UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File No. 0-5200
BONTEX, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0571303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-1500
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 540-261-2181
Indicate by checkmark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES ( X ) NO ( )
Indicate the description and number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Class Outstanding at November 10, 2000
Common Stock - $.10 par value 1,572,824
<PAGE>
BONTEX, INC.
FORM 10-Q
FOR THE FIRST QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1.Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2000 and June 30, 2000.................................3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE
INCOME (LOSS) AND CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
First Quarter Ended September 30, 2000 and 1999.......................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
First Quarter Ended September 30, 2000 and 1999.......................5
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....6, 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................8-10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................10, 11
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K..............................12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BONTEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
September 30, June 30,
(unaudited)
2000 2000
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 304 $ 457
Trade accounts receivable, less allowance for doubtful
accounts of $177 ($170 at June '00) 10,534 12,187
Other receivables 395 378
Inventories 5,751 5,465
Deferred income taxes 136 135
Income taxes refundable 45 49
Other current assets 321 120
------------- -------------
TOTAL CURRENT ASSETS 17,486 18,791
------------- -------------
Property, plant and equipment:
Land and land improvements 280 350
Buildings and building improvements 5,270 5,525
Machinery, furniture and equipment 17,389 17,797
Construction in progress 603 526
------------- -------------
23,542 24,198
Less accumulated depreciation and amortization 13,388 13,491
------------- -------------
Net property, plant and equipment 10,154 10,707
Property held for sale 60 -
Deferred income taxes 900 736
Other assets, net 599 651
------------- -------------
TOTAL ASSETS $ 29,199 $ 30,885
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Short-term borrowings $ 8,490 $ 8,251
Long-term debt due currently 596 626
Accounts payable 6,780 7,756
Accrued expenses 1,924 1,902
Income taxes payable 554 594
------------- -------------
TOTAL CURRENT LIABILITIES 18,344 19,129
Long-term debt, less current portion 2,071 2,327
Deferred income taxes 38 42
Other long-term liabilities 438 439
------------- -------------
TOTAL LIABILITIES 20,891 21,937
------------- -------------
Stockholders' equity:
Preferred stock of no par value. Authorized 10,000,000
shares; none issued - -
Common stock of $.10 par value. Authorized 10,000,000
shares; issued and outstanding 1,572,824 shares 157 157
Additional capital 1,551 1,551
Retained earnings 7,171 7,461
Accumulated other comprehensive income (loss) (571) (221)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 8,308 8,948
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 29,199 $ 30,885
============= =============
See accompanying condensed notes to unaudited condensed consolidated financial
statements.
</TABLE>
3
<PAGE>
BONTEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
AND CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
First Quarter Ended
September 30,
2000 1999
<S> <C> <C>
Net Sales $ 9,128 $ 8,059
Cost of Sales 6,993 6,138
--------- ---------
Gross Profit 2,135 1,921
Selling, General and Administrative Expenses 2,393 2,412
--------- ---------
Operating Loss (258) (491)
--------- ---------
Other (Income) Expense:
Interest expense 217 200
Foreign currency exchange gain (30) (15)
Other, net 2 7
--------- ---------
Total Other (Income)Expense 189 192
--------- ---------
Loss Before Income Taxes (447) (683)
Income Tax Benefit (157) (144)
--------- ---------
Net Loss (290) (539)
--------- ---------
Other Comprehensive Income (Loss)
Foreign currency translation adjustment (350) 136
--------- ---------
Comprehensive Loss $ (640) $ (403)
========= =========
Net loss per share $ (.18) $ (.34)
========= =========
Condensed Consolidated Statements of Changes in Stockholders' Equity:
Stockholders' Equity, beginning balance $ 8,948 $ 9,893
Net loss (290) (539)
Other comprehensive income (loss)
Foreign currency translation adjustment (350) 136
--------- ---------
Stockholders' Equity, ending balance $ 8,308 $ 9,490
========= =========
See accompanying condensed notes to unaudited condensed consolidated financial
statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
First Quarter Ended
September
2000 1999
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 11,269 $ 9,765
Cash paid to suppliers and employees (11,605) (8,850)
Interest received 1 1
Interest paid (250) (193)
Income taxes paid, net of refunds (2) 2
--------- --------
Net cash provided by (used in) operating activities (587) 725
--------- --------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (267) (182)
--------- --------
Net cash used in investing activities (267) (182)
--------- --------
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net 883 (479)
Long-term debt incurred 0 19
Principal payments on long-term debt (185) (186)
--------- --------
Net cash provided by (used in) financing activities 698 (646)
--------- --------
Effect of Exchange Rate Changes on Cash 3 (9)
--------- --------
Net decrease in Cash and Cash Equivalents (153) (112)
Cash and Cash Equivalents at Beginning of Period 457 336
--------- --------
Cash and Cash Equivalents at End of Period $ 304 $ 224
========= ========
Reconciliation of Net Income (Loss) to Net Cash Provided by
(Used In) Operating Activities:
Net income (loss) $ (290) $ (539)
Adjustments to reconcile net income (loss) to net cash provided by
(Used In) Operating activities:
Depreciation and amortization 361 328
Provision for bad debts 41 56
Deferred income taxes (168) (144)
Change in assets and liabilities:
Decrease in trade accounts and other receivables 819 1,974
Increase in inventories (631) (491)
Increase in other assets (215) (233)
Decrease in accounts payable and accrued expenses (593) (256)
Increase in income taxes 2 2
Increase in other liabilities 87 28
--------- --------
Net cash provided by (used in) operating activities $ (587) $ 725
========= ========
See accompanying condensed notes to unaudited condensed consolidated financial
statements.
</TABLE>
5
<PAGE>
BONTEX, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999 AND JUNE 30, 2000
(Unaudited)
(Dollars in Thousands)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared by Bontex, Inc. and its subsidiaries ("Bontex" or the
"Company") in accordance with generally accepted accounting principles in
the United States of America for interim financial reporting information
and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles in the United States of America
for complete financial statements. In the opinion of management, all
material reclassifications and adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the results of
operations, financial position and cash flows for each period shown, have
been included. Operating results for interim periods are not necessarily
indicative of the results for the full year. The unaudited condensed
consolidated financial statements and condensed notes are presented as
permitted by Form 10-Q and do not contain certain information included in
the Company's annual consolidated financial statements and notes. For
further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended June 30, 2000.
2. The last in, first out (LIFO) method of inventory pricing is used by the
Company in the United States. Inventories of the European subsidiaries are
valued at the lower of cost or market using the first-in, first-out (FIFO)
and weighted average bases. Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
<S> <C> <C>
Finished goods $ 3,875 $ 3,846
Raw Materials 1,565 1,222
Supplies 625 708
------------------ -------------------
Inventories at FIFO and weighted average cost 6,065 5,779
------------------ -------------------
LIFO reserves 314 314
------------------ -------------------
$ 5,751 $ 5,465
================== ===================
</TABLE>
3. Business segment information related to the North American and European
operations follows:
<TABLE>
<CAPTION>
North American European
Operations Operations Eliminations Consolidated
<S> <C> <C>
First Quarter Ended September 30, 2000
Net Sales $ 4,081 $ 5,126 $ (79) $ 9,128
Net Loss (281) (9) - (290)
First Quarter Ended September 30, 2000
Net Sales $ 3,703 $ 4,450 $ (94) $ 8,059
Net Loss (281) (261) 3 (539)
</TABLE>
6
<PAGE>
BONTEX, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999 AND JUNE 30, 2000
(Unaudited)
4. Net loss per share has been computed on the basis of the weighted average
number of common shares outstanding during each period(1,572,824 shares).
Diluted earnings per share is not presented because the effect of stock
options is anti-dilutive.
5. During fiscal year 2000, the Ministere Des Finances, the Belgian tax
authority, completed an examination of Bontex S.A.'s, the Company's Belgian
subsidiary, tax returns for 1997, 1998 and 1999 and extended the tax
examination to 1995 and 1996 based on certain items. Bontex S.A. has
received notices of proposed tax adjustments to these tax returns. The
proposed tax adjustments arise from items which are considered disallowed
expenses by tax authorities, including commissions paid to certain
distributors and clients, certain travel expenses and various smaller items
including allowances for doubtful receivables and certain insurance
premiums. The proposed tax adjustments by the Belgian authorities
approximate $820,000. The Company believes, based in part on written
opinion of external counsel, it has meritorious legal defenses to many of
the claims and the Company intends to defend such claims. The Company's
best estimate of the most likely amount payable for the foregoing tax
matters is $239,000, and accordingly, a provision for this amount was
accrued at June 30, 2000.
7
<PAGE>
BONTEX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2000
(Unaudited)
Except for historical data set forth herein, the following discussion contains
forward-looking statements within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements include, for example,
statements about future results of operations or market conditions and involve
risks, uncertainties and assumptions. Actual results may differ materially from
these forward-looking statements. Factors that could cause or contribute to
those differences include, but are not limited to, excessive worldwide footwear
inventories, a shrinking U. S. domestic market for Bontex products, decreased
sales to key customers, increased foreign competition, the substitution by key
customers of lower-margin products for higher-margin products, increased
competition from non-woven materials, the reduction of prices by competitors,
the increase in the relative prices of Bontex's products due to foreign currency
devaluations, increased pulp and latex prices, capital illiquidity, unexpected
foreign tax liabilities, and decreases in the Company's borrowing base.
RESULTS OF OPERATIONS
The results of operations for the first quarter of fiscal year 2001 reflect an
improvement in operating results over the prior year's first quarter. During the
first quarter, the Company generated a consolidated operating loss of $258,000,
and a net loss of $290,000 or $0.18 per share as compared to the prior year's
first quarter operating loss of $491,000, and net loss of $539,000 or $0.34 per
share. Consolidated net sales increased $1.1 million or 13.3 percent to $9.1
million for the first quarter ended September 30, 2000. The Company's improved
sales are a result of the Company's efforts to promote additional elastomeric
cellulose insole footwear products and an overall improvement in market
conditions particularly in Asia. Additionally, the Company has also improved its
sales of existing composite insole products. If foreign currency exchange rates
had remained unchanged, however, net sales would have been $808,000 higher.
Seasonality generally exists in that the first half of each fiscal year is
typically lower in volume than the second half, which is largely due to
customer's scheduled vacations, shutdowns, holidays and purchasing cycles. Over
the past sixteen years, the Company has generated net income during the first
quarter only six times, the most recent being in fiscal year 1997.
Gross profit as a percentage of net sales (i.e., Gross Margin) for the first
quarter of fiscal year 2001 decreased slightly compared to the same period last
year from 23.8 to 23.4 percent. This decrease in profit margins is primarily
attributable to competitive pricing pressures, and higher raw material costs,
which resulted in a negative impact on net sales and profit margins that was
partially offset by the overall increase in sales volume.
The market price of pulp has increased over the past twelve months and it is
expected to continue to increase during fiscal year 2001. The Company has
delayed the impact of certain of the pulp cost increases through agreements with
suppliers for purchasing pulp at fixed prices for fiscal year 2001.
Additionally, management has announced a price increases for our finished
products that is expected to be fully implemented during calendar year 2001. It
is difficult to predict future raw material costs and future selling prices, and
there can be no assurance that raw material prices will not have an adverse
impact on the Company's operations or competitive position.
Compared to the same period last year, Selling General & Administrative (SG&A)
expenses remained approximately the same and decreased as a percent of net sales
from 29.9 percent to 26.2 percent. The decrease in SG&A percentage is mainly due
to sales increasing at a higher rate than costs, reflecting the benefit from our
marketing efforts and cost control measures.
Interest expense increased $17,000 for the quarter ended September 30, 2000, as
compared to the same period last year due to increased short-term borrowings.
The increase in short-term borrowings reflects the financing of higher
inventories and the decrease in payables.
8
<PAGE>
Other comprehensive loss, which consists of foreign currency translation
adjustment, totaled $350,000 for the quarter ended September 30, 2000, and is
primarily the result of the strengthening of the US Dollar versus the Euro since
June 30, 2000.
FINANCIAL CONDITION
Consolidated stockholders' equity decreased $640,000 from June 30, 2000, and
totaled $8.3 million at the end of September 2000. Financial ratios at September
30, 2000 generally decreased from June 30, 2000 because of the negative
operating results. The fluctuation in foreign currency exchange rates resulted
in a translation decrease of $3.0 million in consolidated total assets as
compared to June 30, 2000.
Trade accounts receivable decreased by $1.6 million to $10.5 million, primarily
because of the seasonal decrease in consolidated net sales from the fourth
quarter of the prior fiscal year 2000 compared to the first quarter of fiscal
year 2001. This compares favorably to the prior year decrease in trade
receivables from June 30, 1999 to Sept. 30, 1999 of $2.0 million.
The $286,000 increase in inventories to $5.8 million mainly corresponds to raw
material increases from year-end lows made in order to support higher sales
volumes.
Other current assets increased $201,000 to $321,000 from June 30, 2000,
primarily due to prepaid insurance for fiscal year 2001. The level of other
current assets is comparable with last year's September 30, 1999 balance of
$388,000.
The $553,000 decrease in net property, plant and equipment is due to the
re-classification of property held for sale, depreciation for the three-month
period and the translation decrease adjustment at the Company's European
operations due to currency exchange rate changes. On September 29, 2000, the
Company entered into a contract for the sale of its warehouse facility in
Newark, New Jersey, with the New Jersey Institute of Technology. The contract
for sale is to close on or before December 15, 2000, after the parties meet
certain conditions. The contractual purchase price for the warehouse facility is
$863,000 and the net book value of the property is $60,000. Accordingly, when
the sale closes the Company expects to recognize a net gain after taxes of
approximately $500,000. The proceeds from the sale may be used to reduce
long-term debt. The Newark warehouse facility is classified as property held for
sale on the balance sheet at September 30, 2000.
During fiscal year 2000, the Belgian tax authority completed an examination of
the tax returns for Bontex S.A., the Company's Belgian subsidiary, for 1997,
1998 and 1999 and extended the tax examination to 1995 and 1996 based on certain
items. At September 30, 2000, the examination file had not yet been closed, and
the Company's best estimate of the most likely amount payable for the foregoing
tax matters is $239,000, and, accordingly, a provision for this amount had been
accrued at June 30, 2000. The Company's actual liability pursuant to the
foregoing examination may exceed $239,000 and such excess liability could
adversely affect the Company's financial condition. For further information
concerning this tax examination, refer to Management's Discussion and Analysis
included in the Company's Annual Report on Form 10-K for the year ended June 30,
2000.
Accounts payable, accrued expenses and short-term borrowings decreased $715,000,
which primarily corresponds to decreased trade account receivables. Subject to
the discussion in the foregoing paragraph, and assuming receipt of the waiver by
the lender referenced below, management believes that existing credit facilities
will be sufficient to meet future operating and capital requirements.
During the first quarter of fiscal 2001, Bontex USA was not in compliance with a
loan covenant of its secured debt agreement, under which certain current and
noncurrent assets are pledged as collateral. The Company has agreed with its
lender to an Amendment to Loan and Security Agreement dated November 13, 2000,
in which the lender agrees to waive the Company's past non-compliance with the
covenant and to adjust temporarily through December 30, 2000 the covenant to a
level placing Bontex USA within compliance. As previously discussed, if the
Company completes the sale of the Newark warehouse during the second quarter,
Bontex will recognize a gain that should enable the Company to comply with the
original level of the covenant on December 31, 2000. If Bontex does not
9
<PAGE>
complete its sale or otherwise cannot maintain compliance with the debt
covenants, Bontex may have difficulty in obtaining funds to meet operating and
capital requirements, which would cause a material adverse impact on its
financial condition and results of operations.
FINANCIAL INSTRUMENTS
The Company uses various financial instruments in the normal course of business.
By their nature, all such instruments involve risk, and the Company's maximum
potential loss may exceed amounts recorded in the balance sheet. As is customary
for these types of instruments, the Company does not require collateral or other
security from other parties to these instruments. However, because the Company
manages exposure to credit risk through credit approvals, credit limits and
monitoring procedures, the Company believes that reserves for losses are
adequate.
The Company has periodically used derivative instruments for the purpose of
hedging commodity and interest rate exposures. As a policy, the Company does not
engage in speculative transactions, nor does the Company hold or issue financial
instruments for trading purposes.
REFOCUSING
Bontex has recently developed several new innovative products for footwear. As
part of this program, the Company also concluded a marketing agreement with a
stitch-bonded non-woven manufacturer. The Company has a strategy to locate new
technologies and bring them to the marketplace, but it is not possible to
predict with a high level of assurance their level of sales potential or
profitability at this time. No material sales have been generated yet for these
new technologies and products.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was effective for periods
beginning after June 15, 2000. This statement requires that the Company
recognize all derivatives as either assets or liabilities in the balance sheet,
and measure those instruments at fair value. At September 30, 2000, the Company
did not have any derivative instruments or hedging. Because the Company has used
in the past and continues to consider in the future the use of derivative
instruments and hedging activities this statement could have an impact on the
Company's future financial statements..
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain risks related to interest rates, currency and
commodity positions. Market risk is defined as the risk of loss arising from
adverse changes in market rates and prices. The following disclosures provide
certain forward-looking data concerning potential exposures to market risk. When
deemed appropriate, the Company's general policy is to fix rates and prices at
levels considered favorable.
There is no expected material foreign exchange risk for the Company's debt, as
these amounts are denominated in the local operating currencies of the
respective operations.
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates.
Financial Instruments held for other than trading purposes at September 30, 2000
(dollars in thousands):
10
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
There- Fair
2001 2002 2003 2004 2005 after Total Value
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt
Fixed Rate $ 320 $ 425 $ 425 $ 424 $ 206 - $ 1,800 $ 1,686
Average interest rate 4.97% 4.97% 4.97% 4.97% 5.27% - 5.02%
Variable Rate $ 150 $ 200 $ 200 $ 200 $ 117 - $ 867 $ 867
Average Interest Rate 10.5% 10.5% 10.5% 10.5% 10.5% - 10.5%
</TABLE>
Approximately $9.4 million of variable rate debt is not covered by interest rate
swaps and is subject to the risk of interest rate changes. The market risk
sensitivity analysis above does not fully reflect the potential net market risk
exposure, because other market risk exposures may exist in other transactions.
11
<PAGE>
PART II. OTHER INFORMATION
BONTEX, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10 - Amendment to Loan and Security Agreement between Congress
Financial Corporation and Bontex, Inc. dated November 13,
2000.
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
12
<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.
BONTEX, INC.
(Registrant)
November 14, 2000 /s/James C. Kostelni
------------------- ----------------------------
(Date) James C. Kostelni
Chairman of the Board and President
November 14, 2000 /s/Charles W. J. Kostelni
------------------- ----------------------------
(Date) Charles W. J. Kostelni
Corporate Controller and Secretary
13
<PAGE>
EXHIBIT INDEX
10 Amendment to Loan and Security Agreement between Congress
Financial Corporation and Bontex, Inc. dated November 13,
2000.
27 Financial Data Schedule
14
