<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 March 31, 2000
Commission file number: 333-72321
BGF Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 56-1600845
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
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 May 11, 2000, there were 1,000 shares of common stock, $1.00 par
value, outstanding.
<PAGE>
BGF INDUSTRIES, INC.
QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION 1
Item 1. Consolidated Condensed Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999....................................... 1
Consolidated Condensed Statements of Operations for
the three months ended March 31, 2000 and 1999 (unaudited)........... 2
Consolidated Condensed Statements of Cash Flows for
the three months ended March 31, 2000 and 1999 (unaudited)........... 3
Notes to the Consolidated Condensed 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................. 10
Recently Issued Accounting Standard............. 11
Disclosure Regarding Forward Looking Statements. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 12
PART II. OTHER INFORMATION.............................................. 14
Item 6. Exhibits and Reports on Form 8-K............................... 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ---------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................ $ 21 $ 17
Trade accounts receivable, net....................................... 21,606 20,366
Inventories.......................................................... 37,605 35,597
Other current assets................................................. 11,080 10,671
--------- ---------
Total current assets............................................. 70,312 66,651
Net property, plant and equipment...................................... 55,194 56,566
Other noncurrent assets................................................ 10,594 10,837
--------- ---------
Total assets......................................................... $ 136,100 $ 134,054
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Book overdraft....................................................... $ 970 $ 1,264
Accounts payable..................................................... 9,951 6,670
Accrued liabilities.................................................. 16,751 18,208
Current portion of long-term debt.................................... 200 -
--------- ---------
Total current liabilities........................................ 27,872 26,142
Long-term debt, net of discount of $1,767 and $1,817, respectively..... 132,233 132,383
Deferred income taxes.................................................. 7,599 8,407
Post-retirement benefit obligation..................................... 1,471 1,559
--------- ---------
Total liabilities.................................................... $ 169,175 $ 168,491
========= =========
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $1.00 par value. Authorized 3,000 shares; issued 1 1
and outstanding 1,000 shares.......................................
Capital in excess of par value....................................... 34,999 34,999
Retained earnings.................................................... 68,715 67,353
Loan to parent....................................................... (136,790) (136,790)
--------- ---------
Total stockholder's equity (deficit)............................. (33,075) (34,437)
--------- ---------
Total liabilities and stockholder's equity (deficit)............. $ 136,100 $ 134,054
========= =========
</TABLE>
The accompanying condensed notes are an integral part of the consolidated
financial statements.
-1-
<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Net sales.............................................................. $45,854 $45,120
Cost of goods sold..................................................... 37,964 38,832
------- -------
Gross profit...................................................... 7,890 6,288
Selling, general and administrative expenses........................... 2,145 1,931
------- -------
Operating income..................................................... 5,745 4,357
------- -------
Other (income) expenses:
Interest expense.................................................. 3,665 3,890
Other income, net................................................. (122) (108)
------- -------
3,543 3,782
------- -------
Income before taxes and
extraordinary loss................................................ 2,202 575
Income tax expense..................................................... 840 220
------- -------
Income before extraordinary loss.................................. 1,362 355
Extraordinary loss on write-off of debt issuance
------- -------
costs, net of income taxes of $639................................... - 1,029
------- -------
Net income (loss)................................................. $ 1,362 $ (674)
======= =======
</TABLE>
The accompanying condensed notes are an integral part of the consolidated
financial statements.
-2-
<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
2000 1999
------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)..................................................................... $ 1,362 $ (674)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation......................................................................... 2,043 2,024
Amortization......................................................................... 243 229
Amortization of discount on notes.................................................... 50 33
Extraordinary loss................................................................... - 1,668
Deferred income taxes................................................................ (1,326) -
Post-retirement benefit obligation................................................... (88) 44
Change in operating assets and liabilities:
Trade accounts receivable, net....................................................... (1,240) 274
Other current assets................................................................. 109 (398)
Inventories.......................................................................... (2,008) 1,244
Accounts payable..................................................................... 3,314 (375)
Accrued liabilities.................................................................. (1,457) (82)
------- --------
Net cash provided by operating activities.......................................... 1,002 3,987
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment............................................ (704) (2,300)
------- --------
Net cash used in investing activities............................................... (704) (2,300)
------- --------
Cash flows from financing activities:
Book overdraft........................................................................ (294) 1,538
Payments on senior subordinated debt . - (65,000)
Proceeds from borrowing of revolving credit........................................... 5,000 3,000
Payments on borrowing of revolving credit............................................. (5,000) (36,000)
Proceeds from borrowing on notes...................................................... - 98,000
Debt issuance costs................................................................... - (3,223)
------- --------
Net cash used in financing activities.................................................... (294) (1,685)
------- --------
Net increase in cash and cash equivalents................................................ 4 2
Cash and cash equivalents at beginning of period......................................... 17 18
------- --------
Cash and cash equivalent at end of period................................................ $ 21 $ 20
======= ========
Supplemental disclosure of non-cash investing activities:
Property and equipment financed in accounts payable..................................... $ 692 $ 295
======= ========
</TABLE>
The accompanying condensed notes are an integral part of the consolidated
financial statements.
-3-
<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands)
1. Basis of Presentation:
The accompanying unaudited interim consolidated condensed financial
statements of BGF Industries, Inc. ("BGF" or the "Company") have been prepared
by the Company 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 three months ended
March 31, 2000 are not necessarily indicative of the results to be expected for
the full year. The Company believes 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:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Supplies................................................. $ 1,697 $ 1,657
Raw materials............................................ 3,475 3,325
Stock-in-process......................................... 6,139 6,120
Finished goods........................................... 26,294 24,495
------- -------
$37,605 $35,597
======= =======
</TABLE>
-4-
<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
3. Other Noncurrent Assets:
Other noncurrent assets consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------- -------
(unaudited)
<S> <C> <C>
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................................................ (1,789) (1,546)
------- -------
10,163 10,406
Other................................................................... 431 431
------- -------
$10,594 $10,837
======= =======
</TABLE>
4. Accrued liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Income Taxes............................................................ $ 9,956 $ 8,154
Payroll................................................................. 706 321
Pension and 401(k)...................................................... 2,131 2,980
Interest................................................................ 2,397 4,901
Other................................................................... 1,561 1,852
------- -------
$16,751 $18,208
======= =======
</TABLE>
-5-
<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands)
5. Debt:
Debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Senior Credit Facility
Amortizing Term Loan................................................. $ 24,200 $ 24,200
Revolving Credit Facility............................................ 10,000 10,000
Senior subordinated notes, net of amortized discount................... 98,233 98,183
-------- --------
132,433 132,383
Less current portion................................................... 200 -
-------- --------
$132,233 $132,383
======== ========
</TABLE>
6. Segment Information:
BGF operates in one business segment that manufactures specialty woven and
non-woven fabrics for use in a variety of industrial and commercial
applications. BGF's principal market is the United States. Net sales
information by geographic area is presented below, with sales based on the
location of the customer. BGF does not have any long-lived assets outside the
United States.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
------- -------
(unaudited)
<S> <C> <C>
United States.......................................................... $42,891 $42,620
Foreign................................................................ 2,963 2,500
------- -------
$45,854 $45,120
======= =======
</TABLE>
-6-
<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
7. Restructuring Plan:
In April 1999, management approved a restructuring plan which resulted in the
reduction of BGF's 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, BGF 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, the Company paid out the remaining accrued
costs of $217, eliminating the restructuring reserve.
-7-
<PAGE>
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
"Cautionary Statement 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 condensed financial statements and related notes
of BGF Industries, Inc. and our wholly owned subsidiary, 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.
-8-
<PAGE>
Results of Operations
The following table summarizes our historical results of operations as a
percentage of net sales for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
----- -----
(unaudited)
<S> <C> <C>
Net sales................................................................ 100.0% 100.0%
Cost of goods sold....................................................... 82.8% 86.1%
----- -----
Gross Profit.......................................................... 17.2% 13.9%
Selling, general and administrative expenses............................. 4.7% 4.3%
----- -----
Operating income...................................................... 12.5% 9.6%
Other (income) expenses:
Interest expense...................................................... 8.0% 8.6%
Other expenses, net................................................... (0.3)% (0.2)%
----- -----
Income before taxes and extraordinary loss.......................... 4.8% 1.2%
Income tax expense....................................................... 1.8% 0.5%
----- -----
Income before extraordinary loss.................................... 3.0% 0.7%
Extraordinary loss on write-off of debt issuance costs,
net of income taxes of $639........................................... - 2.3%
----- -----
Net income (loss)................................................... 3.0% (1.6)%
===== =====
</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>
Three Months Ended
March 31,
---------------------
2000 1999
------ ------
(unaudited)
<S> <C> <C>
Net Income (loss)....................... $1,362 $ (674)
Depreciation and amortization........... 2,089 2,069
Interest................................ 3,665 3,890
Taxes................................... 840 220
Extraordinary Loss...................... - 1,029
------ ------
EBITDA.................................. $7,956 $6,534
====== ======
</TABLE>
Reported EBITDA for the quarter ended March 31, 2000 increased $1.5
million, or 23.1%, to $8.0 million from $6.5 million for the quarter ended March
31, 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 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.
-9-
<PAGE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Sales. Net sales increased $0.8 million, or 1.8%, to $45.9 million in
the three months ended March 31, 2000, from $45.1 million in the three months
ended March 31, 1999, primarily due to an increase of $1.5 million, or 24.0%, in
the sales of filtration fabrics. This increase was partially offset by a
decrease of $1.2 million, or 9.1%, in sales in the composites market due to a
slow demand for aerospace products.
Gross Profit Margins. Gross profit margins increased from 13.9% in the
three months ended March 31, 1999 to 17.2% in the three months ended March 31,
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 4.7% of net sales in the three months ended
March 31, 2000 from 4.3% of net sales in the three months ended March 31, 1999.
This was primarily due to an increase in consulting and professional fees and
sales commissions. These increases were partially offset with decreases in
profit sharing and executive bonus accruals.
Operating Income. As a result of the aforementioned factors, operating
income increased $1.3 million to $5.7 million, or 12.5% of net sales, in the
three months ended March 31, 2000, from $4.4 million, or 9.6% of net sales, in
the three months ended March 31, 1999.
Interest Expense. Interest expense decreased $0.2 million to $3.7 million
in the three months ended March 31, 2000 from $3.9 million in the three months
ended March 31, 1999, due to payments on the senior credit facility, which was
incurred on September 30, 1998, in order to loan our parent company, Glass
Holdings, funds to enable AGY Holdings, a wholly owned subsidiary of Glass
Holdings, to purchase a 51% ownership interest in Advanced Glassfiber Yarns.
Income Tax Expense. The effective tax rate in the three months ended March
31, 2000 and 1999 of 38.1% and 38.3% 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 in the three months ended March
31, 1999 associated with the repayment of outstanding indebtedness in connection
with the issuance of senior subordinated notes, net income increased $2.1
million to $1.4 million in the three months ended March 31, 2000, from $(0.7)
million in the three months ended March 31, 1999.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been cash flow 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.
-10-
<PAGE>
Net Cash Provided by Operating Activities. Net cash provided by operating
activities was $1.0 million for the three months ended March 31, 2000 and was
primarily the result of non-cash adjustment to net income for depreciation of
$2.0 million, amortization of $0.3 million and deferred income taxes of $1.3
million, an increase in inventory of $2.0 million, an increase in accounts
receivable of $1.2 million and an increase in accounts payable and accrued
expenses of $1.9 million.
Net Cash Used in Investing Activities. Net cash used in investing
activities was $0.7 million for the three months ended March 31, 2000 and was
the result of purchases of property, plant and equipment.
Net Cash Used in Financing Activities. Net cash used in financing
activities was $0.3 million for the three months ended March 31, 2000 and was
primarily the result of a decrease in the book overdraft.
Indebtedness and Other Matters. At March 31, 2000, we had outstanding
$132.4 million of long-term debt, consisting of $24.2 million under the term
loan of our senior credit facility and $98.2 million under our notes (net of
discount of $1.8 million). In addition, we had outstanding $10.0 million on the
revolving credit facility.
Capital Expenditures. We have historically financed our capital
expenditures through cash flow from operations and borrowings under our credit
facilities. Capital expenditures were $0.7 million for the three months ended
March 31, 2000. We are anticipating total capital expenditures in 2000 to be
approximately $11.0 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
During June 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.
-11-
<PAGE>
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 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. 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."
-12-
<PAGE>
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 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 March 31, 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 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 March 31,
2000, we would have received approximately $1.4 million to terminate the
agreement. A 1% decrease in LIBOR would decrease the amount received by
approximately $35,000. The fair value is based on dealer quotes, considering
current interest rates.
-13-
<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
On March 10, 2000, we filed a Current Report on Form 8-K
reporting under Item 5 an amendment to our Credit Agreement.
-14-
<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: May 11, 2000
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 21 0
<SECURITIES> 0 0
<RECEIVABLES> 22,400 0
<ALLOWANCES> (794) 0
<INVENTORY> 37,605 0
<CURRENT-ASSETS> 70,312 0
<PP&E> 135,288 0
<DEPRECIATION> (80,094) 0
<TOTAL-ASSETS> 136,100 0
<CURRENT-LIABILITIES> 27,872 0
<BONDS> 0 0
0 0
0 0
<COMMON> 1 0
<OTHER-SE> (33,076) 0
<TOTAL-LIABILITY-AND-EQUITY> 136,100 0
<SALES> 45,854 45,120
<TOTAL-REVENUES> 45,854 45,120
<CGS> 37,964 38,832
<TOTAL-COSTS> 37,964 38,832
<OTHER-EXPENSES> 2,145 1,931
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,665 3,890
<INCOME-PRETAX> 2,202 575
<INCOME-TAX> 840 220
<INCOME-CONTINUING> 1,362 355
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,029
<CHANGES> 0 0
<NET-INCOME> 1,362 (674)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
