering strategic alternatives available to
Consoltex culminating in the AIP Acquisition, the Board of Directors
created a management incentive plan known as the "Shareholder Value
Enhancement Program" which entitled certain senior officers of Consoltex to
a cash payments of either $180,000 or $90,000 if all of the Subordinate
Voting Shares were sold by December 31, 1999. The payments were made
pursuant to the Shareholder Value Enhancement Program after the AIP
Acquisition.
DIRECTORS
..
.....The two former Vice-Chairman of the Corporation were paid a
predetermined fee totalling $68,500 representing six months total
compensation earned for 1998 pursuant to an agreement that such payment
would be made if they ceased to be directors as a result of the AIP
Acquisition.
<PAGE>
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
..........None
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
..........Not applicable
PART II
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
...........Not applicable
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES
............None
ITEM 16 - CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
..........None
PART IV
ITEM 17 - FINANCIAL STATEMENTS
.........The Consolidated Financial Statements filed as part of this Form
20-F are contained on pages [ ] through [ ].
ITEM 18 - FINANCIAL STATEMENTS
..........Not applicable.
<PAGE>
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS
.....(a) Financial Statements:
............Consoltex Group Inc., Audited Consolidated Financial Statements
............Auditors' Report
............Consolidated Balance Sheet
............Consolidated Statements of Earnings and Retained Earnings
............Consolidated Statements of Cash Flows
............Notes to Consolidated Financial Statements
.....(b) Exhibits:
..........1.1. Articles of Continuance of Consoltex Inc. dated December 16,
1999
..........1.2. By-laws of Consoltex Inc. dated February 7, 2000
..........1.3. Certificate of Change of Name of Consoltex Inc. dated
January 3, 2000
..........1.4. North American Credit Facilities for Consoltex Group Inc.
-Amended and Restated Credit Agreement dated October 25, 1999
..........1.5. North American Credit Facilities for Consoltex Group Inc.
- Amendment No. 1 to the Amended and Restated CreditAgreement
dated January 3, 2000
..........1.6..North American Credit Facilities for Consoltex Group Inc. -
Amendment No. 2 to the Amended and Restated Credit Agreement
dated May 12, 2000
..........2.1..Offer Agreement between AIP and the Corporation dated
September 9, 1999
..........2.2. Stockholders Agreement between AIP, the Corporation,
LGBV, LGL and Trust dated September 9, 1999
..........2.3. Management Services Agreement between AIP and Consoltex
(USA) Inc. dated October 20, 1999
..........2.4 Royalton Mexicana, S.A. de C.V. Stock Purchase Agreement
dated February 26, 1999
..........2.5..Marino Technologies, Inc. Stock Purchase Agreement dated
August 2, 1999
..........2.6..Atlas Bag Asset Purchase Agreement dated November 19, 1999
........All other Schedules have been omitted because of the absence of
discussions requiring them, or the required information is included in the
Consolidated Financial Statements or Notes thereto.
<PAGE>
SIGNATURES
...Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements
of filing on Form 20-F and has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
.................................CONSOLTEX GROUP INC.
..................................Per: /s/ C. Suzanne Crawford
........................................--------------------------
........................................C. Suzanne Crawford
........................................Vice-President, Legal Affairs
........................................and Corporate Secretary
Dated: June 29, 2000
<PAGE>
