10-Q 1 second.txt FINANCIAL STATEMENTS FOR QUARTER ENDED JUNE 30, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q __X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 33-75176 CONSOLTEX INC. (Exact Name of Registrant as Specified in its Charter) NEW BRUNSWICK 52-1725179 (State of other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 8555 ROUTE TRANSCANADIENNE SAINT-LAURENT, QUEBEC H4S 1Z6 (Address of Principal Executive Offices) (Zip Code) (514) 333-8800 (Registrant's Telephone Number, Including Area Code) 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 Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes ___ No X (Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.) As of August 9, 2001, the Registrant had only one outstanding class of common stock, of which there were 83,370,268 - 3/4 shares outstanding. 1 ITEM 1: FINANCIAL STATEMENTS CONSOLTEX HOLDINGS, INC. INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See the accompanying notes to the interim consolidated financial statements. 2 CONSOLTEX HOLDINGS, INC. INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

See the accompanying notes to the interim consolidated financial statements. 3 CONSOLTEX HOLDINGS, INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See the accompanying notes to the interim consolidated financial statements. 4 SEGMENT DISCLOSURES (UNAUDITED) The Company operates in the two reportable segments described below. Each reportable segment offers different products and services and requires different technology and marketing strategies. The following summary briefly describes the operations included in each of the Company's reportable segments : TEXTILE OPERATIONS - Includes the manufacture and distribution of nylon and polyester-based fabrics for home furnishings, industrial, recreational and apparel markets. POLYPROPYLENE OPERATIONS - Includes the manufacture and distribution of polypropylene-based fabrics and small bags for industrial and agricultural markets. The accounting policies of the reportable segments are the same as those used by the Company. The Company evaluates performance based on Adjusted EBITDA, which represents sales less allocable expenses less AIP management fee, gain on redemption of Notes, foreign exchange gain (loss), depreciation and amortization, financing costs and income taxes. Intersegment sales are transacted at market value. Segment assets are those which are directly used in segment operations. The senior credit facility also uses Adjusted EBITDA in the computation of certain financial covenants.

5 SEGMENT DISCLOSURES (CONT'D) (UNAUDITED)

6 CONSOLTEX HOLDINGS, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (in thousands of U.S. dollars, unless otherwise noted) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES THE COMPANY AND BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS Consoltex Holdings, Inc. (the "Company") is a North American textile and packaging company with activities divided between its Polypropylene and Textile Operations located in the United States, Canada, Mexico and Costa Rica. The Company is vertically integrated from the production of yarn, in its Polypropylene Operations, through to weaving, dyeing, printing, finishing and coating, as well as production of end products such as small bags. It also conducts its own research and development and maintains its own sales, marketing and distribution network throughout North America. The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. These principles are applied on a basis consistent with those reflected in our December 31, 2001 consolidated financial statements and related notes on Form 10, filed with the Securities and Exchange Commission. In the opinion of management, the interim consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial results of operations for the interim periods presented. Certain items are included in these statements based on estimates and may not be indicative of results for future periods. Certain notes have been condensed or omitted from these interim consolidated financial statements, therefore, these statements should be read in conjunction with the December 31, 2001 consolidated financial statements on Form 10. During 2001, the Textile Operations disposed of its U.S. based converting division and closed its cut and sew facility in Mexico. On December 19, 2001, the Company sold the Flexible Intermediate Bulk Container ("FIBC") division of its Polypropylene Operations. The majority of the net proceeds received from the sale were applied to reduce the debt outstanding under the senior credit facility. On January 10, 2002, the Company issued an exchange offer (the "Exchange Offer") which expired on February 11, 2002, whereby $85,250 of aggregate principal amount of Series B 11% Senior Subordinated Notes ("the Notes") were tendered for $80,449 of aggregate principal amount of 11% Senior Subordinated Pay-in-Kind Notes due January 31, 2009 (the "New Notes") and cash of $479. The total gain on exchange amounted to $10,355 (see Note 3) and is included as an extraordinary item in the first quarter of 2002. GOODWILL Effective January 1, 2002, the Company adopted FASB Statement No. 142 "Goodwill and Other Intangible Assets". Under this Statement, goodwill and intangible assets with indefinite useful lives are no longer amortized, but will be tested at least annually for impairment. The provisions of this Statement also require the completion of a transitional impairment test as of January 1{st}, 2002 within six months of adoption. The Company has completed this impairment test in the second quarter of 2002 and the results indicate that there is no impairment in the value of goodwill reported on the balance sheet and no adjustment to the carrying value of goodwill is necessary. A reconciliation of previously reported net income (loss) to the amounts adjusted for the exclusion of goodwill amortization is as follows :

7 (in thousands of U.S. dollars, unless otherwise noted) SIGNIFICANT EVENTS SUBSEQUENT TO DECEMBER 31, 2001 2. INVENTORIES

3. LONG-TERM DEBT AND SHAREHOLDER'S EQUITY

SERIES B 11% SENIOR SUBORDINATED NOTES During the first quarter of 2001, AIP/CGI, Inc., the Company's parent, purchased $28,650 of the $120,000 outstanding Notes on the open market. In April 2001, AIP/CGI, Inc. purchased an additional $6,000 of the Notes ("Acquired Notes"). Interest on the Notes was payable semi-annually on October 1{ }and April 1. The interest related to the Acquired Notes amounted to $1,576 as of March 31, 2001. As a result, the Company recorded an equity contribution of $1,576, equivalent to the interest otherwise payable on the Acquired Notes owned by AIP/CGI, Inc. on March 31, 2001. The amount was credited to the contributed surplus account of the Company. No further interest was incurred by the Company on the Acquired Notes as AIP/CGI, Inc. waived all interest commencing on April 1, 2001. The Notes were jointly issued by Consoltex Inc. and Consoltex (USA) Inc., (together the "Issuers"). The Notes are unsecured, however, they are guaranteed by the Company and Consoltex (USA) Inc.'s subsidiaries. AIP/CGI CONTRIBUTION AGREEMENT On February 7, 2002, AIP/CGI, Inc. entered into a contribution agreement with the Company whereby it contributed its 10.5% Convertible Debentures of $13,088 and Acquired Notes of $34,650 to the Company. The Company recorded contributed surplus of $47,738 and the Acquired Notes were cancelled by the Issuers and the 10.5% Convertible Debentures were cancelled by the Company. 8 (in thousands of U.S. dollars, unless otherwise noted) 3. LONG-TERM DEBT AND SHAREHOLDER'S EQUITY (CONT'D) EXCHANGE OFFER AND EXCHANGE OF NOTES FOR NEW NOTES On January 10, 2002, the Company issued the Exchange Offer originally expiring on February 8, 2002, but extended to February 11, 2002. The Exchange Offer to all the Noteholders was for either (i) $935.00 principal amount of 11% Senior Subordinated Pay-in-Kind Notes due January 31, 2009, the New Notes, for each $1,000.00 principal amount of their outstanding 11% Series B Senior Subordinated Notes due 2003, the Notes, and $55.00 principal amount of New Notes for all of the accrued but unpaid interest on the Notes through the date of the Exchange Offer, or (ii) 573.63 principal amount of New Notes and $46.38 in cash for each $1,000.00 principal amount of Notes and $33.74 principal amount of New Notes for all of the accrued but unpaid interest on the Notes through the date of the Exchange Offer. The New Notes bear interest at the rate of 11% per annum from and after the date of issuance, payable semi-annually (with the first payment to occur on April 1, 2002) in either additional New Notes or cash at the Company's option on or prior to April 1, 2005, and payable in cash thereafter and have restrictive covenants substantially similar to those of the Notes, prior to giving effect to the waivers and amendments. The April 1, 2002 interest payment was made through the issuance of $1,205 of additional New Notes. Concurrently with the Exchange Offer, the Company also solicited consents from Holders of Notes to certain waivers with respect to defaults under, and amendments to, the old Indenture governing the Notes. On February 11, 2002, the Company accepted properly tendered Notes, whereby $74,930 of aggregate principal amount of Notes were tendered for New Notes and $10,320 aggregate principal amount of Notes were tendered for New Notes and cash, for a total of $75,979 of principal amount of New Notes. Additional New Notes in the amount of $4,470 were issued in payment of the accrued but unpaid interest on the Notes. The cash paid by the Company of $479 was received from the parent as a contribution of capital. As a result of the Exchange Offer, on February 12, 2002, a New Indenture and New Notes were issued for an aggregate principal amount of $80,449. The interest on the New Notes commenced accruing on February 12, 2002. The total gain on the exchange amounted to $10,355 and included $2,589 of interest expensed and accrued in the fourth quarter of 2001 relating to the Notes that was no longer payable and reversed in February 2002 and $1,026 of unamortized deferred financing expenses, relating to the Notes, that were written-off as a result of the Exchange Offer. This gain is included as an extraordinary item. The previously accrued, but unpaid interest, on the $100 of Notes not exchanged was paid in March 2002. 10.5% CONVERTIBLE DEBENTURES During the first and second quarters of 2002, the Company issued $62 and $64, respectively, of 10.5% Convertible Debentures to Les Gantiers Limited in payment of interest. SENIOR CREDIT FACILITY On January 24, 2002, the Company renegotiated its senior credit facility with its bankers. The new facility consists of a $34,000 working capital loan and a $33,843 term loan, both of which mature on December 31, 2003. The term loan is repayable as follows : $300 on each of June 30 and September 30, 2002; $200 on December 31, 2002; $1,400 on June 30, 2003; $1,600 on September 30, 2003 and the balance of $30,043 at maturity on December 31, 2003. This new facility is subject to certain financial covenants and restrictive conditions and is secured by certain of the Company's accounts receivable, inventory and fixed assets. 4. INCOME TAXES Income tax benefit for the quarter and six months ended June 30, 2001 and 2002 was primarily comprised of deferred taxes. A valuation allowance of approximately $1,200 and $2,600 was claimed against the losses for the quarter and six months ended June 30, 2001, respectively. 9 ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW This discussion contains forward-looking statements, including statements concerning possible or assumed results of operations. It should be noted that the factors described below, in addition to those discussed elsewhere, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements. These factors include: - material adverse changes in economic conditions in the markets we serve; - future regulatory actions and conditions in our operating areas; - competition from others in the textile and packaging industry; and - other risks and uncertainties as may be detailed from time to time in our public announcements and filings with the Securities and Exchange Commission. The Company conducts its business in two principal operating segments, Polypropylene Operations and Textile Operations. Polypropylene Operations manufactures and distributes polypropylene-based fabrics and bags for industrial and agricultural purposes. Textile Operations manufactures and distributes polyester, polyester rayon, voile and nylon based fabrics for a wide variety of home furnishings, industrial, recreational and apparel uses. The following discussion should be read in conjunction with the accompanying unaudited consolidated financial statements for the quarter and six months ended June 30, 2002 and 2001. RESULTS OF OPERATIONS QUARTER AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 SALES Consolidated sales for the quarter and six months ended June 30, 2002 were $45.8 million and $83.6 million, respectively, a decrease of 36.7% and 44.9% compared to sales of $72.4 million and $151.9 million for the quarter and six months ended June 30, 2001, respectively. The decrease was mainly due to the sale of the FIBC division, disposal of the U.S. based converting division and closure of the cut and sew facility in Mexico and reduced sales in the Fashion division of the Textile Operations, representing a decrease in the total amount of $31.4 million and $70.6 million, or 43.4% and 46.5%, compared to the quarter and six months ended June 30, 2001, respectively. 10 ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) SALES (Cont'd) TEXTILE OPERATIONS ================== Textile Operations sales decreased by 33.9% and 42.9%, from $38.5 million and $84.7 million for the quarter and six months ended June 30, 2001, respectively, to $25.4 million and $48.3 million for the quarter and six months ended June 30, 2002, respectively. This decrease in sales was primarily attributable to the disposal of its converting division in the United States, closure of its cut and sew facility in Mexico and reduced sales in its Fashion division, representing a decrease in the total amount of $15.7 million and $36.6 million compared to the quarter and six months ended June 30, 2001, respectively. POLYPROPYLENE OPERATIONS ======================== Polypropylene Operations sales decreased by 39.9% and 47.5% from $33.9 million and $67.2 million for the quarter and six months ended June 30, 2001, respectively, to $20.4 million and $35.3 million for the quarter and six months ended June 30, 2002, respectively. This decrease is mainly attributable to the sale of the FIBC division that occurred on December 19, 2001. The sales generated by the remaining operations for the quarter ended June 30, 2002 remained constant compared to the same quarter of 2001 and decreased by $3.4 million for the six months ended June 30, 2002 compared to the same period of 2001, taking into consideration the intercompany sales in 2001 to the FIBC division that was sold in the last quarter of 2001. COST OF SALES ============= Consolidated cost of sales for the quarter and six months ended June 30, 2002 of $37.3 million and $71.1 million respectively, represent a decrease of 41.5% and 45.5% compared to cost of sales of $63.9 millon and $130.3 million for the quarter and six months ended June 30, 2001, respectively. The decrease was mainly due to the sale of the FIBC division, the disposal of the U.S.- based converting division, the closure of the cut and sew facility in Mexico and reduced sales in the Fashion division of the Textile Operations, representing a decrease in the total amount of $27.8 million and $60.6 million compared to the quarter and six months ended June 30, 2001, respectively. TEXTILE OPERATIONS ================== Cost of sales of the Textile Operations decreased by 41.6% and 44.1%, from $34.4 million and $73.5 million for the quarter and six months ended June 30, 2001, respectively, to $20.1 million and $41.1 million for the quarter and six months ended June 30, 2002, respectively. This decrease in cost of sales was mainly attributable to the disposal of its U.S.-based converting division, closure of its cut and sew facility in Mexico and reduced sales in its Fashion division, representing a decrease in the total amount of $15.4 million and $33.9 million compared to the quarter and six months ended June 30, 2001, respectively. POLYPROPYLENE OPERATIONS ======================== Cost of sales of the Polypropylene Operations decreased by 41.7% and 47.2%, from $29.5 million and $56.8 million for the quarter and six months ended June 30, 2001, respectively, to $17.2 million and $30.0 million for the quarter and six months ended June 30, 2002, respectively. This decrease was mainly attritutable to the sale of its FIBC division on December 19, 2001. The cost of sales incurred by the remaining businesses were lower for the quarter and six months ended June 30, 2002 compared to the respective period of 2001 due to inventory provisions taken in 2001. SELLING AND ADMINISTRATIVE EXPENSES Consolidated selling and administrative expenses for the quarter and six months ended June 30, 2002 were $4.3 million and $9.7 million, respectively, compared to $9.4 million and $19.6 million for the quarter and six months ended June 30, 2001, representing a decrease of 54.3% and 50.2%, respectively. The decrease was mainly due to the sale of the FIBC division, the disposal of the U.S-based converting division and the closure of the cut and sew facility in Mexico, representing a decrease in the total amount of $4.9 million and $9.9 million compared to the quarter and six months ended June 30, 2001, respectively. 11 SELLING AND ADMINISTRATIVE EXPENSES (CONT'D) Selling and administrative expenses decreased to 9.3% and 11.7% of sales for the quarter and six months ended June 30, 2002 from 12.9% of sales for the quarter and six months ended June 30, 2001. The decrease was mainly due to the sale of the FIBC division and disposal of the U.S.-based converting division which had higher selling and administrative costs than the remaining operations. TEXTILE OPERATIONS ================== Selling and administrative expenses of the Textile Operations decreased by 56.9% and 54.2% from $5.8 million and $12.0 million for the quarter and six months ended June 30, 2001, respectively, to $2.5 million and $5.5 million for the quarter and six months ended June 30, 2002, respectively. The decrease was mainly attributabe to the disposal of its converting division in the United States and closure of its cut and sew facility in Mexico, representing a decrease in the total amount of $3.1 million and $6.1 million for the quarter and six months ended June 30, 2001, respectively. POLYPROPYLENE OPERATIONS ======================== Selling and administrative expenses of the Polypropylene Operations decreased by 60.6% and 52.2% from $3.3 million and $6.7 million for the quarter and six months ended June 30, 2001, respectively, to $1.3 million and $3.2 million for the quarter and six months ended June 30, 2002, respectively. The decrease was mainly attributable to the sale of its FIBC division. ADJUSTED EBITDA Adjusted EBITDA was $4.1 million and $2.8 million for the quarter and six months ended June 30, 2002, respectively, compared to $(0.9) million and $2.0 million for the quarter and six months ended June 30, 2001, respectively. The Company's gross profit margins increased significantly from 11.8% for the second quarter of 2001 to 18.4% for the second quarter of 2002 and from 14.2% for the six months ended June 30, 2001 to 15% for the six months ended June 30, 2002. The increase in gross profit margins for the second quarter of 2002 compared to that of 2001 is primarily attributable to the disposal of the U.S.-based converting division and closure of the Mexican cut and sew facility which had low margins, improvements in efficiency and productivity from the LINQ plant in South Carolina as well as to large negative variances in the Canadian plants due mainly to higher than normal natural gas costs in the second quarter of 2001. TEXTILE OPERATIONS ================== Adjusted EBITDA in the Textile Operations increased from $(1.7) million and $(0.8) million for the quarter and six months ended June 30, 2001, respectively, to $2.7 million and $1.7 million for the quarter and six months ended June 30, 2002, respectively. The increase was mainly due to higher overall profit margins due to the disposal of the U.S.-based converting division and closure of the Mexican cut and sew facility as well as to large negative variances as a result of higher than normal natural gas costs in the second quarter of 2001. POLYPROPYLENE OPERATIONS ======================== Adjusted EBITDA in the Polypropylene Operations increased from $1.1 million to $1.9 million for the quarter ended June 30, 2001 and 2002, respectively, and decreased from $3.7 million to $2.1 million for the six months ended June 30, 2001 and 2002, respectively. The increase for the second quarter was mainly due to improved manufacturing performance at LINQ and in the Small Bag operations in Mexico which more than offset the decrease as a result of the sale of the FIBC division which had Adjusted EBITDA of $1.4 million for the quarter ended June 30, 2002. The decrease for the six months ended June 30, 2002 compared to the same period of 2001 was mainly attributable to the sale of the FIBC division which had Adjusted EBITDA in the six months ended June 30, 2001, of $3.5 million. 12 ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) EXTRAORDINARY ITEM - GAIN ON EXCHANGE OF NOTES As a result of the exchange offer that was completed on February 12, 2002 for the exchange of our Series B 11% Senior Subordinated Notes for our new 11% Senior Subordinated Pay-In-Kind Notes, an extraordinary gain of $10.4 million was realized in the first quarter of 2002. This gain includes $2.6 million of interest expensed and accrued in the fourth quarter of 2001 relating to the Series B 11% Senior Subordinated Notes that was no longer payable as a result of the exchange and as such was reversed. In addition, the gain reflects a write-off of $1.0 million of unamortized deferred financing expenses related to the Series B 11% Senior Subordinated Notes. FOREIGN EXCHANGE LOSS For the second quarter of 2002, the Company incurred a $1.6 million foreign exchange gain resulting in a net $1.5 million foreign exchange gain for the six months ended June 30, 2002, compared to a $4.0 million foreign exchange gain for the second quarter of 2001 and a $0.3 foreign exchange gain for the six months ended June 30, 2001. Most of the foreign exchange gain for the quarter and six months ended June 30, 2002 related to the fluctuations of the Canadian dollar on net monetary assets denominated in U.S. dollars. The U.S. to Canadian dollar exchange rate as at June 30, 2002 was 1.5187 Canadian dollar to 1 U.S. dollar versus 1.5935 Canadian dollar to 1 U.S. dollar at March 31, 2002 and 1.5928 Canadian dollar to 1 U.S. dollar at December 31, 2001. DEPRECIATION AND AMORTIZATION Depreciation and amortization decreased to $2.7 million and $5.4 million for the quarter and six months ended June 30, 2002, respectively, from $5.3 million and $10.7 million for the quarter and six months ended June 30, 2001, respectively. The decrease is due mainly to the adoption of FASB Statement No. 142 "Goodwill and Other Intangible Assets" whereby goodwill is no longer amortized. The Company adopted this Statement effective January 1, 2002. In the quarter and six months ended June 30, 2001, the amount of goodwill amortization was $2.0 million and $4.0 million, respectively. The decrease is also due to the sale of the FIBC division in the last quarter of 2001. FINANCING COSTS Financing costs for the quarter and six months ended June 30, 2002 decreased to $3.9 million and $6.8 million, respectively, from $6.7 million and $13.8 million for the quarter and six months ended June 30, 2001, respectively. Financing costs consist of interest expense, including factor expense, and amortization of deferred financing costs. Financing costs for the quarter ended June 30, 2002 decreased mainly due to the reduction of debt as a result of the Exchange Offer that occurred in the first quarter of 2002, the reduction of bank debt in the fourth quarter of 2001 due to the sale of the FIBC division and the capitalization of $47.7 million of Notes and Convertible Debentures in the first quarter of 2002 owned by AIP/CGI, Inc., our parent company. INCOME TAX Income tax recovery decreased from $3.0 million and $3.9 million for the quarter and six months ended June 30, 2001, respectively, to $0.5 million and $1.3 million for the quarter and six months ended June 30, 2002, respectively. The difference between the effective tax rate for each of the quarters and the composite statutory U.S. federal rate of 35% was primarily attributable to certain non-taxable income, non-deductible amortization of goodwill in 2001, non-deductible foreign exchange losses, alternative minimum taxes and certain losses incurred in the first quarter of 2001 for which a valuation allowance was taken. LIQUIDITY AND CAPITAL RESOURCES The Company's total outstanding debt at June 30, 2002 was $148.3 million compared to $191.8 million at December 31, 2001. The ratio of debt to total capital, comprised of debt plus shareholder's equity, including accumulated other comprehensive loss, was 91.6% at June 30, 2002 compared to 125.7% at December 31, 2001. The Company's debt to total capital ratio improved at June 30, 2002 due primarily to the reduction of debt as a result of the Exchange Offer and the capitalization of the Notes and 10.5% Convertible Debentures owned by AIP/CGI, Inc., the parent company. 13 ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) Operating lines of credit available from our senior credit facility, calculated as the lesser of $34.0 million ($34.0 million on March 31, 2002) and the amount calculated under the borrowing base definition, totalled $33.6 million on June 30, 2002 ($31.2 million on March 31, 2002) of which $2.3 million remained unused. The Company's cash requirements consist primarily of working capital requirements, payments of principal and interest on its outstanding indebtedness and capital expenditures. The Company believes that cash flow from operating activities, cash on hand and periodic borrowings from existing credit lines will be adequate to meet its operating cash requirements and current maturities of debt for the foreseeable future. As the Company is considered highly leveraged, its ability to seek additional lines of credit is limited. CAPITAL EXPENDITURES The net additions to fixed assets amounted to $0.7 million and $1.1 million for the quarter and six months ended June 30, 2002, respectively, compared to $2.5 million and $3.6 million for the quarter and six months ended June 30, 2001, respectively. Net capital expenditures in the Polypropylene Operations amounted to $0.5 million for the quarter and $0.7 million for the six months ended June 30, 2002 and were primarily for maintenance purposes. Net capital expenditures in the Textile Operations amounted to $0.2 million for the quarter and $0.4 million for the six months ended June 30, 2002 and were also primarily for maintenance purposes. FINANCING ACTIVITIES At June 30, 2002, the outstanding balance on the senior bank term loan was $33.5 million. Term loan repayments for the quarter ended June 30, 2002 amounted to $0.3 million. There was no required term loan repayment for the first quarter of 2002. Also, during the first and second quarters of 2002, the Company issued $ 0.1 million and $0.1 million, respectively, of 10.5% Convertible Debentures to Les Gantiers Limited. 14 ITEM 3 : QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATES Interest rate risk exposure relates primarily to the Company's debt portfolio which consists of working capital and term loans drawn under a bank credit facility and fixed rate senior subordinated notes. Borrowings under the bank credit facility are influenced by changes in short-term LIBOR interest rates. The following table provides information as of June 30, 2002 about the Company's market rate risk sensitive instruments. For borrowings under the bank credit facility and long-term debt, the table presents principal cash flows and weighted-average interest rates by fiscal year of maturity. As at June 30, 2002 :

FOREIGN CURRENCY The Company has international operations in Canada, Mexico and Costa Rica. Changes in foreign exchange rates can impact the Company's financial position, results of operations and cash flow. The Company manages foreign currency exchange rate exposure by utilizing some natural hedges to mitigate some of its transaction and commitment exposure. The net assets of the Company's foreign operations which are consolidated approximate 56.6% of total assets (Canada 51.9%; Mexico 4.1%;Costa Rica 0.6%) and 48.2% of total liabilities (Canada 44.6%; Mexico 3.5%; Costa Rica 0.1%) at June 30, 2002. The operations have the potential to impact the Company's financial position due to fluctuations in these local currencies arising from the process of remeasuring the local functional currency into the U.S. dollar. A 10% change in the respective currencies against the U.S. dollar could have changed shareholder's equity by approximately $2.5 million at June 30, 2002. 15

CONSOLTEX INC/ CA 10-Q