<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number: 333-72321
BGF Industries, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 2221 56-1600845
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3802 Robert Porcher Way, Greensboro, North Carolina
(Address of registrant's principal executive office)
27410
(Zip Code)
Registrant's telephone number, including area code:
(336) 545-0011
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of August 7, 2000, there were 1,000 shares of common stock, $1.00 par
value, outstanding.
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BGF INDUSTRIES, INC.
QUARTERLY REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited) 1
and December 31, 1999
Consolidated Statements of Operations
For the three months ended June 30, 2000 and 1999 (unaudited) 2
For the six months ended June 30, 2000 and 1999 (unaudited) 2
Consolidated Statements of Cash Flows
For the three months ended June 30, 2000 and 1999 (unaudited) 3
For the six months ended June 30, 2000 and 1999 (unaudited) 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Overview 8
Results of Operations 9
Liquidity and Capital Resources 11
Recently Issued Accounting Standard 12
Disclosure Regarding Forward Looking Statements 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
June 30, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17 $ 17
Trade accounts receivable, net 22,794 20,366
Inventories 36,058 35,597
Other current assets 11,592 10,671
--------- ---------
Total current assets 70,461 66,651
Net property, plant and equipment 54,236 56,566
Other noncurrent assets, net 10,352 10,837
--------- ---------
Total assets $ 135,049 $ 134,054
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Book overdraft $ 4,405 $ 1,264
Accounts payable 8,826 6,670
Accrued liabilities 21,840 18,208
Current portion of long-term debt 1,188 -
--------- ---------
Total current liabilities 36,259 26,142
Long-term debt, net of discount of $1,717 and
$1,817, respectively 121,295 132,383
Deferred income taxes 7,503 8,407
Post-retirement benefit obligation 1,516 1,559
--------- ---------
Total liabilities 166,573 168,491
--------- ---------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $1.00 par value. Authorized
3,000 shares; issued and outstanding
1,000 shares 1 1
Capital in excess of par value 34,999 34,999
Retained earnings 70,266 67,353
Loan to parent (136,790) (136,790)
--------- ---------
Total stockholder's equity (deficit) (31,524) (34,437)
--------- ---------
Total liabilities and stockholder's
equity (deficit) $ 135,049 $ 134,054
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ----------------------------
2000 1999 2000 1999
------------------------------ ----------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $47,289 $44,209 $93,143 $89,329
Cost of goods sold 39,368 37,231 77,332 76,063
------- ------- ------- -------
Gross profit 7,921 6,978 15,811 13,266
Selling, general and administrative expenses 2,164 1,577 4,309 3,508
Restructuring charge - 769 - 769
------- ------- ------- -------
Operating income 5,757 4,632 11,502 8,989
------- ------- ------- -------
Interest expense 3,341 3,939 7,006 7,829
Other income, net (106) (245) (228) (353)
------- ------- ------- -------
Income before income taxes and
extraordinary loss 2,522 938 4,724 1,513
Income tax expense 971 365 1,811 585
------- ------- ------- -------
Income before extraordinary loss 1,551 573 2,913 928
Extraordinary loss on write-off of debt issuance
costs, net of income taxes of $639 - - - (1,029)
------- ------- ------- -------
Net income (loss) $ 1,551 $ 573 $ 2,913 $ (101)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Six
Months
Ended June 30,
-------------------
2000 1999
-------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,913 $ (101)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,183 4,001
Amortization 485 475
Amortization of discount on notes 100 83
Extraordinary loss - 1,668
Deferred income taxes (2,563) -
Post-retirement benefit obligation (43) 86
(Gain) loss on disposal of equipment (13) 50
Change in assets and liabilities:
Trade accounts receivable, net (2,428) 54
Other current assets 738 761
Inventories (461) 2,823
Accounts payable 2,343 1,708
Accrued liabilities 3,632 3,269
-------- --------
Net cash provided by operating activities 8,886 14,877
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,063) (4,138)
Proceeds from sale of equipment 36 -
-------- --------
Net cash used in investing activities (2,027) (4,138)
-------- --------
Cash flows from financing activities:
Book overdraft 3,141 3,619
Payments on term loans - (8,000)
Proceeds from revolving credit facility 14,000 5,000
Payments on revolving credit facility (24,000) (41,000)
Payments on bridge facility - (65,000)
Proceeds from Senior subordinated notes - 98,000
Debt issuance costs - (3,357)
-------- --------
Net cash used in financing activities (6,859) (10,738)
-------- --------
Net increase in cash and cash equivalents - 1
Cash and cash equivalents at beginning of period 17 18
-------- --------
Cash and cash equivalents at end of period $ 17 $ 19
======== ========
Supplemental disclosure of non-cash investing activities:
Property and equipment financed in accounts payable $ 538 $ 905
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Basis of Presentation
We have prepared the accompanying unaudited interim consolidated financial
statements of BGF Industries, Inc. in accordance with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X, and accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of items of a normal recurring nature) considered
necessary for a fair presentation have been included. Operating results for the
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the full year. We believe that the disclosures are adequate to
make the information presented not misleading.
These financial statements should be read in conjunction with the audited
consolidated financial statements of BGF Industries, Inc. as of and for the year
ended December 31, 1999 on file with the Securities and Exchange Commission in
our Annual Report on Form 10-K for the year ended December 31, 1999.
2. Inventories
Inventories consist of the following:
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
Supplies $ 1,564 $ 1,657
Raw materials 3,668 3,325
Stock-in-process 5,464 6,120
Finished goods 25,362 24,495
------- -------
$36,058 $35,597
======= =======
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BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
3. Other Noncurrent Assets
Other noncurrent assets consist of the following:
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
Excess of acquisition cost over
assigned value of net assets
acquired $ 5,809 $ 5,809
Debt issuance costs 6,143 6,143
------- -------
11,952 11,952
Accumulated amortization (2,031) (1,546)
------- -------
9,921 10,406
Other 431 431
------- -------
$10,352 $10,837
======= =======
4. Accrued liabilities
Accrued liabilities consist of the following:
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
Income Taxes $11,776 $ 8,154
Payroll 791 321
Pension and 401(k) 2,579 2,980
Interest 4,683 4,901
Other 2,011 1,852
------- -------
$21,840 $18,208
======= =======
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<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands)
5. Debt
Debt consists of the following:
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
Senior Credit Facility
Amortizing Term Loan $ 24,200 $ 24,200
Revolving Credit Facility - 10,000
Senior subordinated notes, net of amortized
discount 98,283 98,183
-------- --------
122,483 132,383
Less current portion 1,188 -
-------- --------
Long-term debt $121,295 $132,383
======== ========
6. Segment Information
We operate in one business segment that manufactures specialty woven and
non-woven fabrics for use in a variety of industrial and commercial
applications. Our market is the United States. Net sales information by
geographic area is presented below, with sales based on the location of the
customer. We do not have any long-lived assets outside the United States.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, 2000 Ended June 30, 2000
---------------------------------- --------------------------------
2000 1999 2000 1999
---------------------------------- --------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
United States $43,386 $42,089 $86,385 $84,709
Foreign 3,903 2,120 6,758 4,620
------- ------- ------- -------
$47,289 $44,209 $93,143 $89,329
======= ======= ======= =======
</TABLE>
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<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
7. Restructuring Plan
In April 1999, management approved a restructuring plan which resulted in
the reduction of our workforce by 67 hourly and salary employees across the
company. Employees affected by the plan were notified in May of 1999 and were
terminated during 1999. As a result of the restructuring, we incurred charges of
$769, included as a component of operating income in the 1999 financial
statements. The charges incurred are costs for salaried employee severance.
During the first quarter of 2000, we paid out the remaining accrued costs of
$217, eliminating the restructuring reserve.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report contains forward-looking statements with respect to
our operations, industry, financial condition and liquidity. These statements
reflect our assessment of a number of risks and uncertainties. Our actual
results could differ materially from the results anticipated in these forward
looking statements as a result of certain factors set forth in this Quarterly
Report. An additional statement made pursuant to the Private Securities
Litigation Reform Act of 1995 and summarizing certain of the principal risks and
uncertainties inherent in our business is included herein under the caption
"Disclosure Regarding Forward Looking Statements." You are encouraged to read
this statement carefully.
You should read the following discussion and analysis in conjunction with
the accompanying consolidated financial statements and related notes, and with
our audited consolidated financial statements and related notes as of the year
ended December 31, 1999 set forth in our Annual Report on Form 10-K for the year
ended December 31, 1999.
Overview
Our business focuses on the production of value-added specialty woven and
non-woven fabrics made from glass, carbon and aramid yarns. Both in revenue and
market share, we believe we are the second largest manufacturer of glass fiber
fabrics and a leading producer of other high performance fabrics in North
America. Our fabrics are a critical component in the production of a variety of
electronic, filtration, composite, insulation, construction and commercial
products. Our glass fiber fabrics are used by our customers in printed circuit
boards, which are integral to virtually all advanced electronic products,
including computers and cellular telephones. Our fabrics are also used by our
customers to strengthen, insulate and enhance the dimensional stability of
hundreds of products that they make for their own customers in various markets,
including aerospace, transportation, construction, power generation and oil
refining.
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<PAGE>
Results of Operations
The following table summarizes our historical results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- -------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-------------------------- -------------------------
(unaudited) (unaudited)
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 83.2 % 84.2 % 83.0 % 85.1 %
----- ----- ----- -----
Gross Profit 16.8 % 15.8 % 17.0 % 14.9 %
Selling, general and administrative expenses 4.6 % 3.6 % 4.6 % 3.9 %
Restructuring charge 0.0 % 1.7 % 0.0 % 0.9 %
----- ----- ----- -----
Operating income 12.2 % 10.5 % 12.4 % 10.1 %
Interest expense 7.1 % 8.9 % 7.5 % 8.8 %
Other income, net (0.2)% (0.5)% (0.2)% (0.4)%
----- ----- ----- -----
Income before income taxes and extraordinary loss 5.3 % 2.1 % 5.1 % 1.7 %
Income tax expense 2.0 % 0.8 % 1.9 % 0.7 %
----- ----- ----- -----
Income before extraordinary loss 3.3 % 1.3 % 3.2 % 1.0 %
Extraordinary loss on write-off of debt issuance
costs, net of income taxes of $639 0.0 % 0.0 % 0.0 % (1.1)%
----- ----- ----- -----
Net income (loss) 3.3 % 1.3 % 3.2 % (0.1)%
===== ===== ===== =====
</TABLE>
EBITDA, as presented below, is defined as net income before interest
expense, income taxes, depreciation, amortization expense and non-recurring non-
cash charges. EBITDA is calculated as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
--------------------------------------------
(unaudited) (unaudited)
Net Income (loss) $1,551 $ 573 $ 2,913 $ (101)
Depreciation and amortization 2,185 2,023 4,274 4,091
Interest 3,341 3,939 7,006 7,829
Taxes 971 365 1,811 585
Extraordinary Loss - - - 1,029
------ ------ ------- -------
EBITDA $8,048 $6,900 $16,004 $13,433
====== ====== ======= =======
</TABLE>
EBITDA for the quarter ended June 30, 2000 increased $1.1 million, or
15.9%, to $8.0 million from $6.9 million for the quarter ended June 30, 1999,
and for the six months ended June 30, 2000 increased by $2.6 million, or 19.4%,
to $16.0 million from $13.4 million for the six months ended June 30, 1999.
We believe that EBITDA is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. EBITDA does not
represent and should not be considered as an alternative to net income or cash
flow from operations as determined by generally accepted
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<PAGE>
accounting principles, and EBITDA does not necessarily indicate whether cash
flow will be sufficient for cash requirements. Not every company calculates
EBITDA in exactly the same fashion. As a result, EBITDA as presented above may
not necessarily be comparable to similarly titled measures of other companies.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net Sales. Net sales increased $3.1 million, or 7.0%, to $47.3 million in
the three months ended June 30, 2000, from $44.2 million in the three months
ended June 30, 1999, primarily due to an increase of $3.9 million, or 18.8% in
sales of electronic fabrics used in multi-layer and rigid printed circuit
boards. This increase was partially offset by a decrease of $0.9 million, or
15.0%, in sales of filtration fabrics.
Gross Profit Margins. Gross profit margins increased from 15.8% in the
three months ended June 30, 1999 to 16.8% in the three months ended June 30,
2000, due primarily to higher volumes resulting in more absorption of fixed
costs as well as some price increases in the specialty markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 4.6% of net sales in the three months ended
June 30, 2000 from 3.6% of net sales in the three months ended June 30, 1999.
This was primarily due to an increase in non-recurring consulting and
professional fees, sales commissions and executive bonus accruals.
Restructuring. BGF incurred charges of $769,000 in the second quarter
ended June 30, 1999 due to a restructuring plan announced on May 3, 1999 that
resulted in the elimination of 67 jobs (20 salaried and 47 wage) across the
company.
Operating Income. As a result of the aforementioned factors, operating
income increased $1.2 million to $5.8 million, or 12.2% of net sales, in the
three months ended June 30, 2000, from $4.6 million, or 10.5% of net sales, in
the three months ended June 30, 1999.
Interest Expense. Interest expense decreased $0.6 million to $3.3 million
in the three months ended June 30, 2000 from $3.9 million in the three months
ended June 30, 1999, due to payments on the senior credit facility.
Income Tax Expense. The effective tax rate in the three months ended June
30, 2000 and 1999 of 38.5% and 38.9% respectively was higher than the federal
statutory rate of 35.0% primarily due to state income taxes.
Net Income. As a result of the aforementioned factors, net income
increased $1.0 million to $1.6 million in the three months ended June 30, 2000,
from $0.6 million in the three months ended June 30, 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net Sales. Net sales increased $3.8 million, or 4.3%, to $93.1 million in
the six months ended June 30, 2000, from $89.3 million in the six months ended
June 30, 1999, primarily due to
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<PAGE>
an increase of $4.3 million, or 10.3%, in the sales of electronic fabrics used
in multi-layer and rigid printed circuit boards and a decrease of $0.5 million,
or 2.3%, in the sales of composites.
Gross Profit Margins. Gross profit margins increased from 14.9% in the six
months ended June 30, 1999 to 17.0% in the six months ended June 30, 2000, due
primarily to higher volumes resulting in more absorption of fixed costs as well
as price increases in the specialty markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 4.6% from 3.9% of net sales in the six
months ended June 30, 2000 and 1999, respectively. This was primarily due to an
increase in non-recurring consulting and professional fees and sales
commissions.
Restructuring. BGF incurred charges of $769,000 in the second quarter ended
June 30, 1999 due to a restructuring plan announced on May 3, 1999 that resulted
in the elimination of 67 jobs (20 salaried and 47 wage) across the company.
Operating Income. As a result of the aforementioned factors, operating
income increased $2.5 million to $11.5 million, or 12.4% of net sales, in the
six months ended June 30, 2000, from $9.0 million, or 10.1% of net sales, in the
six months ended June 30, 1999.
Interest Expense. Interest expense decreased $0.8 million to $7.0 million
in the six months ended June 30, 2000, from $7.8 million in the six months ended
June 30, 1999, due to the payments on the senior credit facility.
Income Tax Expense. The effective tax rate in the six months ended June
30, 2000 and 1999 of 38.3% and 38.7%, respectively, was higher than the federal
statutory rate of 35.0% primarily due to state income taxes.
Net Income. As a result of the aforementioned factors and the write-off of
debt issuance costs of $1.0 million after tax associated with the repayment of
outstanding indebtedness in connection with the issuance of senior subordinated
notes in 1999, net income increased $3.0 million to $2.9 million in the six
months ended June 30, 2000, from $(0.1) million in the six months ended June
30, 1999.
Liquidity and Capital Resources
Historically, our primary sources of liquidity were cash flows from
operations and borrowings under our credit facilities. Our future need for
liquidity will arise primarily from interest payable on our 10 1/4% Series B
Senior Subordinated Notes due 2009 and our senior credit facility, principal
payments on the senior credit facility, which began in December 1999, and the
funding of our capital expenditures and working capital requirements. We have
no mandatory payments of principal on our notes scheduled prior to their
maturity.
Net Cash Provided by Operating Activities. Net cash provided by
operating activities was $8.9 million for the six months ended June 30, 2000 and
was primarily the result of non-cash adjustments to net income for depreciation
of $4.2 million, deferred income taxes of ($2.6) million, an increase in
accounts receivable of $2.4 million and an increase in accounts payable and
accrued expenses of $6.0 million.
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<PAGE>
Net Cash Used in Investing Activities. Net cash used in investing
activities was $2.0 million for the six months ended June 30, 2000 and was
primarily the result of purchases of property, plant and equipment.
Net Cash Used in Financing Activities. Net cash used in financing
activities was $6.9 million for the six months ended June 30, 2000 and was
primarily the result of an increase in the book overdraft of $3.1 million and
net payments on the revolving credit facility of $10.0 million.
Capital Expenditures. We have historically financed our capital
expenditures through cash flow from operations and borrowings under our credit
facilities. Capital expenditures were $2.1 million for the six months ended
June 30, 2000. We are anticipating total capital expenditures in 2000 to be
approximately $11.0 million.
Indebtedness and Other Matters. At June 30, 2000, we had outstanding
$122.5 million of long-term debt, consisting of $24.2 million under the term
loan of our senior credit facility and $98.3 million under our notes (net of
discount of $1.7 million).
Our ability to make scheduled payments of principal or to pay the interest
or liquidated damages, if any, on, or to refinance our indebtedness, including
the notes, or to fund planned capital expenditures will depend on our future
performance. Our future performance, to some extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Based upon the current level of our operations, we
believe that cash flow from operations and available cash, together with
availability under the senior credit facility, will be adequate to meet our
future liquidity needs for at least the next two years. However, we cannot
assure you that we will generate sufficient cash flow from operations or that
future borrowings will be available under our senior credit facility in an
amount sufficient to enable us to service our indebtedness, including the notes,
or to fund our other liquidity needs. In addition, we may need to refinance all
or a portion of the principal of the notes on or prior to maturity. We cannot
assure you that we will be able to effect any refinancing on commercially
reasonable terms or at all.
Recently Issued Accounting Standard
On June 8, 1999, the Financial Accounting Standards Board issued SFAS No.
137, "Deferral of the Effective Date of FAS 133", which changes the effective
date of FAS 133 to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. We anticipate that, due to our
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on our results of operations or financial position.
Disclosure Regarding Forward-Looking Statements
Some of the information in this Quarterly Report may contain forward-
looking statements. These statements include, in particular, statements about
our plans, strategies and prospects within the meaning of Section 27A of the
Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. You can identify forward-looking statements by our
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<PAGE>
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate," "continue" or other similar words. Although we believe
that our plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we cannot assure you that our plans,
intentions or expectations will be achieved. Such statements are based on our
current plans and expectations and are subject to risks and uncertainties that
exist in our operations and our business environment that could render actual
outcomes and results materially different from those predicted. When considering
such forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statements:
. our significant level of indebtedness and limitations on our ability to
incur additional debt;
. our dependence upon some of our suppliers to provide us with materials
and services;
. a downturn in the electronics industry and the movement of electronics
industry production outside of North America;
. our concentrated customer base and the competitive nature of our
markets;
. a disruption of production at one of our facilities;
. an easing of import restrictions and duties with respect to glass fiber
fabrics;
. our ability to comply with environmental and safety and health laws and
requirements;
. our ability to address technological advances in the markets we serve;
and
. changes in economic conditions generally.
This list of risks and uncertainties, however, is not intended to be
exhaustive. You should also review the other cautionary statements we make in
this Quarterly Report and in our Annual Report on Form 10-K for the year ended
December 31, 1999. All forward-looking statements attributable to us or persons
acting for us are expressly qualified in their entirety by our cautionary
statements.
We do not have, and expressly disclaim, any obligation to release
publicly any updates or changes in our expectations or any changes in events,
conditions or circumstances on which any forward-looking statement is based.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The effects of potential changes in interest rates are discussed below.
Our market risk discussion includes "forward-looking statements" and represents
an estimate of possible changes in fair value that would occur assuming
hypothetical future movements in interest rates. These disclosures are not
precise indicators of expected future losses, but only indicators of reasonably
possible losses. As a result, actual future results may differ materially from
those presented. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Disclosure Regarding Forward-Looking
Statements."
Our senior credit facility is subject to market risks, including interest
rate risk. Our financial instruments are not currently subject to foreign
currency risk or commodity price risk. We hold no financial instruments for
trading or speculative purposes.
We are exposed to market risk related to changes in interest rates on
borrowings under our senior credit facility. The senior credit facility bears
interest based on LIBOR. Our risk management strategy is to use derivative
financial instruments, such as swaps, to hedge interest
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rate exposures. Our objective is to limit the impact of interest rate changes on
earnings and cash flows. We do not enter into derivatives for trading purposes.
We entered into an interest rate swap agreement to manage our exposure to
interest rate changes under the senior credit facility. The swap involves the
exchange of fixed and variable interest rate payments based on a contractual
principal amount and time period. Payments or receipts on the agreement are
recorded as adjustments to interest expense. At June 30, 2000, we had an
interest rate swap agreement effective through September 30, 2004 on a notional
amount of $24.2 million. Under this agreement, we have secured a fixed LIBOR
rate of interest of 5.04% on the notional amount that is reduced in a manner
consistent with the amortization of the principal on our term loan. This swap
effectively changes our payment of interest on $24.2 million of variable rate
debt to a fixed rate for the contract period.
The fair value of the interest rate swap agreement represents the estimated
receipts or payments that would be made to terminate the agreement. At June 30,
2000, we would have received approximately $1.3 million to terminate the
agreement. A 1% decrease in LIBOR would decrease the amount received by
approximately $36,000. The fair value is based on dealer quotes, considering
current interest rates.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
-15-
<PAGE>
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.
BGF INDUSTRIES, INC.
/s/ Philippe R. Dorier
----------------------
Philippe R. Dorier
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 7, 2000
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule
