UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest event reported): November 14, 2000
CONSOLTEX INC.
(Exact name of registrant as specified in its charter)
New Brunswick, Canada 33-75176 52-1725179
(State or other jurisdiction (Commission) (IRS Employer
of incorporation) File Number Identification NO.)
8555 Route Transcanadienne, Saint-Laurent, Quebec, Canada H4S 1Z6
(Address of principal executive office) (Zip code)
(514) 333-8800
Registrant's telephone number, including area code
<PAGE>
=========================================================================
CONSOLTEX INC.
(Formerly Consoltex Group Inc.)
THE QUALITY IS WOVEN RIGHT IN
RESULTS FOR THE QUARTER ENDED
SEPTEMBER 30, 2000
=========================================================================
FOR FINANCIAL INQUIRIES OR INFORMATION CONTACT:
PAUL J. BAMATTER
VP FINANCE AND CHIEF FINANCIAL OFFICER
TEL: 212-596-0480
FAX: 212-596-0483
<PAGE>
NOVEMBER 14, 2000 - CONSOLTEX INC. (FORMERLY NAMED CONSOLTEX GROUP INC.)
announces its results for the third quarter ended September 30, 2000.
The Company reported a loss of $10.3 million for the quarter ended
September 30, 2000 compared to a loss of $1.8 million for the same
quarter in 1999. Starting in the first quarter of 2000, the Company is
reporting its results in US dollars and has prepared its financial
statements under U.S. generally accepted accounting principles ("GAAP").
Previously, the Company reported in Canadian dollars and prepared its
financial statements under Canadian GAAP. All prior period amounts have
been restated to reflect these changes which were made to more accurately
reflect the currency in which the Company operates, as well as to be more
useful to the users of these financial statements.
Consolidated sales decreased from $84.9 million in the third quarter of
1999 to $83.2 million in the current quarter. Excluding sales from the
October 1, 1999 acquisition of the Atlas bag business of $6.0 million
from the third quarter of 2000, total sales, on a comparative basis,
would have been down by $7.7 million, or 9.1% from the like quarter in
1999. The decrease in sales was evenly split between the Textile and
Polypropylene Operations.
Consolidated gross profits decreased from $18.6 million, or 21.9% of
sales, in the quarter ended September 30, 1999 to $10.6 million, or 12.8%
of sales, in the current quarter. The primary reasons for the reduction
in gross margin percentage relates to i) an inventory provision of $3.5
million ($2.75 million for Textile Operations and $0.75 million for
Polypropylene Operations) taken in the third quarter of 2000 to reflect
the decision to clear more rapidly certain aged inventory, ii) the rapid
increase in the price of polypropylene resin, the Company's primary raw
material in the Polypropylene Operations, iii) a slowdown in the home
furnishings business due to our customers clearing their excess
inventory, and iv) the negative impact on our Polypropylene Operations
as we reorganize the manufacturing operations for long-term efficiency
and capacity increases.
EBITDA for the quarter ended September 30, 2000 was $0.1 million, $9.8
million lower than the comparable quarter in 1999. The decrease in
EBITDA results from the reduction in gross profits enumerated above.
Increased depreciation and amortization expense relates primarily to the
additional goodwill amortization and depreciation expense due to the
acquisition of Atlas during 1999. Interest expense during the quarter,
at $6.1 million, was 21.1% higher than the comparable period in 1999
reflecting the cost of the additional debt related to the Atlas
acquisition, as well as higher interest rates on the Company's floating
rate debt. The quarterly loss includes a $1.0 million foreign exchange
loss versus a loss of $0.3 million in the third quarter of 1999.
TEXTILE OPERATIONS
Sales in the Textile Operations for the quarter ended September 30, 2000
totaling $46.2 million represents a decrease of 8.1% compared to the like
quarter in the prior year. The Textile Operations sales shortfall is due
to weaker sales in the polyester and nylon-based fashion and outerwear
apparel fabrics and from lower sales in the home furnishings business as
our customers reduced purchases to increase their inventory turnover
rates.
Gross profit margins decreased from 22.5% in third quarter of 1999 to
14.9% in third quarter of 2000, primarily as a result of the inventory
provision taken and negative variances caused from a lack of production
volume at certain of the Canadian manufacturing facilities.
Selling and administration costs, as a percentage of sales, increased
from 10.6% in third quarter of 1999 to 13.2% in third quarter of 2000,
reflecting additional sales force and related expenses being added to
develop new business, domestically and internationally, as well as the
relative fixed nature of these costs.
EBITDA in the Textile Operations for the quarter ended September 30, 2000
decreased by $5.2 million compared to the prior year as gross margins in
the Canadian vertical operations suffered due to strong import
competition, lack of production volume at certain Canadian manufacturing
facilities and the inventory provision taken. This decrease was partly
offset by improved margins at our U.S. based converting/importing
business.
POLYPROPYLENE OPERATIONS
Sales in the Polypropylene Operations increased by 7.1% compared to the
prior year due entirely to the increased sales recorded from the Atlas
acquisition effective October 1, 1999. Sales from our Mexican operations
decreased by 21.4% in quarter three 2000 compared to the same quarter in
1999 due principally to weakness in the summer from slowdowns in small
bags and FIBC fabrics and bags. Sales from our U.S. based weaving
operations in Summerville, South Carolina were 2.7% lower this quarter
compared to the like quarter in the prior year, as a greater portion of
its sales are now recorded as intercompany sales and, as such, are
eliminated on consolidation.
Gross profit margins dropped from 21.0% in quarter three 1999 to 10.1% in
the current quarter principally due to rapidly increasing polypropylene
resin prices, which increased significantly over the past year, the
inventory provision taken during the quarter and from the resulting
negative short-term impact on our operations as we make those changes
necessary to increase long-term efficiency and capacity. The
Polypropylene Operations' average purchase price of resin during quarter
three 2000 was 50% greater than in third quarter of 1999. As the
Polypropylene Operations purchases approximately 25 million pounds of
resin quarterly this has had, and will continue to have, a significant
negative effect on profitability.
<PAGE>
Selling and administration costs increased as a percentage of sales from
7.9% in quarter three 1999 to 10.2% in the current quarter due to the
nature of the Marino and Atlas acquisitions, which sell and market their
flexible intermediate bulk container bags direct to end users and, as
such, have higher selling and administration costs. As in the Textile
Operations, the majority of these costs are fixed and their percentage
relative to sales increases when sales are lower.
EBITDA for the current quarter was $nil compared to $4.6 million for the
third quarter of 1999. This decrease was due to a squeeze in margins and
the increase in selling and administrative costs enumerated above.
NINE MONTHS RESULTS
Consolidated sales for the nine month period ended September 30, 2000 of
$285.8 million were 16.1% greater than the comparable period in 1999.
Excluding the effect of acquisitions, consolidated sales for the nine
month period ended September 30, 2000 were 1.8% greater than in the
comparable period in 1999.
Consolidated gross profits decreased from $56.7 million, or 23.0% of
sales, for the nine months ended September 30, 1999 to $53.9 million, or
18.9% of sales, for the current nine month period. This deterioration
was primarily due to the significant increase in resin costs in the
comparable nine month period, the inventory provision taken at quarter
end and the negative short-term effect of the reorganization in the
Polypropylene Operations.
EBITDA for the nine month period ended September 30, 2000 was $21.3
million, or 28.3% lower than the comparable period in the prior year.
The EBITDA contributed by the two acquisitions in 1999 was more than
offset by the negative effect of the increase in resin costs, inventory
provisions taken and the impact of reorganizing the Polypropylene
Operations.
Increased depreciation and amortization expenses for the nine month
period ended September 30, 2000 as well as increased financing costs are
directly related to the acquisitions completed in the second half of
1999.
The Company also recorded a $3.1 million foreign exchange loss in the
nine month period as compared to a foreign exchange gain of $3.1 million
for the comparable period in 1999. The primary reason for the foreign
exchange loss is due to the strength of the U.S. dollar versus the
Mexican Peso and Canadian dollar and the fact that the Company's Mexican
and Canadian self-sustaining operations are financed principally with
U.S. dollar denominated debt.
<PAGE>
Outlook
The outlook for the next quarter is expected to remain flat. In our
Textile Operations, we believe the current weakness in fashion and
outerwear apparel fabrics and the temporary slowdown in our home
furnishings curtaining business will continue in quarter four as some of
our customers are reducing their levels of inventory in stock. Our U.S.
based converting/importing business has increased its importing expertise
and has enhanced its distribution and product development capabilities.
These improvements should increase sales and margins. The Industrial
division sales are expected to increase as it begins to ship orders it
received with respect to the Canadian government's military contract.
The potential orders with respect to this contract will be produced and
shipped over a two year period. Further inventory clearances are likely
to occur during the fourth quarter as the Operations look to start the
new year with lower quantities of aged inventory.
The Polypropylene Operations has many strategic initiatives in progress
as a result of its two strategic acquisitions made in 1999. These
initiatives will come to fruition over the next year. The initiatives
include upgrading and increasing the efficiency and capacity of the
extrusion and weaving processes at our main Summerville, South Carolina
plant, expanding manufacturing capacity at our Mexican bulk bag
converting plants, reducing manufacturing and selling and administration
costs at our primary Mexican extrusion and weaving plants, and achieving
the many financial, selling, administrative, manufacturing and other
synergies that are expected to result from the two recent acquisitions.
The Polypropylene margins have, and continue to be negatively affected by
the very high cost of resin, its primary raw material. We expect these
compressed margins to last for at least the next quarter after which we
expect the margins to return to more historic levels. Further inventory
clearances are also likely to occur during the fourth quarter as these
operations will also start the new year with reduced aged inventory
balances.
Immediately after the third quarter, Consoltex Inc. entered into a series
of transactions described below which constitute a change in control of
the Company (the "Change in Control"). AIP/CGI NB Acquisition Corp., a
New Brunswick (Canada) corporation ("AIP/CGI"), exercised its option (the
"Option") to purchase 3,140,000 Multiple Voting Shares of the Company
(the "Shares") from Les Gantiers Holding B.V. ("LGH"), constituting
51.33% of the voting interest in the Company. The net consideration paid
by AIP/CGI to LGH for the Shares was $3,123,000 and was contributed to
AIP/CGI by Consoltex Holdings, Inc. ("Holdings"), the sole shareholder of
AIP/CGI. Immediately prior to AIP/CGI's exercise of the Option, AIP/CGI
held securities representing the right to vote 48.67% of the total votes
attributable to the outstanding securities of Consoltex Inc. Immediately
after the exercise of the Option, AIP/CGI held securities representing
the right to vote 100% of the total votes attributable to the outstanding
securities of the Company. On October 2, 2000, the Company amalgamated
with AIP/CGI and the amalgamated corporation changed its name to
Consoltex Inc. As part of the Change in Control, the Company sold all of
the capital stock of Consoltex (USA) Inc., a wholly-owned subsidiary of
the Company to Holdings. In connection with the Change in
<PAGE>
Control, holders of not less than a majority in aggregate principal
amount of the Company's 11% Senior Subordinated Notes due 2003 consented
to the Change in Control and waived certain requirements under the
Indenture governing the Notes, and the Company entered into the Second
Supplemental Indenture, dated as of September 29, 2000.
Also on November 7, 2000, the Company renegotiated its senior credit
facility with its bankers. The new facility expires on December 31, 2001
and consists of a $57.5 million working capital loan and a $59.25 million
term loan. The term loan is repayable in quarterly instalments of $1.75
million starting on December 31, 2000. The new credit facility is
secured by certain of the Company's receivables, inventory and fixed
assets.
Consoltex Inc. is a North American textile and packaging company.
Consoltex Inc. was formerly called Consoltex Group Inc. before it changed
its name on January 3, 2000. 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 bulk bags and small bags. The Company also conducts its
own research and development and maintains its own sales, marketing and
distribution network throughout North America. Consoltex has 16
manufacturing plants, which together employ approximately 6,100
associates. The Company is now a U.S. company and files its financial
statements with the United States Securities and Exchange Commission as a
result of its publicly traded Senior Subordinated Notes.
The information in this quarterly statement contains forward-looking
information with respect to Consoltex Inc. and its subsidiaries. These
statements involve risks and uncertainties that could cause actual
results to differ materially from those contemplated. These risks and
uncertainties include interest rates, currency fluctuations, prices of
raw materials, general economic and other risks detailed from time-to-
time in the Company's disclosure documents filed with the United States
Securities and Exchange Commission including Item 9, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
in the Company's most recent Form 20-F. Consoltex undertakes no
obligation to update any forward-looking statement.
<PAGE>
CONSOLTEX INC.
(FORMERLY CONSOLTEX GROUP INC.)
CONSOLIDATED BALANCE SHEETS (1)
=========================================================================
<TABLE>
<CAPTION>
(IN THOUSANDS OF US DOLLARS) September December
(UNAUDITED) 30, 31,
2000 1999
==========================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 428 $ 2,969
Accounts receivable and prepaid expenses 55,963 50,638
Inventories 93,817 90,202
==========================================================================
150,208 143,809
Fixed assets, net 104,980 111,044
Goodwill 77,682 80,333
Other assets 2,521 4,684
Total assets $335,391 $339,870
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans $ 44,461 $ 38,888
Accounts payable and accrued liabilities 53,908 36,648
Income taxes payable 3,598 2,761
Current portion of long-term debt 49,750 55,000
Current portion of other long-term liabilities 2,622 5,646
Current portion of deferred income tax 6,758 5,262
=========================================================================
161,097 144,205
Long-term debt 120,000 120,000
Other long-term liabilities 10,833 11,196
Deferred income tax 10,284 15,083
SHAREHOLDERS' EQUITY:
Share capital (18,027,551 shares) 75,213 75,213
Contributed surplus 2,087 2,087
Retained earnings (deficit) (15,657) 437
Accumulated other comprehensive income (loss) (28,466) (28,351)
=========================================================================
33,177 49,386
=========================================================================
Total liabilities and shareholders' equity $335,391 $339,870
</TABLE> =================
(1) In the first quarter of 2000, the Company changed its reporting
currency from the Canadian dollar to the U.S. dollar and has decided to
prepare its financial statements under U.S. GAAP. The comparative
financial statements have been restated to reflect these changes. These
changes were made to more accurately reflect the currency in which the
Company operates, as well as to be more useful to the users of these
financial statements.
<PAGE>
CONSOLTEX INC.
(FORMERLY CONSOLTEX GROUP INC.)
CONSOLIDATED STATEMENTS OF EARNINGS (1)
=========================================================================
<TABLE>
<CAPTION>
(IN THOUSANDS OF US DOLLARS) QUARTER September NINE September
(UNAUDITED) ENDED 30, 1999 MONTHS 30, 1999
2000 ENDED
2000
=========================================================================
<S> <C> <C> <C> <C>
Sales:
Textile Operations $46,198 $50,288 $161,830 $156,889
Polypropylene Operations 37,013 34,562 123,920 89,277
=========================================================================
83,211 84,850 285,750 246,166
Cost of sales 72,570 66,241 231,863 189,460
Selling and administrative expenses 10,931 8,753 33,629 26,950
Foreign exchange (gain) loss 965 279 3,086 (3,069)
Depreciation and amortization 4,479 4,072 13,859 11,317
=========================================================================
Earnings (loss) from operations (5,734) 5,505 3,313 21,508
Other expense (73) (1,560) (499) (1,560)
Financing costs:
Interest expense 6,080 5,022 17,559 13,501
Factor expenses 466 391 1,358 1,143
Amortization of deferred 696 413 1,865 996
financing expenses
=========================================================================
7,242 5,826 20,782 15,640
Earnings (loss) before income taxes (13,049) (1,881) (17,968) 4,308
Income tax (recovery) expense (2,777) (123) (1,874) 1,370
=========================================================================
Net earnings (loss) $(10,272) $(1,758) $(16,094) $ 2,938
=====================================
EBITDA (2) $ 52 $ 9,856 $ 21,344 $29,756
=====================================
</TABLE>
(1)In the first quarter of 2000, the Company changed its reporting
currency from the Canadian dollar to the U.S. dollar and has decided
to prepare its financial statements under U.S. GAAP. The comparative
financial statements have been restated to reflect these changes.
These changes were made to more accurately reflect the currency in
which the Company operates, as well as to be more useful to the users
of these financial statements.
(2)Earnings before interest, taxes, depreciation, amortization, foreign
exchange gain or loss, gain or loss on sale of fixed assets and
American Industrial Partners management fee and expenses ($342 for
quarter ended September 30, 2000 - $1,086 for the nine months ended
September 30, 2000; nil in 1999).
<PAGE>
Consoltex Inc.
(FORMERLY CONSOLTEX GROUP INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
=========================================================================
<TABLE>
<CAPTION>
(IN THOUSANDS OF US DOLLARS) QUARTER September Nine September
(UNAUDITED) ENDED 30,1999 months 30,1999
2000 ended
2000
=========================================================================
<S> <C> <C> <C> <C>
Cash flows from Operating activities:
Net earnings (loss) $(10,272) $(1,758) $(16,094) $2,938
Depreciation 3,506 3,270 10,927 9,664
Amortization of goodwill 940 769 2,832 1,549
Amortization of other assets 33 33 100 104
Amortization of deferred 696 413 1,865 996
financing expenses
Non-monetary foreign exchange 721 81 1,765 (3,233)
loss (gain)
Deferred income tax benefit (2,261) (228) (2,943) (492)
Loss on sale of fixed assets - - 426 -
=========================================================================
(6,637) 2,580 (1,122) 11,526
Changes in:
Accounts receivable and prepaid 4,528 510 (5,871) (12,187)
expenses
Inventories (1,974) (5,286) (5,195) (15,665)
Accounts payable and accrued 13,001 (596) 17,763 13,053
liabilities
Income taxes payable 271 (1,538) 962 (1,767)
=========================================================================
Cash flows from (used in) operating 9,189 (4,330) 6,537 (5,040)
activities
Cash flows used in investing
activities:
Purchase of fixed assets, net of (2,169) (2,271) (8,040) (8,000)
disposals
Proceeds on sale of fixed assets - - 850 -
Business acquisitions - (15,462) - (18,987)
==========================================================================
Cash inflow (used) before financing 7,020 (22,063) (653) (32,027)
activities
==========================================================================
Cash flows from financing activities:
Increase (decrease)in bank loans (5,036) 1,064 6,221 13,661
Repayment of long-term debt (1,750) (3,500) (5,250) (7,000)
Proceeds from issuance of - 25,000 - 25,000
long-term debt
Increase (decrease) other (517) 646 (3,050) 611
long-term liabilities
Decrease (increase) in other 143 (1,888) 191 (703)
assets
=========================================================================
Increase (decrease) in cash (140) (741) (2,541) (458)
Cash at the beginning of the period 568 2,820 2,969 2,537
=========================================================================
Cash at the end of the period $ 428 $2,079 $ 428 $2,079
===================================
</TABLE>
(1)In the first quarter of 2000, the Company changed its reporting
currency from the Canadian dollar to the U.S. dollar and has decided
to prepare its financial statements under U.S. GAAP. The comparative
financial statements have been restated to reflect these changes.
These changes were made to more accurately reflect the currency in
which the Company operates, as well as to be more useful to the users
of these financial statements.
<PAGE>
Consoltex Inc.
(Formerly Consoltex Group Inc.)
CONSOLIDATED SEGMENT DISCLOSURES (1)
=========================================================================
<TABLE>
<CAPTION>
(IN THOUSANDS OF US DOLLARS) QUARTER September Nine September
(UNAUDITED) ENDED 30, 1999 months 30, 1999
2000 ended
2000
=========================================================================
<S> <C> <C> <C> <C>
SALES
Textile Operations $46,198 $50,288 $161,830 $156,889
Polypropylene Operations 37,013 34,562 123,920 89,277
=========================================================================
Consolidated sales $83,211 $84,850 $285,750 $246,166
===================================
EBITDA
Textile Operations $796 $6,000 $13,888 $19,905
Polypropylene Operations (13) 4,551 9,935 12,610
=========================================================================
Total for reportable segments 783 10,551 23,823 32,515
Corporate (731) (695) (2,479) (2,759)
=========================================================================
Consolidated EBITDA 52 9,856 21,344 29,756
Other expense 73 1,560 499 1,560
American Industrial Partner 342 - 1,086 -
management fee
Foreign exchange (gain) loss 965 279 3,086 (3,069)
Depreciation and amortization 4,479 4,072 13,859 11,317
Financing costs 7,242 5,826 20,782 15,640
Income tax (recovery) expense (2,777) (123) (1,874) 1,370
=========================================================================
Net earnings (loss) $(10,272) $(1,758) $(16,094) $2,938
=====================================
SEPTEMBER DECEMBER
30, 31, 1999
2000
Segment assets:
Textile Operations $141,898 $136,928
Polypropylene Operations 191,502 201,068
=========================================================================
Total for reportable segments 333,400 337,996
Corporate 1,991 1,874
=========================================================================
Consolidated total assets $335,391 $339,870
</TABLE> =================
(1)In the first quarter of 2000, the Company changed its reporting
currency from the Canadian dollar to the U.S. dollar and has decided to
prepare its financial statements under U.S. GAAP. The comparative
financial statements have been restated to reflect these changes. These
changes were made to more accurately reflect the currency in which the
Company operates, as well as to be more useful to the users of these
financial statements.
<PAGE>
Consoltex Inc.
(Formerly Consoltex Group Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (1)
=======================================================================
<TABLE>
<CAPTION>
(IN THOUSANDS OF US DOLLARS) QUARTER September Nine September
(UNAUDITED) ENDED 30, 1999 months 30, 1999
2000 ended
2000
=========================================================================
<S> <C> <C> <C> <C>
Net earnings (loss) $(10,272) $(1,758) $(16,094) $2,938
Foreign currency translation 473 161 (115) 1,387
adjustments
=========================================================================
Consolidated comprehensive $(9,799) $(1,597) $(16,209) $4,325
income (loss)
</TABLE>
(1) In the first quarter of 2000, the Company changed its reporting
currency from the canadian dollar to the U.S. dollar and has decided to
prepare its financial statements under U.S. GAAP. The comparative
financial statements have been restated to reflect these changes. These
changes were made to more accurately reflect the currency in which the
company operates, as well as to be more useful to the users of these
financial statements.
