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 March 31, 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 May 8, 2000
Common Stock - $.10 par value 1,572,824
<PAGE>
BONTEX, INC.
FORM 10-Q
NINE MONTHS ENDED MARCH 31, 2000
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1.Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2000 and June 30, 1999......................................3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE
INCOME (LOSS) AND CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Nine Months and Three Months Ended March 31, 2000 and 1999...........4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2000 and 1999.............................5
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................7-9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................10
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BONTEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
March 31, June 30,
2000 1999
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 230 $ 336
Trade accounts receivable, less allowance for doubtful
accounts of $207 ($128 at June '99) 10,972 11,765
Other receivables 379 278
Inventories 5,180 5,798
Deferred income taxes 117 124
Income taxes refundable 46 67
Other current assets 265 152
------------ ----------
TOTAL CURRENT ASSETS 17,189 18,520
------------ ----------
Property, plant and equipment:
Land and land improvements 350 361
Buildings and building improvements 5,744 5,953
Machinery, furniture and equipment 17,483 17,8853
Construction in progress 644 239
------------ ----------
24,221 24,438
Less accumulated depreciation and amortization 13,469 12,915
------------ ----------
Net property, plant and equipment 10,752 11,523
Deferred income taxes 800 599
Other assets, net 653 522
------------ ----------
TOTAL ASSETS $ 29,394 $ 31,164
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,220 $ 9,215
Long-term debt due currently 626 781
Accounts payable 6,612 6,375
Accrued expenses 1,612 1,590
Income taxes payable 250 197
------------ ----------
TOTAL CURRENT LIABILITIES 17,320 18,158
Long-term debt, less current portion 2,483 2,601
Deferred income taxes 44 48
Other long-term liabilities 593 464
------------ ----------
TOTAL LIABILITIES 20,440 21,271
------------ ----------
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 7,489 8,120
Accumulated other comprehensive income (loss) (243) 65
------------ ----------
TOTAL STOCKHOLDERS' EQUITY 8,954 9,893
------------ ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 29,394 $ 31,164
============ ==========
See accompanying condensed notes to unaudited condensed consolidated financial
statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
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)
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):
Nine Months Ended Three Months Ended
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Sales $ 28,479 $ 28,983 $ 10,466 $ 10,599
Cost of Sales 20,921 21,922 7,506 7,748
-------- ------- -------- --------
Gross Profit 7,558 7,061 2,960 2,851
Selling, General and Administrative Expenses 7,676 7,601 2,636 2,704
-------- ------- -------- --------
Operating Income (Loss) (118) (540) 324 147
-------- ------- -------- --------
Other (Income) Expense:
Interest expense 594 696 206 220
Interest income - (2) - -
Foreign currency exchange (gain) loss (33) 24 (12) (13)
Other, net 64 (18) 23 25
-------- ------- -------- --------
Total Other Expense, Net 625 700 217 232
-------- ------- -------- --------
Income (Loss) Before Income Taxes (743) (1,240) 107 (85)
Income Tax Expense (Benefit) (112) (388) 88 (108)
-------- ------- -------- --------
Net income (loss) (631) (852) 19 23
Other Comprehensive Loss
Foreign currency translation adjustment (308) (40) (198) (367)
-------- ------- -------- --------
Comprehensive Loss $ (939) $ (892) $ (179) $ (344)
======== ======= ======== ========
Net income (loss) per share $ (.40) $ (.54) $ .01 $ .01
======== ======= ======== ========
Condensed Consolidated Statements of Changes in Stockholders' Equity:
Stockholders' Equity beginning balance $ 9,893 $ 10,891 $ 9,133 $ 10,343
Net income (loss) (631) (852) 19 23
Other comprehensive loss
Foreign currency translation adjustment (308) (40) (198) (367)
-------- ------- -------- --------
Stockholders' Equity, ending balance $ 8,954 $ 9,999 $ 8,954 $ 9,999
======== ======= ======== ========
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)
Nine Months Ended
March 31,
2000 1999
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 28,499 $ 31,500
Cash paid to suppliers and employees (26,844) (31,968)
Interest received 4 10
Interest paid (583) (751)
Income taxes paid, net of refunds (3) 15
-------- --------
Net cash provided by (used in) operating activities 1,073 (1,194)
-------- --------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (599) (845)
Net cash used in investing activities (599) (845)
-------- --------
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net (520) 1,851
Long-term debt incurred 547 564
Principal payments on long-term debt (600) (479)
Net cash provided by (used in) financing activities (573) 1,936
-------- --------
Effect of Exchange Rate Changes on Cash (7) (65)
-------- --------
Net Decrease in Cash and Cash Equivalents (106) (168)
Cash and Cash Equivalents at Beginning of Period 336 517
-------- --------
Cash and Cash Equivalents at End of Period $ 230 $ 349
======== ========
Reconciliation of Net Loss to Net Cash Provided by (Used in)
Operating Activities:
Net loss $ (631) $ (852)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,002 1,026
Provision for bad debts 135 144
Deferred income taxes (201) (346)
Change in assets and liabilities:
Increase in trade accounts and other receivables (199) (135)
(Increase) decrease in inventories 429 (661)
(Increase) decrease in other assets (265) 55
Increase (decrease) in accounts payable and accrued expenses 612 (430)
Increase (decrease) in income taxes 82 (79)
Increase in other liabilities 109 84
-------- --------
Net cash provided by (used in) operating activities $ 1,073 $ (1,194)
======== ========
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
MARCH 31, 2000 AND JUNE 30, 1999
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared by Bontex, Inc. and its subsidiaries ("Bontex" or the
"Company") in accordance with generally accepted accounting principles for
interim financial reporting information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all material reclassifications and adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of the
results of operations, financial position and cash flows for each period
shown, have been included. Operating results for interim periods are not
necessarily indicative of the results for the full year. The unaudited
condensed consolidated financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain information
included in the Company's annual consolidated financial statements and
notes. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended June 30, 1999.
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>
March 31, June 30,
2000 1999
(Dollars in Thousands)
<S> <C> <C>
Finished goods $ 3,164 $ 3,341
Raw Materials 1,706 2,025
Supplies 711 774
------------- -------------
Inventories at FIFO and weighted average cost 5,581 6,140
LIFO reserves (401) (342)
------------- -------------
$ 5,180 $ 5,798
============= =============
</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>
Nine Months Ended March 31, 2000
Net Sales $ 12,210 $ 16,503 $ (234) $ 28,479
Net Loss (442) (189) - (631)
Nine Months Ended March 31, 1999
Net Sales $ 11,471 $ 17,531 $ (19) $ 28,983
Net Loss (781) (71) - (852)
</TABLE>
4. Net income per share calculations are based on the weighted average number
of shares outstanding of 1,572,824 shares for all periods.
6
<PAGE>
BONTEX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED MARCH 31, 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
certain 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 domestic market for Bontex products,
decreased sales to key customers, 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 liquidity, and decreases in the Company's borrowing
base.
RESULTS OF OPERATIONS
The results of operations for the first nine months of fiscal 2000 reflect a
decrease in losses. During the first nine months of fiscal 2000, the Company
generated a consolidated operating loss of $118,000, and a net loss of $631,000
or $0.40 per share as compared to a consolidated operating loss of $540,000, and
a net loss of $852,000 or $0.54 per share for the corresponding prior year
period. Consolidated net sales decreased $504,000 or 1.7 percent to $28.5
million for the nine months ended March 31, 2000.
During the third quarter, consolidated net sales decreased $133,000 or 1.3
percent to $10.5 million. There are several reasons contributing to the decrease
in sales, including lower average selling prices due to competitive pricing
pressures and translation decrease in sales due to the decrease in the Euro
foreign currency exchange rate relative to the US dollar. Actual sales volume in
tons has increased relative to the prior year, but these increases have been
offset significantly by the trend of increased usage of other materials, such as
non-wovens and plastics, that have replaced Bontex cellulose materials in some
applications. Furthermore, our primary global competitor has reduced prices in
several key markets in an attempt to increase its sales, which has resulted in
Bontex reducing prices to maintain market share.
During the three months ended March 31, 2000, consolidated operating profits
were $324,000, an improvement of $177,000 compared to the same period last year.
Consolidated net income during the third quarter was $19,000 or $0.01 per share,
as compared to $23,000 or $0.01 per share during the third quarter last year.
Consolidated net income for the third quarter ended March 31, 2000, reflects
income tax expense of $88,000 as compared to an income tax benefit of $108,000
for last year's third quarter. The improved operating results reflect overhead
and cost control measures.
Gross profit as a percentage of net sales (i.e., Gross Margin) for the first
nine months of fiscal 2000 increased from 24.4 to 26.5 percent compared to the
same period last year. This increase in profit margin is primarily attributed to
overhead and production cost control measures.
The market price of pulp has increased over the past nine months and it is
expected to continue to increase during the remainder of fiscal year 2000. The
Company has delayed the impact of certain of the pulp cost increases through
agreements with suppliers for purchasing pulp at fixed prices for the remainder
of fiscal year 2000. Additionally, management has announced a price increase for
our finished products effective during the remainder of the calendar year 2000.
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 in the future.
7
<PAGE>
For the nine months ended March 31, 2000, Selling, General & Administrative
(SG&A) expenses as a percent of net sales increased slightly from 26.2 percent
to 27.0 percent, as compared to the corresponding prior year period. The
increased SG&A percentage is mainly due to the decrease in sales, as SG&A
expenses increased less than 1 percent compared to the corresponding prior year
period.
Interest expense has decreased $102,000 for the nine months ended March 31,
2000, as compared to the same period last year due to reduced short and
long-term borrowing, particularly at European operations.
Other comprehensive loss, foreign currency translation adjustment, which totaled
$308,000 for the nine months ended March 31, 2000, is primarily the result of
the weakening of the Euro verses the US Dollar.
FINANCIAL CONDITION
Consolidated stockholders' equity decreased $939,000 from June 30, 1999, and
totaled almost $9 million at the end of March 2000. Financial ratios at March
31, 2000, generally decreased from June 30, 1999, because of the negative
operating results. The fluctuation in foreign currency exchange rates resulted
in a translation decrease of $4.2 million in consolidated total assets as
compared to June 30, 1999.
Trade accounts receivables decreased by $793,000 to $11 million, primarily due
to fluctuations in foreign currency exchange rates and the decrease in
consolidated net sales.
The $618,000 decrease in inventories to $5.2 million mainly corresponds to a
decrease in both finished goods and raw materials, and also reflects a
translation decrease resulting from fluctuations in foreign currency exchange
rates.
Other current assets increased $113,000 to $265,000 from June 30, 1999,
primarily due to normal unamortized prepaid expenses for fiscal year 2000.
Other noncurrent assets increased $131,000 primarily due to legal and
professional costs incurred as a result of the Company's refinancing agreement
for Bontex USA, which will be amortized over the term of the agreement.
Accounts payable, accrued expenses and short-term borrowings decreased $736,000,
which corresponds to a decrease in trade accounts receivables, lower inventories
and fluctuations in foreign currency exchange rates.
During the third quarter of fiscal 2000, Bontex USA negotiated a refinancing
agreement with a new lender. The new agreement, which was effective January 26,
2000, provides the Company with a $1.0 million long-term loan and a line of
credit of up to $4.0 million, based on the value of certain assets. As of March
31, 2000, the Company is in compliance with all loan covenants for the new
financing agreement.
FINANCIAL INSTRUMENTS
From time to time, the Company utilizes derivatives and other financial
instruments in the normal course of business. By their nature, all such
instruments involve risk, and the Company's maximum potential loss may exceed
amounts recorded in the balance sheet.
The Company is exposed to a variety of market risks, including the effects of
changes in foreign currency exchange rates, interest rates and commodity prices.
In the past, the Company has primarily used such derivative financial
instruments for the purpose of hedging only currency and interest rates
exposures. For further information concerning the aforementioned financial
instruments, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended June 30,
1999.
8
<PAGE>
REFOCUSING
Bontex has recently developed several new innovative products for footwear and
non-footwear markets that it believes, based on early marketing efforts, have
promising sales potential. The Company has also concluded new marketing
agreements for stitch-bonded non-wovens, open-celled polyurethane foams,
thermoplastics, and specialized molds. Each of these projects brings advanced
technology to the footwear industry and should deliver added value to Bontex
customers. Bontex management believes that the key to success in these areas
relies upon bringing added value to its customers. The Company has an aggressive
strategy to locate such technologies and bring them to the marketplace, but it
is not possible to predict their level of sales potential or profitability at
this time. No material sales have been generated yet for these new areas.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was to be effective for periods
beginning after June 15, 1999, but implementation has been delayed by the
Financial Accounting Standards Board to be 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. The Company is currently in the process of
reviewing the impacts of this Statement.
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. In
general, the Company's 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 derivative 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.
Derivative Financial Instruments held for other than trading purposes at March
31, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
Expected Maturity Date
- ----------------------
There- Estimated
2000 2001 2002 2003 2004 after Total Fair Value
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt $ 165 $ 629 $ 636 $ 636 $ 630 $ 413 $ 3,109 $ 3,109
Fixed Rate 6.40% 6.40% 5.49% 4.99% 5.00% 5.23% 5.75%
</TABLE>
9
<PAGE>
PART II. OTHER INFORMATION
BONTEX, INC.
FORM 10-Q
FOR THE NINE MONTHS ENDED MARCH 31, 2000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
10
<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)
May 12, 2000 /s/James C. Kostelni
- ------------------- ----------------------------
(Date) James C. Kostelni
Chairman of the Board and President
May 12, 2000 /s/Charles W. J. Kostelni
- ------------------- ----------------------------
(Date) Charles W. J. Kostelni
Corporate Controller and Secretary
11
<PAGE>
EXHIBIT INDEX
27 Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Bontex,
Inc.'s unaudited condensed consolidated financial statements for the nine months
ended March 31, 2000, as set forth in the Company's Quarterly Report on Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 230
<SECURITIES> 0
<RECEIVABLES> 11,179
<ALLOWANCES> 207
<INVENTORY> 5,180
<CURRENT-ASSETS> 17,189
<PP&E> 24,221
<DEPRECIATION> 13,469
<TOTAL-ASSETS> 29,394
<CURRENT-LIABILITIES> 17,320
<BONDS> 2,483
0
0
<COMMON> 157
<OTHER-SE> 8,797
<TOTAL-LIABILITY-AND-EQUITY> 29,394
<SALES> 28,479
<TOTAL-REVENUES> 28,512
<CGS> 20,921
<TOTAL-COSTS> 28,597
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 594
<INCOME-PRETAX> (743)
<INCOME-TAX> (112)
<INCOME-CONTINUING> (631)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (631)
<EPS-BASIC> (.40)
<EPS-DILUTED> (.40)
</TABLE>
