FYTEK, S.A. DE C.V.
(a Mexican corporation)
FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
CONTENTS
Page
Report of independent accountants 1 & 2
Financial statements:
Balance sheets 3
Statements of income 4
Statements of changes in stockholders' equity 5
Statements of cash flows 6
Notes to financial statements 7-13
- ---------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
Monterrey, N. L., February 26, 2001
To the Stockholders of Fytek, S. A. de C. V.
1. We have audited the accompanying balance sheets of Fytek, S. A. de C. V. as
of December 31, 2000 and 1999, and the related statements of income, of changes
in stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
2. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and that they were prepared in
accordance with generally accepted accounting principles. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
3. In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Fytek, S. A. de C. V. at
December 31, 2000 and 1999, and the results of its operations, the changes in
its stockholders' equity and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Page 1 of EX-99
REPORT OF INDEPENDENT ACCOUNTANTS (continued)
4. As more fully described in Note 1 to the financial statements, through
December 31, 1998, Mexico had a highly inflationary economy. Accounting
principles generally accepted in the United States of America require that
financial statements of a company denominated in the currency of a country with
a highly inflationary economy be remeasured into a more stable currency unit.
Effective January 1, 1999, Mexico is no longer deemed a highly inflationary
economy. Consequently, for the year ended December 31, 1999, the company's
functional currency is the Mexican peso.
5. We have also issued our report, dated January 26, 2001 on the financial
statements in constant pesos of Fytek S. A. de C. V. as of December 31, 2000 and
1999, and the years then ended in which we expressed our opinion that the
financial statements, not included herein, present fairly, in all material
respects, the financial position and results of operations of Fytek S. A. de C.
V. as of December 31, 2000 and 1999, in conformity with accounting principles
generally accepted in Mexico.
Alejandro Moreno A.
Pricewaterhouse Coopers
Page 2 of EX-99
FYTEK, S. A. DE C. V.
BALANCE SHEETS
Thousands of U.S. dollars
December 31,
2000 1999
------ ------
Assets:
Cash and cash equivalents $ 23 $ 600
Accounts receivable 2,770 2,505
Burke Mills, Inc. (Stockholder) 356 97
Inventories 1,026 974
------ ------
Total current assets 4,175 4,176
Machinery and equipment 166 144
------ ------
Total assets $4,341 $4,320
====== ======
Liabilities:
Suppliers $ 673 $1,127
Related parties payable 1,960 1,963
Deferred income tax 291 73
Sundry creditors and accrued expenses 100 223
------ ------
Total current liabilities 3,024 3,386
------ ------
Stockholders' equity:
Capital stock 307 307
Retained earnings 868 606
Cumulative translation adjustment 142 21
------ ------
Total stockholders' equity 1,317 934
------ ------
Total liabilities and stockholders' equity $4,341 $4,320
======= =======
The accompanying notes are an integral part of these financial statements.
Page 3 of EX-99
FYTEK, S. A. DE C. V.
STATEMENTS OF INCOME
Thousands of U.S. dollars
Years ended
December 31,
2000 1999
------ ------
Net sales $8,508 $7,623
Cost of sales (7,089) (6,361)
------ ------
Gross margin 1,419 1,262
Operating expenses (557) (561)
------ ------
Operating income 862 701
------ ------
Interest income 7 33
Interest expense (16) (15)
Exchange gain (loss), net 25 (24)
------ ------
16 (6)
------ ------
878 695
Other income, net 12 14
------ ------
Income before income tax 890 709
Income taxes expense (628) (439)
------ ------
Net income $ 262 $ 270
======= =======
The accompanying notes are an integral part of these financial statements.
Page 4 of EX-99
FYTEK, S. A. DE C. V.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Thousands of U.S. dollars
Cumulative Cumulative
Capital Retained translation comprehensive
stock earnings adj. Total income
----- -------- --------- ----- ------
Balances at December 31,
1998 $307 $336 $643 $336
Net income $270 $270
Effect of change in functional
currency (Note 1.f) ($3) ($3)
Foreign currency translation
adjustment $24 $24
Comprehensive income $291
----- ----- ----- ----- -----
Balances at December 31,
1999 $307 $606 $21 $934 $627
Net income $262 $262
Foreign currency translation
adjustment $121 $121
Comprehensive income $383
----- ----- ----- ----- -----
Balances at December 31,
2000 $307 $868 $142 $1,317 $1,010
==== ==== ==== ====== ======
The accompanying notes are an integral part of these financial statements.
Page 5 of EX-99
FYTEK, S. A. DE C. V.
STATEMENTS OF CASH FLOWS
Thousands of U.S. dollars
Years ended
December 31,
2000 1999
------ ------
Net income $262 $270
Items not affecting cash:
Allowance for doubtful accounts 5 41
Depreciation 4
Deferred income taxes 218 (43)
Foreign currency translation adjustment 121 21
Changes in working capital:
Accounts receivable (295) (636)
Inventories (60) 27
Related parties, net (251) 580
Suppliers (453) 23
Sundry creditors, accrued expenses and other (124) 133
--- ---
Net cash provided by (used in) operating
activities (573) 416
--- ---
Cash flow from investing activities:
- ------------------------------------
Acquisition of machinery and equipment (27) (85)
--- ---
Cash used in investing activities (27) (85)
--- ---
Effect of exchange rate changes on
cash and cash equivalents 23 (10)
--- ---
Increase (decrease) in cash
and cash equivalents (577) 321
Cash and cash equivalents at
beginning of the year 600 279
--- ---
Cash and cash equivalents at end of the year $ 23 $600
==== ====
The accompanying notes are an integral part of these financial statements.
Page 6 of EX-99
FYTEK, S. A. DE C. V.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 COMPARATIVE WITH 1999
(Thousands of U.S. dollars, except exchange rates)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The main activity of Fytek, S. A. de C. V. (the "Company") is the manufacture of
chemical fibers. To carry out these activities the Company leases machinery and
equipment from related parties (see Note 8). The Company has no employees and
technical and administrative services are provided to it by a related party. The
Company is owned 50.01% by Akra Teijin, S. A. de C.V. and 49.99% by Burke Mills,
Inc.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (US
GAAP).
Following is a summary of the most significant accounting policies:
a. Foreign currency transactions and translation
The records of the Company are maintained in Mexican pesos ("Ps." or
"pesos"). The accompanying consolidated financial statements were derived
from the Company's accounting records, and adjusted to conform with US
GAAP. The financial statements were then translated into U.S. dollars
("dollars") in conformity with Statement of Financial Accounting Standards
("SFAS") No. 52, "Foreign Currency Translation" ("SFAS 52").
The Company's functional currency is the Mexican peso (Ps). Through
December 31, 1998 Mexico was considered a hyperinflationary economy,
therefore, the Company used the historical method of translation under SFAS
52. Under this method, non-monetary assets or liabilities originally
denominated in pesos are translated into U.S. dollars using the historical
exchange rate at the date of the transaction. Stockholders' equity is also
translated at historical rates. Income statement components are generally
translated at average rates; however, depreciation and amortization charges
are translated at historical rates based on the dollars basis of the
respective assets. The resulting translation effects are recognized in the
statement of income.
An economy is considered to be hyperinflationary when the cumulative
inflation for the previous three years exceeds 100%, however, since January
1, 1999, Mexico is no longer considered a hyperinflationary economy.
Therefore, the Company used the current method to translate its peso
denominated financial statements to dollars, and applied the provisions of
EITF 92-4, "Accounting for a Change in Functional Currency When an Economy
Page 7 of EX-99
FYTEK, S. A. DE C. V.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
a. Foreign currency transactions and translation (continued)
---------------------------------------------------------
Ceases to be Considered Highly Inflationary" and EITF 92-8, "Accounting for
the Income Tax Effects under SFAS109 of a Change in Functional Currency
When an Economy Ceases to be Considered Highly Inflationary" to account for
the change in functional currency.
Using the remeasurement method monetary assets and liabilities denominated
in pesos are translated into U.S. dollars using current or period end
exchange rates. The difference between the exchange rate at the date of the
transaction and the exchange rate on the settlement date or balance sheet
date if not settled, is included in the results of operations as a foreign
exchange gain or loss. Non-monetary assets or liabilities, originally
denominated in Ps are translated into U.S. dollars using historical
exchange rates at the date of the transactions. Capital stock transactions
are also translated at historical exchange rates.
The current method requires the translation of all assets and liabilities
using the current year end exchange rate. Capital stock continues to be
translated at historical exchange rates and income statement components are
translated at average rates. The effect of the difference between the
exchange rate at the beginning and the end of the reporting periods is
reflected as a component of other comprehensive income within stockholders'
equity.
Provided below is a summary of the year end and average exchange rates
experienced during 2000 and 1999.
Ps per $
At December 31, 2000 Year end 9.5997
Year ended December 31, 2000 Average 9.4470
At December 31, 1999 Year end 9.5222
Year ended December 31, 1999 Average 9.5264
b. Cash and cash equivalents
-------------------------
Cash and cash equivalents are stated at cost, which approximates the fair
value. The Company considers all highly and temporary cash investments with
original maturities of three months or less to be cash equivalents.
Page 8 of EX-99
FYTEK, S. A. DE C. V.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
c. Inventories and cost of sales (Note 3)
--------------------------------------
Inventories are stated at the lower of average cost or market.
d. Machinery, equipment and depreciation (Note 4)
----------------------------------------------
Machinery and equipment are stated at acquisition cost.
Depreciation of capitalized assets were calculated by the straight-line
method at an annual rate of 2.5%, beginning January 1, 2000. This rate is
based on the estimated useful lives of the assets as determined by the
Company.
e. Long lived assets
-----------------
The Company evaluates potential impairment loss relating to long-lived
assets by assessing whether the unamortized carrying amount can be
recovered over the remaining life of the assets through undiscounted future
expected cash flows generated by the assets and without interest charges.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset. Assets to be
disposed of are recorded at the lower of carrying amount or fair value less
cost to sell. Testing whether an asset is impaired and for measuring the
impairment loss is performed for assets groupings at the lowest level for
which there are identifiable cash flows that are largely independent of the
cash flows generated by other asset groups.
Long-lived assets will be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
f. Income tax
-----------
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes".
This statement requires an asset and liability approach for financial
accounting and reporting for income tax under the following basic
principles: (a) a current tax liability or asset is recognized for the
estimated taxes payable or refundable on tax returns for the current year,
(b) a deferred tax liability or asset is recognized for the estimated
future
Page 9 of EX-99
FYTEK, S. A. DE C. V.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------
tax effects attributable to temporary differences, (c) the measurement of
current and deferred tax liabilities and assets is based on provisions of
the enacted tax law and the effects of future changes in tax laws or rates
are not anticipated, and (d) the measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits for which
available evidence indicates that it is more likely than not that they will
not be realized. Under this method, deferred tax is recognized with respect
to all temporary differences.
The temporary differences under FAS No. 109 are determined based on the
difference between the historical tax-basis amount of the asset or
liability and the related historical amount reported in the financial
statements.
An additional deferred tax liability of $3 was recorded as of January 1,
1999 to reflect the temporary difference relating to machinery and
equipment generated as a result of the change in the methodology used to
translate the company's peso denominated financial statements. This effect
was recorded as part of the cumulative translation adjustment in
stockholders' equity.
g. Revenue recognition
-------------------
The Company recognizes revenue when merchandise is delivered to customers.
The allowance for returns and doubtful accounts is sufficient to cover any
possible loss.
h. Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimates.
i. Comprehensive income
--------------------
Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
j. Disclosure about concentration of credit risk
---------------------------------------------
The Company's financial statements do not include any financial instruments
that represent a significant concentration of credit risk.
Page 10 of EX-99
FYTEK, S. A. DE C. V.
NOTE 2 - ACCOUNTS RECEIVABLE
- ----------------------------
At December 31, this caption comprised the following:
2000 1999
----- -----
Bermatex, Inc. $ 552 $ 431
Fariel, S. A. de C. V. 226 253
Politel, S. A. de C. V. 412 169
Nova Distex, S. A. de C. V. 239 -
Other customers 991 1,339
Other accounts receivable 421 379
----- -----
2,841 2,571
Allowance for doubtful accounts (71) (66)
------ ------
$2,770 $2,505
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NOTE 3 - INVENTORIES
- --------------------
At December 31, this caption comprised the following:
2000 1999
------ ------
Finished products $ 845 $ 431
Work in process 340 253
Spare parts and others 66 290
------ ------
$1,251 $ 974
Less - Allowance for slow moving inventories 225 -
------ ------
$1,026 $ 974
======= =======
NOTE 4 - MACHINERY AND EQUIPMENT
- --------------------------------
At December 31, this caption comprised the following:
2000 1999
------ ------
Machinery and equipment $ 164 $ 75
Computer equipment 6 4
Construction in progress 65
------ ------
170 144
Less - Accumulated depreciation 4 -
------ ------
$ 166 $ 144
====== ======
NOTE 5 - STOCKHOLDERS' EQUITY
- -----------------------------
The capital stock is variable with a fixed minimum of $6 and an unlimited
maximum. At December 31, 2000, the subscribed and paid-in nominal capital stock
of $307, was represented by 24,450 Series "B" common, nominative shares of one
hundred nominal pesos par value each.
Dividends paid from retained earnings which have not previously been taxed are
subject to an income tax payable by the Company.
Page 11 of EX-99
FYTEK, S. A. DE C. V.
NOTE 6 - INCOME TAX
- -------------------
The components of income tax expense (benefit) for the years ended December 31,
are as follows:
2000 1999
---- ----
Current income tax expense $410 $ 482
Deferred income tax expense (benefit) 218 (43)
---- ----
$628 $439
==== ====
The primary components of the deferred tax assets (liabilities) at December 31,
are as follows:
2000 1999
---- ----
Inventory ($359) ($274)
Machinery and equipment 2 (2)
Allowance for doubtful accounts 25 23
Accrued expenses 41 180
---- ----
Net income tax (liabilities) ($291) ($ 73)
==== ====
The following is a reconciliation of the statutory income tax rate to the
effective income tax rate for the years ended December 31.
2000 1999
---- ----
Income tax computed at statutory tax rate (35%) $ 312 $ 248
Non-deductible items 102 119
Other permanent differences 12 11
Effect of change in statutory tax rate 3
Inflationary components and translation adjustments 202 58
---- ----
Income tax expense $ 628 $ 439
==== ====
NOTE 7 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES
- -------------------------------------------------------
Accounts payable with related parties at December 31, are as follows:
2000 1999
---- ----
Nylon de Mexico, S. A. de C. V. $ 175 $ 190
Fibras Quimicas, S. A. de C. V. 1,785 1,773
----- -----
$1,960 $1,963
Administrative and technical services:
- --------------------------------------
During the years ended December 31, 2000 and 1999 the Company accrued $1,407 and
$1,016, respectively for administrative and technical services due to Fibras
Quimicas, S. A. de C. V.
Page 12 of EX-99
FYTEK, S. A. DE C. V.
Operating lease:
- ----------------
In November 1996, the Company entered into a five year lease agreements for
buildings, machinery and equipment from one of its stockholders and an
affiliated company, under non-cancelable operating lease agreements. These
agreements expire in November 2001; however, Management is currently negotiating
their renewals. During the years ended December 31, 2000 and 1999, the Company
paid rentals of $549, and $549, respectively, under the terms of these
agreements.
Purchase and supply agreements:
- -------------------------------
In 1996, the Company entered into a five year supply agreement with Burke Mills,
Inc. to supply approximately $1,800, annually of polyester twisted yarn,
beginning November 1997. During the years ended December 31, 2000 and 1999 the
Company supplied $2,084 and $1,484, respectively, of polyester twisted yarn to
Burke Mills Inc.
In 1996, the Company entered into a five year supply agreement with Fibras
Quimicas, S. A. de C. V. (affiliated company) to purchase approximately $3,500,
annually of polyester natural yarn, beginning in November 1997. During the years
ended December 31, 2000 and 1999 the Company acquired $4,945 and $4,304,
respectively, of polyester natural yarn under the terms of this agreement.
Page 13 of EX-99