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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT 1934
For the fiscal year ended December 31, 2000
Commission file number: 1058980
Texon International plc
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of Registrant's name into English)
England and Wales
(Jurisdiction of incorporation or organization)
100 Ross Walk
Leicester LE4 5BX England
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act
None
Securities registered or to be registered pursuant to Section 12(g) of the Act
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
10% Series A Senior Notes due 2008
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Not applicable
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 preceding 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.
[X] Yes No
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X]Item 18
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TABLE OF CONTENTS
Page
General Introduction..................................................... 3
PART I
Item 1. Description of Business....................................... 4
Item 2. Description of Property....................................... 11
Item 3. Legal Proceedings............................................. 12
Item 4. Control of Registrant......................................... 13
Item 5. Nature of Trading Market...................................... 13
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders....................................................... 13
Item 7. Taxation...................................................... 14
Item 8. Selected Financial Data....................................... 17
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 22
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.... 27
Item 10. Directors and Officers of Registrant.......................... 31
Item 11. Compensation of Directors and Officers........................ 32
Item 12. Options to Purchase Securities from Registrant or
Subsidiaries.................................................. 32
Item 13. Interest of Management in Certain Transactions................ 33
PART II
Item 14. Description of Securities to be Registered.................... 34
PART III
Item 15. Defaults Upon Senior Securities............................... 35
Item 16. Changes in Securities and Changes in Security for
Registered Securities......................................... 35
PART IV
Item 17. Financial Statements.......................................... 36
Item 18. Financial Statements.......................................... 36
Item 19. Financial Statements and Exhibits............................. 36
Signatures ............................................................. 41
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GENERAL INTRODUCTION
Texon International plc (the "Company") is a public limited company incorporated
in England and Wales, which conducts its operations through its subsidiaries.
The Company was incorporated on October 9, 1997 and on December 23, 1997 entered
into an acquisition agreement (the "Acquisition Agreement") with the
shareholders of United Texon Limited under which the Company agreed to acquire
the entire issued share capital of United Texon Limited (the "Acquisition"). The
Acquisition was conditional upon (i) consummation of the offering by the Company
of Senior Notes due 2008 (the "Offering") and (ii) a Revolving Facility being
made available unconditionally. These conditions were duly fulfilled on January
30, 1998.
The Company has prepared consolidated accounts for the year ended December 31,
2000. Under the terms of the Acquisition Agreement, the Company had control of
the financial and operational management of United Texon Limited effective from
December 31, 1997. The Company had no previous operating history and therefore
had no consolidated profit or loss for the period from its incorporation on
October 9, 1997 to December 31, 1997.
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles of the United Kingdom ("U.K. GAAP")
which differs in certain material respects to generally accepted accounting
principles in the United States ("U.S. GAAP"). These differences are summarized
in Note 30 of the Notes to the Consolidated Financial Statements of the Company
included in this Report.
The Company publishes its financial statements in Pounds Sterling. The following
table sets forth, for the periods indicated, certain information concerning the
Noon Buying Rate for Sterling expressed in dollars per Pound Sterling. Such
rates are provided solely for the convenience of the reader and should not be
construed as a representation that Sterling amounts actually represent such
dollar amounts or that such Sterling amounts could have been, or could be,
converted into dollars at that rate or at any other rate. Such rates are not
used by the Company in preparation of its consolidated financial statements
included elsewhere herein.
Fiscal Year Ended December 31, Average Rate Period End
(1) High Low Rate
------------ ---- ---- -----------
1996 1.57 1.71 1.50 1.71
1997 1.64 1.71 1.58 1.64
1998 1.66 1.72 1.61 1.66
1999 1.61 1.68 1.55 1.62
2000 1.51 1.65 1.40 1.49
(1) The average of the Noon Buying Rates on the last business day of each month
during the relevant period. On April 26, 2001, the Noon Buying Rate was
$1.44 to (pound) 1.00
This Report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements regarding the Company's expected future financial
position, results of operations, cash flows, financing plans, business strategy,
budgets, projected costs and capital expenditures, competitive positions, growth
opportunities, plans and objectives of management for future operations and
words such as "anticipate", "believe", "plan", "estimate", "expect", "intend"
and other similar expressions are forward-looking statements. Such
forward-looking statements are inherently uncertain, and actual future results
and trends for the Company may differ materially depending on a variety of
factors. Factors that may affect the plans or results of the Company include,
without limitation level of sales to customers, actions by competitors,
fluctuations in the price of raw materials, foreign currency exchange rates and
political and economic instability in the Company's markets.
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PART I
Item 1. Description of Business
Overview
The Company believes it is the world's largest, in terms of sales, manufacturer
and marketer of structural materials that are essential in the manufacture of
footwear. The Company operates a global business, which generates sales that are
widely diversified by geographic region and product line. The Company's primary
products include materials for insoles, which form the structural foundation of
shoes; stiffeners, which support and shape the toe and heel of shoes; other
component products used in the manufacture of footwear, such as linings, lasts,
tacks, nails, steel shanks, steel toe caps, midsoles and adhesives; and a CAD
business, Crispin Dynamics a leading supplier of CAD solutions to the footwear
industry. The world's largest manufacturer of insole materials, the Company also
commands leading positions in the markets for its other footwear products. While
the products sold by the Company represent a small percentage of the total cost
of materials contained in footwear, they are critical to the performance and
manufacture of footwear and are not fashion sensitive. In 2000 approximately 91%
of sales were to the footwear manufacturing industry. By leveraging its
expertise in the manufacture of these structural materials, the Company has
developed several related niche industrial products such as carpet gripper pins
and cellulose air freshener material. These industrial products are sold to a
wide range of industries.
The Company supplies most of the major footwear manufacturers in the world and
believes that its global presence gives it a unique competitive advantage to
exploit industry trends favoring suppliers who provide footwear companies with a
"global partner". The Company supplies over 7,500 customers worldwide, servicing
global athletic footwear companies such as Nike and Adidas, designers and
producers of casual shoes including Timberland and R. Griggs & Co (Dr Martens)
and manufacturers of men's and women's formal shoes such as Church's and Bally.
The Company has eighteen manufacturing sites strategically located in Europe,
the United States, Brazil, China and Australia and sells its products in more
than 90 countries through an extensive marketing and distribution network. In
2000 sales of insoles, stiffeners, other footwear materials, industrial products
and component products accounted for 36%, 19%, 10%, 9%, and 26% of total sales,
respectively. In 2000, 48% of the Company's sales were made to Europe, 33% to
Asia and the Pacific, 16% to the Americas and 3% to the rest of the world.
Acquisitions
During the year the Company made several strategic acquisitions as follows;
a) On February 29, 2000 Texon UK Ltd, a wholly owned subsidiary, acquired
the Leicester, UK based business of Crispin Dynamics for a
consideration of approximately (pound) 2.6 million cash. New equity of
(pound) 0.7 million was raised from Texon's investors and management
and the remainder from its current bank facilities. Management believes
Crispin Dynamics is the global market leader in computer aided design
software for the footwear industry. Crispin has approximately 40
employees based in its UK headquarters and its other facilities in Asia
and Europe.
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b) On March 23, 2000 Texon Italia SpA, a wholly owned subsidiary of Texon
International plc acquired a 50% shareholding in Boxflex Componentes
Para Calcados Ltda. The Company was then renamed Boxflex Texon
Componentes Para Calcados Ltda (`Boxflex'). Boxflex is a leading
manufacturer of stiffener and insole materials in Brazil and is located
in the main footwear production area near Porto Allegre.
c) On 26 July 2000 Texon USA Inc, Texon France SA, Texon Australia Pty Ltd
and USM Texon Mexico SA, wholly owned subsidiaries of Texon
International plc, acquired Stock, Plant & Equipment and 100% of the
share capital of SCI Lambiotte Immobiliere from Foss Manufacturing Inc
and certain of its related parties.
Competitive Advantages
The Company believes that it benefits from the following competitive advantages,
which have enabled it to increase sales and operating profitability and maintain
its leadership position in the structural footwear materials industry.
Leading Market Position Driven by Strong Brands and High Quality Products. The
Company is recognized in the footwear industry for high standards of quality
across its full range of products and for providing innovative technical
solutions and support to its customers worldwide. The Company believes it is the
world's largest producer of insole material, stiffeners, tacks and nails and
steel toe caps and midsoles for footwear. The Company's products are marketed
under brand names, which enjoy extremely wide recognition within the footwear
industry, such as "Texon", "Tufflex", "Formo", "Unifast", "Esjot" and "Crispin".
The Company believes that its leading market position is due to successful
branding of its products, reliability and high performance. As a U.K. based
global enterprise, the Company also benefits from the reputation of the U.K.
footwear industry for quality production and technological leadership.
Global Presence. The Company supplies most of the world's footwear manufacturing
industry across Europe, the Americas and Asia through its direct presence in
each of these markets. The Company has eighteen manufacturing plants in nine
countries and over 50 strategically located field warehouses. An extensive
marketing and distribution network enhances the Company's ability to provide
high quality, local service to its customers and to global branded footwear
companies' worldwide sourcing networks. The Company believes that it is uniquely
positioned to benefit from the continuing globalization within the footwear
industry.
Strong Relationships with a Diverse Customer Base. The Company benefits from
long-established relationships with many of the most important footwear
companies in the world. The Company has been supplying products for Nike since
its entry into the footwear market and for R. Griggs & Co (Dr Martens) and
Church's for nearly a century. The Company believes that its customer
relationships are strengthened by its high quality products, brand names,
leading market position, and the high level of technical support it provides to
its clients. The Company's customer base is geographically diverse and covers a
wide spectrum of footwear (athletic, traditional and safety; men's, women's and
children's), minimizing the Company's exposure to individual markets. In 2000 no
single customer accounted for more than 7.5% of sales, and the top ten customers
represented 24% of sales.
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Diverse and Customized Products. The Company offers a broad range of products,
many of which are customized to meet the needs of individual footwear
manufacturers. By satisfying its customer's preference to a "one-stop-shop", the
Company's broad and comprehensive product range contributes to its leading
market position. The Company continually develops and evolves its product lines
to meet the precise and changing requirements of footwear manufacturers. The
Company believes that no competitor produces or provides as broad a range of
products.
Attractive Ancillary Businesses. The Company leverages its global distribution
channels to distribute products it does not produce itself and utilizes its
manufacturing capacity to manufacture related industrial products. The Company
manufactures and distributes products not related to the footwear industry but
which employ the Company's core manufacturing techniques, such as air filters,
materials for air fresheners and machine-applied nails. The Company believes it
is the market leader in materials for automotive air fresheners in the United
States and carpet gripper pins in Europe.
Technological Leadership. The Company believes it was the first to develop
cellulose insole material and non-woven insole material. These are now the two
most commonly used types of insole material in the world. The Company seeks to
be at the forefront of product development and to maintain a technological
advantage over its competitors through continued improvements in product
performance, manufacturing, techniques and efficiency. For example, the Company
employs specialized technology to assist anti-counterfeiting programs that are
especially important to branded athletic shoe manufacturers.
Experienced and Incentivized Management Team. Many of the Company's senior
managers have more than a decade of experience with the Company. Individually
the Company's managers have established track records in delivering revenue and
profit growth, developing new products, penetrating new markets, improving
production efficiency and streamlining supply chains. Senior management has a
significant equity stake in the Company.
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Business Strategy
The Company's strategy continues to focus on its core footwear business. Texon
seeks to become the world's leader in bringing materials technology to the
footwear market.
The Company aims to achieve this primarily by achieving excellence in customer
service in its core product areas. The Company measures this excellence in terms
of quality, cost, delivery and development. Significant improvements were made
in each of these areas in 2000. For example in terms of quality the Company
believes its products are generally regarded by the industry to be of superior
quality. The Company has stated its intention to achieve ISO 9001/2 in all of
its manufacturing plants. During 1997 the German facility achieved ISO 9001
accreditation and similar plans are now in place for its Chinese plant. Overhead
reductions, particularly in the UK have enabled the Company to trim its cost
base and mitigate the effect of reduced volumes. In terms of delivery, the
Company's UK plants dramatically improved their reliability in meeting promised
delivery times during the year. Programs are in place to accelerate the rate of
new product development in the immediate future.
The Company has also developed it's strategy for future growth along three key
dimensions:
First by offering the best global supply chain capability to the world's shoe
manufacturers and specifiers. In this regard the Company began implementation of
a Company-wide enterprise resource planning system in 1998 and this has
continued in 1999 and 2000. This facility will uniquely allow the Company to
partner global footwear brands as well as offering enhanced local service by
leveraging the global resources available to the Company.
Second, by using new materials technologies to develop products with perceivable
consumer benefits, particularly in the areas of `comfort' and `fit'. Efforts
have been focussed on developing innovative new product concepts aimed, at the
first instance, in strengthening the Company's image as an innovator in the eye
of shoe designers worldwide.
Third, by acquiring "bolt-on" business to accelerate the growth of the Company.
The Company believes there is significant potential to add value by acquiring
smaller companies with complementary products, which can then grow through by
accessing the Company's global customer base and support capabilities.
The Industry
SATRA, the leading trade association in the footwear industry, projects that the
industry will continue to enjoy steady growth at a compound annual growth rate
of approximately 3% through 2005 due to favorable demographic trends, including
continued population and economic growth, which increase the demand for and
consumption of shoes. The Company believes that the growth rate for its products
is higher, as footwear manufacturers produce more footwear that utilizes
structural materials to improve the quality and durability of shoes. In
addition, the Company believes that manufacturers increasingly utilize
structural products such as the Company's, which allow for environmentally
conscious production processes.
As the worldwide footwear industry has grown, there has been a shift in
production capacity to Asia, primarily to capitalize on low labor costs. Asia's
share of global production increased from 61% in 1991 to 72% in 1999, and it is
projected by SATRA to increase to 75% in 2005. Asia currently has around 57% of
the world's population. The Company is well positioned with its production and
marketing presence in the region.
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The structural footwear materials industry is highly fragmented, with very few
companies operating beyond a national or regional level. While the footwear
manufacturing industry is also fragmented, there is a growing trend towards
Fglobalization as shoe designers and branded footwear companies, which outsource
the manufacturing of their footwear, increasingly seek a global solution to
their supply and specification requirements. The Company has been able, and
believes it is well poised to continue, to take advantage of this trend by
providing its customers with high quality, state-of-the-art products and
servicing their requirements in each significant market through its worldwide
distribution network.
Products and Markets
The Company's products are designed to meet its customers' needs for structural
footwear material. The Company offers technical support, materials design and
customized production spanning the complete process from specification of
materials to the production of high volume products.
The Company's principal products are materials for the production of insoles and
stiffeners. The Company also produces or distributes linings, lasts, steel
shanks, tacks, nails, adhesives, steel toe caps, midsoles and other small
footwear components, together with certain niche industrial products unrelated
to the footwear manufacturing industry. On February 29, 2000, the Company
acquired Crispin Dynamics, a UK based company. Management believe Crispin
Dynamics is the global market leader in computer aided design software for the
footwear industry.
Insoles. Insoles are manufactured either from wood pulp ("cellulose insoles") or
synthetic fibres ("non-woven insoles") both of which are combined with latex in
a saturation process. The "Strobel" method is particularly suited to the
manufacture of athletic shoes where the sole itself provides structural support
and allows minimal wastage of costly upper material. As a result, sales of
non-woven insoles, which are particularly suited to the Strobel method have
grown significantly over the last few years, and are expected to continue to
increase at a higher rate than the cellulose insole market. In 2000, total sales
of insoles were (pound) 54.8 million, representing 36% of sales, with the
substantial majority of such sales representing cellulose insoles.
Stiffeners. Toe and heel stiffeners are designed to provide a range of different
stiffness, shape, support and feel characteristics for the toe and heel area of
a shoe, known as "toe puffs" or "box toes" and "counters". Stiffeners are among
the most technically complex components of a shoe, with the products being made
from a wide range of raw material and process combinations, utilizing most of
the Company's core manufacturing technologies. The Company's more
environmentally sound thermoplastic stiffeners are more attractive to
manufacturers than a chemical solvent-based alternative. The Company's
stiffeners are also ideal for more complex athletic shoes, which require
sophisticated stiffeners given certain sports' needs for rigid footwear. In
2000, total sales of stiffeners were (pound) 32.7 million, representing 22% of
sales.
Other Footwear Materials. The Company also produces or distributes a wide range
of other shoe construction materials. These include shoe lining material sold
under the "Aquiline" brand name and products produced by the Unifast division
which sells steel shanks, tacks, nails, shoe consumables and accessories, such
as reinforcing tapes, eyelets and adhesives. In 2000, total sales of these
footwear materials products were (pound) 15.7 million, representing 10% of
sales.
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Industrial Products. The Company manufactures products for applications which
are not associated with the footwear industry but which require similar
manufacturing processes to the Company's core technologies. These niche products
span the cellulose, non-woven and Unifast production areas. Industrial products
produced using cellulose technology include materials for automotive air
fresheners and stiffeners for baseball caps. The non-woven production process
has been adapted for use in high performance air filtration applications and in
speciality medical dressings. The Unifast division utilizes its tack and nail
manufacturing capacity to produce machine-applied carpet gripper pins and
ballistic nails for industrial use. In 2000, total sales of industrial products
were (pound) 13.9 million, representing 9% of sales.
Component Products. The Company manufactures steel toecaps and midsoles for the
safety footwear market in its Esjot businesses. As well as the steel toecaps and
midsoles `metal products' the component division has sales of outer soles,
lasts, heels and toe pieces and crepe `plastic products' manufactured by
Cornwell Industries Ltd. In 2000, the total sales of component products were
(pound) 34.5 million, representing 23% of sales.
Customers and Markets Served
The Company has three primary customer types: branded footwear companies, major
manufacturers producing footwear under contract for other firms, and smaller,
independent producers. The Company also sells its products to distributors and
converters (companies that convert the Company's products to the actual product
specification and layout required by the end shoe manufacturer) as well as
customers for the Company's niche market industrial products.
The materials manufactured by the Company can be found in footwear produced by
the world's leading branded footwear companies. Branded footwear companies
generally produce a detailed specification for their shoes including a list of
approved materials suppliers. Large footwear manufacturers, manufacturing under
contract for these branded footwear companies, select their preferred footwear
materials supplier from the specified list. As a global partner to many branded
footwear companies, the Company supplies its products as the preferred supplier
for that customer. In other cases, the Company's products are supplied to
subcontractors in circumstances where the branded shoe company is unaware of the
origin of the materials being used. When footwear is not required to be produced
according to a prescribed specification, manufacturers will source independently
from materials suppliers. The Company seeks to develop close relationships with
its customers and, in particular, to become involved in assisting customers in
the design of new end-products where this is a feature of the customer's
business.
The Company believes that it is included on its customer's specification lists
due to its reputation for a consistently high quality product. The Company's
local presence and support is essential to its developing strong relationships
with both major and smaller manufacturers, and to ensuring that local factory
manufacturers follow the specifications of their customers. The Company believes
that the strength of its customer relationships is a key competitive advantage
at all levels. The ability to push demand for its products from branded shoe
companies, while also pulling demand from individual shoe factories, is another
competitive advantage which the Company believes would require considerable
investment on the part of competitors to replicate.
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Sales and Distribution
The Company believes that it is uniquely placed in the highly fragmented
footwear materials industry in having a truly global presence with both branded
shoe companies and direct users of its products. The Company employs over 330
marketing, distribution and technical support personnel and uses over 150 agents
and over 65 distributors. This extensive distribution network allows the Company
to sell its products effectively throughout more than 90 countries, and to cover
all of the world's major footwear manufacturing regions. The Company supports
its strong distribution capability through its network of over 50 field
warehouses. Distributors and agents are supported by regionally based sales and
technical specialists allowing the Company to deliver high levels of customer
service locally in its significant markets. The Company's global presence
enables it to provide price, quality and delivery on a worldwide basis.
Manufacturing
The Company has an expertise in tailoring a variety of distinct manufacturing
processes to produce innovative technical products for the footwear industry.
The Company's primary manufacturing process is the treatment of cellulose and
synthetic fibres with latex to produce insoles. The Company further processes
the synthetic products to produce stiffeners. The Company also processes metal
strip and wire to produce shanks, tacks and nails and manufacturers steel
toecaps and midsoles from steel.
The large majority of the Company's insole and stiffener material is produced in
sheet or roll form to facilitate transport and shipment. This material then
requires further conversion before use in footwear manufacture. Such conversion
consists of cutting or molding the product to specification. The labor-intensive
conversion process is typically carried out by third party converters. The
Company converts a small proportion of its material itself as a service to its
customers.
Cellulose Manufacturing Process. The cellulose manufacturing process is used
primarily for the production of insole material. In a process similar to the
manufacture of paper, pulp is combined with synthetic latex into a saturated
board, which is then dried and cured so that the latex acts as a binder for the
board. Trace additives and coatings are used to develop the required properties
for different grades of product. Cellulose insole material may require further
treatment with coatings of polymeric film or laminating with layers of foam to
enhance waterproofing, comfort and other characteristics. The Company does not
perform these processes in-house, but rather outsources them or sells its
cellulose products on for further processing.
Synthetic Non-Woven Manufacturing Process. Stiffeners and a portion of the
Company's insoles and other products are produced using synthetic, non-woven
materials. The primary production begins with the processing of polyester and
other synthetic fibres to produce felt of various grades and thickness. As a
non-woven process, the synthetic fibres are intertwined rather than woven. In
some cases, this is followed by heat treatment. Further stages involve
impregnation with synthetic rubbers and may include coloring and finishing,
which includes printing, splitting and sueding. The reels of felt are
impregnated and rolled to the correct gauge and an adhesive coating is added to
one or both sides. The material is then cut into sheets or rolls.
Specific, non-woven processes are occasionally outsourced to supplement in-house
production, particularly in the area of fabric manufacturing. All outsourcing
takes place with established supplier links and is usually for short periods
only.
Manufacturing of Tacks, Nails and Shanks. The Unifast division manufactures
tacks, nails and steel shanks. Tacks and nails are made from rolls of wire,
which are punched by a die and then cut to form the tacks and nails. A
sophisticated manufacturing process is required to make the tacks and nails
suitable for usage in high speed machines. Further processing may include
threading, heat treating or plating. Shanks are stamped and formed from rolls of
sheet steel in thousands of different shapes, heat treated, washed and packed.
Steel Toe Caps and midsoles manufacturing process. The toecaps are made from
steel, which is stamped by machine into caps suitable for both left and right
feet. This stamping process involves cutting the steel, drawing it deep and
flanging it. After stamping, the caps are hardened by furnace, and then shot
blast to provide a suitable surface for an epoxy coating. Midsoles are also cut
from steel, then deburred, tempered and coated for strength and stiffness.
-10-
Manufacturing of Other Industrial Products. The Company has developed expertise
within its core technologies, which has enabled it to make a number of unique
products for industrial applications outside of footwear manufacturing. These
products utilize the Company's manufacturing skills and technical expertise to
engineer innovative solutions for other industries. Products include materials
for vehicle air fresheners, imitation leather goods, and speciality medical
dressings.
Intellectual Property
The Company utilizes trademarks on nearly all of its products, and believes
having such distinctive trademarks is an important factor in creating and
maintaining the strong market position for its goods and services. This further
serves to identify the Company and distinguish its goods from those of its
competitors. The Company considers the "Texon", "Aquiline", "Tufflex", "Formo",
"IVI", "Unifast", and "Implus" trademarks to be among its most valuable assets,
and has registered trademarks in over 80 countries. The Company's policy is to
protect vigorously its trademarks against infringement. The Company does not
believe it is dependent to any significant extent upon any single or related
group of patents, licenses or concessions.
Item 2. Description of Property
Land Disposal
The land and buildings owned by Texon UK Ltd (a wholly owned subsidiary) and
situated in Leicester, UK were sold to a property developer on October 9, 1998.
The terms of the sale include a sale price of (pound) 8.0 million, consisting of
(pound) 4.0 million paid in cash and a (pound) 4.0 million interest bearing loan
note issued by the developer. As an incentive to the Company's tenant to sign a
long-term rental agreement (pound) 1.0 million of the loan note has been
assigned to them. The Company pays an annual rent of (pound) 0.5 million for the
use of its offices and factory located on this site.
-11-
In addition to its executive offices in Leicester, U.K. the Company operates
sixteen major facilities in eight countries with a total of approximately
181,502 square meters, of which the Company currently owns approximately 67,422
square meters and leases 114,080 square meters. These facilities are as follows:
Size Description of
Location (approx sq.mtrs) Owned/Leased Products Manufactured
- -------- ---------------- ------------ ---------------------
Europe
Leicester, U.K. 16,000 Leased Tack and nails; steel shanks;
Conversion of stiffeners;
6,131 Leased Non-woven materials
Component products
Skelton, U.K. 18,652 Leased Non-woven materials
Mockmuhl. Germany 19,150 Owned Cellulose products
Ripatransone, Italy 5,630 Owned Cellulose products
Saverne, France 9,887 Owned Component products
17,075 Leased Component products
33,922 Leased Component products
Milan, Italy 4,693 Owned Component products
United States
Russell, Massachusetts 14,220 Owned Cellulose products
Brazil
Novo Hamburgo 2,400 Owned Non-woven materials
Asia
Foshan, China 7,742 Owned Cellulose products
Australasia
Geelong, Australia 7,400 Leased Component products
Melbourne, Australia 10,300 Leased Component products
Sydney, Australia 4,600 Leased Component products
Adelaide, Australia 3,700 Owned Component products
181,502
The Company continues to invest for the future with capital expenditures of
(pound) 2.2 million and research and development expenditures of (pound) 1.6
million during the year ended December 31, 2000.
Item 3. Legal Proceedings
From time to time, the Company is involved in routine litigation incidental to
its business. The Company is not party to any pending or threatened legal
proceeding, which the Company believes would have a material adverse effect on
the Company's results of operations or financial condition.
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Item 4. Control of Registrant
PRINCIPAL SHAREHOLDERS
The following table furnishes information as to the beneficial ownership of the
outstanding Voting Ordinary Shares by (i) each person known by the Company to
beneficially own more than 10% of the outstanding Voting Ordinary Shares and
(ii) all directors and officers of the Company as a group.
Amount of Beneficial
Ownership
---------------------
Number of Percentage
Shares Owned
--------- ----------
Principal Shareholders
Apax Funds Nominees Ltd 3,102,777 68.37
All directors and officers as a group(1) (3 persons) 3,432,831 75.65
(1) Includes 3,102,777 Voting Ordinary Shares owned by funds advised by
Apax. A non-executive director of the Company is a director of Apax
Partners & Co. Strategic Investors Limited and Apax Partners & Co.
Ventures Limited. The non-executive director disclaimed beneficial
ownership of the shares held by funds advised by Apax.
Item 5. Nature of Trading Market
The Company's Series A Senior Notes due 2008 (the "Notes") are eligible for
trading in the Private Offering, Resale and Trading through Automated Linkages
(PORTAL) Market, the National Association of Securities Dealers' screen based,
automated market for trading of securities eligible for resale under Rule 144A.
The Company does not intend to list the Notes on any national securities
exchange other than the Luxembourg Stock Exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. Accordingly, no assurance can be given that an active market
will develop for any of the Notes or as to the liquidity of the trading market
for any of the Notes. If a trading market does not develop or is not maintained,
holders of the Notes may experience difficulty in reselling such Notes or may be
unable to sell them at all. If a market for the Notes develops, any such market
may be discontinued at any time. If a trading market develops for the Notes,
future trading prices of such Notes will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Company, the Notes may trade at a discount from
their principal amount.
Item 6. Exchange Control and Other Limitations Affecting Security Holders.
There are no limitations under UK law, decrees or regulations, as currently in
effect, that would affect the transfer of capital, interest or other payments to
non-UK resident holders of the Senior Notes, except as set forth in "Item 7 -
Taxation".
-13-
Item 7. Taxation
The following discussion is a summary of certain U.S. federal income tax
consequences of the ownership of Notes by U.S. Holders (as defined below). The
summary is not a complete analysis or description of all potential tax
consequences to such holders and does not address all tax considerations that
may be relevant to all categories of potential purchasers (such as dealers in
securities or commodities, tax-exempt investors, investors whose functional
currency is not the U.S. dollar and other investors subject to special rules,
including investors holding Notes as part of the currency hedge, a straddle, a
"synthetic security", or other integrated investment (including a "conversion
transaction") comprised of a Note and one or more other investments).
Holders of Notes are urged to consult their own tax advisors concerning the U.S.
federal, state and local tax consequences of the purchase, ownership and
disposition of Notes.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), judicial decisions, administrative pronouncements, and existing and
proposed Treasury regulations, changes to any of which after the date hereof
could apply on a retroactive basis and affect the tax consequences described
herein.
Taxation of Interest. While the Notes continue to be in bearer form and are
listed on a recognized stock exchange (as defined by section 841 Taxes Act 1988)
interest on the Notes may be paid without withholding for income tax provided:
(a) the person by or through whom the payment is made is not in the U.K.;
(b) the payment is made by or through a person who is in the U.K. and either
of the following requirements is met
(i) the person receiving the interest is beneficially entitled to the
interest, beneficially owns the Notes and is not resident in the
U.K. for tax purposes; or
(ii) the Notes are held within a recognized clearing system within the
meaning of section 841A Taxes Act 1988 (The Euroclear Operator and
Cedel have each been designated as a recognized clearance system for
this purpose).
and the person by or through the payment is made has received a declaration to
that effect in the form required by law and the Inland Revenue has not issued a
notice to the person by or through the payment is made stating that they
consider that the above conditions have not been satisfied.
If the above requirements are not satisfied, interest will be paid under
deduction of income tax at the lower rate subject to any direction to the
contrary by the Inland Revenue in respect of any relief, which may be available
pursuant to the provisions of any applicable double taxation treaty.
-14-
The interest on a Note is derived from the U.K. and accordingly will be
chargeable to U.K. tax by direct assessment even if the interest is paid without
deduction. Interest on the Notes received without deduction or withholding will
not be chargeable to U.K. income tax in the hands of a holder of a Note who is
not resident in the U.K. unless the holder of the Note carries on a trade,
profession or vocation within the U.K. through a UK branch or agency in
connection with which the interest is received or to which the Notes are
attributable.
Where interest on the Notes has been paid under deduction of lower rate income
tax. Noteholders who are not resident in the U.K. may be able to recover all or
part of the tax deducted if there is an appropriate provision under an
applicable double taxation treaty between the country in which they are resident
for tax purposes and the U.K. A U.S holder who is entitled to the benefit of the
U.S./U.K. double taxation treaty would normally be able to recover in full any
tax withheld by making the appropriate claim. A claim may be made by a United
States holder prior to the interest being paid and if accepted the Inland
Revenue will authorize subsequent payments to be made without withholding. In
the case of an advance claim such a claim should be made well in advance of the
interest payment date and in the case of a claim for repayment well before the
end of the appropriate limitation period (six years after the end of the U.K.
year of assessment to which the interest relates).
The term "U.S. Holder" means a beneficial owner of a Note that (a) purchased the
Note in the offering, (b) holds the Note as a capital asset and (c) is, for U.S.
federal income tax purposes, (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or under
the laws of the United States or any political subdivision thereof or (iii)
otherwise subject to U.S. federal income tax on a net income basis in respect of
the Notes.
Payments of Interest. The gross amount of interest paid on a Note will be
includible in the gross income of a U.S. Holder at the time it is received or
accrued, depending on the Holder's method of accounting for U.S. federal income
tax purposes, under the rules described below. The Notes are not anticipated to
be issued at a discount that is not treated as de minimis for U.S. federal
income tax purposes, and therefore the Notes are not anticipated to be issued
with any original issue discount. This treatment is based upon the assumption
that no liquidated damages will be paid on account of a Registration Default.
The United States Internal Revenue Service could, however, assert a different
position, which could result in the Notes being treated as issued with original
issue discount, and thereby affecting the timing and character of interest
income of U.S. Holders.
In the case of a cash method U.S. Holder, the amount of interest income in
respect of any interest payment will be determined by translating such payment
into U.S. dollars at the spot exchange rate in effect on the date such interest
payment is received. No exchange gain or loss will be realized with respect to
the receipt of such interest payment, other than exchange gain or loss that is
attributable to any difference between the exchange rate utilized to translate
the Deutsche Mark payment into U.S. dollars by the Paying Agent and the spot
exchange rate in effect on the date such interest payment is received or, in the
case of a U.S. Holder that elects to receive payments on the Notes in Deutsche
Marks, that is attributable to the actual disposition of the Deutsche Marks
received. Any such exchange gain or loss will generally be treated as ordinary
income or loss. In the case of an accrual method U.S. Holder, the amount of any
interest income accrued during any accrual period will generally be determined
by translating such accruals into U.S. dollars at the average exchange rate
applicable to the accrual period (or, with respect to an accrual period that
spans two taxable years, at the average exchange rate for the partial period
within the taxable year). Such a U.S. Holder will additionally realize exchange
gain or loss with respect to any interest income accrued on the date such
interest income is received (or on the date the Note is disposed of) in an
amount equal to the difference between (x) the U.S dollars received in respect
of such interest payment or, in the case of a U.S. Holder that elects to receive
payments on the Notes in Deutsche Marks, the amount determined by converting the
amount of the payment received into U.S. dollars at the spot exchange rate in
effect on the date such payment is received and (y) the amount of interest
income accrued in respect of such payment according to the rule set forth in the
prior sentence. Notwithstanding the rules described above, an accrual method
-15-
U.S. Holder may alternatively make an election to apply a "spot accrual
convention" that effectively allows such U.S. Holder to translate accrued
interest into U.S. dollars at a single spot exchange rate, as set forth in
Treasury regulations ss. 1.988-2(b)(2)(iii)(B). The amount of interest income
received by a U.S. Holder as set forth in this paragraph will generally be
treated as "passive income" or, in the case of certain U.S. Holders, "financial
services income", from sources outside the United States, and any foreign
currency exchange gain or loss as set forth in this paragraph will generally be
treated as realized from sources within the United States.
Sale, Retirement and Other Disposition of the Notes. Upon the sale, exchange or
retirement of a Note, a U.S. Holder will generally recognize a taxable gain or
loss equal to the difference between the amount realized (not including any
amounts received that are attributable to accrued and unpaid interest, which
will be taxable as interest income, and exchange gain or loss as set forth above
and in this paragraph) and the U.S. Holder's tax basis in the Note. A U.S.
Holder's tax basis in a Note generally will be its cost, which generally will be
calculated by reference to the spot exchange rate for Deutsche Marks in effect
on the date of purchase. The value of any amount received by a U.S. Holder on
retirement of the Note generally will be determined by reference to the spot
exchange rate for Deutsche Marks in effect on the date the Note is retired. Gain
or loss recognized on the sale or retirement of a Note (determined as described
above) will be capital gain or loss and will be long-term gain or loss if the
Note was held for more than one year at the time of the disposition. U.S.
Holders that are individuals may be eligible for preferential treatment for net
capital gains, particularly with respect to capital assets that are held for
more than 18 months at the time of disposition. Gain recognized by a U.S. Holder
generally will be treated as U.S. source income. U.S. Holders should consult
their tax advisors regarding the source of loss recognized on the sale, exchange
or retirement of a Note. Notwithstanding the foregoing, gain or loss recognized
by a U.S. Holder on the sale, exchange or retirement of a Note generally will be
treated as ordinary income or loss to the extent that the gain or loss is
attributable to changes in Deutsche Mark exchange rates during the period in
which the U.S. Holder held the Note or, in the case of a U.S. Holder that does
not elect to receive payments on the Notes in Deutsche Marks, to the extent of
any difference between the amount realized on retirement of the Note calculated
by reference to the spot exchange rate for Deutsche Marks in effect on the date
of retirement and the actual amount of U.S. dollars received. In general, such
foreign currency gain or loss will be treated by a U.S. Holder as realized from
sources within the United States.
Information Reporting and Backup Withholding. In general, information reporting
requirements will apply to certain payments of principal and interest paid in
respect of the Notes and to the sales proceeds of Notes paid to U.S. Holders,
other than certain exempt U.S. Holders (such as corporations). A 31% backup
withholding tax will apply to such payments if the U.S. Holder fails to provide
a taxpayer identification number or certification of foreign or other exempt
status or to comply with applicable requirements of the backup withholding
rules. Any amounts withheld under the backup withholding rules will be eligible
for credit against such U.S. Holder's U.S. federal income tax liability,
provided the required information is furnished to the Internal Revenue Service.
-16-
Item 8. Selected Historical Consolidated Financial Information and Other Data
The following table presents as of the dates and for the periods indicated
selected historical consolidated financial information of the Company. The
historical consolidated financial information of United Texon Limited for years
ended December 31, 1996 and 1997 and of Texon International plc for the years
ended December 31, 1997, 1998, 1999 and 2000 has been derived from the audited
consolidated financial statements of the Company (including the Machinery
business) included elsewhere herein.
The information contained in the following tables should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's historical Consolidated Financial Statements and
related notes included elsewhere in this document.
The selected historical consolidated statement of operations data for the
five-year period ended December 31, 2000 reflects the results of operations of
the Materials business only. Historical consolidated information set forth in
the table under "Other Data" for these periods also reflects the results of the
Materials business only. The Texon International plc historical consolidated
balance sheet data as of December 31, 2000, 1999, 1998 and 1997 reflects the
financial position of the Materials business only. Historical consolidated
balance sheet data for all other periods reflect the financial position of both
the Materials business and the Machinery business as U.K. GAAP does not require
the restatement of prior year balance sheets for discontinued operations.
The Company was incorporated on October 9, 1997 and on December 23, 1997 entered
into an acquisition agreement with the shareholders of United Texon Limited
under which the Company agreed to acquire the entire issued share capital of
United Texon Limited. Under the terms of the agreement, the Company had control
of the financial and operational management of United Texon Limited effective
December 31, 1997. The Company had no operations from its incorporation on
October 9, 1997 to December 31, 1997 consequently there was no consolidated
profit and loss account for that period.
United Texon Limited was incorporated on January 5, 1995. On April 24, 1995
United Texon Limited acquired USM (Holdings) Limited. In 1995, Apax Partners &
Co. Strategic Investors Limited and Apax Partners & Co. Ventures Limited
(together "Apax"), led an institutional buy-out of USM (Holdings) Limited and
its subsidiaries, which at that time operated both the footwear materials
business carried on by the Company and a machinery business which sells and
services machines used to manufacture shoes. During 1997, the Materials business
and the Machinery business were separated into two groups and, as of December
31, 1997, were demerged.
The Company prepares its Consolidated Financial Statements in accordance with
U.K. GAAP, which differs in certain material respects from U.S. GAAP. These
differences have a material effect on net income/(loss) and the composition of
shareholder's deficit and are summarized in Note 30 to the Consolidated
Financial Statements of the Company included elsewhere in this document.
-17-
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA
United Texon International plc
Texon
Limited
---------- --------------------------------------------------------
Historical
----------
Year Ended Year Ended Year ended Year ended Year ended
December December 31, December December December
31, 1996 1997 31, 1998 31, 1999 31, 2000
---------- ----------- ---------- ---------- ----------
(Pounds sterling in thousands)
Statement of Operations Data:
Amounts in accordance
with U.K. GAAP:
Sales turnover(a)........................ 128,602 122,343 110,880 126,627 151,586
Cost of goods sold....................... 84,321 79,802 72,193 84,083 105,197
------ ------ ------ ------ -------
Gross profit............................. 44,281 42,541 38,687 42,544 46,389
Operating expenses(b)&(c) 28,001 32,932 26,106 29,688 34,181
------ ------ ------ ------ ------
Income from
continuing operations................. 16,280 9,609 12,581 12,856 12,208
Exceptional items(c).................... - - 957 1,000 1,000
Loss on sale of discontinued
activities - - - - (361)
Income before taxes
and interest........................... 16,280 9,609 13,538 13,856 12,847
------- ------- ------- ------- -------
Interest expense, net.................... 10,044 10,199 9,147 10,532 11,345
Amortization of
deferred financing costs(f)............ - - 682 788 827
------- ------- ------- ------- -------
Income before taxes
and minority interests................. 6,236 (590) 3,709 2,536 675
Income tax expense....................... 2,387 1,492 1,303 1,754 3,134
------- ------- ------- ------- -------
Income/(loss) before minority
Interests.............................. 3,849 (2,082) 2,406 782 (2,459)
Minority interests in
(earnings)/losses(g)................... (293) (305) (184) (206) (234)
------- ------- ------- ------- -------
Net income/(loss)
continuing operations.................. 3,556 (2,387) 2,222 576 (1,496)
Net income/(loss)
discontinued operations................ (4,285) (1,931) - - (1,197)
------- ------- -------- ------- -------
Net income/(loss)........................ (729) (4,318) 2,222 576 (2,693)
======= ======= ======== ======= =======
Other Data:
Amounts in accordance
With U.K GAAP:
Depreciation and
amortization........................... 2,161 2,355 1,910 3,500 4,653
Capital expenditures..................... 3,188 1,722 2,038 3,720 2,184
Ratio of earnings to
fixed charges(e)....................... 1.6x 0.9x 1.5x 1.3x 1.1x
Shortfall of earnings to
fixed charges.......................... - (590) - - -
See notes to Selected Historical Consolidated Financial Information
and Other Data.
-18-
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA (CONTINUED)
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
---------- ---------- ----------
(Pounds sterling in thousands)
Statement of Operations Data:
Amounts in accordance with U.S. GAAP:
Sales turnover (a)......................................... 110,880 126,627 151,586
Cost of goods.............................................. 72,193 84,083 105,197
--------- ------ -------
Gross profit............................................... 38,687 42,544 46,389
Operating expenses (including amortization of
goodwill)(b) and (c).................................... 27,435 29,942 34,883
--------- ------- -------
Income from continuing operations (d)...................... 11,252 12,602 11,506
(Loss) from discontinued operations (d).................... - - (1,197)
Interest expense, net...................................... 9,147 10,532 11,345
Amortization of deferred financing costs (f)............... 682 788 827
-------- ------- --------
Income/(loss) before taxes and minority interests.......... 1,423 1,282 (1,863)
Income tax expense......................................... 1,277 1,783 3,253
--------- ------- --------
Income/(loss) before taxes, extraordinary items and
minority interests....................................... 146 (501) (5,116)
Minority interests in (earnings)/losses (g)................ (184) (206) (234)
--------- -------- --------
Net (loss) from continuing operations...................... (38) (707) (5,350)
--------- -------- --------
Other Data:
Amounts in accordance with U.S. GAAP:
Depreciation and amortization.............................. 5,850 7,547 8,409
Capital expenditures....................................... 2,038 3,720 2,184
Ratio of earnings to fixed charges (e)..................... 1.1x 1.1x 0.9x
Shortfall of earnings to fixed charges..................... - - (1,863)
See Notes to Selected Historical Consolidated Financial Information
and Other Data.
-19-
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA (CONTINUED)
United Texon Texon International plc
Limited
---------- -----------------------------------------------------
Historical Historical
---------- -----------------------------------------------------
As of As of As of As of As of
December 31, December 31, December 31, December 31, December
1996 1997 1998 1999 31, 2000
---------- ----------- ----------- ----------- -----------
(Pounds sterling in thousands)
Consolidated Balance Sheet Data:
Amounts in accordance with U.K. GAAP:
Total assets....................... 99,386 54,315 49,927 86,024 102,008
Total debt......................... 87,221 87,660 90,539 107,608 117,407
Obligations under finance lease.... 1,092 922 1,245 1,487 1,078
Total shareholder's deficit........ ( 66,066) (68,629) (71,019) (59,237) (58,089)
Consolidated Balance Sheet Data:
Amounts in accordance with U.S. GAAP:
Total assets...................................... 121,346 121,250 148,668 161,120
Total debt........................................ 87,660 90,539 112,656 111,865
Total shareholders' (deficit)..................... (1,792) (10,336) (2,350) (5,218)
See Notes to Selected Historical Consolidated Financial Information
and Other Data.
-20-
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION AND
OTHER DATA
(a) Sales turnover includes amounts from transactions with the discontinued
business to reflect the total sales of the Materials business. These
amounts have been eliminated in the consolidated financial statements.
(b) Operating expenses for the year ended December 31, 1997 include certain
non-recurring expenses totalling (pound) 5.6 million. These expenses
include (pound) 1.7 million relating to fees incurred in connection
with a contemplated sale of the Materials business, the sale was
abandoned by the shareholders in October 1997, (pound) 1.1 million in
refinancing costs and (pound) 2.8 million as the cost of the exercise
of management share options on completion of the Offering. Operating
expenses for year ended December 31, 2000 include (pound) 1.2 million
(1999 (pound) 0.3 million) of costs in connection with reorganisation
of the business.
(c) The exceptional items for the periods ended December 31, 2000, 1999 and
1998 refer to the profit on disposal of property in Leicester, U.K. net
of costs.
The loss on sale of discontinued activities for December, 31 2000 of
(pounds) 361,000 relates to the termination of the industrial business
within Cornwell Components Ltd.
(d) Income from continuing operations under U.S. GAAP is arrived at after
taking into account the differences relating to the amortization of
goodwill, the treatment of pensions and other post-retirement benefits,
the calculation of property profits, the United Texon Limited
acquisition costs and the extraordinary debt extinguishment costs as
set out in Note 30 to the Consolidated Financial Statements included
elsewhere herein. The continuing operations portion of the goodwill
amortization differences for the years ended December 31, 2000, 1999,
and 1998 amount to (pound) 3,756,000 (pound) 4,047,000, (pound)
3,940,000 and respectively. The continuing operations portion of the
difference relating to pensions and post-retirement benefits for the
years ended December 31, 2000, 1999, and 1998 amounts to (pound)
666,000 (pound) 2,782,000, (pound) (2,649,000) and respectively. The
continuing operations portion of the difference relating to United
Texon Limited acquisition costs for the year ended December 31, 1997
amounts to (pound) 500,000. The continuing operations portion of the
difference relating to the extraordinary debt extinguishment costs for
the year ended December 31, 1997 amounts to (pound) 1,144,000.
(e) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income before provision for income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness and one-third of rental expense on operating leases,
representing that portion of rental expenses deemed by the Company to
be attributable to interest.
(f) Under U.K. GAAP, costs associated with the issuance of debt are
deducted from the amounts raised for the purposes of balance sheet
presentation and amortized over the life of the debt.
(g) The minority interest calculation is based on the income before tax
(earnings) of the Foshan operation and Texon Boxflex Componentes Para
Calcados Ltda.
-21-
Item 9. Managements Discussion And Analysis Of Financial Condition
And Results Of Operations.
Comparison of Year ended December 31, 2000 to year ended December 31, 1999
- --------------------------------------------------------------------------
Sales Turnover. Sales for the year ending December 31, 2000 were (pound) 151.6
million, an increase of (pound) 25.0 million or 19.7% when compared to 1999. On
a constant currency basis sales increased by 23.1% in 2000 compared to 1999.
Management believes this increase was primarily due to the full year inclusion
of sales from the 1999 acquisitions together with the impact of the 2000
acquisitions of Crispin Dynamics, Boxflex and Foss Manufacturing. Crispin
Dynamics acquired on February 29, 2000, had sales from the date of acquisition
to December 31 of (pound) 2.4 million. The sales by Boxflex since its
acquisition on March 23, 2000 were (pound) 4.1 million, while sales of Foss
products since its acquisition on July 26, 2000 were (pound) 4.2 million.
Although the Company believes that footwear production in Europe continues to
decline due to the transfer of production to the Far East, sales in Europe
increased by 15.6% to (pound) 72.0 million mainly as a result of the full year
impact of the 1999 acquisitions. Sales in Asia increased by 21.9% to (pound)
41.1 million due to the sales initiatives for stiffener products as well as
strong market share gains made in China for insoles. In the Americas, sales
increased by 33.9% to (pound) 24.4 million, predominantly in Brazil as a result
of the Boxflex acquisition. Sales to the rest of the world increased by 13.8% or
(pound) 1.7 million from the comparable period in 1999.
Insole sales for the year were static at (pound) 54.8 million for the year
reflecting the difficult market conditions in Europe and North America where the
Company has the majority of its insole sales. Stiffener sales increased to
(pound) 32.7 million in 2000 from (pound) 27.7 million in 1999. The increase in
stiffener sales is mainly due to the sales of Foss products and the full year
benefit of the Boxflex acquisition. Other footwear product sales, increased by
6.3% to (pound) 15.7 million during 2000 and metal products increased to (pound)
18.2 million from (pound) 9.0 million in 2000 as a result of a full year
inclusion of the Esjot businesses acquired in July 1999.
Gross Profit. Gross Profit increased to (pound) 46.4 million for the year ended
December 31, 2000 from (pound) 42.5 million for the same period in 1999. The
increase in gross profit in monetary terms is due to the additional sales
volumes however, the gross profit to sales percentage fell from 34% in 1999 to
31% in 2000. The reasons for this decline is that the acquired businesses do not
generate as high a gross profit margin as Texon's original material business.
Additionally, margins in the insole business have been eroded by higher pulp
prices in the year as compared to 1999 and the time lag between incurring higher
raw materials prices and passing such increases onto our customers.
Marketing and Administrative expenses. Marketing and administrative expenses
increased to (pound) 34.2 million for the year ended December 31, 2000 from
(pound) 29.7 million for the same period in 1999. These costs have increased due
to the expenses of the acquired businesses offset by a cost reduction program
implemented during the year throughout the group. Excluding acquisitions,
overheads for the year were (pound) 0.6 million lower than in 1999. During the
year ended December 31, 2000, (pound) 1.2 million was included for exceptional
reorganisation costs as compared to (pound) 0.3 million for the same period in
1999.
Profit on ordinary activities before interest. Profit on ordinary activities
before interest decreased from (pound) 13.9 million for the year ended December
31, 1999 to (pound) 13.2 million for the year ended December 31, 2000. Excluding
discontinued operations and one-off re-organisation costs operating profit was
(pound) 15.3 million compared to (pound) 14.1 million in 1999.
-22-
Interest Expense. Interest expense including amortization of deferred financing
costs increased from (pound) 11.3 million for the year ended December 31, 1999
to (pound) 12.2 million for the year ended December 31, 2000. This increase is
primarily due to the new debt incurred to finance acquisitions during 1999 and
2000. Included in the interest charge is amortization of debt issuance costs of
(pound) 0.8 million for 2000 and (pound) 0.8 million for 1999.
Taxation. The tax charge increased by (pound) 1.4 million to (pound) 3.1 million
for the year ended December 31, 2000. This increase is due to the companies
acquired during 1999 and 2000 having taxable profits as well as certain
companies incurring a charge in 2000 as they fully utilised the tax losses
brought forward from previous years.
Net (Loss)/Income). The net loss of (pound) 2.7 million for the year ended
December 31, 2000, compares to a net income of (pound) 0.6 million for the same
period of 1999. The variance was a result of the factors described above.
Comparison of Year ended December 31, 1999 to year ended December 31, 1998
- --------------------------------------------------------------------------
Sales Turnover. Sales for the year ending December 31, 1999 were (pound) 126.6
million, an increase of (pound) 15.7 million or 14.2% when compared to the same
period in 1998. On a constant currency basis sales increased by 13.8% in 1999
compared to 1998. Management believes this increase was primarily due to the
recent acquisitions by the Company of Cornwell, Esjot, Chamberlain Phipps, and
Claravon. Cornwell Industry's sales from the date of acquisition to the period
ended December 31, 1999 were (pound) 7.6 million. The sales by Esjot since its
acquisition on July 22, 1999 were (pound) 7.3 million, sales by Chamberlain
Phipps since its acquisition in September 1999 were (pound) 1.0 million and
Claravon had sales of (pound) 1.4 million since its acquisition on October 4,
1999. After subtracting the sales made by the Company's recent acquisitions,
sales for the year ended December 31, 1999 were 1.4% lower than those of the
similar period in 1998.
Although the Company believes that footwear production in Europe continues to
decline due to the transfer of production to the Far East, sales in Europe
increased by 13.8% to (pound) 62.3 million mainly as a result of the recent
acquisitions. Cornwell Industries, Esjot and Chamberlain Phipps are all based in
Europe and predominately sell to that market. Sales in Asia increased by 30.3%
to (pound) 33.7 million due to the sales initiatives for stiffener products as
well as strong market share gains made in China for insoles. In the Americas,
sales declined by 12.1% to (pound) 18.2 million, predominantly in Brazil where,
Management believes, the devaluation of the Real weakened the Company's
competitive position as compared to local manufacturers. Sales in Australasia
increased by 38.6% or (pound) 1.8 million, primarily due to the acquisition of
Claravon on October 4, 1999 with sales of (pound) 1.4 million. Sales to the rest
of the world increased by (pound) 0.8 million from the comparable period in 1998
due primarily to sales in India where the Company has appointed a new
distributor to support the warehouse operation which commenced activity in 1998.
The Company experienced difficult trading conditions in the footwear industry
during the first half of the year ended December 31,1999. However, during the
second half sales levels improved with sales growth, excluding acquisitions, of
1%. Insole sales decreased by 4.9% to (pound) 52.7 million for the year
reflecting the difficult market conditions in Europe and North America where the
Company has the majority of its insole sales. Stiffeners sales increased to
(pound) 22.9 million from (pound) 18.9 million for the same period in 1998. This
increase is primarily the result of the Company increasing its' market share in
sales to major athletic footwear manufacturers in Asia. Other footwear product
sales declined by 9.9% to (pound) 21.5 million during 1999. These products,
although sold throughout the world, hold strong positions in the UK and some
European countries where footwear production has declined as a result of the
weak market conditions noted above. In contrast industrial product sales
increased by 3.7% to (pound) 13.2 million for the year ending December 31, 1999.
-23-
Gross Profit. Gross Profit increased to (pound) 42.5 million for the year ended
December 31, 1999 from (pound) 38.7 million for the same period in 1998. The
increase in gross profit was primarily a result of the higher sales from recent
acquisitions made by the Company, which offset the severe price competition the
Company experienced in several markets.
Marketing and Administrative expenses. Marketing and administrative expenses
increased to (pound) 29.7 million for the year ended December 31, 1999 from
(pound) 26.1 million for the same period in 1998. However, these costs have
increased principally due to the expenses of the acquired businesses and the
rental costs incurred with respect to the Leicester site. During the year ended
December 31, 1999, (pound) 0.3 million was included for exceptional
reorganisation costs as compared to (pound) 0.8 million for the same period in
1998.
Profit on ordinary activities before interest. Operating profit, after
exceptional items, increased from (pound) 13.5 million for the year ended
December 31, 1998 to (pound) 13.9 million for the year ended December 31, 1999.
As a percentage of sales, profit on ordinary activities before interest
excluding exceptional restructuring costs decreased from 12.9% in 1998 to 11.2%
in 1999.
Interest Expense. Interest expense including amortization of deferred financing
costs increased from (pound) 9.8 million for the year ended December 31, 1998 to
(pound) 11.3 million for the year ended December 31, 1999. This increase is
primarily due to the new debt incurred to finance the acquisition of Esjot
during the year. Included in the interest charge is amortization of debt
issuance costs of (pound) 0.8 million for 1999 (pound) 0.7 million for 1998.
Taxation. The tax charge increased by (pound) 0.5 million to (pound) 1.8 million
for the year ended December 31, 1999, as a result of the tax position of
companies acquired during the year, and tax losses in the United States that
have now been consumed.
Net Income/(Loss). The net income of (pound) 0.6 million for the year ended
December 31, 1999, compares to a net income of (pound) 2.2 million for the same
period of 1998. The variance was a result of the factors described above.
Comparison of Year ended December 31, 1998 to year ended December 31, 1997.
- --------------------------------------------------------------------------
Sales Turnover. Sales for the year ending December 31, 1998 were (pound) 110.9
million, a decline of (pound) 11.4 million or 9.4% when compared to the same
period in 1997. On a constant currency basis the sales decreased by 7.1% in 1998
compared to 1997. The Company believes there are several reasons for the
decline. Sales in Europe declined by 7.4% to (pound) 54.8 million partly as a
result of a reduction of European footwear production exported to Russia and a
retail sales drop in the UK, which has particularly affected UK footwear
production. Sales in Asia declined by 2.1% to (pound) 25.9 million resulting
from a continuing slowdown in the global athletic footwear market and economic
uncertainty in the region. In the Americas, sales declined by 5.6% to (pound)
20.4 million, predominantly in Brazil where the Company believes that a major
footwear co-operative purchased excessive quantities in 1997 and has been
consuming the excess inventory throughout 1998.
-24-
Sales in Australasia fell by 19.7% or (pound) 1.3 million, on a constant
currency basis, which the Company believes is a result of the reduction in
import tariffs that has damaged the local footwear industry. Further evidence of
the difficult trading conditions in the footwear industry during the year ended
December 31,1998 is apparent by analyzing the sales by product group. Insole
sales decreased by 9.8% to (pound) 55.5 million for the year. Stiffeners sales
declined to (pound) 18.9 million from (pound) 20.5 million for the same period
in 1997, and other footwear product sales declined by 14.7% to (pound) 23.8
million during 1998. In contrast industrial product sales increased by 2.7% to
(pound) 12.7 million for the year ending December 31, 1998.
Gross Profit. Gross Profit decreased to (pound) 38.7 million for the year ended
December 31, 1998 from (pound) 42.5 million for the same period in 1997. As a
percentage of sales, however, the gross profit increased from 34.8% for 1997 to
34.9% in 1998. This increase was primarily due to continuing manufacturing
efficiencies in the production of cellulose products and the stability of the
price of pulp, the main raw material used in the production of cellulose, during
1998, more than offsetting the severe price competition the Company experienced
in several markets.
Marketing and Administrative expenses. At (pound) 26.1 million for the year
ended December 31, 1998, marketing and administrative expenses decreased by
(pound) 6.8 million from the same period in 1997. However 1998 included (pound)
0.8 million of exceptional reorganisation costs and 1997 included (pound) 5.7
million of exceptional expenses relating to fees incurred in connection with a
contemplated sale of the business, the cost of exercise of management options
and refinancing costs. Excluding these exceptional costs marketing and
administrative costs decreased by (pound) 1.9 million during 1998, primarily due
to the reorganisation plan implemented in the second half of 1998.
Profit on ordinary activities before interest and taxation. Profit on ordinary
activities before interest and taxation increased from (pound) 9.6 million for
the year ended December 31, 1997 to (pound) 13.5 million for the year ended
December 31, 1998. When excluding the exceptional items, profit on ordinary
activities before interest and taxation decreased by (pound) 0.9 million from
the same period last year. As a percentage of sales, profit on ordinary
activities before interest excluding exceptional items increased from 12.5% in
1997 to 12.9% in 1998.
Interest Expense. Interest expense including amortization of deferred financing
costs decreased from (pound) 10.2 million for the year ended December 31, 1997
to (pound) 9.8 million for the year ended December 31, 1998. However, there is
no direct comparison between these two periods due to the restructuring of the
Company's debt through the issuance of Notes in January 1998.
Taxation. The tax charge decreased by (pound) 0.2 million to (pound) 1.3 million
for the year ended December 31, 1998. The decrease is in part due to lower
overseas tax charges.
Net Income/(Loss). The net income of (pound) 2.2 million for the year ended
December 31, 1998, compares to a net loss of (pound) 2.4 million for the same
period of 1997. The variance was a result of the factors described above.
Liquidity and Capital Resources
- --------------------------------
The Company's liquidity needs will arise primarily from debt service obligations
on the indebtedness incurred in connection with the Notes and Revolving Credit
Facility, working capital needs and the funding of capital expenditures. Total
liabilities at December 31, 2000 were (pound) 160.3 million as compared to
(pound) 145.3 million at December 31, 1999, including consolidated indebtedness
of (pound) 118.4 million as compared to (pound) 109.1 million at December 31,
1999, which compares to total assets of (pound) 102.2 million at December 31,
2000 and (pound) 86.0 million at December 31, 1999. The excess of liabilities
over assets of (pound) 58.1 million at December 31, 2000 as compared to (pound)
59.2 million at December 31, 1999 is due to the writing off of goodwill in
earlier periods.
The shareholders deficit as at December 31, 2000 was (pound) 59.2 million
compared with (pound) 59.9 million as at December 31, 1999.
-25-
The Company's primary sources of liquidity are cash flows from operations and
borrowings under the Company's financing agreements, which provide the Company
with a (euro) 35.0 million 5 year Term Loan and a (euro) 15.0 million Revolving
Credit Facility as well as several local facilities in Germany, Italy, Spain,
France, China, Australia, New Zealand, Brasil and the UK.
The net cash inflow from operating activities for the year ended December 31,
2000 was (pound) 16.2 million compared to (pound) 15.1 million for the
comparable period in 1999. This increase of (pound) 1.1 million is as a result
of active balance sheet management. The Company had unused available banking
facilities for the year ended December 31, 2000 of (pound) 3.9 million as
compared to (pound) 5.1 million for the comparable period in 1999.
For the year ended December 31, 2000 the Company had a cash outflow of (pound)
1.8 million after net interest paid of (pound) 11.8 million and taxation of
(pound) 3.6 million. Purchase of assets, primarily plant and equipment
acquisitions and the global implementation of an enterprise resource planning
system utilising BaaN software led to a net cash outflow of (pound) 1.6 million.
Acquisitions of businesses had a cash outflow of (pound) 10.2 million, while
debt and equity issued to fund these acquisitions led to a cash inflow of
(pound) 9.4 million.
International Operations
- ------------------------
The Company conducts operations in countries around the world including through
manufacturing facilities in the UK, the United States, France, Germany, Italy,
Australia, Brazil and China. The Company's global operations may be subject to
some volatility because of currency fluctuations, inflation and changes in
political and economic conditions in these countries.
The financial position and results of operations of the Company's businesses
outside the UK are measured using the local currency as the functional currency.
Most of the revenues and expenses of the Company's operations are denominated in
local currencies whereas the majority of raw material purchases are denominated
in US dollars. Assets and liabilities of the Company's subsidiaries outside the
UK are translated at the balance sheet exchange rate and statement of operations
accounts are translated at the average rate prevailing during the relevant
period.
The Company's financial performance in future periods may be impacted as a
result of changes in the above factors which are largely beyond the control of
the Company.
Euro
- ----
Management has reviewed the implications of the single European Currency on our
business and has assessed that the introduction of the Euro as a trading
currency will have no material cost to our business other than through exchange
rate effects.
-26-
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.
Disclosures about market risk
- -----------------------------
The Company's operations are conducted by entities in many countries and the
primary market risk exposures of the Company are interest rate risk and foreign
currency exchange risk. The exposure to market risk for changes in interest
rates relates to its debt obligations, upon which interest is paid at both
short-term fixed and variable rates, and local bank borrowings, upon which
interest is paid at variable rates. The Company does not use any instruments by
which to hedge against fluctuations in interest rates, as it is believed that
interest rates are low in the currencies in which debt is denominated and that
the risk of major fluctuations in such interest rates is low.
The results of the Company's operations are subject to currency translation risk
and currency transaction risk. Regarding currency translation risk, the
operating results and financial position of each entity is reported in the
relevant local currency and then translated into Sterling at the applicable
exchange rate for inclusion in the financial statements of the Company. The
fluctuation of Sterling against foreign currencies will therefore have an impact
upon the reported profitability of the Company and may also affect the value of
the Company's assets and the amount of the Company's shareholders equity.
Regarding currency transaction risk, fluctuations in exchange rates may affect
the operating results of the Company because many of each entities costs are
incurred in currencies different from the revenue currencies and there is also a
time lag between incurrence of costs and the collection of related revenues. To
protect against currency transaction risk the Company engages in hedging its net
transaction exposure by the use of foreign exchange forward contracts to cover
exposures arising from outstanding sales and purchase invoices. It has not
covered outstanding sales or purchase orders unless they are firm commitments.
At present hedging covers all traded currencies to which the Company is exposed
and in which forward contracts may be undertaken. This includes the Euro and the
U.S., Hong Kong, Australian and New Zealand Dollar. In addition the Company
hedges against certain non-trading exposures by using foreign exchange forward
contracts, these exposures being short-term loans between entities and interest
payable (within one year) on the Senior Notes. Short-term loans may fluctuate in
value depending upon the daily cash position of the various entities and may be
denominated in any of the currencies stated above. Interest on the Senior Notes
is payable in Euros and the Company has covered this exposure for payments due
in 2000 and 2001.
Exchange Rate Sensitivity
- -------------------------
The table below provides information as at December 31, 2000 about the Company's
derivative financial instruments and other financial instruments by functional
currency and presents such information in Sterling equivalents. The table
summarizes information on instruments and transactions that are sensitive to
foreign currency exchange rates, including foreign currency forward exchange
agreements and foreign currency denominated credit and debt obligations. For
credit and debt obligations, the table presents principal cash flows by expected
maturity dates. For foreign currency forward exchange agreements, the table
presents the notional amounts and weighted average exchange rates by expected
(contractual) maturity dates all of which are in 2001. These notional amounts
generally are used to calculate the contractual payments to be exchanged under
the contract.
-27-
Book or contract
Value Fair Value
---------------- ----------
(GBP Equivalent in thousands)
(Liabilities)/Assets
GBP Functional Currency:
Interest on debt (DEM) (7,862) (7,803)
Short term affiliate loans
(EUR) (3,793) (3,793)
(USD) (3,705) (3,705)
(NZD) (163) (163)
Trading transactions
(EUR) (1,094) (1,094)
(USD) 1,710 1,710
AUD Functional Currency:
Trading transactions
(EUR) (168) (168)
(GBP) (499) (499)
(USD) (352) (352)
EUR Functional Currency:
Trading transactions
(GBP) (313) (313)
(USD) 103 103
HKD Functional Currency:
Trading transactions
(GBP) 300 300
(USD) 969 969
(NTD) 151 151
NTD Functional Currency:
Trading transactions
(USD) (92) (92)
(GBP) (17) (17)
MXP Functional Currency:
Trading transactions
(GBP) (334) (334)
(USD) (480) (480)
USD Functional Currency:
Trading transactions
(EUR) (89) (89)
(GBP) (335) (335)
-28-
The Company's exposures are covered on a net basis and the following contracts
were in place at December 31, 2000, all of which are expected to mature in the
year 2001
Contract Value Fair Value
-------------- ----------
(GBP Equivalent in thousands)
Forward Exchange Agreements
(Receive DEM/Pay GBP)
Contract amount 7,862 7,803
Average contractual exchange rate 3.12
(Receive EUR/Pay GBP)
Contract amount 3,673 3,793
Average contractual exchange rate 1.65
(Receive USD/Pay GBP)
Contract amount 3,801 3,705
Average contractual exchange rate 1.46
(Receive NZD/Pay GBP)
Contract amount 157 163
Average contractual exchange rate 3.50
Receive GBP/Pay HKD)
Contract amount (69) (67)
Average contractual exchange rate 11.30
(Receive GBP/Pay EUR)
Contract amount (2,795) (2,867)
Average contractual exchange rate 1.64
(Receive GBP/Pay AUD)
Contract amount (915) (907)
Average contractual exchange rate 2.67
(Receive GBP/Pay USD)
Contract amount (1,954) (1,893)
Average contractual exchange rate 1.44
(Receive GBP/Pay CAD)
Contract amount (141) (139)
Average contractual exchange rate 2.20
Interest Rate Sensitivity
- -------------------------
The table below provides information as at December 31, 2000 about the Company's
derivative financial instruments and other financial instruments that are
sensitive to changes in interest rates, including debt obligations. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates all of which are during 2001.
The information is presented in Sterling equivalents, which is the Company's
reporting currency.
-29-
Book Value Fair Value
---------- ----------
(Liabilities)
(GBP Equivalent in thousands)
Debt:
Variable Rate (GBP) (6,711) (6,711)
Average interest rate 8.10%
Variable Rate (EUR) (28,977) (28,977)
Average interest rate 6.62%
Variable Rate (USD) (546) (546)
Average interest rate 11.63%
Variable Rate (AUD) (1,751) (1,751)
Average interest rate 6.79%
Variable Rate (BRC) (449) (449)
Average interest rate 21.00%
Variable Rate (NTD) (73) (73)
Average interest rate 8.10%
No instruments used.
Impact of Price Fluctuations of Raw Materials on Results of Operations.
- ----------------------------------------------------------------------
The Company purchases most of the raw materials for its products on the open
market, and the Company's sales may be affected by changes in the market price
of such raw materials. The Company does not generally engage in commodity
hedging transactions for such raw materials. There can be no assurance that the
Company will be able to pass on increases in the price of raw materials to its
customers in the future, on a timely basis or at all. The results of the
operations of the Company have in the past been affected by fluctuations in the
price of the primary raw material, wood pulp, for its cellulose insoles. Wood
pulp represented 17% of the Company's raw materials costs in 2000 as compared to
21% in 1999 and 11% in 2000 as compared to 13% in 1999 of the Company's total
cost of sales. Additionally, significant increases in the price of the Company's
products, due to increases in the cost of raw materials, could have a negative
effect on demand for its products and a material adverse effect on the Company's
business, financial condition and results of operations.
Risks of Environmental Liabilities.
- ----------------------------------
The Company's facilities, several of which have been operated as industrial
establishments for long periods of time, are subject to comprehensive
environmental laws and requirements, including those governing discharges to the
air and water, the handling of disposal of solid and hazardous substances and
wastes and remediation of contamination associated with the release of hazardous
substances at the Company's facilities and offsite disposal locations. The
Company has made, and will continue to make, expenditures to comply with such
laws and requirements. The Company believes that it will not require material
capital expenditures to comply with applicable environmental laws during 2001 or
in the foreseeable future. However, future events, such as changes in existing
laws and regulations or the discovery of contamination at the Company's
facilities, adjacent sites or offsite waste disposal locations, may give rise to
additional compliance or remediation costs which could have a material adverse
effect on the Company's results of operations or financial condition. Moreover,
the nature of the Company's business exposes it to some risk of claims with
respect to environmental matters, and there can be no assurance that the
material costs or liabilities will not be incurred in connection with any such
claims.
-30-
Item 10. Management
Directors and Executive Officers of the Company
- -----------------------------------------------
The Company's executive directors and other executive officers hold office on
such terms as are approved by the Remuneration Committee of the Board of
Directors or by the Board of Directors. The Company's non-executive directors
hold office in accordance with the Shareholders Agreement entered into among the
Company's shareholders and the Company.
The following sets forth the names and ages of each of the Company's directors
and executive officers and the positions they hold as of December 31, 2000:
Directors and Executive Officers
- --------------------------------
Name Age Position
- ---- --- ---------
Peter Selkirk 45 Chief Executive and Director
Neil Fleming 45 Finance Director and Company Secretary
Kevin Cochrane 56 General Manager - Americas
Robert Reid 47 General Manager - Europe
Keith Maxted 51 General Manager - Asia
Neil Eastwood 64 Director of Insole Operations
Terry Pee 57 Director of Stiffener Operations
Timothy Wright 37 Non-executive Director
Set forth below is a brief description of the business experience of each
director and executive officer:
Mr. Selkirk joined the Company as Managing Director in January 1996 after a
career in technical materials based companies in the packaging, automotive and
electronics sectors including Raychem Corporation and Courtaulds. He was
previously employed by Raychem Corporation as manager of one of its European
divisions, having been appointed in January 1993. Mr. Selkirk has an
international background, having worked in the United States and throughout
Europe. Mr. Selkirk has managed operations in the United States and Europe and
has experience in sales, marketing, logistics and manufacturing. He has a
Masters degree in Natural Sciences from Cambridge University and an MBA from the
London Business School.
Mr. Fleming joined the Company as Finance Director in June 1996 after holding
various financial and general management positions at companies in capital
goods, engineering and general industrial sectors, including APV plc and the
Norton Company. Between February 1991 and February 1994, Mr. Fleming was group
financial controller of APV plc and from February 1994 to June 1996, he was
managing director and then president of one of APV's divisions. He has an
international background, having worked in the United States, Germany, France,
Denmark and Luxembourg. Mr. Fleming has a Bachelor of Science Degree in Physics
from Edinburgh University and is a Chartered Accountant with the Institute of
Chartered Accountants in Scotland.
-31-
Mr. Cochrane joined the Company in 1967 and has worked in various sales and
marketing and managerial positions and was appointed as Director of Sales in
January 1998. In November 2000 the management structure was changed to a
regional basis and Mr. Cochrane was appointed as General Manager - Americas. Mr.
Cochrane has a Bachelors degree in Economics from Holy Cross College,
Massachusetts and an MBA from the Wharton Business School.
Dr. Reid joined the Company in 1997 as the Director of Technology and following
the change to a regional management structure in November 2000 was appointed
General Manager - Europe. Dr. Reid has an extensive background in technology
management gained in positions with ICI and Raychem Corporation. From 1990 to
1997 Dr. Reid was Director of Raychem Corporation's European Corporate Research
Laboratories. Dr. Reid has a degree in Chemistry and a Doctorate in Polymer
Chemistry from Heriot-Watt University in Edinburgh.
Mr. Maxted joined the Company in October 2000 as General Manager - Asia
following a long career in the footwear industry. From 1988 onwards Mr. Maxted
was Executive Vice-President of Asco Corporation, a footwear sourcing company,
and was based in Hong Kong.
Mr. Eastwood joined the Company in 1980 and is responsible for the Company's
cellulose operations as General Manager. He was appointed Director of Cellulose
Operations in February 1997. He has previously been employed in operational and
production control capacities in the textile industry. Mr. Eastwood has a
Bachelor of Sciences degree in Textile Technology from Manchester University.
Mr. Pee joined the Company in September 1997, when he was appointed Operations
Director of Stiffener products. Prior to joining the Company, Mr. Pee held
positions both within the UK and abroad, with various manufacturing and
engineering companies, including GEC. From 1988 to 1995, he was managing
director of one of the product groups of APV plc involved in global
manufacturing and, until September 1996 to September 1997; he held the position
of managing director of GEA in South Africa.
Mr. Wright has been a non-executive director of the Company since 1995. He is a
director of both Apax Partners & Co Strategic Investors Limited and Apax
Partners & Co Ventures Limited where he has been employed in private equity
investing for the last nine years since 1990. Mr. Wright is a non-executive
director of a number of private equity companies associated with certain funds
advised by Apax.
Item 11. Compensation of Directors and Officers.
For the year ended December 31, 2000 the aggregate compensation, including
bonuses, of all directors and executive officers of the Company names above was
(pound) 956,637. For the year ended December 31, 1999 (pound) 943,887, and for
the year ended December 31, 1998, the aggregate amount set aside by the Company
to provide pension, retirement or similar benefits to those directors and
executive officers was approximately (pound) 1,105,446.
Item 12. Options to Purchase Securities From Registrant or Subsidiaries
Senior Management holds approximately 8.5% of the outstanding Voting Ordinary
Shares of the Company. Senior Management have been granted options to acquire a
further 4.3% of the outstanding Voting Ordinary Shares from the Company's
institutional investors. The options have been granted in respect of 160,000 A
Shares of (pound) 1 at an exercise price of (pound) 8.75 per A Share. The
options will lapse on December 21, 2004 if not exercised prior to that date. All
of the options have been granted to Senior Management. Furthermore, certain
employees of the Company, including Senior Management, may be allotted options
to acquire up to 240,000 A Shares from institutional investors.
-32-
Item 13. Interest of Management in Certain Transactions.
Certain Texon International plc Shareholders have had commercial relations with
group companies. As a consequence, fees have been paid to the Shareholders for
providing the services of directors, banking services and strategic advice. The
Chase Manhattan Bank is the Group corporate banker and a Shareholder. Apax
Partners & Co. Strategic Investors Limited and Apax Partners & Co. Ventures
Limited is a shareholder.
Transactions with related parties during the period (excluding interest paid in
the normal course of business) including fees are as follows:
Year ended Year ended
December 31, December 31,
1999 2000
------------ ------------
(pound) 000 (pound) 000
Fees for director's services.............. 20 20
Banking and strategic advice.............. 202 128
Debt issuance............................. 557 -
Rent paid................................. 13 13
----- -----
792 161
===== =====
Amounts included within creditors in respect of related parties totalled at
December 31, 2000 (pound) 55,000 and (pound) 46,000 at December 31, 1999. There
are no prepayments in respect of related parties at December 31, 2000 or
December 31, 1999.
Texon International plc paid the following amounts to related parties: Chase
Manhattan Bank. (pound) nil in 2000 and (pound) 557,000 in 1999, The Group also
incurred agency, guarantee and commitment fees of (pound) 128,000 in 2000 and
(pound) 202,000 in 1999 which were payable to Chase Manhattan Bank as the
Group's corporate banker.
P. E. Selkirk and J. N. Fleming, who are directors of the company, have an
agreement with the other shareholders whereby each may acquire from the other
shareholders up to 80,000 A ordinary voting shares at a price of (pound) 8.75
per share. The options are only exercisable only in anticipation of and
conditional upon a sale of the Company or an initial public offering of the
Company's equity securities, and will lapse on December 21, 2004 if not
exercised prior to that date. In addition, options over a further 240,000 A
ordinary shares are available for allocation, on a basis to be determined by the
Remuneration Committee, to employees or prospective employees of the Group on
the same terms as those described above.
Continuing relationship with a business owned by the Shareholders
- -----------------------------------------------------------------
Warranties have been given by United Texon Limited regarding the shares being
sold and provisions regulating aspects of the ongoing relationship between
United Texon Limited and USM Group Holdings Limited. These include (i)
provisions dealing with the sharing of historic insurance coverage, (ii) mutual
undertakings not to compete for three years, and (iii) an undertaking by the
parties to determine an appropriate mechanism for splitting the UK pension
scheme which has now been satisfactorily resolved.
The company has taken advantage of the exemption allowed in FRS 8 not to
disclose transactions between group companies.
-33-
PART II
Item 14. Description of Securities to be Registered.
Not applicable.
-34-
PART III
Item 15. Defaults Upon Senior Securities.
None.
Item 16. Changes in Securities and Changes in Security for Registered
Securities.
None.
-35-
PART IV
Item 17. Financial Statements
Not Applicable.
Item 18. Financial Statements
See Page F-1
Item 19. Financial Statements and Exhibits
(a) The following financial statements are filed as part of this Form 20-F:
(1) Consolidated profit and loss accounts..........................F-2
(2) Consolidated balance sheets....................................F-3
(3) Consolidated cash flow statements..............................F-4
(4) Reconciliation of net cash flow to movement in net debt........F-5
(5) Consolidated statement of total recognized gains and losses....F-6
(6) Reconciliation of movements in total shareholders' deficit.....F-7
(7) Notes to the consolidated financial statements.................F-8
(b) The following exhibits are filed as part of this Form 20-F
Exhibit Description
- ------- -----------
1.1 Purchase Agreement between the Company and the Initial
Purchasers dated January 27, 1998.*
3.1 Memorandum and Articles of Association of Texon International
plc.*
4.1 Indenture, dated as of January 30, 1998, among Texon
International plc and the Chase Manhattan Bank as Trustee.*
4.2 Form of 10% Senior Notes due 2008 (included in Exhibit 4.1
hereto).*
4.3 Form of 10% Series A Senior Notes due 2008 (included in
Exhibit 4.1 hereto).*
4.4 Exchange and Registration Rights Agreement between the Company
and the Initial Purchasers dated January 27, 1998.*
4.5 Note Depositary Agreement dated January 30, 1998 between Texon
International plc and The Bank of New York, as Book-Entry
Depositary.*
10.1 Shareholders Agreement dated December 23, 1997, between the
Company and the shareholders of the Company.*
10.2 Agreement for Sale of USM Group Limited, dated December 23,
1997.*
10.3 Agreement for Sale of United Texon Limited, dated December 23,
1997.*
10.4 Credit Agreement, dated January 28, 1998, among the Company,
Chase Manhattan plc, The Chase Manhattan Bank and the other
Lenders party thereto.*
10.5 Employment Agreement, dated January 30, 1998, between the
Company and Peter Selkirk.*
-36-
Exhibit Description
- ------- -----------
10.6 Employee Agreement, dated January 30, 1998, between the
Company and Neil Fleming. *
10.7 Employment Agreement, dated July 29, 1997, between the Company
and Kevin Cochrane.*
10.8 Employment Agreement, dated July 29, 1997, between the Company
and Neil Eastwood.*
10.9 Employment Agreement, dated as of September 2, 1997, between
the Company and Terry Pee.*
10.10 Employment Agreement, dated May 26, 1998 between the Company
and Terry Pee.*
10.11 Option Agreement of Peter Selkirk relating to the A Shares
dated December 23, 1997. *
10.12 Option Agreement of Peter Selkirk and Neil Fleming relating
to the B Shares dated December 23, 1997. *
10.13 Business Acquisition Agreement between British United Shoe
Machinery Limited and DMWSL 189 Limited and related
agreements dated July 29, 1997.*
10.14 Business Sale Agreement between Deutsche Vereinigte
Schumaschinen GmbH & Co and DVSG Engineering und
Patentverwaltungs GmbH dated July 29, 1997. *
10.15 Business Sale Agreement between DVSG Engineering und
Patentverwaltungs GmbH and DVSG Service GmbH dated July 29,
1997. *
10.16 Business Sale Agreement between USM Espana S.L. and
Maquinaria USM S.L. dated July 29, 1997. *
10.17 Business Acquisition Agreement between USM Taiwan Limited
and Texon Taiwan Limited dated December 1997.*
10.18 Bill of Sale, Assignment and Assumption Agreement
between USM Texon Materials Inc. and United Shoe
Machinery Corporation and related agreements dated July 29,
1997. *
10.19 Assets Sale Agreement between USM Asia Limited and Texon
(H.K.) Limited dated July 29, 1997.*
10.20 Share Purchase Agreement between DVSG Holding GmbH and
DVSG Beteiligungs und Verwaltungs GmbH dated July 29, 1997.*
10.21 Share Sale Agreement between USM Holding GmbH and
Texon Verwaltungs GmbH Gr. Dated July 29, 1997.*
10.22 Share Sale Agreement between USM Texon Limited and
Texon Verwaltungs GmbH. Gr dated July 29, 1997. *
10.23 Share Sale Agreement between USM International Limited and
DVSG Administration GmbH relating to the entire issued share
capital of DVSG Service GmbH.*
10.24 Share Sale Agreement between USM International Limited and
DVSG Administration GmbH. Relating to the entire issued share
capital of DVSG Beteilgungs und Verwaltungs GmbH. *
10.25 Share Sale Agreement between USM Benelux B.V. and USM Texon
Limited relating to the entire issued share capital of USM
Holding GmbH dated December 23, 1997. *
10.26 Share Transfer Agreement between Texon France S.A. and
USM International Limited dated December 24, 1997
and related agreement.*
10.27 Share Purchase Agreement between USM Benelux B.V and USM
International Limited relating to the issued share capital of
USM Asia Limited dated July 29, 1997. *
10.28 Share Transfer Agreement between USM Benelux B.V. and USM
International Limited related to the entire issued share
capital of USM Taiwan Limited dated July 29, 1997.*
10.29 Share Transfer Agreement between USM Benelux B.V and
USM Texon Limited dated December 23, 1997.*
-37-
10.30 Share Transfer Agreement between USM International Limited and
Texon Materiales S.L.*
10.31 Share Transfer Agreement between USM Texon Limited and
El Manto de Elias S.L.*
10.32 Share Transfer Agreement between Texon Overseas and
USM International Limited relating to the entire
holding of Texon Overseas in USM Far East Australia Pty
Limited dated July 29, 1997. *
10.33 Share Transfer Agreement between United Texon plc and
USM International Limited relating to the entire
issued share capital of 3138933 Canada Inc. dated
July 29, 1997.*
10.34 Share Transfer Agreement between USM Texon Limited and USM
International Limited relating to the entire issued share
capital of Samco Strong Limited dated July 29, 1997. *
10.35 Share Transfer Agreement between United Texon plc and USM
International Limited relating to the entire issued share
capital of USM Corporation and related agreements dated
July 29, 1997.*
10.36 Share Transfer Agreement between USM Benelux B.V. and United
Texon plc relating to the entire issued share capital of USM
Corporation and related agreements dated July 29, 1997. *
10.37 Share Transfer Agreement between Texon Overseas and USM
International Limited relating to the entire issued share
capital of USM Korea Limited dated July 29, 1997. *
10.38 Share Transfer Agreement between USM Benelux B.V. and USM
International Limited relating to the entire issued share
capital of USM Asia Limited dated July 29, 1997. *
10.39 Share Transfer Agreement between USM Benelux B.V. and USM
International Limited relating to the entire issued share
capital of USM do Brasil Industria e Comercio SA dated July
29, 1997. *
10.40 Exclusive Distributor Agreement between British United Shoe
Machinery Co. Limited and United Shoe
Machinery of Australia Pty. Ltd dated July 29, 1997.
10.41 Exclusive Distributor Agreement between British United Shoe
Machinery Limited and USM Korea Limited dated July 29, 1997. *
10.42 Exclusive Distributor Agreement between Texon (H.K.) Limited
and USM Korea Limited. *
10.43 Exclusive Distributor Agreement between British United Shoe
Machinery Limited and United Shoe Machinery
(Thailand) Co. Ltd. Dated July 29, 1997. *
10.44 Non-Exclusive Distributor Agreement between USM Texon
Materials Inc. and USM Canada Ltd. Dated August 8, 1997.*
10.45 Non-Exclusive Distributor Agreement between Texon France
S.A. and USM France S.A. dated July 29, 1997.*
10.46 Non-Exclusive Distributor Agreement between DVSG
Engineering und Patentverwaltungs GmbH and Deutsche
Vereinigte Schumaschinen GmbH & Co. dated July 29, 1997.*
10.47 Non-Exclusive Distributor Agreement between United Shoe
Machinery Corporation and USM Texon Mexico S.A.*
10.48 Non-Exclusive Distributor Agreement between Texon Materiales
S.L. and Maquinaria USM, S.L. dated July 29, 1997. *
10.49 Non-Exclusive Distributor Agreement between Samco Strong
Limited and United Shoe Machinery of Australia Pty. Ltd.
Dated July 29, 1997. *
10.50 Non-Exclusive Distributor Agreement between Texon Taiwan
Limited and USM Taiwan Limited. *
10.51 Sole Agency Agreement between Texon (H.K.) Limited and
USM Far East Australia (PTY) Limited dated July 29, 1997.*
10.52 Cost Sharing Agreement between Texon France S.A. and USM
France S.A.*
10.53 Cost Sharing Agreement between USM Taiwan Limited and Texon
Taiwan Limited dated December 10, 1997. *
-38-
10.54 Services Agreement between USM Texon Oesterreich
Gesellschaft M.b.H and USM Oesterreich
Maschinenhandelsgesellschaft dated December 1, 1997.*
10.55 Service Agreement between DMWSL 189 and British United Shoe
Machinery Limited dated July 29, 1997. * 10.56 Services
Agreement between DVSG Engineering und Patentverwaltungs
GmbH and Deutsche Vereinigte Schumaschinen GmbH & Co.
relating to the provision of services/premises at
Pirmasens dated July 29, 1997. *
10.57 Services Agreement between Deutsche Vereinigte
Schumaschinen GmbH & Co. and DVSG Engineering und
Patentverwaltungs GmbH relating to the provision of
services/premises at Frankfurt am Main dated July 29, 1997.*
10.58 Services Agreement between Texon Materiales S.L. and
Maquinaria USM, S.L. dated July 29, 1997. *
10.59 Services Agreement between USM Texon Materials Inc. and
United Shoe Machinery Corporation dated June 30, 1997. *
10.60 Computing Services Agreement between USM Texon Materials
Inc. and United Shoe Machinery Corporation
dated June 30, 1997.*
10.61 Services Agreement between USM Asia Limited and
Texon (H.K.) Limited.*
10.62 Services Agreement between USM Far East Australia Pty Ltd.
and Texon (H.K.) Limited.*
10.63 Sub-Lease Agreement between USM Texon Materials Inc. and USM
Corporation dated May 1, 1997.*
10.64 Contribution and Assumption Agreement between USM
Corporation and USM Texon Materials Inc. dated June 27, 1997.*
10.65 Joint Venture Contract between Foshan Arts & Crafts Industry
Corporation and USM (China Holdings) Ltd. *
10.66 Agreement between USM Texon Limited and British United
Shoe Machinery Co. Limited relating to the
surrender of group relief, dated December 23, 1997. *
10.67 Agreement between USM Texon Limited and Samco Strong Limited
relating to the surrender of group relief dated December 23,
1997. *
10.68 Sale and Lease Agreement between USM Texon Limited,
377 Leicester Limited and Texon UK Limited dated June 30,
1998 ***
10.69 Sale and Purchase Agreement between Texon UK Limited and
USM Texon Limited dated June 30, 1998 ***
10.70 Lease between 337 Leicester Limited, Texon UK
Limited and Anglo Irish Bank Corporation plc dated
October 9, 1998 ***
10.71 Sale and Purchase Agreement among David J Grier and others
as Vendors and Texon UK Limited as Purchaser, dated
March 12, 1999 ****
10.72 Sale and Purchase Agreement between Rosenkranz & Krause
GmbH & Co., as vendor, Texon Mockmuhl, as
purchaser, and the Company, as guarantor, dated
July 22, 1999 *****
10.73 Term and Revolving Facilities Agreement, dated July 22, 1999,
among the Company, United Texon Limited , certain other
companies in the Texon Group, Chase Manhattan Bank plc, The
Chase Manhattan Bank, BHF Bank AG and Chase Manhattan
International Limited *****
10.74 Composite Debenture, dated July 22, 1999, among United Texon
Limited, certain other companies in the Texon Group and Chase
Manhattan International Limited *****
10.75 Agreement for Sale of Certain Parts of the Business and
Assets, by and among Chamberlain Phipps Materials Limited, as
seller, Texon (UK) Limited, as buyer, and Newgrange Group,
L.L.C., as guarantor, dated September 4, 1999 ******
10.76 Share Sale Agreement, by and among Clarks Shoes Australia
Limited, as vendor, and Texon Australia Pty Limited, as
purchaser, dated October 11, 1999 ******
-39-
10.77 Business sale Agreement, by and among British United Shoe
Machinery Co. Limited, as seller, USM Group Limited, as
guarantor, and Texon UK Limited, as purchaser, dated February
29, 2000. *******
10.78 Quotas Purchase Agreement, by and among Texon Italia S.P.A.,
as purchaser, and Fleckstan Participacoes Ltda.,
Martinho Fleck and Iloide Fleck, as sellers, dated as of
March 20, 2000. *******
10.79 Umbrella Agreement for the Sale and Purchase of the business
and assets of Foss Manufacturing Company Inc. and its
subsidiary companies, dated July 26, 2000, between Texon
International plc, as purchaser, and Foss Manufacturing
Company Inc., as seller. ********
10.80 USA Agreement for the Sale and Purchase of the US business
and assets of Foss Manufacturing Company Inc., dated July 26,
2000, between Texon USA Inc., as purchaser, and Foss
Manufacturing Company Inc., as seller. ********
10.81 French Agreement for the Sale and Purchase of the French
business and assets of Foss Manufacturing Company Inc.
and its subsidiary companies, and all of the share
capital of SCI Lambiotte Immobiliere, dated July 26, 2000,
between Texon France S.A., as purchaser, and Lambiotte Foss
S.A., as seller. ********
10.82 Distribution Agreement, dated July 26, 2000, between
Texon USA Inc. and Foss Manufacturing Company Inc.
********
10.83 Patent, Know-How and Trademark Licensing Agreement, dated
July 26, 2000, between Texon International plc and Foss
Manufacturing Company Inc. ********
10.84 Assignment of Patents, Know-How and Trademarks, dated July 26,
2000, between Texon International plc and Foss Manufacturing
Company Inc. ********
16 Letter re Change in Certifying Accountant**
21 List of Subsidiaries of the Registrant*
* Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form F-4 (No. 333-49619)
** Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 6-K filed with the Securities and Exchange
Commission on January 15, 1999.
*** Incorporated by reference to the exhibits filed with the Company's
Annual Report on Form 20-F filed with the Securities and Exchange
Commission on April 30, 1999.
**** Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 6-K filed with the Securities and Exchange
Commission on May 26, 1999.
***** Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 6-K filed with the Securities and Exchange
Commission on August 13, 1999.
****** Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 6-K filed with the Securities and Exchange
Commission on August 13, 1999.
******* Incorporated by reference to the exhibits filed with the Company's
Annual Report on Form 20-F filed with the Securities and Exchange
Commission on May 2, 2000.
******** Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 6-K filed with the Securities and Exchange
Commission on November 14, 2000.
-40-
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act 1934,
the registrant certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this registration statement annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Texon International plc
........................
(Registrant)
Date April 30, 2001 By: /s/ J. Neil Fleming
.........................
J. Neil Fleming
Finance Director and
Chief Accounting Officer
-41-
TEXON INTERNATIONAL plc
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and the Shareholders of Texon International plc:
We have audited the consolidated financial statements for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998 on pages F-2 to F-57.
These consolidated financial statements are the responsibility of the management
of Texon International plc. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the Group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
In our opinion the consolidated financial statements, referred to above present
fairly in all material respects the consolidated financial position of Texon
International plc and its subsidiaries as of December 31, 2000 and December 31,
1999 and the consolidated results of operations and cash flows of Texon
International plc for the three years ended December 31, 2000, December 31, 1999
and December 31, 1998 in conformity with Generally Accepted Accounting
Principles in the United Kingdom.
Generally Accepted Accounting Principles in the United Kingdom vary in certain
significant respects from Generally Accepted Accounting Principles in the United
States. Application of Generally Accepted Accounting Principles in the United
States would have affected the results of operations for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998 and shareholders'
equity as of December 31, 2000 and December 31, 1999 to the extent summarized in
Note 30 to the consolidated financial statements.
DELOITTE & TOUCHE
Chartered Accountants and Registered Auditors
1 Woodborough Road
Nottingham
NG1 3FG
F-1
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended Year ended Year ended
December December December
Notes 31, 1998 31, 1999 31, 2000
------- ------------ ---------- -----------
(pound)000 (pound)000 (pound)000
Sales turnover
Acquisitions.................................... - 17,261 10,655
Continuing operations........................... 110,880 109,366 138,838
Discontinued operations......................... - - 2,093
-------- -------- -------
4 110,880 126,627 151,586
Cost of sales
Acquisitions.................................... - (12,624) (7,261)
Continuing operations........................... (72,193) (71,459) (95,511)
Discontinued operations......................... - - (2,425)
-------- -------- -------
(72,193) (84,083) (105,197)
Gross profit/(loss)
Acquisitions.................................... - 4,637 3,394
Continuing operations........................... 38,687 37,907 43,327
Discontinued operations - - (332)
-------- -------- -------
38,687 42,544 46,389
Marketing and administrative expenses
Acquisitions.................................... - (3,456) (2,315)
Continuing operations........................... (26,106) (26,232) (31,362)
Discontinued operations......................... - - (504)
-------- -------- -------
5 (26,106) (29,688) (34,181)
Operating profit/(loss) 7
Acquisitions................................... - 1,181 1,079
Continuing operations........................... 12,581 11,675 11,965
Discontinued operations......................... - - (836)
-------- -------- -------
12,581 12,856 12,208
(Loss) on termination of discontinued activities..... 6b - - (361)
Profit on disposal of property of continuing operations 6a 957 1,000 1,000
-------- -------- -------
Profit/(loss) before interest and taxation........... 7
Acquisitions.................................... - 1,181 1,079
Continuing operations........................... 13,538 12,675 12,965
Discontinued operations......................... - - (1,197)
-------- -------- -------
13,538 13,856 12,847
Interest receivable and similar income............... 160 336 148
Interest payable and similar charges................. 8 (9,989) (11,656) (12,320)
-------- -------- -------
Profit on ordinary activities before taxation........ 3,709 2,536 675
Taxation on profit on ordinary activities............ 10 (1,303) (1,754) (3,134)
-------- -------- -------
Profit/(loss) on ordinary activities after taxation 2,406 782 (2,459)
Minority equity interests............................ 21 (184) (206) (234)
-------- -------- -------
Net profit/(loss) for the financial year............. 2,222 576 (2,693)
-------- -------- -------
Non-equity preference dividend....................... 19 (2,600) - -
Finance charges in respect of non-equity shares 19 - (4,657) (4,016)
-------- -------- -------
Retained (loss) for the financial year for equity
shareholders.................................... 20 (378) (4,081) (6,709)
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
TEXON INTERNATIONAL plc
CONSOLIDATED BALANCE SHEETS
As of December As of December
Notes 31,1999 31,2000
----- -------------- ---------------
(pound)000 (pound)000
FIXED ASSETS
Intangible Assets........................... 12 12,707 22,034
Tangible assets ............................ 11 20,973 22,071
Investments ................................ 13 14 1
------- -------
33,694 44,106
CURRENT ASSETS
Stocks ..................................... 14 21,466 22,292
Debtors due within one year................. 15 26,491 33,167
Debtors due after one year ................. 15 3,348 1,606
Cash at bank and in hand ................... 1,025 837
------- -------
52,330 57,902
CREDITORS
Amounts falling due within one year......... 16 (40,391) (48,815)
------- -------
NET CURRENT ASSETS.......................... 11,939 9,087
------- -------
TOTAL ASSETS LESS CURRENT
LIABILITIES ................................ 45,633 53,193
CREDITORS
Amounts falling due after more than.........
one year ................................... 16 (97,832) (104,504)
Provisions for liabilities and charges...... 18 (7,038) (6,778)
-------- --------
NET LIABILITIES ............................ (59,237) (58,089)
======== ========
CAPITAL AND RESERVES
Called up share capital .................... 19 9,120 9,973
Share premium .............................. 20 46,800 49,276
Profit and loss account .................... 20 (123,059) (129,746)
Premium on redemption reserve .............. 20 7,257 11,273
-------- --------
Shareholders' (deficit)/funds
Equity interests ........................... (119,139) (125,248)
Non-equity interests ....................... 59,257 66,024
(59,882) (59,224)
-------- --------
Minority equity interests .................. 21 645 1,135
-------- --------
(59,237) (58,089)
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
TEXON INTERNATIONAL plc
CONSOLIDATED CASH FLOW STATEMENTS
Year ended Year ended Year ended
December 31, December 31, December 31,
Notes 1998 1999 2000
----- ------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Net Cash Inflow from Operating Activities... (26a) 10,144 15,099 16,190
Returns on Investments and Servicing of
Finance ............................... (26b) (14,767) (11,029) (11,837)
Taxation ................................... (1,420) (2,538) (3,667)
Capital Expenditure and Financial
Investment ............................ (26b) 2,211 (3,263) (1,634)
Acquisitions and Disposals .................
Acquisition of United Texon Limited ........ (26b) (23,455) - -
Acquisitions of businesses ................. (26b) (545) (24,077) (10,195)
--------- --------- ---------
Cash (Outflow) before use of liquid
resources ............................. (27,832) (25,808) (11,143)
Financing Increase in debt ................. (26b) 24,462 25,468 9,380
--------- -------- ---------
(Decrease) in Cash ......................... (3,370) (340) (1,763)
========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TEXON INTERNATIONAL plc
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Year ended Year ended Year ended
December 31, December 31, December 31,
Notes 1998 1999 2000
----- ------------ ------------ -------------
(pound)000 (pound)000 (pound)000
(Decrease) in cash in the year.............. (26c) (3,370) (340) (1,763)
Cash (outflow) from debt and lease
financing ............................. (26b) (24,462) (25,468) (9,380)
-------- ---------- ---------
Change in net debt resulting from
cash flows ............................ (27,832) (25,808) (11,143)
Non-cash movements in debt ................. 5,223 146 (827)
Translation differences .................... (4,292) 12,040 (474)
Loans and finance leases acquired
with subsidiary ....................... - (3,386) (462)
Issuance of Share Capital .................. - - 3,329
-------- --------- ---------
Movement in net debt in the year ........... (26,901) (17,008) (9,577)
Net debt brought forward ................... (64,162) (91,063) (108,071)
-------- --------- ---------
Net debt carried forward ................... (91,063) (108,071) (117,648)
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
TEXON INTERNATIONAL plc
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------- ------------ ------------
(pound)000 (pound)000 (pound)000
Profit/(loss) for the financial year ....... 2,222 576 (2,693)
Currency translation differences on
foreign currency ........................... (4,924) 10,561 22
------- ------ -------
Total recognized (losses)/gains in the
year ..................................... (2,702) 11,137 (2,671)
======= ====== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
TEXON INTERNATIONAL plc
RECONCILIATION OF MOVEMENTS IN TOTAL SHAREHOLDERS' DEFICIT
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------- ------------ ------------
(pound)000 (pound)000 (pound)000
Profit/(loss) attributable to members of the
Company .................................... 2,222 576 (2,693)
Preference dividend ........................ (2,600) - -
Finance charges in respect of non-equity
shares ................................... - (4,657) (4,016)
-------- -------- --------
(378) (4,081) (6,709)
New share capital issued ................... 307 - 3,329
Preference dividends transferred to
reserves ................................. - 2,600 -
Goodwill relating to disposal of Turbel Ltd. 5 - -
Premium on redemption reserve .............. - 4,657 4,016
Other recognized (losses)/gains relating
to the year .............................. (4,924) 10,561 22
--------- -------- --------
Net (decrease)/increase to shareholders'
funds .................................... (4,990) 13,737 658
Opening shareholders' deficit .............. (68,629) (73,619) (59,882)
--------- -------- --------
Closing shareholders' deficit .............. (73,619) (59,882) (59,224)
========== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
TEXON INTERNATIONAL plc
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation of the financial statements
During the year ended 31 December 2000 the company funded a number of
acquisitions with cash generated by its operating activities and new
debt. As a result of this the company has faced increasing pressures on
cash throughout the year. The company met its interest payments payable
in the year and post year-end, however the headroom on the latest
payment was small. The group is addressing this cashflow issue through
careful management of working capital and generating additional cash
through selling properties within the group.
The directors have prepared projected cash flow information for the
current financial year and the first half of the following financial
year (approximately 15 months from the date of approval of these
financial statements). The directors have also calculated the banking
covenant requirements for the period.
On the basis of this cash flow information, the directors have formed a
judgment at the time of approving the financial statements that the
company will be able to trade through this period and will meet its
interest payments and stay within the banking covenants. On this basis,
the directors consider it appropriate to prepare the financial
statements on the going concern basis. The financial statements do not
include any adjustments that would result from a failure to make the
bond interest payments or a breach of any of the bank covenants.
2 Business activity and basis of presentation
The Group formed by Texon International plc and its subsidiaries ("the
Group") is engaged in manufacturing and supplying shoe materials and
machinery to the footwear industry worldwide.
Texon International plc has prepared consolidated accounts for the
years ended December 31, 2000 and 1999
Consolidated financial information
The consolidated financial information for the years ended December 31,
2000, 1999 and 1998 relates to Texon International plc
3 Accounting policies
The following accounting policies were adopted by the Directors and
have been applied consistently in dealing with items which are
considered material in relation to the Group financial statements.
a) Basis of preparation
The consolidated financial statements have been prepared in pounds
sterling and in accordance with generally accepted accounting
principles in the UK ("UK GAAP"). These accounting principles differ in
certain significant respects from accounting principles generally
accepted in the United States ("US GAAP"). Note 30 sets out a
description and the related effect on net income/(loss) and
shareholders' deficit of the significant differences.
b) Accounting convention
The financial statements are prepared under the historical cost
convention.
F-8
TEXON INTERNATIONAL plc
3 Accounting policies (continued)
c) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of Texon International plc and all its subsidiary
undertakings for the years ended December 31, 2000, 1999 and 1998.
The consolidated financial statements incorporate the results and
assets and liabilities of each company and its subsidiaries after
eliminating intercompany balances and transactions.
d) Sales turnover
Sales turnover comprises the invoiced value (excluding value added tax)
for the sale of products sold from stock.
e) Financial instruments and Foreign exchange
The derivative instruments utilized by the Group are forward exchange
contracts. These instruments are used for hedging purposes to alter the
risk profile of an existing underlying exposure of the Group in line
with the Group's risk management policies. The Group does not enter
into speculative derivative contracts or interest rate swaps.
Termination payments made or received are spread over the life of the
underlying exposure in cases where the underlying exposure continues to
exist. In other cases termination payments are taken to the profit and
loss account.
Transactions denominated in foreign currencies are recorded at the
rates ruling on the date of the transaction, unless matching forward
foreign exchange contracts have been entered into, in which case the
rate specified in the relevant contract is used. At the balance sheet
date unhedged monetary assets and liabilities denominated in foreign
currencies are translated at the rate of exchange ruling at that date.
The closing assets and liabilities of companies in the Group
denominated in overseas currencies have been translated at the exchange
rates ruling at the balance sheet date. The results for the year of
overseas companies have been translated at the average exchange rate
relevant for the period. Differences arising on the translation of net
assets and the results for the year denominated in overseas currencies
are taken to reserves net of the effect of foreign exchange contracts
and foreign currency borrowings entered into for the purpose of hedging
those exposures. All other profits or losses on exchange are dealt with
in the profit and loss account.
f) Stock
Stock is stated at the lower of cost, including factory overheads where
applicable, and net realizable value on a first in first out basis.
Provision is made for slow-moving and obsolete items.
g) Research and development
Research, development and patent expenditure is written off in the year
in which it is incurred.
F-10
TEXON INTERNATIONAL plc
3 Accounting policies (continued)
h) Depreciation of tangible fixed assets
Depreciation of tangible fixed assets is provided on the cost of the
assets so as to write off the cost less the estimated residual value of
the assets over their estimated useful lives by equal annual
installments over the following periods:
Years
-----
Freehold Buildings.................... 20 to 45
Leasehold Improvements................ Over the period of
tenure of the lease
Leased Machinery...................... 5 to 10
Plant and Equipment................... 5 to 15
Office Equipment...................... 3 to 10
Motor Vehicles........................ 3 to 5
Depreciation is not provided on freehold land.
i) Intellectual Property
Intellectual property where recognized is included on the Balance Sheet
and amortized to the profit and loss account over 5 years in equal
annual installments, its estimated useful economic life.
j) Grants
Grants receivable as a contribution towards expenditure on fixed assets
are treated as deferred income, which is credited to the profit and
loss account over the estimated economic lives of the related assets.
Revenue grants received are matched, where possible, against the year
in which the expenditure is occurred.
k) Lease commitments
Where the Group enters into a lease, which entails taking substantially
all the risks and rewards of ownership of an asset, the lease is
treated as a 'finance lease'. The asset is recorded in the balance
sheet as a tangible fixed asset and is depreciated over its estimated
useful life or the term of the lease, whichever is shorter. Future
installments under such leases, net of finance charges, are included
within creditors. Rentals payable are apportioned between the finance
element, which is charged to the profit and loss account, and the
capital element, which reduces the outstanding obligation for future
installments.
All other leases are accounted for as 'operating leases' and the rental
charges are charged to the profit and loss account on a straight-line
basis over the life of the lease
l) Taxation
The charge for taxation is based on the profit/(loss) for the year and
takes into account taxation deferred because of timing differences
between the treatment of certain items for taxation and accounting
purposes. Provision is made for deferred tax only to the extent that it
is probable that an actual liability will crystallize.
F-11
TEXON INTERNATIONAL plc
3 Accounting policies (continued)
m) Pensions and other post retirement benefits
Pension schemes are operated in the UK and in overseas countries. The
expected cost of defined benefit pension schemes is charged to the
consolidated profit and loss accounts so as to spread the cost of
pensions over the remaining service lives of employees in the scheme.
Variations from the regular cost are spread over the expected remaining
service lives of current employees in the scheme. The pension cost is
assessed in accordance with the advice of qualified actuaries.
The cost of defined contribution pension schemes are charged to the
profit and loss account in the year that the contributions are paid.
Provision is also made for post retirement medical and life assurance
benefits of retired employees and certain current employees in the USA.
n) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results could differ
from those estimates.
o) Acquisitions and Goodwill
On the acquisition of a business, fair values are attributed to the
Group's share of net separable assets.
Any excess of the fair value of purchase consideration of investment
including acquisition costs, over the fair value of net assets is held
on the balance sheet as purchased goodwill and amortized to the profit
and loss account over 20 years, its estimated useful life in compliance
with FRS 10. Any negative goodwill will be recognized as a 'negative
asset' and will be shown immediately below purchased goodwill and
written back through the statement of total recognized gains and
losses.
Goodwill written off to a goodwill reserve under the Group's previous
policy was not reinstated as allowed by FRS 10, however it was deducted
from the profit and loss account reserve to comply with the Standard.
The results and cash flows relating to the businesses acquired are
included in the consolidated profit and loss account and the
consolidated cash flow statement from the date of the acquisition.
p) Concentration of Credit Risk
Financial instruments, which potentially subject Texon International
plc to concentrations of credit risk, consist principally of accounts
receivable. Texon International plc sells the majority of its products
through distributors, retailers and resellers. Credit risk with respect
to accounts receivable is generally diversified due to the number of
entities comprising Texon International plc's customer base and their
dispersion across different geographies. Texon International plc
generally sells on open account and performs periodic credit
evaluations of its customers' financial condition.
F-12
TEXON INTERNATIONAL plc
3 Accounting policies (continued)
q) Debt Issuance Costs
Finance costs incurred by the group on issuance of the senior notes are
amortized to the profit and loss account over the life of the finance,
that being ten years.
Finance costs incurred by the group on issuance of the January 1998,
three year revolving credit facility were to be amortized to the profit
and loss account over its life. On July 22, 1999 the revolving credit
facility was changed (see note 17) and debt issuance costs are now
amortized over five years.
Finance costs incurred by the group on issuance of the Term Loan are
amortized to the profit and loss account over the life of the finance,
that being five years.
Unamortized debt issuance costs are netted off the debt within
creditors according to FRS 4.
F-13
TEXON INTERNATIONAL plc
4 Analysis of turnover, operating profit, and capital employed
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ -----------
(pound)000 (pound)000 (pound)000
Turnover analyzed by major business segment:
Continuing operations ...................... 110,880 126,627 149,493
---------- --------- ---------
Discontinued operations .................... - - 2,093
110,880 126,627 151,586
Operating profit/(loss) analyzed by major
business segment:
Continuing operations ...................... 12,581 12,856 13,044
Discontinued operations .................... - - (836)
---------- --------- ---------
12,581 12,856 12,208
Capital expenditures:
Continuing operations ...................... 2,038 3,511 1,999
Discontinued operations .................... - - 185
---------- --------- ---------
2,038 3,511 2,184
========== ======== =========
Depreciation and amortization:
Continuing operations ...................... 1,910 3,500 4,551
Discontinued operations .................... - - 102
---------- --------- ---------
1,910 3,500 4,653
========== ========= =========
The Group evaluates performance based on several factors, of which operating
profit is the primary financial measure.
Year ended Year ended
December 31, December 31,
1999 2000
------------ ------------
(pound)000 (pound)000
Operating assets/(liabilities) employed by
major business segment:
Continuing operations ...................... 52,130 61,563
Discontinued operations .................... - 684
---------- ----------
52,130 62,247
Cash ....................................... 1,025 837
Borrowings ................................. (107,608) (117,407)
Taxes ...................................... (389) 138
---------- ---------
Accrued bank interest ...................... (4,395) (3,904)
---------- ---------
(111,367) (122,336)
Net liabilities ............................ (59,237) (58,089)
========== =========
F-14
TEXON INTERNATIONAL plc
4 Analysis of turnover, operating profit, and capital employed (continued)
Geographical analysis of continuing operations is as follows:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Turnover analysis by company location:
Europe ..................................... 73,991 87,968 100,659
Americas ................................... 22,549 20,825 27,309
Asia ....................................... 9,643 11,431 13,297
Other ...................................... 4,697 6,403 8,228
-------- -------- --------
110,880 126,627 149,493
======== ======== ========
Export sales from the UK ................... 14,872 21,988 25,242
======== ======== ========
Turnover analysis by destination:
Europe ..................................... 54,784 62,327 69,932
Americas ................................... 20,436 18,180 24,334
Asia ....................................... 25,857 33,702 41,095
Other ...................................... 9,803 12,418 14,132
-------- -------- --------
110,880 126,627 149,493
======== ======== ========
Operating profit analysis by Company location:
Europe ..................................... 8,669 8,789 9,967
Americas ................................... 2,033 2,174 1,881
Asia ....................................... 1,997 1,800 1,035
Other ...................................... (118) 93 161
-------- -------- --------
12,581 12,856 13,044
======== ======== ========
In the year ended December 31 2000, discontinued operations (all in Europe) were
as follows:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Turnover analysis by company location ...... - - 2,093
======== ======= ======
Turnover analysis by
destination ................................ - - 2,093
======== ======= ======
Operating (loss) analysis by Company
location.................................... - - (836)
======== ======= ======
F-15
TEXON INTERNATIONAL plc
4 Analysis of turnover, operating profit, and capital employed (continued)
Geographical operating assets employed analyzed by Company location for
Continuing Operations is as follows:
As of As of As of
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000
Europe ........................ 9,174 38,833 40,973
Americas ...................... 2,983 2,702 9,263
Asia .......................... 7,132 6,947 7,091
Other ......................... 1,995 3,648 4,236
------ ------ ------
21,284 52,130 61,563
====== ====== ======
Geographical operating assets employed analyzed by Company location for
Discontinued Operations is as follows:
As of As of As of
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000
Europe......................... - - 684
====== ====== =====
Operating assets have been analyzed above, rather than net assets, as it more
appropriately reflects the Groups' operations by excluding cash balances and
amounts falling due in one year for bank loans and overdrafts, obligations under
finance leases and accrued interest.
The customer base is diverse both in its geographical spread, types of footwear
companies (athletic and traditional, men's and women's) and across the spectrum
of branded shoe companies, manufacturers, converters and distributors. No single
customer accounted for more than 7.5% of sales in 2000, 1999, and 1998.
The Company purchases most of the raw materials for its products on the open
market, and sales may be affected by changes in the market price of such raw
materials.
The Company does not engage in commodity hedging transactions for raw materials.
Although the Company has generally been able to pass on increases in the price
of raw materials to its customers, there can be no assurance that it will be
able to do so in the future, on a timely basis or at all. The results of
operations have in the past been affected by fluctuations in the price of the
primary raw material, wood pulp, for its cellulose products. Additionally,
significant increases in the price of the Company's products due to increases in
the cost of raw materials, could have a negative effect on demand for its
products and a material adverse effect on the Company's business, financial
condition and results of operation.
F-16
TEXON INTERNATIONAL plc
5 Operating profit
Operating profit/(loss) is stated after charging:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ -------------
(pound)000 (pound)000 (pound)000
Marketing and distribution costs ........... 17,602 19,002 21,731
Research and development costs ............. 1,481 1,729 1,590
Administrative expenses
Operating expenses .................... 5,406 6,423 6,771
Other expenses ........................ 1,617 2,534 4,089
------- ------- -------
26,106 29,688 34,181
======= ======= ========
Operating profit/(loss) relating to continuing operations is stated after
charging:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ -------------
(pound)000 (pound)000 (pound)000
Marketing and distribution costs ........... 17,602 19,002 21,617
Research and development costs ............. 1,481 1,729 1,590
Administrative expenses:
Operating expenses ......................... 5,406 6,423 6,381
Other expenses ............................. 1,617 2,534 4,089
------- ------- -------
26,106 29,688 33,677
======= ======= ========
Operating profit/(loss) relating to discontinued operations is stated after
charging:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ -------------
(pound)000 (pound)000 (pound)000
Marketing and distribution costs ........... - - 114
Administrative expenses:
Operating expenses ......................... - - 390
------- ------- -------
- - 504
======= ======= ========
F-17
TEXON INTERNATIONAL plc
6 Exceptional items
a) Exceptional items included within operating profit:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------- ------------
(pound)000 (pound)000 (pound)000
Operating profit before exceptional items... 13,400 13,122 13,438
Exceptional administrative expenses ........
Restructuring Costs......................... (819) (266) (1,230)
------ ------ -------
12,581 12,856 12,208
====== ====== ======
During 2000 and 1999 the Company incurred exceptional restructuring
costs shown above, and also benefited from exceptional property profits
disclosed on the face of the profit and loss account that arose from
the sale of the Groups' property at head office in Leicester. None of
the above exceptional items had an effect on the tax charge.
b) Loss on termination of discontinued activities
In December 2000, a subsidiary of the group, Cornwell Components
terminated its industrial business. This gave rise to an exceptional
loss on termination of (pound)361,000. This transaction had no effect
on the tax charge.
F-18
TEXON INTERNATIONAL plc
7 Profit/(loss) on ordinary activities before interest and taxation
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Profit on ordinary activities before interest is stated after
charging/(crediting):
Combined group
Depreciation of tangible fixed assets:
Owned ................................. 1,744 2,874 3,322
Leased ................................ 140 326 316
Amortization of goodwill .............. 26 300 877
Amortization of Intellectual Property.. - - 139
Operating lease charges:
Hire of plant & machinery ............. 539 797 955
Other lease charges ................... 798 1,044 970
Finance lease charges:
Plant and machinery ................... 66 153 136
Profit on sale of properties ............... (957) (1,000) (1,000)
(Profit)/loss on sale of other assets ...... (51) (3) 14
Net foreign exchange losses/(profit) ....... 19 (36) (181)
Provision for doubtful debtors ............. 469 263 266
Continuing operations
Depreciation of tangible fixed assets:
Owned ................................. 1,744 2,874 3,281
Leased ................................ 140 326 255
Amortization of goodwill .............. 26 300 877
Amortization of Intellectual Property.. - - 139
Operating lease charges:
Hire of plant & machinery ............. 539 797 955
Other lease charges ................... 798 1,044 970
Finance lease charges:
Plant and machinery ................... 66 153 136
Profit on sale of properties ............... (957) (1,000) (1,000)
(Profit)/loss on sale of other assets ...... (51) (3) 14
Net foreign exchange losses/(profit) ....... 19 (36) (181)
Provision for doubtful debtors ............. 469 263 266
Discontinuing operations
Depreciation of tangible fixed assets:
Owned ................................. - - 41
Leased ................................ - - 61
F-19
TEXON INTERNATIONAL plc
8 Interest payable and similar charges
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ -------------
(pound)000 (pound)000 (pound)000
Interest payable and similar charges in
respect of:
Bank loans and overdrafts .................. (2,109) (1,431) (1,856)
Term loan .................................. - (437) (1,131)
Senior notes ............................... (7,232) (8,847) (8,367)
Finance charges allocated for the year in
respect of finance leases .................. (66) (153) (138)
Debt issuance costs amortized .............. (682) (788) (828)
-------- -------- --------
(9,989) (11,656) (12,320)
======== ======== ========
9 Directors and employees
The average number of employees of the Group (including directors) was
made up as follows:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
Manufacturing .............................. 577 792 974
Selling, distribution and administration.... 460 488 529
------ ------ ------
1,037 1,280 1,503
====== ====== ======
Total number of employees as at 31 December. 993 1,575 1,482
====== ====== ======
Payments in respect of these employees were as follows:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ -------------
(pound)000 (pound)000 (pound)000
Wages ...................................... 20,740 25,496 27,651
Social security costs ...................... 3,170 3,123 3,572
Other pension costs ........................ 1,031 1,362 1,210
Health and other payroll costs ............. 1,026 1,612 1,410
------- ------- ------
25,967 31,593 33,843
======= ======= ======
F-20
TEXON INTERNATIONAL plc
9 Directors and employees (continued)
Directors' emoluments including pension contributions comprise:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ----------- ------------
(pound)000 (pound)000 (pound)000
Fees ....................................... 36 20 20
Other emoluments ........................... 402 335 428
Pensions ................................... 59 60 60
------ ------ -----
497 415 508
====== ====== =====
Pension contributions of the highest paid Director were(pound)31,000
for the year ended December 31, 2000 (1999:(pound)31,000). There were
two directors with benefits accruing under money purchase pension
schemes (1999: two).
Directors' emoluments:
Directors' emoluments including pension contributions were paid by
United Texon Limited for the years ended 31 December 2000,1999, and
1998.
Emoluments of the highest paid Director were (pound)224,000,
(pound)175,000 and (pound)211,000 for the years ended December 31,
2000, 1999 and 1998 respectively.
The remuneration of the executive Directors is authorized by the
Remuneration Committee of the Board, which consists of non-executive
Directors only. Additional information relating to Directors share
options is located in Note 19.
F-21
TEXON INTERNATIONAL plc
10 Taxation
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Taxable (loss)/income:
UK .................................... (3,682) (4,526) (6,851)
Overseas .............................. 7,391 7,062 7,526
-------- -------- --------
3,709 2,536 675
======== ======== ========
The tax charge is made up as follows:
UK taxation
Corporation Tax at 30% (1999: 30.25% and
1998: 31%) ............................ - - -
Deferred Tax .......................... (15) 24 -
Overseas taxation ..........................
Corporation Tax ....................... (1,389) (1,763) (3,241)
Withholding Tax ....................... (127) - (18)
Deferred Taxation ..................... (8) 25 (97)
-------- -------- --------
(1,539) (1,714) (3,356)
Prior Year Adjustments
Corporation Tax ............................ 236 - 6
Overseas Taxation .......................... - (40) 216
-------- -------- --------
(1,303) (1,754) (3,134)
======== ======== ========
Continuing Operations ...................... (1,303) (1,754) (3,134)
Discontinued operations .................... - - -
-------- -------- --------
(1,303) (1,754) (3,134)
======== ======== ========
For the year ending December 31, 2000 the charge for UK Corporation Tax
at 30% (1999: 30.25% and 1998: 31%) is stated after double tax relief
of(pound)570,000 (1999:(pound)588,000 and 1998: (pound)382,000). The
tax charge for the year is high in relation to profits, due to tax
losses in certain jurisdictions, not being off settable against taxable
profits in others.
At 31 December 2000, Texon International plc and its subsidiaries had
carried forward tax losses available for continuing operations in
excess of (pound)20 million (1999: (pound)16,214,000), with
(pound)1,637,000 expiring between 31 December 2000 and 31 December 2009
and the remainder being unlimited.
The taxable profits generated by the Foshan Texon Cellulose Board
Manufacturing Co Limited are subject to half the standard rate for the
two years ending December 2000 (the current standard rate is 24%).
F-22
TEXON INTERNATIONAL plc
10 Taxation (continued)
The table below reconciles the expected UK statutory charge to the
actual taxes:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Expected taxation charge at UK corporation
tax rates (2000: 30%, 1999: 30.25% and
1998: 31%) ............................ 1,150 767 202
Current year tax losses not relieved ....... 1,137 2,872 2,259
Benefit of prior year losses ............... (1,024) (1,323) (230)
Withholding tax ............................ 127 - 18
Overseas tax rates ......................... 48 (360) 972
Prior year tax adjustment .................. (236) 40 (222)
Non-deductible expenses .................... 101 (242) 135
-------- ------ -------
Actual taxes on income ..................... 1,303 1,754 3,134
====== ====== =======
To the extent that dividends remitted from overseas subsidiaries and
associated undertakings are expected to result in additional taxes,
appropriate amounts have been provided. No taxes have been provided for
unremitted earnings of subsidiaries and associated undertakings when such
amounts are considered permanently re-invested.
F-23
11 Consolidated tangible fixed assets
Land and Plant and Office Motor
Buildings Machinery Equipment Vehicles Total
--------- ----------- --------- -------- ------
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000
Cost
At January 1, 2000 ......................... 6,263 17,579 1,164 257 25,263
Exchange adjustment ........................ 256 231 24 43 554
Additions .................................. 21 1,836 143 54 2,054
Disposals .................................. (246) (1,205) (24) (21) (1,496)
Acquisition of businesses .................. 468 2,694 36 13 3,211
------ ------- ------- ----- --------
At December 31, 2000 ....................... 6,762 21,135 1,343 346 29,586
====== ======= ====== ===== ========
Accumulated depreciation
At January 1, 2000 ......................... 541 3,491 204 54 4,290
Exchange adjustment ........................ 34 88 9 22 153
Provided during the year ................... 365 2,879 327 67 3,638
Disposals .................................. (17) (511) (21) (17) (566)
------ ------- ------- ----- --------
At December 31, 2000 ....................... 923 5,947 519 126 7,515
====== ======= ====== ===== ========
Net book value
At December 31, 2000 ....................... 5,839 15,188 824 220 22,071
======= ======== ====== ===== =======
At December 31, 1999 ....................... 5,722 14,088 960 203 20,973
======= ======== ====== ===== =======
Included in the total net book value of plant and machinery at December 31, 2000
is (pound)1,892,000 (1999: (pound)2,153,000) in respect of assets held under
finance leases and similar hire purchase contracts.
Depreciation charged during the year ended December 31, 2000 related to such
plant and machinery is (pound)316,000 (1999: (pound)326,000).
Land and Buildings comprise:
Short
Freehold Leasehold Total
-------- --------- -------
(pound)000 (pound)000 (pound)000
Cost
At January 1, 2000 ......................... 6,212 51 6,263
Exchange adjustment ........................ 255 1 256
Additions .................................. 16 5 21
Disposals .................................. (246) - (246)
Acquisition of businesses .................. 468 - 468
------- ------ --------
At December 31, 2000 ....................... 6,705 57 6,762
======= ====== ========
F-24
TEXON INTERNATIONAL plc
11 Consolidated tangible fixed assets (continued)
Short
Freehold Leasehold Total
-------- --------- -------
(pound)000 (pound)000 (pound)000
Depreciation
At January 1, 2000 ......................... 524 17 541
Exchange adjustment ........................ 34 - 34
Provided during the year ................... 357 8 365
Disposals .................................. (17) - (17)
----- ---- -----
At December 31, 2000 ....................... 898 25 923
===== === =====
Net book value
At December 31, 2000 ....................... 5,807 32 5,839
===== === =====
At December 31, 1999 ....................... 5,688 34 5,722
===== === =====
12 Consolidated intangible fixed assets
Intellectual
Other Property Goodwill Total
----- ------------- -------- ------
(pound)000 (pound)000 (pound)000 (pound)000
Cost
At January 1, 2000 ......................... - - 13,033 13,033
Additions (Note 22) ........................ 131 - 9,347 9,478
Acquisitions of business (Note 22) ......... - 500 - 500
Revaluations (Note 22) ..................... - - 310 310
Foreign exchange ........................... - - 55 55
------ ----- -------- --------
At December 31, 2000 ....................... 131 500 22,745 23,376
====== ===== ======== ========
Amortization
At January 1, 2000 ......................... - - 326 326
Provided in the year ....................... - 139 877 1,016
------ ----- -------- --------
At December 31, 2000 ....................... - 139 1,203 1,342
====== ===== ======== ========
Net Book Value
At December 31, 2000 ....................... 131 361 21,542 22,034
====== ===== ======== ========
At December 31, 1999 ....................... - - 12,707 12,707
====== ===== ======== ========
13 Investments
At the 31 December 2000, the group held an investment of(pound)1,000.
(1999:(pound)14,000). During the year the Group acquired an unlisted
investment of(pound)1,000 (1999:(pound)14,000) and disposed of an
unlisted investment of(pound)14,000 (1999: nil).
F-25
TEXON INTERNATIONAL plc
14 Stocks
As of As of
December 31, December 31,
1999 2000
------------ ------------
(pound)000 (pound)000
Raw materials .............................. 5,055 4,687
Work in progress ........................... 1,442 1,550
Finished goods and goods for resale ........ 14,969 16,055
-------- -------
21,466 22,292
======== =======
15 Debtors
As of As of
December 31, December 31,
1999 2000
------------ ------------
(pound)000 (pound)000
Amounts failing due within one year:
Trade Debtors, net of (pound)981,000
(1999:(pound)1,149,000)
allowance for doubtful debtors............ 24,498 24,532
Debts subject to financing arrangements:
Gross Debtors .............................. - 3,397
Less: non-returnable amounts received ...... - (1,920)
- 1,477
Other Debtors .............................. 1,239 5,799
Prepayments and accrued income ............. 754 1,359
------- -------
26,491 33,167
======= =======
Amounts falling due after more than one year:
Other debtors .............................. 3,348 1,606
======= =======
Total debtors .............................. 29,839 34,773
======= =======
Other debtors falling due after more than one year relates to deposits
on leased assets, bonds and cash surrender insurance. The movement on
the allowance for doubtful debts may be analyzed as follows:
Year ended Year ended
December 31, December 31,
1999 2000
------------- -------------
(pound)000 (pound)000
Balance at beginning of year ............... 1,261 1,149
Charge for the year ........................ 263 266
Utilized during the year ................... (669) (456)
Businesses acquired ........................ 341 -
Exchange adjustment ........................ (47) 22
----- ------
Balance at end of year ..................... 1,149 981
====== ======
F-26
TEXON INTERNATIONAL plc
16 Creditors
As of As of
December 31, December 31,
1999 2000
------------ ------------
(pound)000 (pound)000
Amounts failing due within one year:
Bank loans and overdrafts .................. 10,631 13,898
Obligations under finance leases ........... 632 754
Loan Notes.................................. - 671
Payments received on account ............... 134 98
Trade creditors............................. 14,521 18,442
Taxation and social security ............... 2,960 200
Other creditors ............................ 641 1,181
Accruals ................................... 10,872 13,571
-------- -------
40,391 48,815
======== =======
Amounts failing due after more than one year:
Bank loans and overdrafts .................. 25,168 27,184
Obligations under finance leases ........... 855 324
Senior Notes ............................... 71,281 74,281
Loan Notes ................................. 528 1,373
Other Creditors ............................ - 1,342
------- -------
97,832 104,504
======= =======
17 Borrowings and Derivatives
Senior Secured Notes and Term Loan
At January 1, 2000 Texon International plc held a Credit Agreement with
Chase Manhattan and other institutions for a multi-currency revolving
facility of (Euro)15.0 million and a Euro term loan facility of
(Euro)30.0 million. This is repayable by July 1, 2004 by way of
semi-annual installments.
During the year the Euro term loan facility was increased by (Euro)5.0
million in order to fund the acquisition of Foss on July 26, 2000. This
is repayable on the same terms as the original term loan.
The above facilities bear interest at a rate of LIBOR plus 2% per
annum, subject to certain reductions based on financial performance.
Texon International plc will be required to make mandatory prepayments
of all outstanding loans under the Revolving Facility upon the
occurrence of a flotation, debt refinancing or change of control of the
Company.
The Credit Agreement contains customary covenants including
restrictions on disposal of assets, incurring additional indebtedness
or contingent liabilities, making acquisitions or investments, engaging
in mergers or consolidations, or amending other debt instruments.
In addition, the Company is required to comply with specified financial
ratios, including a total net interest cover ratio, a fixed charge
ratio and a total debt to EBITDA ratio, calculated quarterly on a
rolling 12 month basis. The Credit Agreement also contains customary
events of default including payment default, covenant default,
cross-default and certain events of insolvency.
F-27
TEXON INTERNATIONAL plc
17 Borrowings and Derivatives (continued)
The Euro Term Loan Facility and the Revolving Credit Facility are
secured by way of a fixed and floating charge over the assets of Texon
UK Ltd and a share pledge on the share capital of Texon Italia SpA.
Amounts outstanding under the term loan and revolving credit facility
are shown net of related expenses of (pound)509,774 (1999:
(pound)774,070) and these are being amortized over their respective
lives, that being 5 years.
Under the revolving facility and other facilities the Group has unused
available bank facilities as of December 31 2000 of (pound)3.9 million
(1999: (pound)5.1 million).
Senior Notes Financing
On January 30, 1998 the Company issued DM 245,000,000 (approximately
(pound)82.2 million) of 10% Series A Senior notes (the 'Notes') due
February 1, 2008. On October 23, 1998 the Company purchased, at a
discount, DM 7,000,000 of these Notes, for DM 5,681,944 (approximately
(pound)2.05 million) and sold these notes on April 3, 2000 for DM
6,580,000 (approximately (pound)2.15 million). Interest is payable on 1
February and 1 August of each year.
The Notes are subjected to restrictive covenants similar to those in
the Credit Agreement. The Company may be required to redeem the Notes
at 101% of the principal amount, together with accrued and unpaid
interest upon a change of control.
The Notes are shown net of related expenses of (pound)3,751,176 (1999:
(pound)4,274,123) and these are being amortized over the life of the
Notes, that being 10 years.
Other Financing
Other bank loans and overdrafts, represent credit facilities of
subsidiaries with third parties totaling (pound)16.4 million (1999:
(pound)13.4 million). In addition the Group has a number of finance
lease and loan note obligations. The finance lease obligations are
secured on the assets to which they relate.
Financial Instruments
The Group's policies as regards derivatives and financial instruments
are set out in the accounting policies note 3 e). The group does not
trade in financial instruments.
Short-term debtors and creditors have been omitted from all
disclosures.
F-28
TEXON INTERNATIONAL plc
17(a) Maturity Profile of Financial Liabilities
As of As of
December 31, December 31,
1999 2000
------------ ------------
(pound)000 (pound)000
Amounts failing due within one year or less or on demand:
Euro Term Loan ............................. 2,105 3,784
Other Bank Loans and Overdrafts ............ 8,526 10,114
Obligations under Finance Leases ........... 632 754
Loan Notes ................................. - 671
-------- -------
11,263 15,323
======== ========
Amounts failing due in more than one year but
not more than two years:
Euro Term Loan ............................. 3,130 4,388
Obligations under Finance Leases ........... 713 324
Other Bank Loans and Overdrafts ............ 148 455
Loan Notes ................................. - 938
-------- -------
3,991 6,105
======== ========
Amounts failing due in more than two years but
not more than five years:
Euro Term Loan ............................. 12,914 11,078
Other Bank Loans ........................... 8,886 11,216
Obligations under Finance Leases ........... 142 -
Loan Notes ................................. 328 235
------- -------
22,270 22,529
======== ========
Amounts falling due in more than five years:
Other Bank Loans ........................... 90 47
Loan Notes ................................. 200 200
Senior Notes ............................... 71,281 74,281
-------- -------
71,571 74,528
======== ========
Total Borrowings ........................... 109,095 118,485
======== =======
The redeemable cumulative preference shares have no fixed maturity date.
The group had the following undrawn borrowing facilities at 31 December:
As of As of
December December
31, 1999 31, 2000
---------- -----------
(pound)000 (pound)000
Expiry date
In one year or less or on demand............ 2,318 1,329
In more than two years but not
more than five years...................... 2,787 2,567
------ ------
Total....................................... 5,105 3,896
====== ======
The Group held DM7.0 million of Senior Notes at December 31 1999, these
were sold during 2000.
F-29
TEXON INTERNATIONAL plc
17(b) Interest Rate Profile
The following is an interest rate and currency profile of the group's
financial liabilities and assets. The group has not entered into any
interest rate swaps for the year ended December 31, 2000.
Financial liabilities
Fixed rate financial
liabilities
------------------------------
Weighted
Non- Average
Floating interest Weighted Period for
rate Fixed rate bearing average which the
financial Financial Financial interest rate is
Currency Total liabilities Liabilities Liabilities rate Fixed
-------- ----------- ------------ ---------- -------- ----------
(pound)000 (pound)000 (pound)000 (pound)000 % Years
At 31 December
2000
Sterling ................ 7,935 6,709 1,026 200 7.5 4.3
Euro, ................... 103,721 28,979 74,742 - 10.0 10.0
US$ ..................... 2,123 546 1,577 - 10.0 3.0
Other ................... 4,706 2,273 2,433 - 6.5 3.0
------- ----- ----- ---- ----- -----
Total ................... 118,485 38,507 79,778 200 9.9 9.6
======= ====== ======= ===== ===== =====
At 31 December
1999
Sterling ................ 7,993 6,384 1,409 200 7.9 4.3
Euro .................... 97,359 26,000 71,359 - 10.0 10
US$ ..................... 1,349 1,349 - - - -
Other ................... 2,394 2,394 - - - -
------- ----- ----- ---- ----- -----
Total ................... 109,095 36,127 72,768 200 10.0 9.9
======= ====== ======= ===== ===== =====
The information in this table is shown net of unamortized debt issuance costs.
In addition the Company has in issue (pound)54.8 million ((pound)5.5 million
nominal value plus (pound)49.3 million share premium) of redeemable cumulative
preference shares with a redemption premium rate of 6.75% per annum, see note
19.
F-30
TEXON INTERNATIONAL plc
17(b) Interest Rate Profile (continued)
Financial assets
Non-interest bearing assets
Other non-
Interest
Floating rate Fixed rate Bearing
Financial Financial Fixed asset Financial
Currency Total Assets Assets Investments Assets
- -------- ----- ------------ --------- ----------- ---------
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000
At 31 December
2000
Sterling ................ 3,141 - 3,000 - 141
Euro .................... 611 89 - - 522
US$ ..................... 1,220 49 - 1 1,170
Other ................... 472 272 - - 200
------- ------ ------- ------ --------
Total ................... 5,444 410 3,000 1 2,033
======= ====== ====== ====== ========
At 31 December
1999
Sterling ................ 2,025 - 2,000 14 11
Euro .................... 538 51 - - 487
US$ ..................... 936 137 - - 799
Other ................... 888 451 - - 437
------- ------ ------- ------ --------
Total ................... 4,387 639 2,000 14 1,734
======= ====== ====== ====== ========
Financial assets comprise cash at bank and in hand of(pound)0.8 million
(1999:(pound)1.0 million), fixed asset investments of(pound)1,000
(1999:(pound)14,000) and other debtors due in more than one year of
(pound)1.6 million (1999:(pound)3.3 million). Non-interest bearing
assets, other than(pound)1,000 (1999: (pound)14,000) of fixed asset
investments have no maturity period.
Interest on floating rate bank deposits is based on the relevant
national inter bank rate. The weighted average rate and period
remaining for the fixed rate deposits are 5.0% and 2.8 years (1999:
5.0% and 3.8 years).
17(c) Fair values of financial assets and liabilities
The carrying values of the financial assets, financial liabilities and
redeemable cumulative preference shares shown below are not materially
different from the fair values, except for the Senior Secured Notes.
The fair value of the Senior Secured Notes less debt issuance costs was
(pound)42.0 million (1999: (pound)59.9 million). This has been
calculated by reference to market rates at the year end. The fair
values of the other financial assets and liabilities match the carrying
amount shown in the financial statements.
Market values have been used to determine the fair values of all
foreign currency contracts and listed instruments issued or held.
F-31
TEXON INTERNATIONAL plc
17(c) Fair values of financial assets and liabilities (continued)
The following tables set out carrying values of financial assets and
liabilities.
Primary financial instruments held or issued to finance the Group's
Operations:
As of As of
December 31, December 31,
1999 2000
----------- -----------
Carrying Carrying
Amount Amount
---------- -----------
(pound)000 (pound)000
Cash at bank, in hand and other liquid investments ....................... 1,025 837
Fixed asset investments .................................................. 14 1
Trade debtors due in more than one year .................................. 3,348 1,606
-------- -------
Gross financial assets ................................................... 4,387 2,444
========= ========
Bank loans and overdrafts ................................................ 35,799 41,082
Finance leases ........................................................... 1,487 1,078
Senior secured notes ..................................................... 71,281 74,281
Loan notes ............................................................... 528 2,044
Gross financial liabilities .............................................. 109,095 118,485
======= =======
Redeemable cumulative preference shares issued by Texon
International plc ..................................................... 59,257 66,024
======= =======
The redeemable cumulative preference shares are shown above at their
nominal value plus share premium and premium on redemption.
Derivative financial instruments held to manage the currency profile:
As of December 31, 1999 As of December 31, 2000
----------------------- ------------------------
Book Estimated Book Estimated
Value fair value value fair value
----- ---------- ----- ----------
(pound)000 (pound)000 (pound)000 (pound)000
Forward foreign exchange contracts............. - (613) - (28)
===== ===== ==== =====
17(d) Hedging
Gains and losses on instruments used for hedging are not recognized
until the exposure that is being hedged is itself recognized.
Unrecognized gains and losses on instruments used for hedging, and the
movements therein, are as follows:
F-32
TEXON INTERNATIONAL plc
17(d) Hedging (continued)
1999 2000
---------- ------------------------------------------------
Total net Gains Losses Total net
gains/ gains/
(losses) (losses)
-------- --------
(pound)000 (pound)000 (pound)000 (pound)000
Unrecognized gains and
losses at 1 January ...................... 24 - (458) (458)
Gains and losses arising in
previous years that were
recognized in the year ................... 124 - (458) (458)
------ ------ ------ ------
Gains and losses arising
before 1 January that were
not recognized in the year................ - - - -
Gains and losses arising in
the year that were not
recognized in the year ................... (458) 34 - 34
------ ------ ------ ------
Unrecognized gains and
losses on hedges at 31
December ................................. (458) 34 - 34
====== ====== ====== ======
Gains and losses expected to
be recognized in the next
financial year ........................... (458) 34 - 34
Gains and losses expected to
be recognized after the next
financial year ........................... - - - -
======= ====== ===== ======
17(e) Currency Profile
The main functional currencies of the group are Sterling, US$ and various
European currencies now participating in the Euro. The following analysis of net
monetary assets and liabilities shows the Groups currency exposures after the
effects of forward contracts and other derivatives used to manage currency
exposure. The amounts shown represent the transactional (or non-structural)
exposures that give rise to the net currency gains and losses recognized in the
profit and loss account. Such exposures comprise the monetary assets and
monetary liabilities of the Group that are not denominated in the operating (or
'functional') currency of the operating unit involved, other than certain
non-sterling borrowings treated as hedges of net investments in overseas
operations.
2000 1999
(pound)1000 (pound)1000 (pound)1000 (pound)1000 (pound)-1000 (pound)1000 (pound)1000
Sterling US $ HK$ Euros AU $ Total Total
-------- ---- --- ----- ---- ----- ------
Euros (3,988) (149) - - 8 (4,129) (27)
US $ (181) - (698) 82 (23) (820) (324)
HK$ 57 879 - - - 936 4
AU $ 74 23 - 8 - 105 (125)
------ ---- ---- --- --- ------ -----
Total (4,038) 753 (698) 90 (15) (3,908) (472)
------- ---- ----- --- ---- ------- -----
17(f) The year end borrowings position and exposure to derivatives was, with
the exception of differences outlined above, typical of the pattern
that existed in the year. There has been no change in the role of
financial instruments in the Group between the year end and the date of
approval of the financial statements.
F-33
TEXON INTERNATIONAL plc
18 Provisions for Liabilities and Charges
Group
Deferred Other
Pensions Taxation Provisions Total
-------- -------- ---------- -----
(pound)000 (pound)000 (pound)000 (pound)000
At January 1, 2000............... 3,510 (219) 3,747 7,038
Exchange adjustment.............. 16 2 118 135
Provided......................... 201 97 1,053 1,134
Utilized......................... (54) (218) (1,475) (1,529)
------ ----- ------- -------
At December 31, 2000............. 3,673 (338) 3,443 6,778
====== ===== ======= =======
Pensions
Pensions are discussed in note 27.
Deferred Taxation As of As of
December December
31,1999 31,2000
-------- --------
(pound)000 (pound)000
Deferred Taxation is represented by:
Excess of Capital Allowances over
accumulated depreciation................. (41) (10)
Intercompany profit contained in stock........ (271) (254)
Other Provisions and timing differences....... 93 (74)
----- -----
(219) (338)
===== =====
Properties included in the accounts at more than their historical cost in the
local books of Group companies could give rise to a tax liability of
approximately (pound)254,000 (1999: (pound)254,000) if sold at net book value.
Provision for this liability has not been made in the accounts as in some cases
there is no intention of selling the properties and in others any tax liability
would be extinguished by available tax losses. Otherwise the total potential
liability for deferred tax, not shown in the accounts, is (pound)nil (1999:
(pound)nil).
Other provisions
Other provisions at December 31, 2000 relate principally to employee costs
including post retirement medical and life insurance benefits and unfunded
pension liabilities. There is no set payment for these liabilities.
F-34
TEXON INTERNATIONAL plc
19 Dividends and Share capital
a) Share capital
1999 2000
Number of (pound) Number of (pound)
Shares Shares
--------- ---------
Authorized share capital
Ordinary A voting shares of(pound)1 each........ 3,436,277 3,436,277 4,001,701 4,001,701
Ordinary A non-voting shares of(pound)1 each.... 163,723 163,723 178,071 178,071
Ordinary B voting shares of(pound)1 each........ 400,000 400,000 435,054 435,054
Redeemable cumulative preference shares
of 10p each..................................... 52,000,000 5,200,000 55,751,200 5,575,120
------------------------------------
9,200,000 10,189,946
========= ==========
1999 2000
Number of (pound) Number of (pound)
Shares Shares
---------- ---------
Called up, allotted and fully paid share capital
Ordinary A voting shares of (pound) l each...... 3,436,277 3,436,277 3,924,772 3,924,772
Ordinary A non-voting shares of (pound) l each.. 163,723 163,723 178,071 178,071
Ordinary B voting shares of (pound) l each...... 320,000 320,000 355,054 355,054
Redeemable cumulative preference shares
of 10p each..................................... 52,000,000 5,200,000 54,751,083 5,475,108
--------- ---------
9,120,000 9,933,005
--------- ---------
Called up, allotted and partly paid share capital
Ordinary B voting shares of (pound)1 each 80,000 40,000
--------- ---------
9,120,000 9,973,005
========= =========
At December 31, 1998 the redeemable cumulative preference shares (shown
as non-equity interests in the balance sheet) carried a fixed
cumulative dividend, calculated as a percentage of the redemption value
of (pound)52.0 million, payable semi-annually at a rate exclusive of
any associated tax credit. On March 11, 1999 a Special Resolution was
passed by the Shareholders to amend the Articles of Association of the
Company to reflect a change in the dividend percentage. The new
Articles stated that for periods ending on or prior to December 31,
2000, the preference dividend would accrue at the rate of 6.75% per
annum rather than at 15% as shown by the previous agreement. This
change was retrospective and the Shareholders waived any entitlement to
the higher rate in historic periods. There was no change made to the
period post January 1, 2001 where, in the absence of a sale or listing
of the Company the preference dividend would accrue at the rate of 15%
per annum through to September 30, 2002, and at 25% thereafter.
The new articles also provided that the payment of a 5% per annum
dividend on or prior to the due date was deemed to satisfy the full
6.75% rate for periods up to December 31, 2000 - provided that arrears
of accrued but unpaid dividends in respect of previous periods had been
paid by this date. In the event that the dividend was not paid on the
due date it was to accumulate at a rate of 6.75%.
F-35
TEXON INTERNATIONAL plc
19 Dividends and Share Capital (continued)
In connection with the Company's refinancing on July 22, 1999, see note
17, the preference shareholders agreed to waive retrospectively their
right to receive a semi-annual preference dividend and in its place
accepted an additional redemption premium of 6.75% (excluding any
associated tax credit), compounding annually from the date of issue of
the preference shares. The redemption premium will become payable to
the preference shareholders on the earlier of:
o a sale of the Company; or
o an initial public offering of the Company's equity securities.
The redemption premium has been calculated by the Company at 6.75% and
has been reflected in the consolidated financial statements as if it
had begun to accumulate on January 1,1998, the date which the original
preference dividend began to accrue. It will remain at this rate for
periods ending on or prior to December 31, 2000. There has been no
change made to the period post January 1, 2001, where in the absence of
a sale or listing of the Company the redemption premium will accrue at
the rate of 15% per annum (excluding any associated tax credit) through
to September 30, 2002, at 25% thereafter. The Directors believe that it
is improbable that the Company will actually bear any of the higher
rates and so they are not taken into account for the purposes of
calculating the finance charge.
The redeemable cumulative preference shares may be redeemed at the
option of the Company in multiples of 100,000 or as a whole at par plus
the share premium plus the redemption premium referred to above by
serving notice on the Preference Shareholders specifying the number of
Preference shares to be redeemed.
On 14 April 2000 the Company issued for cash 80,000 partly paid B
ordinary shares of (pound)1 each, 50p paid up immediately,50p to be
paid after one year.
On 14 April 2000 the Company completed a rights issue for cash as
follows :-
o 315,486 A ordinary shares of(pound)1 each at par
o 35,054 B ordinary shares of(pound)1 each at par
o 315,486 redeemable cumulative preference shares
of 10p each at a premium of 90p pre share
The redeemable cumulative preference shares may be redeemed at the
option of the Company in multiples of 100,000 or as a whole at par plus
the share premium plus the redemption premium referred to above by
serving notice on the Preference Shareholders specifying the number of
Preference shares to be redeemed.
P. E. Selkirk and J. N. Fleming have an agreement with the other
shareholders whereby each may acquire from the other shareholders up to
80,000 A ordinary voting shares at a price of (pound)8.75 per share.
The options are exercisable only in anticipation of and conditional
upon a sale of the Company or an initial public offering of the
Company's equity securities, and will lapse on 21 December 2004 if not
exercised prior to that date. In addition, options over a further
240,000 A ordinary shares are available for allocation, on a basis to
be determined by the Remuneration Committee, to employees or
prospective employees of the Group on the same terms as those described
above.
F-36
TEXON INTERNATIONAL plc
19 Dividends and Share Capital (continued)
Summary of Share Capital Movement
Movements in share capital are summarized below:
Texon International plc
------------------------
Share capital
--------------------------------------------------------------------------------------
Redeemable Redeemable
cumulative Ordinary cumulative Ordinary
preference shares of preference shares of
shares of 10 (pound)1 shares of 10 (pound)1
pence each each pence each each Total
-------------- ---------------- ------------- ------------- --------------
(Number) (Number) (pound 000) (pound 000) (pound 000)
Authorized:
December 31, 1999 ........................... 52,000,000 4,000,000 5,200 4,000 9,200
Authorized April 14, 2000 315,486 350,540 31 351 383
Authorized August 5, 2000 3,435,714 264,286 344 264 607
---------- ---------- ----------- ------------- ------------
55,751,200 4,614,826 5,575 4,615 10,190
========== ========== =========== ============ ===========
Issued:
Issued partly paid .......................... - 50,000 - 13 13
Share capital to be issued for the
Acquisition.................................. 52,000,000 3,600,000 5,200 3,600 8,800
---------- ---------- ----------- ------------- ------------
December 31, 1997............................ 52,000,000 3,650,000 5,200 3,613 8,813
Share Capital issued........................ - 270,000 - 307 307
---------- ---------- ----------- ----------- ------------
December 31, 1998 and 1999................... 52,000,000 3,920,000 5,200 3,920 9,120
Issued April 14, 2000 315,486 430,540 31 391 422
Issued December 29, 2000 2,435,597 187,357 244 187 431
---------- ---------- ----------- ---------- ------------
54,751,083 4,537,897 5,475 4,498 9,973
========== ========== =========== ========== =========
Non-equity interests represent the nominal value of the redeemable
cumulative preference shares together with the share premium account
and the premium on redemption reserve.
F-37
TEXON INTERNATIONAL plc
20 Reserves
Share Goodwill Premium on Profit
Premium write-off Redemption & Loss
Account Reserve Reserve Account Total
------- ------- ------- ------- -----
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000
Texon International plc
Balance at incorporation................. - - - - -
Goodwill written-off during the period... - (124,242) - - (124,242)
Share capital to be issued............... 46,800 - - - 46,800
-------- --------- ------- ------- ---------
Balance at December 31, 1997............. 46,800 (124,242) - - (77,442)
======== ========= ======= ======= ========
At December 31, 1997 as previously
stated................................. 46,800 (124,242) - - (77,442)
Goodwill eliminated in reserves.......... - 124,242 - (124,242) -
-------- --------- ------- ------- ---------
At December 31, 1997 as restated......... 46,800 - - (124,242) (77,442)
Share capital to be issued (cancelled)... (46,800) - - - (46,800)
Share premium in year ................... 46,800 - - - 46,800
Retained loss for the year............... - - - (378) (378)
Goodwill on disposal of Turbel Ltd....... - - - 5 5
Exchange adjustments..................... - - - (4,924) (4,924)
-------- --------- ------- ------- ---------
Balance at December 31, 1998............. 46,800 - (129,539) (82,739)
======== ========= ======= ======= ========
At January 1, 1999....................... 46,800 - - (129,539) (82,739)
Retained loss for the year............... - - - (4,081) (4,081)
Premium on Redemption - other finance
charge................................. - - 4,657 - 4,657
Exchange adjustments..................... - - - 10,561 10,561
Preference dividend transferred to
Reserves................................. - - 2,600 - 2,600
-------- --------- ------- ------- ---------
Balance at December 31, 1999............. 46,800 - 7,257 (123,059) (69,002)
======== ========= ======= ======= ========
At January 1, 2000....................... 46,800 - 7,257 (123,059) (69,002)
Retained loss for the year............... - - - (6,709) (6,709)
Exchange adjustments..................... - - - 22 22
Preference dividend transferred to
Reserves.............................. - - 4,016 - 4,016
Shares issued in Year................... 2,476 - - - 2,476
-------- --------- ------- ------- ---------
Balance at December 31, 2000............ 49,276 - 11,273 9129,746) (69,197)
======== ========= ======= ======= ========
Goodwill of approximately (pound)124 million was eliminated against a goodwill
reserve as a matter of accounting policy. In accordance with FRS 10 this
goodwill has now been netted off against the profit and loss account reserve and
the opening balance restated to reflect the comparative balance sheet. Goodwill
written off to reserves of approximately (pound)128 million will be charged or
credited in he profit and loss account on subsequent disposal of the businesses
to which it relates.
F-38
TEXON INTERNATIONAL plc
21 Minority Equity Interests
Texon International plc
-----------------------------------------------------
Year ended Year ended Year ended
December 31, December December 31,
1998 31, 1999 2000
----------- ------------ ------------
(pound)000 (pound)000 (pound)000
Balance at beginning of year............. 1,431 478 645
Minority interest in the profit on
ordinary activities after tax......... 184 206 234
Exchange adjustments..................... (75) (39) (24)
Dividends................................ - - (120)
Acquisitions............................. (1,062) - 400
--------- -------- -------
Balance at December 31................... 478 645 1,135
========= ======== =======
The minority interests relate to the Group's operation in China, and Brazil (see
note 21).
The Company owns 96% of USM (China Holdings) Ltd, which in turn holds 60% of
Foshan Texon Cellulose Board Manufacturing Co Ltd. In April 1998, an agreement
was entered into by Texon Overseas (a wholly owned subsidiary) to acquire a
further 30% of the Foshan Texon Cellulose Board Manufacturing Co Limited. The
price of US$2,625,000 has been paid in three annual installments, the first one
was paid upon execution of the agreement and the second installment was paid on
March 31, 1999 and the third was paid on 31 March 2000.The total share holding
in Foshan Texon Cellulose Board Manufacturing Co Limited held by the Texon
International plc Group is 87.6%.
22 Purchase of Subsidiary Undertakings
All acquisitions have been accounted for using the acquisition method. For all
acquisitions the fair values assigned to assets and liabilities are provisional
because the Directors have no tbeen able to finalize the adjustments required
prior to the date of signing these financial statements.
2000 Acquisitions
During the year the Group acquired the following three businesses
1. On 29 February 2000 Texon UK Ltd, a wholly owned subsidiary of Texon
International plc acquired the Leicester, UK based business of Crispin
Dynamics for a consideration of (pound)2,550,000, including expenses of
(pound)50,000. All of the consideration has been paid during 2000. The
fair values of the net assets acquired have been revised from
(pound)1,312,269 to (pound)911,269. This all relates to fair valuing of
stock acquired. Hence goodwill is calculated at (pound)1,638,731.
2. On 23 March 2000 Texon Italia SpA, a wholly owned subsidiary of Texon
International plc acquired a 50% shareholding in Boxflex Componentes
Para Calcados Ltda. The consideration of (pound)1,041,000, including
expenses of (pound)125,000 was paid in cash. The Company was then
renamed Boxflex Texon Componentes Para Calcados Ltda ('Boxflex'). No
adjustment to the original fair value of assets of (pound)800,000 has
been made as at the 31 December 2000, giving a Minority interest of
(pound)400,000 and Goodwill of (pound)641,000.
As none of these acquisitions were either material or significant to the
Group they have been combined for the purposes of the disclosures
required by Financial Reporting Standard 6 and the Companies Act 1985.
F-39
TEXON INTERNATIONAL plc
22 Purchase of Subsidiary Undertakings (continued)
The following table explains the adjustments made to the book value of the major
category of assets and liabilities acquired to arrive at the fair values
included in the consolidated financial statements at the date of acquisition for
Crispin Dynamics and Boxflex Componentes Para Calcados Ltda.
Book amount Revaluation Fair value to
the group
----------- ------------ -------------
(pound)000 (pound)000 (pound)000
Net assets acquired:
Tangible fixed assets 578 - 578
Intangible fixed assets 500 - 500
Stocks 768 (401) 367
Debtors 165 - 165
Cash at bank and in hand 3 - 3
Other current assets 130 - 130
Current liabilities < 1year (246) - (246)
Current liabilities > 1year (186) - (186)
--------- ------- --------
1,712 (401) 1,311
Goodwill 2,280
--------
3,591
========
Satisfied by:
Cash 3,416
Acquisition expenses 175
--------
3,591
========
F-40
TEXON INTERNATIONAL plc
22 Purchase of Subsidiary Undertakings (continued)
3. On 26 July 2000 Texon USA Inc, Texon France SA, Texon Australia Pty Ltd
and USM Texon Mexico SA, wholly owned subsidiaries of Texon
International plc, acquired Stock, Plant & Equipment and 100% of the
share capital of SCI Lambiotte Immobiliere from Foss Manufacturing Inc
and certain of its related parties. The following table explains the
adjustments made to the book amount to arrive at the fair values
included in the consolidated financial accounts.
Book Fair value to
Amount Revaluation the Group
----------- ------------ -------------
(pound)000 (pound)000 (pound)000
Net Assets Acquired:
Stock 2,782 (782) 2,000
Tangible Fixed assets 1,904 (879) 1,025
------ ----- ------
4,686 1,661 3,025
===== =====
Goodwill 7,067
------
10,092
======
Satisfied By:
Cash 2,841
Deferred Consideration 1,086
Loan Notes Issued 1,546
Long Term supply agreement 1,645
Share Capital 2,623
Acquisition Expenses 351
-------
10,092
=======
The long term supply agreement represents deferred consideration to be
paid evenly over the next 5 years, and is interest free.
The subsidiary undertakings acquired during the year contributed
(pound)764,000 (excluding adverse exchange adjustments of (pound)17,000)
to the group's net operating cash flows, paid (pound)97,000 in respect of
net returns on investment and servicing of finance, paid (pound)54,000 in
respect of taxation and utilized (pound)17,000 for investing activities.
F-41
TEXON INTERNATIONAL plc
22 Purchase of Subsidiary Undertakings (continued)
1999 Acquisitions
During the year, the Directors have finalized the fair value revaluations
relating to acquisitions made in 1999 of Cornwell Industries Ltd,
Chamberlain Phipps Materials and Claravon Ltd. This resulted in an
increase in Goodwill of (pound)310,000, being split (pound)105,000
Cornwell Industries Ltd, (pound)42,000 Chamberlain Phipps Materials and
(pound)163,000 Claravon Ltd.
The movements in Goodwill during the year was as follows:
Cornwell Chamberlain Claravon
Phipps
---------- ----------- ----------
(pound)'000 (pound)'000 (pound)'000
Goodwill as calculated in 1999 614 58 618
Decrease in fair value of stock 105 42 288
Increase in fair value of Fixed assets (1,364)
Decrease in fair value of relocation provision 1,280
Increase in fair value of Debtors (41)
--------- ----------- -----------
Total Goodwill arising on acquisition 719 100 781
========= =========== ===========
23 Contingent liabilities
Subsidiary undertakings have contingent liabilities amounting to
approximately (pound)645,000 (1999: (pound)597,000) in respect of
guarantees given for commitments in the normal course of trade.
From time to time, the Company is involved in routine litigation
incidental to its business. The Company is not a party to any pending or
threatened legal proceedings, which the Company believes would have a
material adverse effect on the Company's results of operations or
financial condition.
24 Financial commitments
Capital Commitments
There are no contractual capital commitments at the 31 December 2000
(1999: (pound)nil)
Other financial commitments
Operating lease commitments of the Group for future minimum lease payments
as at December 31, 2000 were as follows:
Property Other
(pound)'000 (pound)'000
Leases expiring within 1 year........ 126 132
Leases expiring in the second to
fifth years inclusive.............. 389 678
Leases expiring over 5 years......... 279 -
--- ----
794 810
=== ===
F-42
TEXON INTERNATIONAL plc
25 Related party transactions
Certain Texon International plc Shareholders have had commercial relations
with group companies. As a consequence, fees have been paid to the
Shareholders for providing the services of directors, banking services and
strategic advice. The Chase Manhattan Bank is the Group corporate banker
and a Shareholder. Apax Partners & Co. Strategic Investors Limited and
Apax Partners & Co. Ventures Limited is a shareholder.
Transactions with related parties during the period (excluding interest
paid in the normal course of business) including fees are as follows:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------- ------------
(pound)000 (pound)000 (pound)000
Fees for director's services....... 36 20 20
Banking and strategic advice....... 161 202 128
Debt issuance...................... 3,094 557 -
------ ------ ------
3,291 779 148
====== ====== ======
Amounts included within creditors in respect of related parties at
December 31, 2000 totalled (pound)55,000 (1999:(pound)46,000). There are
no prepayments in respect of related parties at December 31, 2000
(1999:(pound)nil).
During the years ended December 31, 2000 1999 and 1998 Texon International
plc paid to related parties, Chase Manhattan Bank (pound)nil,
(pound)557,000 and (pound)3,086,000 and Apax Partners (pound)nil,
(pound)nil and (pound)8,000 in respect of debt issuance costs. The Group
also incurred agency, guarantee and commitment fees of (pound)128,000
(1999: (pound)202,000, 1998: (pound)161,000) which were payable to Chase
Manhattan Bank as the group corporate banker.
P. E. Selkirk and J. N. Fleming, who are directors of the company, have an
agreement with the other shareholders whereby each may acquire from the
other shareholders up to 80,000 A ordinary voting shares at a price of
(pound)8.75 per share. The options are only exercisable only in
anticipation of and conditional upon a sale of the Company or an initial
public offering of the Company's equity securities, and will lapse on 21
December 2004 if not exercised prior to that date. In addition, options
over a further 240,000 A ordinary shares are available for allocation, on
a basis to be determined by the Remuneration Committee, to employees or
prospective employees of the Group on the same terms as those described
above.
F-43
TEXON INTERNATIONAL plc
26 Notes to the consolidated cash flow statement
a) Reconciliation of operating profit to net cash inflow from operating
activities
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------- ------------
(pound)000 (pound)000 (pound)000
Operating profit......................... 12,581 12,856 12,208
Depreciation and amortization charge .... 1,910 3,500 4,653
Decrease/(Increase) in stocks............ 982 (385) 1,581
Decrease/(Increases) in debtors.......... 1,020 (2,462) (2,030)
Decrease/ Increase in creditors.......... (5,341) 1,498 104
(Profit)/loss on sale of tangible
fixed assets........................... (1,008) 92 (326)
-------- ------- -------
Net cash inflow from operating
activities............................. 10,144 15,099 16,190
======== ====== =======
Cash flow relating to exceptional restructuring costs detailed in note 5a
were (pound)1,230,000 for the year ended December 31, 2000 (1999:
(pound)266,000).
b) Analysis of cash flows for headings netted in the cash flow
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------- ------------
(pound)000 (pound)000 (pound)000
Returns on investments and servicing
of finance
Interest received ............................. 160 336 277
Interest paid ................................. (9,749) (9,949) (11,945)
Interest element of finance lease
payments ...................................... (66) (153) (138)
Expenses incurred in issuance of the
senior notes .................................. (5,112) (1,263) (31)
-------- -------- --------
Net cash outflow for returns on
investments and servicing of finance .......... (14,767) (11,029) (11,837)
======== ======== =======
Capital expenditure and financial
investment
Purchase of tangible and intangible fixed
assets ...................................... (2,038) (3,511) (2,184)
Sale of tangible fixed assets ................. 4,249 248 550
-------- -------- --------
Net cash inflow/(outflow) for capital
expenditure and financial investment .......... 2,211 (3,263) (1,634)
======== ======== =======
Acquisitions and disposals
Purchase of subsidiary undertaking ............ (24,000) (22,015) (9,733)
Cash and bank loans acquired with
business .................................... - (2,062) (462)
-------- -------- --------
Net cash outflow for acquisitions ............. (24,000) (24,077) (10,195)
======== ======== =======
Financing
Issue of share capital ........................ - - 3,329
Debt redeemed ................................. (57,368) (6,372) (2,287)
Debt issued ................................... 81,507 32,298 8,746
Capital element of finance lease rental
payments..................................... 323 (458) (408)
-------- -------- --------
Net cash inflow from financing................. 24,462 25,468 9,380
======== ======== =======
F-44
TEXON INTERNATIONAL plc
26 Notes to the consolidated cash flow statement (continued)
c) Analysis of net debt
Due
due Debt due
Over- within after one Finance
Cash drafts year year leases Total
---- ------ ------ --------- ------- -----
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
As at January 1,1998...... 1,156 (3,364) (61,032) - (922) (64,162)
Reclassification.......... - (405) 405 - - -
Cash flow................. (443) (2,927) 57,368 (81,507) (323) (27,832)
Other non-cash charges.... - - 3,215 2,008 - 5,223
Foreign exchange
movement................ 8 (239) 44 (4,105) - (4,292)
------- -------- --------- ---------- -------- ---------
As at December 31, 1998... 721 (6,935) - (83,604) (1,245) (91,063)
======= ======== ========= ========== ======== =========
As at January 1, 1999..... 721 (6,935) - (83,604) (1,245) (91,063)
Cash flow................. 313 (653) (2,521) (23,405) 458 (25,808)
Acquisitions excluding
cash.................... - - (1,270) (1,416) (700) (3,386)
Other non-cash charges.... - - - 146 - 146
Foreign exchange movement. (9) 696 52 11,301 - 12,040
------- -------- --------- ---------- -------- ---------
As at December 31,1999.... 1,025 (6,892) (3,739) (96,978) (1,487) (108,071)
======= ======== ========= ========== ======== =========
As at January 1, 2000..... 1,025 (6,892) (3,739) (96,978) (1,487) (108,071)
Cash flow................. (233) (1,531) 1,152 (7,611) 409 (7,814)
Acquisitions excluding
cash.................... - (105) - (357) - (462)
Other non-cash charges.... - - (3,276) 2,449 - (827)
Foreign exchange
movement................ 45 (74) (104) (341) - (474)
------- -------- --------- ---------- -------- ---------
As at December 31,2000.... 837 (8,602) (5,967) (102,838) (1,078) (117,648)
======= ======== ========= ========== ======== =========
Total other non cash charges relate to unamortized debt issuance costs of
(pound)827,000.
d) Cash flow relating to exceptional items
Year ended Year ended Year ended
December 31, 1998 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
(pound)000 (pound)000 (pound)000
Provision at beginning of year..... - 2,969 2,703
Spend.............................. (819) (266) (1,230)
Income............................. 3,788 - -
--------- -------- --------
Provision at end of year........... 2,969 2,703 1,473
======== ======= =======
F-45
TEXON INTERNATIONAL plc
26 Notes to the consolidated cash flow statement (continued)
e) Major non cash transactions
The group holds a loan note of (pound)4 million as part of the
consideration received from the sale of the property at head office in
Leicester. The Company issued a loan note of (pound)1 million to BUSM Co.
Ltd as an inducement to remain a tenant on the property and this is shown
netted of the Company's loan note to leave (pound)3 million. This was
valued during the year ended 31 December 2000 at the full (pound)3
million (1999: (pound)2 million).
During the year, a subsidiary of the group, acquired a freehold property
as compensation for the termination of a supply agreement with the former
owner of this business. The property has been valued at (pound)1 million.
F-46
TEXON INTERNATIONAL plc
27 Pension costs
At the year ended December 31, 2000, some of the Group's employees
participated in pension schemes of the defined benefit type that
determine retirement pensions based on an employee's years of service and
a final pay definition. Some of these schemes were externally funded
within trusts, others were financed via internal book reserves. For all
these schemes contributions were paid or pension costs charged based on
advice received from qualified actuaries.
The Company's defined benefit pension scheme in the UK has been closed to
new contributions and has been replaced with a money purchase scheme as
from April 1, 2000, which the majority of the UK employees have now
joined. The information provided below is for the major funded pension
schemes in the UK and the US.
The UK defined benefit pension scheme originally covered employees of the
Group and of the former Machinery business of United Texon Limited but
was formally split in September 2000. The pension liabilities and costs
following this split have been agreed with the Pension Schemes Office (a
branch of the Inland Revenue). This scheme continues with vested
liabilities.
In Germany, Austria, and Spain there are defined benefit pension
arrangements, which are not separately funded, in accordance with local
practice, and provision for the pension liability is made in the Group's
consolidated balance sheet.
The Group has other defined contribution pension arrangements in the
various countries in which it operates, in accordance with local
conditions and regulations.
Details of the actuarial valuations for the two most significant funded
defined benefit schemes for the Texon International plc group are as
follows:
United Kingdom United States
-------------- -------------
Date of last actuarial valuation................. March 31, 1999 January 1,2000
Actuarial method................................. Projected Unit Projected Unit
Assumed excess of investment
return over salary increases............ 1.5% 2.7%
Assumed rate of pension increases................ 2.5% Nil
Value of assets at date of latest valuation...... (pound)20.5 million (pound)4.8 million
Level of funding................................. 90% 112%
Actuaries........................................ Watson Wyatt Partners Buck Consultants
For the purposes of the disclosure in accordance with US GAAP (SFAS 132),
the funded status and pension cost of the major plans in Austria,
Germany, UK, and the US as at December 2000, 1999 and 1998 have been
described in the following tables.
F-47
TEXON INTERNATIONAL plc
27 Pension costs (continued)
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
-------------- ------------- ------------
(pound)000 (pound)000 (pound)000
The net periodic pension costs for the
major retirement plans under SFAS
No. 132 comprises:
Service cost-present value of benefits earned
during the year................................ 1,093 1,649 503
Interest cost on projected benefit obligations... 2,319 2,001 1,967
Expected return on plan assets................... (2,252) (1,717) (1,838)
Net amortization and deferral.................... 114 498 77
-------- -------- -------
Net periodic pension cost........................ 1,274 2,431 709
Expected EE contributions........................ (200) (200) (64)
-------- -------- -------
FAS87 Net periodic pension cost.................. 1,074 2,231 645
======== ======== ========
As of As of As of
December 31, December 31, December 31,
1998 1999 2000
-------------- ------------- ------------
% % %
Assumptions
Weighted average discount rate................... 5.7 6.3 6.1
Long term rate of increases in remuneration...... 2.3 - 6 3 - 4.8 2 - 5.6
Expected long term rate of return on assets...... 4 - 8 7 - 7.5 6 - 7.5
As of As of As of
December 31, December 31, December 31,
1998 1999 2000
-------------- ------------- ------------
(pound)000 (pound)000 (pound)000
Actuarial present value of:
Accumulated benefit obligations.................. 29,345 27,673 29,081
--------- -------- -------
Projected benefit obligations (see a)............ 36,686 31,527 30,296
Plan assets at fair value (see a)................ 21,984 26,104 24,455
--------- -------- -------
Funded status..................................... (14,702) (5,423) (5,841)
Unrecognized net loss or (gain)................... 9,318 (254) 1,814
Unrecognized prior service cost................... (17) - -
Unrecognized net transitional obligation.......... 382 308 (11)
Fourth quarter contribution....................... 165 - -
--------- -------- -------
Net amount recognized............................. (4,854) (5,369) (4,038)
Adjustment to recognize minimum liability......... (3,449) (11) (1,884)
--------- -------- -------
Intangible asset.................................. (403) - -
Accumulated other comprehensive income............ (3,046) (11) (1,884)
--------- -------- -------
(Pension liability).............................. (8,303) (5,380) (5,922)
========= ======== =======
F-48
TEXON INTERNATIONAL plc
27 Pension costs (continued)
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------------- ------------------- -------------------
(pound)000 (pound)000 (pound)000
Change in projected benefit obligation:
Projected benefit obligation at beginning of year.. 33,258 36,686 31,527
Change to obligation at beginning of year (see b).. (6,839) (785) -
Service cost....................................... 1,093 1,649 438
Interest cost...................................... 2,319 2,001 1,967
Plan net losses/(gains)............................ 7,920 (6,171) (263)
Foreign exchange impact............................ 195 (303) 425
Benefits paid...................................... (1,260) (1,550) (2,130)
Employee Contribution.............................. - - 64
Curtailments....................................... - - (1,731)
-------- -------- --------
Projected benefit obligation at end of year........ 36,686 31,527 30,297
======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of year...... 26,064 21,983 26,104
Change to fair value of plan assets at beginning
of year (see b)................................... (5,325) (209) -
Actual return on plan assets........................ 1,532 4,737 (528)
Company contributions............................... 800 776 538
Employee contributions.............................. 200 269 64
Foreign exchange impact............................. (36) 98 407
Benefits paid....................................... (1,252) (1,550) (2,130)
-------- -------- --------
Fair values of plan assets at end of year........... 21,983 26,104 24,455
======== ======== ========
a)
As of December 31, 1999 As of December 31, 2000
---------------------------- ----------------------------
Assets Assets
exceed Accumulated exceed Accumulated
accumulated benefits accumulated benefits
benefits exceed assets benefits exceed assets
----------- ------------- ----------- -------------
(pound)000 (pound)000 (pound)000 (pound)000
Actuarial present value of:
Accumulated benefit
obligations........................... 24,794 2,879 4,414 24,667
Projected benefit obligations 28,312 3,215 5,422 24,874
Plan assets at fair value............... 26,104 - 4,959 19,496
=========== ====== ====== =======
b) A reassessment of the division of obligations of the UK plan following
demerger was carried out in 1998. This revealed that approximately 38% of the
liabilities related to the Company, rather than the 50% assumed in 1997. In
addition the allowance for discretionary increases to pensions in payment was
removed following the decision not to grant an increase in 1998.
F-49
TEXON INTERNATIONAL plc
28 Post retirement medical benefit plan
The US subsidiary of Texon International plc sponsors an unfunded
employee post-retirement plan that covers 91 employees and 25 retirees
including their dependants. The plan provides post-retirement medical
benefits in the form of a contribution to the retiree's health
insurance premium as well as managed care programs. There are no
post-retirement death benefits for current retirees. The following
table sets forth the plan's funded status at December 31, 2000.
Net periodic post-retirement benefit cost included the following
components:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------- ------------ ------------
(pound)000 (pound)000 (pound)000
Interest cost on accumulated post-retirement
benefit obligation.............................. 35 36 48
Amortization of transitional obligation/(asset).... (16) (16) (18)
----- ----- -----
Net periodic post-retirement benefit cost.......... 19 20 30
===== ===== =====
As of As of As of
December 31, December 31, December 31,
1998 1999 2000
------------- ------------ ------------
Funded status
Projected benefit obligation....................... 578 617 691
Funded status...................................... (578) (617) (691)
Unrecognized net (gain)/loss ...................... (8) 28 49
----- ----- -----
Accrued post-retirement benefit cost............... (586) (589) (642)
===== ===== =====
Change in projected benefit obligation:
Projected benefit obligation at beginning of year.. 545 578 617
Interest cost...................................... 35 36 49
Plan net losses.................................... 33 20 -
Foreign exchange impact............................ (3) 14 54
Benefit paid....................................... (32) (31) (29)
----- ----- -----
Projected benefit obligation at end of year........ 578 617 691
===== ===== =====
Change in plan assets:
Fair value of plan assets at beginning of year..... - - -
Employer contributions............................. 32 31 29
Benefits paid...................................... (32) (31) (29)
----- ----- -----
Fair values of plan assets at end of year.......... - - -
===== ===== =====
F-50
TEXON INTERNATIONAL plc
28 Post retirement medical benefit plan (continued)
For measurement purposes, a 5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000
(1999:5%). The health care cost trend assumption has an effect on the
amounts reported.
To illustrate, increasing the assumed health care cost trend rates by 1
percentage point each year would increase the accumulated post-
retirement benefit obligation as of December 31, 1999, by 17%
((pound)106,000) and the aggregate of service and interest cost
components of net periodic post-retirement benefit cost for the year
then ended by 17% ((pound)6,000).
Medical trend rates (initial rate)............ 5.0% per annum
Assumed discount.............................. 7.5% per annum
29 New UK Accounting Standards
The Accounting Standards Board (ASB) has issued FRS 17 Retirement
Benefits, which is mandatory for all accounting periods ending on or
after 22 June 2003. FRS 17 replaces SSAP 24 and UITF 6 relating to
accounting for pension costs and other post-retirement benefits. The
FRS makes radical changes in respect of accounting for defined benefit
schemes, leading to increased volatility in the balance sheet as
actuarial gains and losses are recognized immediately and scheme assets
are valued at fair values. While companies with defined benefit schemes
will be able to continue applying SSAP 24 for periods ending before 22
June 2003, they will need to make additional disclosure in accordance
with FRS17 for periods ending on or after 22 June 2001. The Group will
apply the additional disclosure of FRS 17 prospectively in 2001.
The Accounting Standards Board (ASB) has issued FRS 18 Accounting
Policies, which is effective for all accounting periods ending on or
after 22 June 2001. FRS 18 replaces SSAP 2. This replacement of SSAP 2
brings the assumptions and the criteria on which entities select
accounting policies, into line with the ASB's statement of principles.
FRS 18 re-iterates the going concern and accruals bases, however the
previous concepts of prudence and consistency have been downplayed. In
determining the most appropriate accounting policy the emphasis is now
on the four objectives of relevance, reliability, comparability and
understandability. The Group will apply the provisions of FRS 18
prospectively in 2001.
The Accounting Standards Board (ASB) has issued FRS 19 Deferred Tax,
which is effective for all accounting periods ending on or after 23
January 2002. Its main objectives for the treatment of deferred tax to
come more in line with international practice. Although FRS 19
introduces a form of "full provision" it has not harmonized with IAS
12. The general principle of FRS 19 is that deferred tax should be
recognized in full in respect of transactions or events that have taken
place by the balance sheet date and which give the entity an obligation
to pay more or less tax in the future.
F-51
TEXON INTERNATIONAL plc
30 Summary of significant differences between UK and US generally
accepted accounting principles
The consolidated financial statements are prepared in conformity with
accounting principles accepted in the UK ("UK GAAP"), which differ in
certain respects from those generally accepted in the United States
("US GAAP"). The significant areas of difference affecting the
consolidated financial statements of the Company are described below.
a) Goodwill
Under UK GAAP, the Group
o Writes off goodwill arising on consolidation prior to
January 1, 1998 directly to the profit and loss account
reserve;
o Capitalizes goodwill arising on consolidation relating to
acquisitions after January 1, 1998 in the balance sheet.
Under US GAAP, goodwill arising on consolidation is capitalized on the
consolidated balance sheet and then amortized over its useful life,
which Texon International plc has estimated to be 20 years.
The gross cost under US GAAP at December 31, 2000, December 31, 1999
and December 31, 1998 of goodwill is approximately (pound)78,085,000,
(pound)77,069,000 and (pound)81,527,000 respectively. Accumulated
amortization under US GAAP at December 31, 2000 December 31, 1999 and
December 31, 1998 of goodwill is (pound)23,229,000, (pound)19,473,000
and (pound)15,427,000 respectively.
b) Pensions and other post-retirement benefits
The Group accounts for the costs of pensions and other post- retirement
benefits under the rules set out in UK accounting standards. US GAAP is
more prescriptive in respect of actuarial assumptions and the
allocation of costs to accounting periods. (See Notes 27 and 28).
c) Debt Issuance Costs
Under UK GAAP debt is stated net of unamortized issue costs. Under US
GAAP unamortized issue costs are presented as a separate asset. As at
December 31, 2000 the unamortized costs were (pound)4,257,000 (1999:
(pound)5,048,000).
d) Financial Instruments
The fair values of cash, accounts receivable and accounts payable
approximate to the book value due to the short-term nature of these
assets and liabilities.
F-52
TEXON INTERNATIONAL plc
30 Summary of significant differences between UK and US generally
accepted accounting principles (continued)
With the exception of the Senior Notes (see below), the Group's
financial instruments are generally short-term in nature and in the
case of debt bear variable interest rates. Accordingly, the carrying
value of such short-term financial instruments approximates their fair
value. The fair value of foreign exchange contracts is estimated by
published market quotes and amounted to (pound)21,119,000 and
(pound)19,844,000 at December 31, 2000 and December 31, 1999
respectively. The unrealized gain/(loss) on the foreign exchange
contracts was (pound)25,000 and ((pound)11,000) at December 31, 2000
and December 31, 1999 respectively. All gains or losses on foreign
exchange contracts have been expensed rather than deferred. Gains and
losses arising on foreign currency forward contracts to hedge
commitments are recognized in the consolidated profit and loss accounts
in the same periods as the gains and losses on the commitments.
The Senior Notes have a book value of (pound)78,025,000, at December
31, 2000, (1999: (pound)75,555,000). In the opinion of the directors
the fair value of the Notes at December 31, 2000 would be
(pound)45,723,000 (1999: (pound)64,222,000) based on their trading
value at that date.
e) Deferred taxation
Under UK GAAP, Texon International plc provides for deferred taxation
using the partial liability method on all material timing differences
to the extent that it is considered probable that the liabilities will
crystallize in the foreseeable future. Under US GAAP, deferred taxation
is provided for all temporary differences on a full liability basis.
Deferred tax assets are also recognized to the extent that it is more
likely than not that the benefit will be realized.
The UK Deferred tax asset as at December 31, 2000 and 1999 can be
reconciled as follows to the US GAAP net deferred asset:
2000
----
UK GAAP UK GAAP
Provided Unprovided US GAAP
-------- ---------- -------
(pound)000 (pound)000 (pound)000
Deferred tax liabilities:
Property plant and equipment..................... - - -
Liabilities not provided under UK GAAP........... - - -
------- ------- -------
- - -
======= ======= =======
Deferred tax assets:
Intercompany profit.............................. (271) - (271)
Deferred interest................................ - (236) (236)
Net operating losses............................. - (6,562) (6,562)
Property plant and equipment..................... (10) (1,267) (1,277)
Pensions and long-term retirement benefits....... (57) (723) (780)
Intangible assets................................ - (877) (877)
------- -------- ---------
(338 (9,665) (10,003)
Less valuation allowance......................... - 10,003 10,003
------- -------- ---------
Net deferred tax (asset)/liability............... (338) 338 -
======= ======== =========
F-53
TEXON INTERNATIONAL plc
30 Summary of significant differences between UK and US generally accepted
accounting principles (continued)
1999
----
UK GAAP UK GAAP
Provided Unprovided US GAAP
-------- ---------- -------
(pound)000 (pound)000 (pound)000
Deferred tax liabilities:
Property plant and equipment..................... 93 - 93
Liabilities not provided under UK GAAP........... - - -
----- -------- ---------
93 - 93
===== ======== =========
Deferred tax assets:
Intercompany profit.............................. (271) - (271)
Deferred interest................................ - (1,648) (1,648)
Net operating losses............................. (41) (5,238) (5,279)
Property plant and equipment..................... - (1,495) (1,495)
Pensions and long-term retirement benefits - (1,032) (1,032)
Intangible assets................................ - (877) (877)
----- -------- ---------
(312) (10,290) (10,602)
Less valuation allowance......................... - 10,509 10,509
----- -------- ---------
(312) 219 (93)
===== ======== =========
Net deferred tax (asset)/liability............... (219) 219 -
===== ======== =========
f) Net loss per ordinary share
The net loss per ordinary share for the year ending December 31, 2000
is (pound)1.18 (1999:(pound)0.18).
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TEXON INTERNATIONAL plc
30 Summary of significant differences between UK and US generally
accepted accounting principles (continued)
g) Statement of cash flows
Under UK GAAP, cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation,
capital investment and financial investment, acquisitions and disposals
and financing activities. Under US GAAP, cash flow activities are
reported as operating activities, investing activities and financing
activities. Cash flows from taxation and returns on investments and
servicing of finance would, with the exception of dividends paid, be
included as operating activities. The payment of dividends and debt
issue costs would be included under financing activities.
Set out below, is a summary combined statement of cash flows under US
GAAP.
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Net cash (used in)/provided by operating
activities.................................. (931) 2,795 717
Net cash provided/(utilized) by investing
activities.................................. 1,666 (27,340) (11,829)
Net cash (used in)/provided by financing
activities.................................. (4,105) 24,205 9,389
-------- --------- ---------
Net (decrease) in cash and cash equivalents
under US GAAP............................... (3,370) (340) (1,763)
======== ========= =========
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TEXON INTERNATIONAL plc
30 Summary of significant differences between UK and US generally accepted
accounting principles (continued)
h) Reconciliations
The following is a summary of the material adjustments to net income
and shareholders' equity which would have been required if US GAAP had
been applied instead of UK GAAP.
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------ ------------ ------------
(pound)000 (pound)000 (pound)000
Net profit/(loss) in accordance with UK GAAP... 2,222 576 (2,693)
Adjustments to conform with US GAAP:
Amortization of goodwill.................... (3,940) (4,047) (3,756)
Gain on sale of property.................... 1,257 - -
Pensions and other post-retirement benefits. 397 2,793 1,218
Effect of differences on policy for
recognition of deferred tax costs
and liabilities........................... 26 (29) (119)
------ ------- --------
Total net loss in accordance with US GAAP (38) (707) (5,350)
====== ======= ========
Net loss from continuing operations in
accordance with US GAAP................... (38) (707) (4,153)
Net loss of discontinued operations in
accordance with US GAAP................... - - (1,197)
------ ------- --------
Retained loss for the period for equity
shareholders in accordance with US GAAP... (38) (707) (5,350)
====== ======= ========
As of As of
December 31, December 31,
1999 2000
------------ ------------
(pound)000 (pound)000
Shareholders' (deficit) in accordance with UK GAAP (59,882) (59,224)
Adjustments to conform with US GAAP:
Goodwill................................................ 57,596 54,855
Pension and other post-retirement benefits.............. 155 (511)
Taxation................................................ (219) (338)
-------- --------
Shareholders' (deficit) in accordance with US GAAP........ (2,350) (5,218)
======== ========
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TEXON INTERNATIONAL plc
30 Summary of significant differences between UK and US generally accepted
accounting principles (continued)
i) Redeemable preference shares
Under UK GAAP, preference shares with mandatory redemption features or
redeemable at the option of the security holder are classified as non-
equity interests as a component of total shareholders' deficit. Under
US GAAP such mandatorily redeemable preference shares are classified
outside of shareholders' deficit. In addition, under US GAAP the waiver
of the dividend on preference shares is deemed to be capital
contribution and excluded from net income attributable to ordinary
shareholders.
j) US Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The statement,
as amended by SFAS No. 137 and No. 138, will be effective for the
Company's fiscal 2001 first quarter financial statements.
k) SFAS No. 130
Comprehensive income under SFAS No. 130 is shown below:
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1999 2000
------------- ------------ ------------
(pound)000 (pound)000 (pound)000
Net income....................................... (38) (707) (5,350)
Other Comprehensive Income, net of income
tax:
Foreign currency translation adjustment........ (3,167) 6,104 1,037
Minimum pension liability adjustment........... (3,046) (11) (1,884)
-------- ------- --------
Comprehensive income............................. (6,251) 5,386 (6,197)
======== ======= ========
Accumulated comprehensive net income as at
December 31.................................... (34,717) (29,331) (35,528)
======== ======== ========
There is no tax associated with the amounts included in other
comprehensive income.
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TEXON INTERNATIONAL plc
30 Summary of significant differences between UK and US generally accepted
accounting principles (continued)
Minimum Accumulated
Pension Other
Foreign Liability Comprehensive
currency items Adjustment Income
-------------- ---------- -------------
(pound)000 (pound)000 (pound)000
Balance as at December 31, 1997................ (6,330) - (6,330)
Change during 1998............................. (3,167) (3,046) (6,213)
-------- -------- ---------
Balance as at December 31,1998................. (9,497) (3,046) (12,543)
======== ======== =========
Change during 1999............................. 6,104 (11) 6,093
-------- -------- ---------
Balance as at December 31, 1999................ (3,393) (3,057) (6,450)
======== ======== =========
Change during 2000............................. 1,037 (1,884) (847)
-------- -------- ---------
Balance as at December 31, 2000................ (2,356) (4,941) (7,297)
======== ======== =========
The accumulated other comprehensive income balance as at January 1,
1996 is stated as zero as the cumulative information as of that date is
not available.
F-58