Amisco a new - Morningstar, Inc.

A n n u a l R e p o r t 1 9 9 8

Amisco a new company founded in 1954

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P R O F I L E

Amisco Industries Ltd. is a North American leader specializing in the design and manufacture of painted tubular and steel sheet

residential furniture. Founded in 1954, the Company manufacturesbeds, tables, chairs and home office furnishings.The Company’s

furniture is sold through of total of 4,000 outlets in allCanadian provinces and all American states.Thanks to

its innovative product design, high-quality service,broad product selection and unequalled price/qualityvalue, Amisco is enjoying growing success in the United States, where it now records 70% of its sales.

OBJECTIVES

Amisco now benefits from a stronger managementteam, greater production capacity, renewed productlines and an extended distribution network.

Through internal development alone, theCompany intends to double its sales within

the next three years while improving its profit margin.

Once its plant is operating at peak capacity, Amisco will look toacquisitions to further enhance its product selection and expand its

distribution network.


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1994Restructuring of product line to focus solely on metal residential furniture

Marshall Associates Inc. becomes responsible for theCompany’s U.S. sales

1995Implementation of a profit-sharing plan for theCompany’s employees

1996Launch of a line of home office furniture

1997Strengthening of senior management with the addition of:Fernand Roy — Executive Vice-PresidentRéjean Poitras — Vice-President - Sales and MarketingDean Crue — U.S. Sales Manager for Amisco atMarshall Associates Inc.

Launch of a full range of tables and chairs and discontinuing of line of accessories

A M I S C OA N E W C O M P A N YF O U N D E D I N 1 9 5 4

Fiscal year ended November 30

F i n a n c i a l H i g h l i g h t s 1998 1997

Net sales (000) $36,142 $29,555

Gross profit (000) $10,372 $ 8,261

Gross profit margin 28.7% 28.0%

Selling and administrative expenses (000) $ 6,398 $ 5,902

Net earnings (000) $ 3,143 $ 1,676

Net profit margin 8.7% 5.7%

Net earnings per share $ 0.74 $ 0.40

NET CANADIAN SALES

NET UNITED STATES SALES

O V E R T H E P A S T F I V E Y E A R S ,S A L E S I N T H E U N I T E D S T A T E S

H A V E G R O W N S T E A D I L Y , T O

A C C O U N T F O R 7 0 % O F A M I S C O ’ S

B U S I N E S S V O L U M E T O D A Y .

1998Three-year capital expenditure program of more than $10 M — expansion and reorganization of plant,purchase of production equipment and state-of-the-art information technology

Signing of a collective agreement expiring in December 2002

Implementation of a sales and marketing approach targetingthe top 100 retailers in the United States

Amisco doubles its number of customers among the 100 biggest American retailers

(in millions of dollars)

69.6%

66.5%

64.4%

55.6%

49.6%


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M E S S A G ET O S H A R E H O L D E R S

Fiscal 1998 marked the development of Amisco Industries Ltd. in more ways than one. First, theCompany completed its best fiscal year since its inception in 1954. But more importantly, following sub-stantial investments and aggressive development in the United States, Amisco is now better positionedthan ever to accelerate its sales growth while improving its profit margin.

Fuelled by our success in the United States, net sales rose to $36.1 M during the fiscal year endedNovember 30, 1998, up 22.3% over the sales of $29.6 M recorded in 1997. Our U.S. sales are growingsteadily and now account for 70% of our total business volume, compared with half our revenuesin 1994.

The Company’s gross profit amounted to $10.4 M in 1998, compared with $8.3 M for the previous year,an increase of 25.6%. Net earnings climbed from $1,675,892 or $0.40 per share in 1997 to $3,142,656or $0.74 per share in 1998, a gain of around 87%.

SECURING THE MEANS TO ACHIEVE OUR GOALSDuring fiscal 1998, we invested $7.9 M of a three-year program of more than $ 10 M to increase our pro-

duction capacity and improve our manufacturing and business procedures.

We expanded our facilities in L’Islet, east of Quebec City, raising the manufacturing floor space from100,000 to 168,000 square feet. This expansion brings the total area occuped by the Company to270,000 square feet. Most importantly, we reviewed and reshaped our corporate culture and productionprocesses. With the help of specialists from the Centre de Recherche sur les Technologies del’Organisaton Réseau de l’Université Laval(CENTOR), the various manufacturing departments —metal processing, welding and finishing — have become small independent units designed to eliminatebottlenecks and increase overall operating productivity.

We also acquired the latest production equipment, with the result that Amisco now has one of the mostinnovative and productive metal furniture manufacturing plants in North America.

Our employees are not about to forget the past year considering the number of training sessions thatwere held, several of which related to our new computer system. In fact, we invested a considerable sumto automate every aspect of our Company using the most sophisticated information technology.

These capital expenditures will soon yield conclusive results: computer-aided design and technicaldrafting, electronic order-taking, better production planning to reduce delivery times and inventorylevel, and electronic communication with our manufacturers’ agents. Production, design and adminis-tration now run on a single platform, fostering exchanges of information and an appreciable gain in pro-ductivity.

Further spin-off benefits will materialize during fiscal 1999, once staff is fully trained and the produc-tion line completely up and running. Our management is confident that the investments will enable usto raise our manufacturing capacity from $37 M to $75 M while improving our profit margin. In addition,our high-quality products and rapid turnaround will allow us to better serve present and futurecustomers alike.


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OUR TARGET:THE 100 LARGEST RETAILERS IN THE UNITED STATES

Indisputable purchasing powerAccording to the U.S. Department of Commerce and the magazine Furniture Today, retail furniture sales in

the United States (including furniture, decorating accessories, lamps and rugs) are estimated at US$35 billion — a huge market, 41% of which is held by the 100 biggest retailers. This list is headed byVirginia-based Heilig-Meyers, with revenues totalling $1.7 billion. Together these major retailers haveover 5,500 sales outlets across the country.

The ability to meet their needsLeading North American retailers demand superior-quality products, high reliability and fast delivery.

We can now meet their needs more than ever, giving us a significant edge which, combined with atten-tive, personalized service, will enable the Company to strengthen ties with the largest furniture retailersin North America.

Tangible resultsAmisco’s distribution network now consists of some 30 sales agents, about 20 of whom are based in the

United States. Now under the management of Dean Crue, U.S. Sales Manager for Amisco at MarshallAssociates Inc., the Company’s sales south of the border are showing steady growth, rising from$19.6 M or 66.5% of sales in 1997 to $25.2 M or 69.6% of sales in 1998. Amisco furniture is now sold inapproximately 4,000 outlets in North America, including 3,000 in the United States.

Whereas Amisco served only 11 retailers among the top 100 in the United States at the beginning of 1998, including JC Penny, Crate & Barrel and Room & Board, the Company started fiscal 1999 with 22 customers on that list.

We expect that the 100 largest U.S. retailers, who accounted for only 14% of our business volume in 1998, will generatealmost 40% of our revenues by the year 2001.We will already benefit from a major gain in 1999 since we signed nume-rous agreements at the end of last year.

We entered into major distribution agreements during the second half of 1998, notably with RhodesFurniture, Raymour & Flanigan and Jordan’s Furniture. In addition, Sears Homelife, the third biggest net-work of furniture retailers in the United States with revenues of US$650 M, joined our list of customerslate in the fourth quarter of 1998.


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Strong demand for metal furnitureFuelled by reduced unemployment, low interest rates,

and a solid construction and home improvement mar-ket, combined with the cocooning lifestyle favoured bybaby boomers, furniture designed for the residential mar-ket is enjoying good years.

In 1997, home furnishing manufacturing sales totalled $2.1 billionin Canada and US$22 billion in the United States (source: IndustryCanada and Furniture Today). According to The Household Furniture Market BusinessTrend Analyst Inc., an independent research firm, metal furniture, which accounts for 9% of the resi-dential market, has shown compound annual growth of 3% since 1992 and is expected to follow thesame trend until 2007.

Between 1994 and 1998, Amisco’s U.S. net sales rose from $9.4 M to $25.2 M, reflecting a compound annual gainof over 28%.

The furniture industry is therefore healthy, but more importantly, Canadian manufacturers are achiev-ing major breakthroughs among our southern neighbours. Several factors have contributed to this suc-cess, including innovative designs with a European touch, quality workmanship, the removal of customsduties in 1994 and a favourable exchange rate.

Doubling our revenues by the year 2001The growth enjoyed by Amisco today is the payoff of the past four years of unsparing efforts. The

Company can now build its development upon a solid, four-pillared foundation: a seasoned manage-ment team, a production capacity that has doubled, three constantly renewed product lines and, aboveall, a distribution network joined by more and more big American retailers.

We have moved into a new growth era, with plans to double our sales by the year 2001 while improving our profit margins.

Thanks to our employeesWe would like to express our gratitude for all our employees’ participation in the many changes under-

gone by Amisco in 1998. The progress we have made, the collective agreement signed during the yearand their solid commitment to participating in the Company’s development result from this coopera-tion. Their endorsing of our growth objectives and their determination to achieve them shape theCompany daily and enable us to look to the coming years with boundless enthusiasm today. We wouldalso like to thank our customers for their loyalty, as well as our new customers and our shareholders fortheir trust.

Martin Poitras Fernand RoyChairman of the Board and Chief Executive Officer Executive Vice-President

Denis Poitras

Denis DurninMartin Poitras

Fernand Roy

Réjean Poitras


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$ 1 0 M I N V E S T E DI N A M I S C O ’ S F U T U R E

Since its foundation 44 years ago, Amisco has never undergone so many changes: every aspect ofthe Company has been reviewed and improved. Aside from upgrading its computer equipment toimprove the efficiency of the sales and R&D departments, Amisco invested time and money in 1998to increase capacity and productivity at its manufacturing plant.

For close to 12 months, Benoit Montreuil, Ph.D. with a team ofengineers from CENTOR (Centre de Recherche sur les Techno-logies de l’Organisation Réseau) of Laval University, analyzed andreworked with Amisco’s management the Company’s manufactu-ring philosophy. The manufacturing process at the plant is nowdivided into five centres, responsible respectively for the productionof metal parts, the welding of furniture structures, the finishing -assembly of finished furniture, shipping, and finally logistical control. The first three production centres were reorganized in1998 with no complete plant shutdowns, while the distributionand logistical control centres will be improved during the currentfiscal year.

According to a survey conducted by Home Furnishings Executive, furnitureretailers look above all for consistently high quality and short turnaround.

The contribution by the academic body to the business commu-nity was a total success for Amisco. In fact, the Company willachieve its major goals: optimizing its production capacity,cutting its manufacturing costs, maximizing the quality of its pro-ducts and, finally, considerably reducing delivery times. The spin-offsof these investments, already tangible, will become more evident asof 1999, once staff is fully trained, the equipment all installed andthe production line completely up and running.

A M I S C O N O W H A S A P R O D U C T I O N

I N F R A S T R U C T U R E T H A T E N A B L E S I T

T O M E E T T H E R E Q U I R E M E N T S O F T H E

L E A D I N G U . S . R E T A I L E R S .

At one time a bottleneck, the electrostatic powderapplication system is now equipped with five cabins, offour which are equiped with automated application.

Production floor space increased by 68%, from 100,000 to 168,000

square feet. It is thanks to thereorganization and acquisition ofleading-edge equipment, such as

some 30 welding chambers,that the plant’s capacity rose

from $37 M to $75 M.


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I N T O U C HW I T H O U R C U S T O M E R S ,O U R P A R T N E R S

Since 1994, when the Company decided to concentrate solely on thedesign and manufacture of metal furniture for the residential market,Amisco has progressively distinguished itself with the design and qual-ity of its products and the vast selection it offers North American con-sumers.

Feedback by retailersTo constantly improve its products and service, the Company conducts

surveys, the latest of which dates back to April 1998. As part of thisexercise in which 200 retailers participated, two suggestions wereretained: a greater selection of fabrics is now available and deliverytimes will soon be shortened thanks to the reorganization of our ma-nufacturing processes. Praises were also gleaned from retailers acrossNorth America (See some on top of this page.)

Feedback by manufacturers’ agentsIn 1998, like every year, management met with the 30 manufacturers’

agents responsible for representing Amisco in all Canadian provincesand American states. These annual events give the Company theopportunity to introduce new products and gather feedback.

Focus groupsIn addition, a marketing research manager was recently hired. His

duties will include polling industry players and consumers by means ofsurveys and focus groups. Manufacturers’ agents, retailers and con-sumers will therefore be interviewed and involved more than ever inthe Company’s various operations, such as the development of newproducts.


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Personalized display casesSears Homelife, which became an Amisco customer just a few months

ago, now shows the Company’s dining sets in its 125 stores in theUnited States. To fuel sales and exhibit the wide selection of materialsavailable, Amisco, in cooperation with Sears Homelife, developed a display case that is ideally suited to its customer’s needs.

Dynamic marketingAmisco keeps both consumers and in-store sales people up to date

using innovative means. In fact, the Company has produced an audio-visual presentation aimed at improving sales staff’s knowledge of itsproducts. More than 1,500 videocassettes will be distributed in 1999.

Contact through trade showsTo strengthen ties with current customers, broaden the customer

base and tap the pulse of the market, the sales and marketing teamparticipates in various furniture industry trade shows. In 1998, Amiscoscored an unprecedented success during the three shows it attended:Toronto in January and High Point, North Carolina in April andOctober. In light of the spin-off benefits enjoyed by the Company andits firm commitment to consolidating its presence in the UnitedStates, management will also take part in the San Francisco show in 1999.

Amisco is my top seller. Very goodquality and good price. I’m neverworried about the quality of theirproducts.

K. PietroFort Lauderdale, Florida

Amisco offers exceptional qualityfor the price

Amisco = professionnalism = qual-ity = innovation.

D. RiendeauBeloeil, Quebec

Thank you for establishing newstandards for customer service.

I have sold Amisco products forseven years.They have become mytop sellers.

W. GarberaEdmonton, Alberta

RÉJEAN POITRAS

VICE-PRESIDENT,

SALES AND MARKETING


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M A N A G E M E N T ’ S D I S C U S S I O NA N D A N A L Y S I S O F O P E R A T I N G R E S U L T SA N D F I N A N C I A L P O S I T I O N

OPERATING RESULTS

Amisco Industries Ltd. closed out its fiscal year ended November 30, 1998 with net salesof $36.1 M, compared with $29.6 M for the previous year. This increase of 22.3% was primarily attributable to the growing success the Company is enjoying in the UnitedStates.

Between 1994 and 1998, while Amisco’s business volume grew by an average of 17.6% annually, itssales in the United States showed a compound annual growth rate of 28.0%.Whereas U.S. sales accoun-ted for only 50% of its business volume in 1994, they now generate 70% of the Company’s revenues.

Amisco’s gross profit rose to $10.4 M in 1998, up 25.6% over $8.3 M for the previous year.The gross profit margin improved from 28.0% in 1997 to 28.7% in 1998, despite the refit-ting work at the plant. The adoption of a new production philosophy and the recentinstallation of faster, higher-performance equipment had little impact on the profit mar-gin in 1998 since their effects will fully materialize during the current fiscal year.

In light of Amisco’s excellent performance in 1998, an amount of $609,671 was distributed to theCompany’s 300 employees as part of an attractive profit-sharing program set up in 1995.

Selling and administrative expenses rose from $5.9 Min 1997 to $6.4 M for fiscal 1998. The costs associatedwith the development of major accounts in the UnitedStates were recognized in 1998. Due to strict control ofcosts, the increase in business volume and the recordingof a large bad debt in 1997, selling and administrativeexpenses as a percentage of net sales decreasedconsiderably. In fact, whereas they represented 20.0% ofnet sales in 1997, they accounted for just 17.7% in 1998.

Consequently, net earnings were up by more than87%, climbing from $1,675,892 or $0.40 per share in1997 to $3,142,656 or $0.74 per share in 1998, to yieldAmisco’s best financial performance ever. The netprofit margin, which stood at 8.7% in 1998, grew bymore than 50% and now compares favourably with theNorth American furniture industry average.

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NET SALES(in millions of dollars)

NET EARNINGS(in millions of dollars)


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PRINCIPAL CHANGES IN FINANCIAL POSITION

As at November 30, 1998, liquidity amounted to $278,231, up from $2.3 M at the end ofthe previous year.

After accounting for the items having no impact on liquidity, cash flow from operationstotalled $4,263,020, as opposed to $2,248,728 in 1997. Once changes in non-cash workingcapital items are considered, liquidity stood at $5,206,579, reflecting a significant increasecompared with $762,449 in 1997.

Concerning financing activities, the Company has not contracted any short or long-termloans since 1991. In 1998, Amisco paid out a dividend of $634,734 or $0.15 per share, thesame amount as in 1997.

Fiscal 1998 was marked by important investments. Thanks to its healthy balance sheet,Amisco was able to invest $7,926,332 in fixed assets, primarily to expand its plant and pur-chase more sophisticated and efficient equipment.

To complete its three-year capital expenditure program of more than $ 10 M, manage-ment plans to invest a total of approximately $3.2 M in 1999. To that end, the Companywill make use of its existing $4.0 M line of credit secured by an assignment of accountsreceivable and inventories.

FINANCIAL POSITION

AssetsAs at November 30, 1998, Amisco had total assets of $21.5 M, including $10.5 M in cur-

rent assets. Accounts receivable stood at $6.0 M, reflecting a slight increase compared withNovember 30, 1997. It should be pointed out that the average collection period wasreduced by more than 10 days.

As at November 30, 1998, inventories amounted to $4.2 M, up over the $3.2 M appearingin the balance sheet for the previous year. The inventory turnover rate, a more significantindicator, rose from 7.0 times in 1997 to 7.4 times in 1998. The increase in inventories wasdesigned on the one hand to satisfy the rapid turnaround programs set up for certain cus-tomers and, on the other, to minimize the delivery delays that might have been caused bythe plant refit.

LiabilitiesAs at November 30, 1998, the Company had total liabilities of $7.4 M, up significantly

compared with the liabilities of $3.9 M registered one year earlier. The growth in liabili-ties resulted mainly from the increase in accounts payable, which rose from $3.0 M as atNovember 30, 1997 to $5.8 M at the same date in 1998, mainly due to the investments inthe expansion and the purchase of equipment during the fourth quarter.


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Working capitalAt the end of fiscal 1998, Amisco’s working capital stood at $4,179,583, for a current ratio

of 1.66:1. Despite the temporary increase in current liabilities for investment purposes,this ratio remains healthy and attests to the Company’s financial solidity.

Capital stockConsidering the net earnings generated and the dividend paid to shareholders in 1998,

both retained earnings and shareholders’ equity increased by $2,507,922. As at November 30,1998, shareholders’ equity amounted to $14,113,660, enabling the Company to post atotal debt/equity ratio of 0.52:1.

DividendsFor a 12th consecutive year, Amisco Industries Ltd. declared an annual dividend which

amounted to $0.15 per common share for fiscal 1998. This dividend was payable onNovember 5, 1998 to holders of common shares of record as at October 20 of the sameyear.

RISKS AND UNCERTAINTIES

Amisco’s sales in the United States are growing steadily and accounted for approximately70% of its business volume during fiscal 1998. Amisco minimizes the risk of fluctuationsin the exchange rate between the Canadian dollar and its American counterpart using for-ward exchange contracts. As at November 30, 1998, the Company had thus concluded for-ward exchange contracts for the next 48 months. For fiscal 1999, monthly contracts totalUS$22.8 M at an average rate of Cdn$1.3460. For the years 2000, 2001 and 2002, forwardexchange contracts respectively total $25.2 M at average rate of Cdn$1.3770, US$25.8 Mat average rate of Cdn$1.4521 and US$25.2 M at average rate of Cdn$1.4971.

CHANGEOVER OF INFORMATION SYSTEMS FOR THE YEAR 2000Amisco has already assessed the scope of the compliance requirements aimed at ensuring

the smooth running of its information technologies in the year 2000. An internal com-mittee supervises the action plan and will see to the systematic audit of all systems posinga risk. However, as most of the computer equipment was upgraded in 1998, a large por-tion of the work required has already been done. Measures will also be taken this year toensure that the information systems of the Company’s suppliers and customers are year2000 compliant.

OUTLOOK

Amisco now benefits from a stronger management team, greater production capacity,renewed product lines and an extended distribution network. While improving its profitmargins, management is confident that the L’Islet plant will reach peak capacity in 2001and thereby double the Company’s sales. Amisco is securing the resources to make fur-ther inroads among the 100 leading U.S. retailers who, according to management, shouldgenerate approximately 40% of the Company’s revenues in 2001.


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To the Shareholders of Amisco Industries Ltd.

We have audited the balance sheets of Amisco Industries Ltd. as at November 30,1998 and 1997 and the statements of earnings, retained earnings and changes incash resources for the years then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtainreasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by mana-gement, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects,the financial position of the Company as at November 30, 1998 and 1997, and theresults of its operations and the changes in its financial position for the years thenended in accordance with generally accepted accounting principles.

General PartnershipChartered Accountants

MontmagnyJanuary 15, 1999

A U D I T O R S ’ R E P O R T

Raymond, Chabot, Grant, Thornton (signed)


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Years ended November 30 1998 1997

Sales

Gross sales $37,478,985 $30,589,004

Net sales 36,141,528 29,554,955Cost of sales 25,769,982 21,294,249

Gross profit 10,371,546 8,260,706

Selling expenses 3,393,664 3,097,751Administrative expenses 3,004,042 2,804,125Interest and bank charges 18,803 71,619

6,416,509 5,973,495Other revenue and expenses 673,854 206,443

5,742,655 5,767,052

Earnings before income taxes 4,628,891 2,493,654

Income taxesCurrent 1,270,796 808,608Deferred 215,439 9,154

1,486,235 817,762

Net earnings $ 3,142,656 $ 1,675,892

Earnings per shareNet earnings 0.74 0.40Fully diluted earnings 0.74 —

Weighted average number of outstanding shares 4,231,560 4,231,560


Balance, beginning of year $ 6,060,991 $ 5,019,833Net earnings 3,142,656 1,675,892

9,203,647 6,695,725Dividends 634,734 634,734

Balance, end of year $ 8,568,913 $ 6,060,991

The accompanying notes are an integral part of financial statement.

R E T A I N E D E A R N I N G S

E A R N I N G S


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OperationsNet earnings $ 3,142,656 $ 1,675,892Non-cash items

Gain on disposal of fixed assets (681) (7,700)Depreciation 957,473 629,112Amortization of deferred government assistance (51,867) (57,730)Deferred income taxes 215,439 9,154

Cash flow from operations 4,263,020 2,248,728Changes in working capital items 943,559 (1,486,279)

Source of cash 5,206,579 762,449

FinancingDividends and use of cash (634,734) (634,734)

InvestmentFixed assets (7,926,332) (823,300)Disposal of fixed assets 21,283 15,387Accounts payable on assets 1,296,462 —Investment tax credit 6,231 24,011

Use of cash (6,602,356) (783,902)

Decrease in cash (2,030,511) (656,187)Cash position, beginning of year 2,308,742 2,964,929

Cash position, end of year $ 278,231 $ 2,308,742

Cash positionCash 278,231 1,027,202Banker’s acceptance — 1,281,540

$ 278,231 $ 2,308,742

The accompanying notes are an integral part of financial statement

C H A N G E S I N C A S H R E S O U R C E S


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November 30 1998 1997

AssetsCurrent assets

Cash $ 278,231 $ 1,027,202 Banker’s acceptance, 3.6% 1,281,540Accounts receivable (note 4) 5,972,410 5,711,139Income taxes receivable 102,247Inventories (note 5) 4,168,564 3,223,124Prepaid expenses 97,616 86,557

10,516,821 11,431,809Fixed assets (note 6) 10,989,970 4,047,944

21,506,791 15,479,753

LiabilitiesCurrent liabilities

Accounts payable and accrued liabilities 4,526,273 2,981,694Accounts payable on assets 1,296,462 —Income taxes payable 514,503 —

6,337,238 2,981694Deferred government assistance (note 7) 569,244 621,111Deferred income taxes 486,649 271,210

7,393,131 3,874,015

Shareholders’ equityCapital stock (note 8) 5,518,100 5,518,100Contributed surplus 26,647 26,647Retained earnings 8,568,913 6,060,991

14,113,660 11,605,738

$21,506,791 $15,479,753

The accompanying notes are an integral part of financial statement.

On behalf of the Board:

Director

Director

B A L A N C E S H E E T S


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1 Governing statutes and nature of operations

The Company, incorporated under Part 1A of the Companies Act(Québec), manufactures tubular home furniture.

2 Accounting policies

Inventory valuationFinished goods and goods in process are valued at the lower ofcost and net realizable value. Cost is determined by the averagecost method.

Raw materials are valued at the lower of cost and replacementcost. Cost is determined by the first in, first out method.

DepreciationFixed assets are depreciated over their estimated useful livesaccording to the following methodsand annual rates:

Methods Rates

Building Diminishing balance 5.00%Landscaping Diminishing balance 8.00%Machinery and equipment Diminishing balance 15.00%Furniture and fixtures Straight-line 10.00%Automotive equipment Straight-line 20.00%Dies and design and data

processing equipment Straight-line 33.33%

Government assistanceGovernment assistance for acquiring fixed assets is recorded asdeferred government assistance and is amortized on the samebasis and according to the same rates as the related fixed assets.Government assistance for current expenses is recorded as areduction of the related expenditures or as other revenue.

Investment and research tax creditsThe investment tax credits relating to fixed assets are deductedfrom the cost of the corresponding fixed assets.

The research tax credits are accounted for as revenue for the year.

Foreign currency translationAccounts in foreign currencies are translated into Canadian dol-lars under the temporal method as follows:

• Monetary assets and liabilities are translated at the exchangerate in effect at the balance sheet date, accrued gains or losses on these items are included under exchange gain (loss);

• Revenue and expense items are translated at the average ratein effect during the year.

Short-term financial instrumentsCash, the banker’s acceptance, accounts receivable and accountspayable and accrued liabilities are financial instruments whosefair value approximates their carrying amount given that they willmature shortly.

Forward exchange contractsThe Company uses forward exchange contracts to protect futureforeign currency sales revenue against changes in exchange rates.These instruments are not recognized in financial statements oninception. Gains and losses on such contracts are recognized inearnings at the same time as the future foreign currency sales revenue which is protected by the contracts in question.

3 Information included in the statement of earnings

1998 1997

Export sales $25,169,555 $19,646,348Depreciation 957,473 629,112Amortization of deferred

government assistance 51,867 57,730Remuneration of directors 27,000 26,400Remuneration of directors

— officers 373,316 457,497Research expenses 93,174 191,826Earned interest 231,830 196,010

4 Accounts receivable

1998 1997

Trade accountsCanada $1,231,685 $1,468,893United States 4,214,316 3,879,555

Other 526,409 362,691

$5,972,410 $5,711,139

5 Inventories

1998 1997

Finished goods $1,119,201 $ 930,679Goods in process 898,132 681,902Raw materials 2,151,231 1,610,543

$4,168,564 $3,223,124

N O T E S T O F I N A N C I A L S T A T E M E N T S

November 30, 1998 and 1997


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6 Fixed assets1998

AccumulatedCost depreciation Net

Land $ 6,051 $ — $ 6,051Building 5,727,320 1,114,344 4,612,976Landscaping 483,282 9,800 473,482Machinery and

equipment 6,308,014 2,136,570 4,171,444Furniture and

Fixtures 327,470 232,070 95,400Automotive equipment 531,510 257,231 274,279Dies and design 944,321 643,942 300,379Data processing

equipment 1,440,358 697,859 742,499Deposits and construc-

tion in progress 313,460 — 313,460

$16,081,786 $5,091,816 $10,989,970

1997

AccumulatedCost depreciation Net

Land $ 6,051 $ — $ 6,051Building 2,959,259 979,701 1,979,558Machinery and

equipment 3,421,018 2,121,631 1,299,387Furniture and

Fixtures 299,549 227,343 72,206Automotive equipment 461,809 177,629 284,180Dies and design 1,001,482 722,189 279,293Data processing

equipment 665,481 538,212 127,269

$8,814649 $4,766,705 $4,047,944

7 Deferred government assistance1998 1997

Balance, beginning of year $621,111 $678,841Amortization 51,867 57,730

Balance, end of year $569,244 $621,111

8 Capital stock

AuthorizedUnlimited number of voting and participating common shareswithout par value. Unlimited number of first and second pre-ferred shares without par value, non-voting, non-participating,issuable in series, the number, designation and rights of eachseries to be determined by the directors, ranking within their owncategory and also between themselves as regards to the pay-mentof dividends and the repayment of capital upon dissolutionor liquidation of the Company, or the distribution of all or part ofthe assets among shareholders.

1998 1997

Issued and fully paid4,231,560 common shares $5,518,100 $5,518,100

9 Bank guarantees

The authorized bank loan of credit is secured by an assignmentof book debts and inventories. The maximum authorized bankloan is $4,000,000. The bank loan bears interest at prime and isrenegotiable on March 31, 1999.

10 Commitment

The Company has entered into a long-term lease agreementexpiring in 2002 which calls for lease payments of $290,777 forthe rental of commercial space. Minimum lease payments for thenext four years are $87,233 in 1999, 2000, 2001 and $29,078 in2002.




page 17

11 Forward exchange contractsThe Company enters into forward exchange contracts with aCanadian chartered bank under which it is required to sell spec-ified amounts of foreign currencies in the future at predeter-mined exchange rates. The contracts protect the Companyagainst loss from exchange rate fluctuations on anticipated futurecash flows in foreign currencies. In management’s opinion, thisdoes not represent an unusual credit risk. These contracts aredetailed as follows:

Averate Contractualrate amounts

1998 1997 1998 1997

(Cdn$) (USM$)

From 0 to 12 months 1.3460 1.3730 22.8 15.6

From 13 to 24 months 1.3770 1.3185 25.2 16.8

From 25 to 36 months 1.4521 1.3368 25.8 16.8

From 37 to 48 months 1,4971 — 25.2 —

The fair value of these forward exchange contracts, as establishedby the Company’s bank, represents a negative amount of $11.19 million as at November 30, 1998 ($3.17 million in 1997)which is the loss which the Company would have incurred had itredeemed these contracts on that date.

12 Stock option

During the year, the Company issue stock options for 80,000common shares at a price of $3.50 per share expiring onFebruary 2003.

13 Uncertainty due to the Year 2000 Issue

Most entities may experience the effects of the Year 2000 Issuewhich, if not addressed, could affect their ability to conduct nor-mal business operations.

It is not possible to be certain that all aspects of the Year 2000Issue affecting the Company, including those related to theefforts of customers, suppliers of other third parties, will be fullyresolved.

In order to mitigate these risks, the Company has assessed theeffects of the Year 2000 Issue and developed and implemented anaction plan for its information systems and its business relationswith its customers and suppliers. To this effect, all the computerequipment was renewed during 1998 and a systematic review ofall production equipment is being conducted.




page 18

Prod

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Amisco Industries Ltd.33-5e RueL’Islet, Quebec G0R 2C0Telephone: (418) 247-5025Fax: (418) 247-7896

Transfert AgentGeneral Trust of Canada1100 University StreetMontreal,Quebec H3B 2G7

AuditorsRaymond, Chabot, Grant, ThorntonChartered Accountants15 Magloire StreetMontmagny, Quebec G5V 2W4

Legal CounselHeenan Blaikie Aubut2 Place QuébecQuebec City,Quebec G1R 2B5

Corporate BankNational Bank of Canada1 Place de l’ÉgliseMontmagny, Quebec G5V 2L9

Annual MeetingThe Annual Meeting of Shareholderswill take place on Thusday, March 25,1999 at 11:30 a.m.in the St-Laurent Room of the Queen Elizabeth Hotellocated at 900 René Lévesque West Blvd.Montreal

Board of Directors

Martin Poitras

Chairman of the Board and

Chief Executive Officer

Amisco Industries Ltd.

Réjean Poitras

Vice President, Sales and Marketing

Amisco Industries Ltd.

Robert Després

O.C., Chairman of the Board

Alliance Forest Products Inc.

René G. Jarry

Senior Executive Vice President and Director

Lévesque Beaubien Geoffrion Inc.

Guy Laflamme

Chairman of the Board and

Chief Executive Officer

South Shore Industries Ltd.

Officers

Martin Poitras

Chairman

Fernand Roy

Executive Vice President

Denis Durnin

Vice President, Finance and Administration

Denis Poitras

Vice President, Production

Réjean Poitras

Vice President, Sales and Marketing

André Dallaire

Director, Manufacturing Services

Catherine T. Giard

Director, Credit and Sales Administration

Gontran Michaud

Director, Sales

Marc Talbot

Director, Research and Development

Claude Poitras

Director, Information Technologies

Stock Information

The shares of Amisco Industries Ltd. are

listed on the Montreal Exchange under

the ticker symbol IAC.

Those wishing to obtain a copy of the

Annual Information Form deposited

with the Commission des valeurs

mobilières du Québec are invited to

write to the corporate head office

of Amisco Industries Ltd. at 33-5e Rue,

Ville de l’Islet, Quebec,

Canada G0R 2C0

or to fax requests to

(418) 247-7896.

G E N E R A L I N F O R M A T I O N

C O R P O R A T E I N F O R M A T I O N


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