FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1996
Commission File No. 0-5200
BONTEX, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0571303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-0751
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 540-261-2181
Georgia Bonded Fibers, Inc., 15 Nuttman Street, Newark, New Jersey 07013-3508
- -----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all reports 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.
YES ( X ) NO ( )
Indicate the description and number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Class Outstanding at February 12, 1997
Common Stock - $.10 par value 1,572,824
Preferred Stock - no par value None
BONTEX, INC.
FORM 10-Q
FOR THE SECOND QUARTER ENDED DECEMBER 31, 1996
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995, June 30,1996. . . . . . . . . . . . . . . .3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
Second Quarter Ended December 31, 1996 and 1995 . . . . . . . . . . . .4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Second Quarter Ended December 31, 1996 and 1995 . . . . . . . . . . . .5
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . . 6, 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . 8-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BONTEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
December 31, June 30,
(unaudited)
ASSETS 1996 1995 1996
Current assets:
Cash and cash equivalents $ 1,621 $ 1,678 $ 715
Trade accounts receivable, less allowance
for doubtful accounts of $233 ($147 at
December '95, $134 at June '96) 11,367 11,648 14,078
Other receivables 713 425 527
Inventories 5,760 7,891 5,495
Deferred income taxes 480 450 676
Income taxes refundable 4 413 14
Other current assets 378 407 116
-------- -------- --------
TOTAL CURRENT ASSETS 20,323 22,912 21,621
======== ======== ========
Property, plant and equipment:
Land 297 287 298
Buildings and building improvements 4,761 4,349 4,785
Machinery, furniture and equipment 15,825 14,197 15,755
Construction in progress 1,348 2,391 782
-------- -------- --------
22,231 21,224 21,620
Less accumulated depreciation and amortization 11,622 10,941 11,165
-------- -------- --------
Net property, plant and equipment 10,609 10,283 10,455
-------- -------- --------
Deferred income taxes 442 877 442
Other assets, at cost less applicable
amortization 405 456 663
-------- -------- --------
TOTAL ASSETS $ 31,779 $ 34,528 $ 33,181
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,736 $ 10,513 $ 9,416
Accounts payable 7,046 8,012 8,047
Accrued expenses 2,048 2,550 2,345
Income taxes payable 174 - 169
Deferred income taxes 170 - -
Long-term debt due currently 517 2,058 566
-------- -------- --------
TOTAL CURRENT LIABILITIES 18,691 23,133 20,543
Long-term debt 2,387 1,196 2,330
Other long-term liabilities - 73 -
-------- -------- --------
TOTAL LIABILITIES 21,078 24,402 22,873
-------- -------- --------
Stockholders' equity:
Common stock of $.10 par value. Authorized
10,000,000 shares; issued 1,572,824 shares 157 157 157
Preferred stock of no par value. Authorized
10,000,000 shares; issued no shares - - -
Additional capital 1,551 1,551 1,551
Retained earnings 8,072 7,270 7,611
Foreign currency translation adjustment 921 1,148 989
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 10,701 10,126 10,308
-------- -------- --------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 31,779 $ 34,528 $ 33,181
======== ======== ========
See accompanying notes to condensed consolidated financial statements.
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS
(Dollars in Thousands Except for per Share Amounts)
(Unaudited)
Six Months Ended Quarter Ended
December 31, December 31,
1996 1995 1996 1995
Net Sales $ 22,718 $ 21,272 $ 11,833 $ 11,367
Cost of Sales 15,741 17,630 8,047 9,453
-------- -------- -------- --------
Gross Profit 6,977 3,642 3,786 1,914
Selling, General and Administrative Expenses 5,597 5,196 2,948 2,759
-------- -------- -------- --------
Operating Income (Loss) 1,380 (1,554) 838 (845)
-------- -------- -------- --------
Other (Income) Expense:
Interest expense 641 626 317 331
Interest income (1) (27) 2 (9)
Foreign currency exchange (gain) loss (38) (594) 20 41
Other, net 15 (61) (1) (65)
-------- -------- -------- --------
Total Other 617 (56) 338 298
-------- -------- -------- --------
Income (Loss) Before Income Taxes 763 (1,498) 500 (1,143)
Provision for Income Taxes 302 (555) 198 (391)
-------- -------- -------- --------
Net income (loss) 461 (943) 302 (752)
Retained earnings, beginning of period 7,611 8,213 7,770 8,022
-------- -------- -------- --------
Retained earnings, end of period $ 8,072 $ 7,270 $ 8,072 $ 7,270
======== ======== ======== ========
Income (Loss) per share $ .29 $ (.60) $ .19 $ (.48)
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(unaudited)
Six Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities:
Cash received from customers $ 25,215 $ 26,899
Cash paid to suppliers and employees (22,254) (26,483)
Interest received 42 75
Interest paid (721) (676)
Income taxes paid, net of refunds 13 (136)
-------- --------
Net cash provided by (used in) operating activities 2,295 (321)
-------- --------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (818) (1,096)
Other assets, net - 107
-------- --------
Net cash used in investing activities (818) (989)
-------- --------
Cash Flows from Financing Activities:
Decrease in short-term borrowings, net (588) (880)
Long-term debt incurred 1,793 -
Principal payments on long-term debt and capital lease obligations (1,761) (302)
-------- --------
Net cash used in financing activities (556) (1,182)
-------- --------
Effect of Exchange Rate Changes on Cash (15) (209)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 906 (2,701)
Cash and Cash Equivalents at Beginning of Year 715 4,379
-------- --------
Cash and Cash Equivalents at End of Year $ 1,621 $ 1,678
======== ========
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities:
Net income (loss) $ 461 $ (943)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 607 518
Provision for bad debts 84 6
Deferred income taxes 37 (538)
Change in assets and liabilities:
Decrease in trade accounts and other receivables 2,631 3,529
Increase in inventories (232) (218)
Increase in other assets (12) (148)
Decrease in accounts payable and accrued expenses (1,265) (1,937)
Decrease in income taxes (16) (295)
Decrease in other liabilities - (295)
-------- --------
Net cash provided by (used in) operating activities $ 2,295 $ (321)
======== ========
See accompanying notes to consolidated financial statements.
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995 AND JUNE 30, 1996
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared by Bontex, Inc. and its subsidiaries(the "Company")
in accordance with generally accepted accounting principles for interim
financial reporting information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all material adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the results
of operations, financial position and cash flows for each period shown,
have been included. Operating results for interim periods are not
necessarily indicative of the results for the full year. The
unaudited condensed consolidated financial statements and condensed
notes are presented as permitted by Form 10-Q and do not contain
certain information included in the Company's annual consolidated
financial statements and notes. For further information, refer to the
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1996.
2. The condensed consolidated balance sheets include the following related
to European subsidiaries:
<CAPTION
December 31, June 30,
1996 1995 1996
(Dollars in Thousands)
Current assets $ 13,999 $ 16,923 $ 14,905
Total assets 19,381 22,027 20,412
Current liabilities 14,742 18,229 15,991
Total liabilities 15,929 19,425 17,090
Stockholders' equity 3,452 3,602 3,249
The condensed consolidated statements of income include the following
related to European subsidiaries:
Six Months Ended Quarter Ended
December 31, December 31,
1996 1995 1996 1995
(Dollars in Thousands)
Net Sales $13,441 $13,428 $ 7,089 $ 7,344
Net income (loss) 197 (403) 112 (448)
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995 AND JUNE 30, 1996
(Unaudited)
3. The last in, first out (LIFO) method of inventory pricing is used by
the United States company. Inventories of the European subsidiaries
are valued at the lower of cost or market using the first-in, first-out
(FIFO) and weighted average bases. Inventories are summarized as
follows:
December 31, June 30,
1996 1995 1996
(Dollars in Thousands)
Finished goods $ 3,662 $ 3,363 $ 3,731
Raw Materials 1,906 4,654 1,791
Supplies 630 623 603
------- ------- -------
Inventories at FIFO 6,198 8,640 6,125
LIFO reserves 438 749 630
------- ------- -------
$ 5,760 $ 7,891 $ 5,495
======= ======= =======
4. Per share calculations are based on shares outstanding of 1,572,824
common shares for all periods.
BONTEX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS AND QUARTER ENDED DECEMBER 31, 1996
(Unaudited)
On January 2, 1997, the Company completed a reorganization plan which
changed, among several items, the Company's name to Bontex, Inc.(formerly
Georgia Bonded Fibers, Inc.). For further information see REORGANIZATION
below.
RESULTS OF OPERATIONS
Except for historical data set forth herein, the following discussion
contains certain forward-looking information. The Company's actual results
may differ significantly from the projected results. Factors that could
cause or contribute to such differences include, but are not limited to,
level of sales to key customers, actions by competitors, and fluctuations in
the price of primary raw materials and foreign currency exchange rates.
The results of operations for the second quarter of fiscal 1997 reflect
continued improvement and profitability. During the second quarter, the
Company generated a consolidated operating profit of $838,000, and net income
of $302,000 or $.19 per share, as compared to the operating loss of $845,000
and net loss of $752,000 last year. For the six months ending December 31,
1996, the Company generated an operating profit of $1.38 million and net
income of $461,000 or $.29 per share, an improvement of $2.9 million and $1.4
million, respectively, as compared to the prior year. Consolidated net sales
increased almost $1.5 million or 6.8 percent to $22.7 million for the six
months ended December 31, 1996.
The higher consolidated sales reflect both increased volume and higher
average selling prices. The fluctuation in foreign currency exchange rates
resulted in a $296,000 translation decrease in net sales.
Seasonality exists in that the first half of each fiscal year is typically
lower in volume than the second half, which is largely due to customer's
scheduled vacations, shutdowns, holidays and purchasing cycles.
Gross profit as a percentage of net sales (i.e., Gross Margin) for the first
six months of fiscal 1997 improved significantly over the same quarter last
year from 17.1 percent to 30.7 percent. These positive operating conditions
are expected to continue during fiscal 1997.
The overall decline in operating margins during the last quarter of fiscal
1995 and first half of fiscal 1996 is mainly attributed to the increase in
raw material costs. Selling price increases implemented in fiscal 1996,
coupled with various cost control measures and the moderation of certain raw
material costs, helped restore the Company's operating margins, as noted
during the last six months of fiscal 1996, and the first half of fiscal 1997.
However, the Company's operating margins remain under pressure from continued
increasing environmental control costs and we have noted slight increases at
July 1, and October 1, 1996 in pulp prices.
Selling General & Administrative (SG&A) expenses as a percent of net sales
increased slightly from 24.4 percent to 24.6 percent, as compared to the
corresponding prior year. The increase in SG&A percentage is mainly due to
management increasing certain marketing expenses.
The prior year first six months includes a higher than normal exchange gain,
because during the first quarter last year, the Company recovered a large
portion of the foreign exchange losses incurred during fiscal 1995. Future
exchange gains or losses currently are not expected to be material due to the
implementation of the revised risk management program.
FINANCIAL CONDITION
The consolidated financial condition of the Company remains positive.
Consolidated equity increased from June 30, 1996 and totaled $10.7 million at
the end of December 1996. Financial ratios at December 31, 1996 generally
improved from June 30, 1996 because of the improved operating results.
Working capital increased to $1.6 million from $1.1 million, because of a
decrease in short-term borrowings, accounts payable, accrued expenses and
improved operating results. The fluctuation in foreign currency exchange
rates resulted in a translation decrease of $1.2 million in total assets as
compared to the prior year.
The increase in cash mainly reflects the Company's financing and hedging
position at European Operations.
Trade Accounts Receivables decreased by $2.7 million to $11.4 million, mainly
because of the collection of higher sales from the fourth quarter of fiscal
1996.
Inventories at December 31, 1996 increased $265,000 to $5.8 million, as
compared to June 30, 1996, mainly due to the forward purchasing of certain
raw materials to defer price increases.
The $611,000 increase in property, plant and equipment is largely due to
additions relating to the wastewater treatment project at the Company's
Belgian manufacturing facility and production process improvements at Bontex
USA.
The decrease in deferred income taxes mainly reflects the utilization of net
operating losses to offset taxable income. The decrease in income taxes
refundable is because the Company received the refund for losses carried-back
to offset income taxes previously paid. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income.
Management believes that it is more likely than not that the Company will
realize these deferred tax assets.
Accounts Payable, accrued expenses and short-term borrowings decreased $2.0
million, which primarily corresponds to a reduction in accounts receivable,
and positive operating results. Management believes that existing credit
facilities will be sufficient to meet future operating and capital
requirements.
REORGANIZATION
On January 2, 1997, the Company received the final State regulatory approvals
of its proposal, which was adopted by the Company's stockholders at the
Annual Meeting of Stockholders held on November 7, 1996, to change the state
of incorporation of the Company to Virginia and effect Amended and Restated
Articles of Incorporation (the "Reorganization").
As a result of the Reorganization, the Company is now a Virginia corporation,
with its principal place of business at One Bontex Drive, Buena Vista,
Virginia 24416-0751, and the name of the Company has been changed to "Bontex,
Inc." The Company's common stock continues to be traded on the Nasdaq-NMS
under the symbol "BOTX." The Reorganization did not result in any change in
the business, management, assets, liabilities, or net worth of the Company.
For further information, refer to Report on Form 8-K, Reorganization of
Georgia Bonded Fibers, Inc., filed January 30, 1997, and Proxy Statement for
meeting of Shareholders held on November 7, 1996.
ENVIRONMENTAL
As with all manufacturers, the Company is subject to regulation by various
regulatory agencies concerning compliance with environmental control
statutes. The facility in USA is impacted by regulations concerning air
emissions and has entered into a consent order with the Virginia Department
of Environmental Quality, pursuant to which the Company has committed to take
appropriate action with respect to air quality emissions. This consent order
has been amended requiring the Company to achieve compliance by December 31,
1997 rather than by September 30, 1997. The cost of air control technologies
based on current information is expected to be approximately $250,000. The
waste water treatment facility in Belgium is under construction and is
anticipated to be completed in 1997 at an estimated cost of $1.5 million.
PART II. OTHER INFORMATION
BONTEX, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
Item 4. Submission of Matters to Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on November 7, 1996.
The matters voted upon at the Meeting were as follows:
(i) The election of William J. Binnie, Michael J. Breton and Frank B.
Mayorshi as Class C directors, to serve until the 1999 Annual Meeting;
(ii) The appointment of KPMG Peat Marwick LLP as independent auditors of the
Company for fiscal year 1997; and
(iii) Reorganization to change the state of incorporation of Georgia Bonded
Fibers, Inc. to Virginia and to effect amended and restated Articles of
Incorporation of the Company by approving a Plan and Agreement of Merger
dated as of August 19, 1996, and the related Articles of Merger, providing
for the merger of the Company into a Virginia corporation, which is a wholly
owned subsidiary of the Company.
All nominees for director named above were elected, the appointment of KPMG
Peat Marwick and the reorganization were approved.
Election of Officers
AUTHORITY
FOR WITHHELD
--------- --------
William J. Binnie 1,487,732 8,336
Michael J. Breton 1,487,732 8,336
Frank B. Mayorshi 1,487,732 8,336
FOR AGAINST ABSTAIN
--------- ------- -------
Appointment of KPMG Peat Marwick LLP 1,494,746 1,284 38
Reorganization of the Company 1,361,829 129,256 4,983
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits:
3(iii) Articles of Incorporation of the Company, as amended,
effective January 2, 1997.
10(iv) Amended Consent Order between the Company and the
Commonwealth of Virginia, Department of Environmental
Quality dated January 10, 1997.
27 - Financial Data Schedule.
(b.) Report on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BONTEX, INC.
(Registrant)
2-13-97 /s/James C. Kostelni
----------- --------------------
(Date) James C. Kostelni
Chairman of the Board
and President
2-13-97 /s/David A. Dugan
----------- --------------------
(Date) David A. Dugan
Controller and
Corporate Secretary
Exhibit Index
3(iii) Articles of Incorporation of the Company, as amended, effective
January 2, 1997.
10(iv) Amended Consent Order between the Company and the Commonwealth of
Virginia, Department of Environmental Quality dated January 10,
1997.
27 Financial Data Schedule.