<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 September 30, 2000
Commission file number: 333-72321
BGF Industries, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 2221 56-1600845
<S> <C> <C>
(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 November 10, 2000 there were 1,000 shares of common stock, $1.00
par value, outstanding.
<PAGE>
BGF INDUSTRIES, INC.
QUARTERLY REPORT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 1
Consolidated Statements of Operations
For the three months ended September 30, 2000 and 1999 (unaudited) 2
For the nine months ended September 30, 2000 and 1999 (unaudited) 2
Consolidated Statements of Cash Flows
For the nine months ended September 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
Overview 8
Results of Operations 9
Liquidity and Capital Resources 11
Recent Developments 12
Recently Issued Accounting Standard 12
Disclosure Regarding ForwardLooking Statements 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
<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>
<CAPTION>
September 30, December 31,
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 202 $ 17
Trade accounts receivable, net 28,937 20,366
Inventories 34,466 35,597
Other current assets 12,610 10,671
---------- ----------
Total current assets 76,215 66,651
Net property, plant and equipment 53,999 56,566
Other noncurrent assets, net 10,109 10,837
---------- ----------
Total assets $ 140,323 $ 134,054
========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Book overdraft $ 5,390 $ 1,264
Accounts payable 10,040 6,670
Accrued liabilities 22,511 18,208
Current portion of long-term debt 2,176 -
---------- ----------
Total current liabilities 40,117 26,142
Long-term debt, net of discount of $1,667 and $1,817, respectively 120,357 132,383
Deferred income taxes 7,407 8,407
Post-retirement benefit obligation 1,565 1,559
---------- ----------
Total liabilities 169,446 168,491
---------- ----------
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 72,667 67,353
Loan to parent (136,790) (136,790)
---------- ----------
Total stockholder's equity (deficit) (29,123) (34,437)
---------- ----------
Total liabilities and stockholder's equity (deficit) $ 140,323 $ 134,054
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
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 Nine Months
Ended September 30, Ended September 30,
-------------------------- -------------------------
2000 1999 2000 1999
------------- ------------ ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $50,381 $43,959 $143,524 $133,288
Cost of goods sold 40,929 36,621 118,261 112,684
--------- --------- ------- -------
Gross profit 9,452 7,338 25,263 20,604
Selling, general and administrative expenses 2,027 1,959 6,336 5,467
Restructuring charge - - - 769
--------- --------- ------- -------
Operating income 7,425 5,379 18,927 14,368
Interest expense 3,670 3,614 10,676 11,443
Other income, net (150) (141) (378) (494)
--------- --------- ------- -------
Income before income taxes and
extraordinary loss 3,905 1,906 8,629 3,419
Income tax expense 1,504 745 3,315 1,330
--------- --------- ------- -------
Income before extraordinary loss 2,401 1,161 5,314 2,089
Extraordinary loss on write-off of debt issuance
costs, net of income taxes of $639 - - - (1,029)
--------- --------- ------- -------
Net income $ 2,401 $ 1,161 $ 5,314 $ 1,060
========= ========= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------------
2000 1999
-------------- -----------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,314 $ 1,060
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,242 6,004
Amortization 727 724
Amortization of discount on notes 150 133
Extraordinary loss - 1,668
Deferred income taxes (3,761) -
Post-retirement benefit obligation 6 128
(Gain) loss on disposal of equipment (13) 1
Change in assets and liabilities:
Trade accounts receivable, net (8,571) (867)
Other current assets 822 923
Inventories 1,131 4,251
Other assets - (86)
Accounts payable 3,664 2,270
Accrued liabilities 4,303 1,991
-------- ----------
Net cash provided by operating activities 10,014 18,200
-------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,991) (5,446)
Proceeds from sale of equipment 36 50
-------- ----------
Net cash used in investing activities (3,955) (5,396)
-------- ----------
Cash flows from financing activities:
Book overdraft 4,126 2,798
Payments on term loans - (10,000)
Proceeds from revolving credit facility 23,000 16,000
Payments on revolving credit facility (33,000) (51,000)
Payments on bridge facility - (65,000)
Proceeds from senior subordinated notes - 98,000
Debt issuance costs - (3,478)
-------- ----------
Net cash used in financing activities (5,874) (12,680)
-------- ----------
Net increase in cash and cash equivalents 185 124
Cash and cash equivalents at beginning of period 17 18
-------- ----------
Cash and cash equivalents at end of period $ 202 $ 142
======== =========
Supplemental disclosure of non-cash investing activities:
Property and equipment financed in accounts payable $ 429 $ 1,041
======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
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
nine months ended September 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:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Supplies $ 1,668 $ 1,657
Raw materials 4,046 3,325
Stock-in-process 5,537 6,120
Finished goods 23,215 24,495
-------- ---------
$34,466 $ 35,597
======== =========
</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)
3. Other Noncurrent Assets
Other noncurrent assets consist of the following:
<TABLE>
<CAPTION>
September 30, 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 (2,274) (1,546)
-------- --------
9,678 10,406
Other 431 431
-------- --------
$10,109 $10,837
======== ========
</TABLE>
4. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Income Taxes $ 14,341 $ 8,154
Payroll 788 321
Pension and 401(k) 3,167 2,980
Interest 2,184 4,901
Other 2,031 1,852
-------- ---------
$22,511 $18,208
======== =========
</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)
5. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Senior Credit Facility:
Amortizing Term Loan $24,200 $ 24,200
Revolving Credit Facility - 10,000
Senior Subordinated Notes, net of amortized discount 98,333 98,183
--------- ----------
122,533 132,383
Less current portion 2,176 -
--------- ----------
Long-term debt $120,357 $132,383
========= ==========
</TABLE>
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 principal 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 Ended For the Nine Months
September 30, Ended September 30,
------------------------------ ---------------------------------
2000 1999 2000 1999
------------------------------ ---------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
United States $45,889 $41,564 $132,053 $126,273
Foreign 4,492 2,395 11,471 7,015
------- ------- -------- --------
$50,381 $43,959 $143,524 $133,288
======= ======= ======== ========
</TABLE>
-6-
<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, the Company incurred
charges of $769, included as a component of operating income in the 1999
financial statements. The charges incurred were 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.
8. Commitments and Contingencies
From time to time, BGF is involved in various legal proceedings and
environmental matters arising in the ordinary course of business. Management
believes, however, that the ultimate resolution of such matters will not have a
material adverse impact on BGF's financial position or results or operations.
9. Subsequent Events
On October 5, 2000, Owens Corning, which owns a 49% economic interest in
Advanced Glassfiber Yarns LLC (a major supplier of glass yarns to BGF), and
certain of Owens Corning's United States subsidiaries (collectively, the
"Debtors") filed voluntary petitions with the United States Bankruptcy Court for
the District of Delaware seeking relief under Chapter 11 of the United States
Bankruptcy Code. According to filings made by Owens Corning with the SEC, the
Debtors will continue to manage their properties and operate their businesses as
"debtors-in-possession" in accordance with the applicable provisions of the
United States Bankruptcy Code. Although no assurances can be provided, the
Company does not believe that Owens Corning's bankruptcy will have a material
adverse effect on BGF's business, financial condition or results of operations.
-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 "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 and
for 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:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months
September 30, Ended September 30,
-------------------------- ----------------------
2000 1999 2000 1999
------------------- ----------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 81.2 % 83.3 % 82.4 % 84.5 %
------- ------- ------- -------
Gross profit 18.8 % 16.7 % 17.6 % 15.5 %
Selling, general and administrative expenses 4.0 % 4.5 % 4.4 % 4.1 %
Restructuring charge 0.0 % 0.0 % 0.0 % 0.6 %
------- ------- ------- -------
Operating income 14.8 % 12.2 % 13.2 % 10.8 %
Interest expense 7.3 % 8.2 % 7.4 % 8.6 %
Other income, net (0.3)% (0.3)% (0.3)% (0.4)%
------- ------- ------- -------
Income before income taxes and
extraordinary loss 7.8 % 4.3 % 6.1 % 2.6 %
Income tax expense 3.0 % 1.7 % 2.3 % 1.0 %
------- ------- ------- -------
Income before extraordinary loss 4.8 % 2.6 % 3.8 % 1.6 %
Extraordinary loss on write-off of debt issuance
costs, net of income taxes of $639 0.0 % 0.0 % 0.0% (0.8)%
------- ------- ------- -------
Net income 4.8 % 2.6 % 3.8 % 0.8 %
======= ======= ======= =======
</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 Nine Months
Ended September 30, Ended September 30,
------------------------------ ---------------------------
2000 1999 2000 1999
------------------------------ ---------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ 2,401 $ 1,161 $ 5,314 $ 1,060
Depreciation and amortization 2,104 2,049 6,378 6,140
Interest 3,670 3,614 10,676 11,443
Taxes 1,504 745 3,315 1,330
Extraordinary loss - - - 1,029
----------- ----------- ----------- --------
EBITDA $ 9,679 $ 7,569 $25,683 $21,002
========== ========== ========== ========
</TABLE>
EBITDA for the quarter ended September 30, 2000 increased $2.1 million,
or 27.6 % to $9.7 million from $7.6 million for the quarter ended September 30,
1999, and for the nine months ended September 30, 2000 increased by $4.7
million, or 22.4%, to $25.7 million from $21.0 million for the nine months ended
September 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 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
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<PAGE>
fashion. As a result, EBITDA as presented above may not necessarily be
comparable to similarly titled measures of other companies.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Net Sales. Net sales increased $6.4 million, or 14.5%, to $50.4 million
in the three months ended September 30, 2000, from $44.0 million in the three
months ended September 30, 1999, primarily due to an increase of $4.8 million,
or 22.6%, in sales of electronic fabrics used in multi-layer and rigid printed
circuit boards and an increase of $2.2 million, or 22.1%, in the sales of
composites due to an increase in demand for aerospace products.
Gross Profit Margins. Gross profit margins increased to 18.8% in the
three months ended September 30, 2000, from 16.7% in the three months ended
September 30, 1999 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 decreased to 4.0% of net sales in the three months ended
September 30, 2000 from 4.5% of net sales in the three months ended September
30, 1999. This was primarily due to higher sales dollars for the three month
period combined with a decrease in non-recurring consulting and professional
fees.
Operating Income. As a result of the aforementioned factors, operating
income increased $2.0 million to $7.4 million, or 14.7% of net sales, in the
three months ended September 30, 2000, from $5.4 million, or 12.2% of net sales,
in the three months ended September 30, 1999.
Interest Expense. Interest expense remained relatively flat in the
three months ended September 30, 2000 compared to the three months ended
September 30, 1999. In the three months ended September 30, 1999, we terminated
the portion of the interest rate swap agreement related to the principal pay
down of the term loan and the resulting gain offset interest expense. In
addition, interest rates on borrowings of the revolving credit facility
increased during the three month period ended September 30, 2000.
Income Tax Expense. The effective tax rate in the three months ended
September 30, 2000 and 1999 of 38.5% and 39.1% 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 $1.2 million to $2.4 million in the three months ended September 30,
2000, from $1.2 million in the three months ended September 30, 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net Sales. Net sales increased $10.2 million, or 7.7%, to $143.5
million in the nine months ended September 30, 2000, from $133.3 million in the
nine months ended September 30, 1999, primarily due to an increase of $9.1
million, or 14.5%, in the sales of electronic fabrics used in multi-layer and
rigid printed circuit boards and an increase of $1.8 million, or 5.4%, in the
sales of composites, due to an increase in demand for aerospace products.
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<PAGE>
Gross Profit Margins. Gross profit margins increased from 15.5% in the
nine months ended September 30, 1999 to 17.6% in the nine months ended September
30, 2000, due primarily to higher volumes resulting in more absorption of fixed
costs as well as price increases in the specialty and electronics markets in
August 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 4.4% from 4.1% of net sales in the nine
months ended September 30, 2000 and 1999, respectively. This was primarily due
to an increase in sales commissions and non-recurring consulting and
professional fees.
Restructuring Charge. BGF incurred charges of $0.8 million in the nine
months ended September 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 $4.5 million to $18.9 million, or 13.2% of net sales, in the
nine months ended September 30, 2000, from $14.4 million, or 10.8% of net sales,
in the nine months ended September 30, 1999.
Interest Expense. Interest expense decreased $0.7 million, or 6.1%, to
$10.7 million in the nine months ended September 30, 2000, from $11.4 million in
the nine months ended September 30, 1999, due to the payments on the senior
credit facility.
Income Tax Expense. The effective tax rate in the nine months ended
September 30, 2000 and 1999 of 38.4% 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 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 $4.2 million to $5.3 million in
the nine months ended September 30, 2000, from $1.1 million in the nine months
ended September 30, 1999.
Liquidity and Capital Resources
Historically, our primary sources of liquidity are cash flows from
operations and borrowings under our credit facilities. Our future need for
liquidity will arise primarily from interest payments 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. There are
no mandatory principal payments on our notes scheduled prior to their maturity.
At September 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). We
had $55.0 million available under our revolving credit facility.
Net Cash Provided by Operating Activities. Net cash provided by
operating activities was $10.0 million for the nine months ended September 30,
2000 and was primarily the result of non-cash adjustments to net income for
depreciation of $6.2 million, deferred income taxes of
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<PAGE>
($3.8) million, an increase in accounts receivable of $8.6 million and an
increase in accounts payable and accrued expenses of $8.0 million.
Net Cash Used in Investing Activities. Net cash used in investing
activities was $4.0 million for the nine months ended September 30, 2000 and was
primarily the result of purchases of property, plant and equipment.
We have historically financed our capital expenditures through cash
flow from operations and borrowings under our credit facilities. We anticipate
total capital expenditures in 2000 to be approximately $7.0 million.
Net Cash Used in Financing Activities. Net cash used in financing
activities was $5.9 million for the nine months ended September 30, 2000 and was
primarily the result of an increase in the book overdraft of $4.1 million and
net payments on the revolving credit facility of $10.0 million.
Our ability to make scheduled payments of principal or to pay the
interest or liquidated damages, if any, 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.
Recent Developments
On October 5, 2000, Owens Corning, which owns a 49% economic interest in
Advanced Glassfiber Yarns LLC (a major supplier of glass yarns to BGF), and
certain of Owens Corning's United States subsidiaries (collectively, the
"Debtors") filed voluntary petitions with the United States Bankruptcy Court for
the District of Delaware seeking relief under Chapter 11 of the United States
Bankruptcy Code. According to filings made by Owens Corning with the SEC, the
Debtors will continue to manage their properties and operate their businesses as
"debtors-in-possession" in accordance with the applicable provisions of the
United States Bankruptcy Code. Although no assurances can be provided, we do
not believe that Owens Corning's bankruptcy will have a material adverse effect
on our business, financial condition or results of operations. However, this
forward-looking statement is subject to risks and uncertainties that exist in
our operations and our business environment. See "--Disclosure Regarding
Forward-Looking Statements."
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.
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<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 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:
o the impact of Owens Corning's unpredictable bankruptcy proceeding on
the ongoing operations of Advanced Glassfiber Yarns which could
result in the risk that obtaining raw materials from sources other
than Advanced Glassfiber Yarns would be more costly;
o our significant level of indebtedness and limitations on our ability
to incur additional debt;
o our dependence upon some of our suppliers to provide us with
materials and services;
o a downturn in the electronics industry and the movement of
electronics industry production outside of North America;
o our concentrated customer base and the competitive nature of our
markets;
o a disruption of production at one of our facilities;
o an easing of import restrictions and duties with respect to glass
fiber fabrics;
o our ability to comply with environmental and safety and health laws
and requirements;
o our ability to address technological advances in the markets we
serve; and
o 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.
-13-
<PAGE>
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 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 September 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
September 30, 2000, we would have received approximately $0.9 million to
terminate the agreement. A 1% decrease in LIBOR would decrease the amount
received by approximately $30,000. 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: November 10, 2000
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule
