UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997
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 24416-1500
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 540-261-2181
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 November 10, 1997
Common Stock - $.10 par value 1,572,824
BONTEX, INC.
FORM 10-Q
FOR THE FIRST QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996, June 30, . . . . . . . . . . . . . . . 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
First Quarter Ended September 30, 1997 and 1996 . . . . . . . . . . 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Quarter Ended September 30, 1997 and 1996 . . . . . . . . . . 5
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . .9,10
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
(In Thousands, Except Share and Per Share Data)
September 30, June 30,
(unaudited)
1997 1996 1997
ASSETS
Current assets:
Cash and cash equivalents $ 1,088 $ 1,079 $ 1,373
Trade accounts receivable,
less allowance for doubtful accounts
of $116 ($233 at September '96, $119
at June '97) 11,874 11,482 13,622
Other receivables 753 845 551
Inventories 6,370 5,432 5,276
Deferred income taxes 219 539 321
Income taxes refundable 6 - 76
Other current assets 332 315 131
------- ------- -------
TOTAL CURRENT ASSETS 20,642 19,692 21,350
------- ------- -------
Property, plant and equipment:
Land and land improvements 377 298 347
Buildings and building improvements 5,291 4,797 5,332
Machinery, furniture and equipment 16,224 15,869 16,176
Construction in progress 1,291 937 808
------- ------- -------
23,183 21,901 22,663
Less accumulated depreciation and amortization 11,877 11,414 11,631
------- ------- -------
Net property, plant and equipment 11,306 10,487 11,032
------- ------- -------
Deferred income taxes - 442 -
Other assets, at cost less applicable amortization 543 424 524
------- ------- -------
TOTAL ASSETS $ 32,491 $ 31,045 $ 32,906
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,563 $ 8,380 $ 8,019
Accounts payable 6,193 6,649 7,521
Accrued expenses 2,083 2,151 2,079
Income taxes payable 137 243 139
Long-term debt due currently 598 552 578
------- ------- -------
TOTAL CURRENT LIABILITIES 17,574 17,975 18,336
Long-term debt 2,839 2,488 2,761
Deferred income taxes 235 - 108
Other long-term liabilities 224 119 186
------- ------- -------
TOTAL LIABILITIES 20,872 20,582 21,391
------- ------- -------
Stockholders' equity:
Preferred stock of no par value. Authorized
10,000,000 shares; none issued - - -
Common stock of $.10 par value. Authorized
10,000,000 shares; issued and outstanding
1,572,824 shares 157 157 157
Additional capital 1,551 1,551 1,551
Retained earnings 9,501 7,770 9,344
Foreign currency translation adjustment 410 985 463
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY 11,619 10,463 11,515
------- ------- -------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 32,491 $ 31,045 $ 32,906
======= ======= =======
See accompanying condensed notes to condensed consolidated financial
statements.
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(In Thousands, Except Per Share Data)
(Unaudited)
First Quarter Ended
September 30,
1997 1996
Net Sales $ 10,533 $ 10,885
Cost of Sales 7,321 7,694
------- -------
Gross Profit 3,212 3,191
Selling, General and Administrative Expenses 2,650 2,649
------- -------
Operating Income 562 542
------- -------
Other (Income) Expense:
Interest expense 256 324
Interest income (32) (3)
Foreign currency exchange (gain) loss 55 (58)
Other, net 1 16
------- -------
Total Other (Income) Expense 280 279
------- -------
Income Before Income Taxes 282 263
Income Taxes 125 104
------- -------
Net income 157 159
Retained earnings, beginning of period 9,344 7,611
------- -------
Retained earnings, end of period $ 9,501 $ 7,770
======= =======
Net income per share $ .10 $ .10
======= =======
See accompanying condensed notes to condensed consolidated financial
statements.
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
First Quarter Ended
September 30,
1997 1996
Cash Flows from Operating Activities:
Cash received from customers $ 12,136 $ 13,218
Cash paid to suppliers and employees (12,386) (11,383)
Interest received 43 22
Interest paid (289) (413)
Income taxes paid, net of refunds 163 49
------- -------
Net cash provided by (used in) operating activities (333) 1,493
------- -------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (636) (314)
------- -------
Net cash used in investing activities (636) (314)
------- -------
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net 640 (1,054)
Long-term debt incurred 200 1,795
Principal payments on long-term debt and capital
lease obligations (80) (1,651)
------- -------
Net cash used in financing activities 760 (910)
------- -------
Effect of Exchange Rate Changes on Cash 76 95
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (285) 364
Cash and Cash Equivalents at Beginning of Year 1,373 715
------- -------
Cash and Cash Equivalents at End of Year $ 1,088 $ 1,079
======= =======
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $ 157 $ 159
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 321 292
Provision for bad debts 15 103
Deferred income taxes 180 69
Change in assets and liabilities:
Decrease in trade accounts and other receivables 1,317 2,393
(Increase) decrease in inventories (1,048) 51
Increase in other assets (247) (164)
Decrease in accounts payable and accrued expenses (1,168) (1,493)
Increase in income taxes 126 83
Increase in other liabilities 14 -
------- -------
Net cash provided by operating activities $ (333) $ 1,493
======= =======
See accompanying condensed notes to consolidated financial statements.
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 AND JUNE 30, 1997
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared by Bontex, Inc. and its subsidiaries ("Bontex" or 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 reclassifications and 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, 1997.
2. The condensed consolidated balance sheets include the following related
to European subsidiaries:
September 30, June 30,
1997 1996 1997
(Dollars in Thousands)
Current assets $ 13,793 $ 13,809 $ 14,284
Total assets 19,261 19,052 19,801
Current liabilities 12,858 14,437 13,882
Total liabilities 14,917 15,645 15,656
Stockholders' equity 4,344 3,407 4,145
The condensed consolidated statements of income include the following
related to European subsidiaries:
First Quarter Ended
September 30,
1997 1996
(Dollars in Thousands)
Net Sales $ 6,255 $ 6,352
Net income 255 85
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 AND JUNE 30, 1997
(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:
September 30, June 30,
1997 1996 1997
(Dollars in Thousands)
Finished goods $ 3,266 $ 3,696 $ 2,908
Raw Materials 2,840 1,695 2,067
Supplies 623 630 646
------ ------ ------
Inventories at FIFO and
weighted average cost 6,729 6,021 5,621
LIFO reserves 359 589 345
------ ------ ------
$ 6,370 $ 5,432 $ 5,276
====== ====== ======
4. The Company utilizes derivatives and other financial instruments in the
normal course of business. By their nature, all such instruments involve
risk, and the Company's maximum potential loss may exceed amounts recorded in
the balance sheet.
The Company is exposed to a variety of market risks, including the effects of
changes in foreign currency exchange rates, interest rates and commodity
prices. In the past, the Company has primarily used such derivative
financial instruments for the purpose of hedging only currency and interest
rates exposures. For further information concerning the aforementioned
financial instruments, refer to the consolidated financial instruments and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended June 30, 1997.
As part of the Company's Risk Management Program, the Company has explored
various alternatives to manage its exposure to highly volatile pulp prices,
the primary raw material for the Company's products. Historically, the
Company's primary and only available method of hedging its exposure to pulp
price changes was through forward purchasing and other purchase contracts.
During the previous several months, the Company has investigated the new
futures market for pulp. In connection with purchasing pulp for future
manufacturing requirements, the Company has entered into a number of pulp
futures, as deemed appropriate, to reduce the effects of price fluctuations.
Material changes in reported financial instruments and market risks since the
most recent fiscal year end report of June 30, 1997 are presented as follows:
During the first quarter of fiscal year 1998, the Company began on a limited
basis to manage its exposure to pulp price changes with pulp futures. In
accordance with hedge accounting, gains or losses will be recorded as a
component of the underlying inventory purchase, since these contracts
effectively meet the risk reduction and correlation criteria. Gains or
losses on hedges that are terminated prior to the execution of the inventory
purchase are recorded in inventory until the inventory is sold. The table
below provides certain information regarding the Company's pulp inventory and
futures contracts that are sensitive to changes in pulp prices. For
inventory, the table presents the carrying amount and fair value at September
30, 1997. For futures contracts, all of which mature within the next year,
the table presents the notional amounts and fair value at September 30, 1997.
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 AND JUNE 30, 1997
(Unaudited)
Balance Sheet Commodity Pulp Position and Related Derivatives Held for Other
Than Trading (dollars in thousands) at September 30, 1997:
Carrying Amount Fair Value
Pulp Inventory $1,989 $1,972
Futures Contacts (Long) $ 858 $ 45
Market risk is defined as the risk of loss arising from adverse changes in
market rates and prices. The disclosures provide certain forward looking
information concerning potential exposures to market risk. By its nature,
such forward looking information is an estimate of what could occur in the
future and is dependent on model characteristics and assumptions. As a
result, actual gains or losses will differ from those reported. The above
value at risk (VAR) disclosure does not fully reflect the potential net
market risk exposure because other market risk exposures may exist in other
transactions and other financial instruments.
The Company appears to be in the beginning of the cycle of increasing pulp
prices, as pulp prices have increased significantly over the past six months
and pulp prices are expected to continue to rise. These financial exposures
are monitored and managed by the Company as an integral part of its overall
risk management program, which recognizes the unpredictability of financial
markets and seeks to reduce the potentially adverse effect on the Company's
results.
5. Net income per share calculations are based on shares outstanding of
1,572,824 shares for all periods. The calculation of weighted average shares
outstanding does not include the effect of common stock options since their
impact on the weighted average shares is less than three percent.
BONTEX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1997
(Unaudited)
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 first quarter of fiscal 1998 reflect
continued profitability. During the first quarter, the Company generated a
consolidated operating profit of $562,000, and net income of $157,000 or $.10
per share. Consolidated net sales decreased $352,000 or 3.2 percent to $10.5
million for the first quarter ended September 30, 1997, because of the
fluctuation in foreign currency exchange rates which resulted in a $1.4
million translation decrease in net sales. Sales volume increased, however,
reflecting the positive impact of the Company's marketing program.
Seasonality generally 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.
Over the past fifteen years, the Company has generated net income during the
first quarter only five other times, the most recent being in 1996.
Gross profit as a percentage of net sales (i.e., Gross Margin) for the first
quarter of fiscal 1998 improved over the same quarter last year from 29.3
percent to 30.5 percent. These positive operating conditions are expected to
continue during fiscal 1998; however, increasing pulp prices may adversely
impact the Company's margins.
The cost of certain raw materials, especially pulp, has increased over the
past six months. The Company has implemented various measures in an attempt
to manage the situation, including raising selling prices where possible,
purchasing forward, capital enhancements to improve production efficiencies,
a revised Risk Management Program, and other cost control measures. It is
difficult to predict future raw material costs, and there can be no assurance
that raw material prices will not have an adverse impact on the Company's
operations or competitive position in the future.
Selling General & Administrative (SG&A) expenses as a percent of net sales
increased from 24.3 percent to 25.2 percent, as compared to the corresponding
prior year; however, SG&A costs in dollar terms did not change significantly.
The increased SG&A percentage is mainly due to management increasing certain
marketing expenses, freight, and compensation costs.
FINANCIAL CONDITION
The consolidated financial condition of the Company remains positive.
Consolidated equity increased from June 30, 1997 and totaled $11.6 million at
the end of September 1997. Financial ratios at September 30, 1997 generally
improved from June 30, 1997 because of the improved operating results. The
fluctuation in foreign currency exchange rates resulted in a translation
decrease of $1.9 million in consolidated total assets as compared to
September 30, 1996.
The cash balance mainly reflects the Company's financing and hedging position
at European Operations.
Trade Accounts Receivable decreased from June 30 to September 30, 1997 by
$1.7 million to $11.9 million, and is mainly because of the collection of
higher sales from the fourth quarter of fiscal 1997 and foreign currency
translation adjustments.
The $1.1 million increase in inventories to $6.4 from June 30 to September
30, 1997, reflects forward purchasing of pulp to defer anticipated price
increases.
The $520,000 increase in property, plant and equipment from June 30 to
September 30, 1997 is largely due to additions relating to air treatment and
other process equipment projects at the Company's manufacturing facilities.
Accounts Payable, accrued expenses and short-term borrowings decreased
$780,000, 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.
See Item 5 of this Report with respect to issues relating to the Company's
capital stock.
SHAREHOLDER RIGHTS PLAN
On September 30, 1997, the Board of Directors of Bontex, Inc. adopted a
Shareholder Rights Plan designed to protect shareholders from abusive
takeover tactics and from any attempt to acquire control of the Company for
an inadequate price. The Board declared a dividend of one right on each
outstanding share of Bontex Common Stock, payable to shareholders of record
on October 15, 1997.
PART II. OTHER INFORMATION
BONTEX, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
In August 1997, the Nasdaq Stock Market announced new listing
requirements for issuers listed on the Nasdaq National Market,
effective February 1998. The purpose of the new listing
requirements is to further strengthen both the quantitative and
qualitative requirements for issuers. As of September 30, 1997,
Bontex met all requirements for continued Nasdaq National Market
listing, but there is no assurance that the Company will continue to
meet all listing requirements for Nasdaq after February 1998,
especially with respect to the new public float requirements, as a
very large portion of the Company's common stock is held or
controlled by management. If the Company is unable to comply with
the new listing requirements, it intends to apply to list its common
stock on the Nasdaq SmallCap Market. Such change in markets could
have an effect on the trading and price of the Company's common
stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule - page 11
(b) Reports on Form 8-K:
Form 8-K dated September 30, 1997 relating to adoption of
Shareholders Rights Plan.
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)
11-13-97 /s/James C. Kostelni
- ------------ ----------------------------
(Date) James C. Kostelni
Chairman of the Board
and President
11-13-97 /s/Charles W. J. Kostelni
- ------------ ----------------------------
(Date) Charles W. J. Kostelni
Corporate Controller
and Secretary