0000906504-01-500027.txt : 20011009
0000906504-01-500027.hdr.sgml : 20011009
ACCESSION NUMBER: 0000906504-01-500027
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010928
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BONTEX INC
CENTRAL INDEX KEY: 0000041052
STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670]
IRS NUMBER: 221427551
STATE OF INCORPORATION: VA
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-05200
FILM NUMBER: 1747793
BUSINESS ADDRESS:
STREET 1: ONE BONTEX DR
CITY: BUENA VISTA
STATE: VA
ZIP: 24416-0500
BUSINESS PHONE: 5402612181
MAIL ADDRESS:
STREET 1: PO BOX 751
CITY: BUENA VISTA
STATE: VA
ZIP: 24416
FORMER COMPANY:
FORMER CONFORMED NAME: GEORGIA BONDED FIBERS INC
DATE OF NAME CHANGE: 19920703
10-K405
1
btx10k.txt
FORM 10-K FOR BONTEX, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission File
ended June 30, 2001 Number 0-5200
BONTEX, INC.
Exact name of Registrant as specified in its charter
VIRGINIA 54-0571303
State of Incorporation IRS Employer No.
ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-1500
Address of principal executive offices Zip Code
Registrant's telephone number (540) 261-2181
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
$.10 par value common stock
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months with the
Commission, and (2) has been subject to the filing requirements for at least the
past 90 days: ( x ) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K (X)
Aggregated market value of the voting stock held by non-affiliates of the
Registrant: $1.3 million at August 30, 2001
On August 30, 2001, the Registrant had 1,572,824 shares of $.10 par value common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Registrant's Annual Report to Stockholders for fiscal
year ended June 30, 2001 (the "Annual Report") are incorporated by
reference into Parts I and II hereof.
(2) Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Act of 1934
(the "Proxy Statement") are incorporated by reference into Part III
hereof.
TABLE OF CONTENTS
PART I
ITEM PAGE
1. Business............................................................3
2. Properties..........................................................9
3. Legal Proceedings...................................................9
4. Submission of Matters to a Vote of Security Holders.................10
PART II
5. Market for the Registrant's Common Equity and Related Stockholder
Matters...........................................................11
6. Selected Financial Data.............................................11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................12
7A. Quantitative and Qualitative Disclosures About Market Risk..........12
8. Financial Statements and Supplementary Data.........................12
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................12
PART III
10. Directors and Executive Officers of the Registrant..................12
11. Executive Compensation..............................................13
12. Security Ownership of Certain Beneficial Owners and Management......13
13. Certain Relationships and Related Transactions......................13
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....13
2
PART I
ITEM 1. BUSINESS
On January 2, 1997, the Company completed a plan which changed, among
several items, its name to Bontex, Inc. from Georgia Bonded Fibers, Inc. For
further information, see General Business below.
The Company's consolidated financial statements and notes to the
consolidated financial statements should be read as an integral part of this
discussion. 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, without
limitation, statements about financing plans, cash flows, availability of
capital, growth opportunities, benefits from new technologies, financial
condition, capital expenditures, future results of operations or market
conditions and involve certain risks, uncertainties and assumptions. The words
"estimate," "project," "intend," "expect," "believe," and similar expressions
are intended to identify forward-looking statements. These and other
forward-looking statements are found at various places throughout this report,
and you are cautioned not to place undue reliance on these forward-looking
statements. These forward-looking statements should, therefore, be considered in
light of various relevant factors. 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 competition from non-woven materials, the
reduction of prices by competitors, the increase in the relative price of
Bontex's products due to foreign currency devaluations, increased pulp and latex
prices, capital illiquidity, unexpected foreign tax liabilities, the impact of
any unusual items resulting from ongoing evaluations of the Company's business
strategies, decreases in the Company's borrowing base, trading of Bontex common
stock at a level where closing bid prices are too low to remain listed on the
Nasdaq SmallCap Market, increased funding requirements for the Company's pension
plan, inability to recover deferred tax assets, an inability by Bontex to renew
its current credit facilities or obtain alternative financing, a market shift in
demand from higher-quality products to more economical grade products with lower
profit margins, higher energy prices, and increased costs of complying with
environmental laws, and the impact of changes in political, economic or other
factors, legal and regulatory changes or other external factors over which the
Company has no control.
GENERAL BUSINESS
Bontex, Inc. (all references hereinafter to the "Registrant," "Company"
or "Bontex" refer collectively to Bontex, Inc. and its wholly-owned and
majority-owned subsidiaries unless otherwise indicated by context) was
incorporated in June 1946 under the laws of the State of New Jersey. The Company
originally began as a leather processing operation, and today, Bontex is a
leading worldwide manufacturer and distributor of uncoated and coated
elastomeric wet web impregnated fiberboard products. The Company's products are
generally described by the trademark BONTEX, and are marketed to various
industries, including footwear, headwear, luggage, leathergoods, allied
industries, belt backing, gasketing, furniture, electronic integrated component
packaging, and automotive industries. Bontex is a market leader in many of the
areas in which the Company competes.
On January 2, 1997, the Company received the final state regulatory
approvals of its proposal, which was adopted by the Company's stockholders at
the Annual Meeting of Stockholders held on November 7, 1996, to change the state
of incorporation of the Company to Virginia and effect Amended and Restated
Articles of Incorporation. As a result of the restructuring, the Company was
reincorporated as a Virginia corporation, with its principal place of business
at One Bontex Drive, Buena Vista, Virginia 24416-1500, and the name of the
Company was changed to "Bontex, Inc." The Company's common stock is traded on
the Nasdaq SmallCap Market under the symbol "BOTX." The restructuring did not
result in any material change in the business, management, assets, liabilities,
or net worth of the Company. For further information, refer to Report on Form
8-K, Reorganization of
3
Georgia Bonded Fibers, Inc., dated January 2, 1997, and Proxy Statement for
meeting of Annual Meeting of Stockholders held on November 7, 1996.
Competitive pricing pressures have had a large negative impact on the
Company's sales and profitability as noted in Management's Discussion and
Analysis incorporated by reference in Part II, Item 7 of this report. Sales have
also been negatively affected by, among other things, the shift in domestic
footwear production primarily to Asia. Nonwoven materials, however, continue to
erode sales of cellulose based products, particularly with athletic footwear.
Bontex is placing greater emphasis on the marketing of nonwoven products, and
working to develop new domestic and export markets for impregnated cellulose
products in an effort to increase sales. Management also recognizes the need to
further diversify it's product line and Bontex has embarked on an aggressive
plan to accomplish this in the near term.
ORGANIZATION
The Company maintains corporate headquarters, manufacturing,
converting, sales office, and a warehouse facility in Buena Vista, Virginia; a
wholly-owned manufacturing subsidiary, Bontex S.A. in Stembert, Belgium; a
wholly-owned distribution and converting subsidiary, Bontex Italia S.r.l. in
Villafranca, Verona, Italy; a wholly- owned distribution subsidiary, Bontex de
Mexico, S.A. de C.V. in Leon, Mexico; Bontex Vietnam (Representative office);
and a majority owned distribution subsidiary, Bontex Hong Kong Limited in Hong
Kong. See the discussion under "Item 2. Properties" below. The Company utilizes
a wholly-owned foreign sales corporation (FSC) organized and existing under the
laws of the Virgin Islands to facilitate export sales. The U.S. government is
working with the World Trade Organization and European Community regarding the
application of foreign sales corporations, and at a later date, the Company may
have to change its tax strategies for export sales. The situation with our FSC
is not expected to have significant impact on the Company's operations.
Additionally, Bontex maintains a network of liaison offices, Bontex Korea,
Bontex Taiwan, Bontex China, Bontex Indonesia, Bontex Philippines, and Bontex
Australia to service Asian markets.
The Company currently employs 81 full-time and 2 part-time employees in
Buena Vista, Virginia; 76 full- time and 2 part-time employees in Belgium; 12
full-time and 1 part-time employee in Italy; 3 full-time and 1 part- time
employees in Mexico and 2 full-time employees in Hong Kong. Revenue per employee
was approximately $237,000 and $220,000 in fiscal years 2001 and 2000,
respectively.
There is no labor union at the United States operations, and management
knows of no union activity at the present time. There are labor unions at the
Company's European operations. Although the Company believes that relations with
its employees are positive, there can be no assurance that the Company will not
experience work stoppages in the future.
PRODUCTS
BONTEX elastomeric wet web fiberboard materials are primarily used as
an insole material in footwear, as well as visorboard in headwear, dielectric
sealing base in automotive door panels, backing substrate, stiffener and
laminating base in luggage, leathergoods, and allied products. All BONTEX
fiberboard products are designed to be "environmentally-friendly," because
Bontex uses recycled and primary cellulose fibers originally derived from trees,
a renewable resource. Bontex has the American Podiatric Medical Association
(APMA) Seal of Acceptance for BONTEX elastomeric wet web products, BONFOAM,
SUREFOAM, and MAXXON, cushion insole materials. BONFOAM, SUREFOAM, and MAXXON
trademarks are the sole property of the Registrant. The podiatric seal of
acceptance is granted after stringent clinical and laboratory tests have been
carried out on approved products which demonstrate conformity to APMA
guidelines, and assist in foot health and comfort. The APMA Seal of Acceptance
for approved BONTEX products should enhance product acceptance in the
marketplace. Bontex has the SATRA Quality mark and laboratory accreditation at
its Belgium facility.
4
Bontex USA manufactures uncoated and coated BONTEX fiberboard products;
breathable (moisture vapor transmission) cushion foams, that are marketed under
trademarks BON-FOAM, MAXXON and SURE-FOAM, and are sold in a variety of grades
for use as shock absorbing insole material; BONTEX 200 RECYCLED and BONTEX 300
RECYCLED, which are produced from 100 percent recovered paper with a minimum 80
percent "post-consumer waste" for use in footwear, visorboard in headwear, a
backing substrate, stiffener pieces and laminating base; BON-PEL, a hybrid
nonwoven substrate, which is exceptionally strong and flexible; BONTEX 48 MA, an
uncoated visorboard for use in military headwear, which has been approved by
NATICK military laboratory. Bontex USA also combines certain products, such as
foams, fabrics, and vinyls, with BONTEX fiberboard. Additionally, Bontex USA is
the exclusive distributor globally to the footwear industry of an expanded
polyurethane material manufactured by Aero E.A.R. Specialty Composites, under
the trademarks MAXXON LS and CONFOR. MAXXON LS and CONFOR have moisture vapor
transmission characteristics and are used for sock-linings and cushion insoles
in various types of footwear. CONFOR is a trademark of E.A.R. Specialty
Composites. Bontex also markets a range of nonwoven products under the name
Bon-stitch. During 1999 and 2000, Bontex introduced a broad range of footwear
materials, including Bontex 90 Insole Seatboard, economical insole products, and
Bon-Stitch linings and Bon-Stitch next generation nonwoven insoles. Sales of
these new products showed promise, and the Company plans to introduce additional
new products.
Bontex S.A., Stembert, Belgium, manufactures uncoated BONTEX products.
Bontex Italia, S.r.l. is a distribution company and operates converting
equipment primarily servicing the Italian market.
The Company's research efforts are directed primarily toward developing
new products and processing techniques, and improving product performance, often
in close association with customers. The Company customizes many composite
products with BONTEX fiberboard, foam and nonwoven products. These products have
increased sales of combination packages, primarily designed to take advantage of
the current increased emphasis on comfort in footwear products.
Bontex has completed implementation of the International Organization
for Standardization quality assurance system ISO 9001 at both the United States
and Belgium manufacturing facilities. Bontex SA was certified ISO 9001 during
1996, and Bontex USA during 1997. The impact of ISO 9001 on sales is anticipated
to be minimal; however, management regards ISO 9001 qualification as important
to maintaining a competitive edge in quality globally.
COMPETITION
The industry in which the Company operates is highly competitive.
Participants in the industry compete through quality and price, including the
ability to control costs, risk management, innovation, delivery and customer
service. Presently, it is management's opinion that the Company offers superior
product quality and customer service in major markets globally. Globally, there
is one other primary competitor, but regionally, there are more than twenty five
cellulose insole manufacturers with which Bontex competes. In the United States,
there is one other manufacturer of BONTEX type material. There are, however,
other materials which may be substituted for the same applications. The Company
estimates that during fiscal year 2001, its products were in approximately 45
percent of non-rubber footwear manufactured in the United States. This estimate
is based on Footwear Industries of America (FIA) data as to total sales.
There are manufacturers who purchase BONTEX type materials for coating,
laminating, and converting into innersoles for footwear, visors for headwear,
and dielectric sealing base in automotive door panels. There is more competition
in these segments, and no comparative market statistics are available.
In Europe, there are six major manufacturers of material similar to
BONTEX. These competitors are located in Germany, Italy, Finland, Slovenia,
and the former USSR. The Company estimates that it sells approximately 40
percent of the BONTEX type materials sold in the European Union. These estimates
are based on SATRA Common Market statistics as to total sales, and other
generally available industry information.
5
There are a number of manufacturers of elastomeric fiberboard materials
in Asia; however, there are an estimated fourteen competitors operating in the
Peoples Republic of China, which negatively impacts selling prices. There are
duties, currency, employment and environmental regulations that adversely impact
the Company's sales position. For example, many Asian suppliers do not have to
maintain as high environmental and employment regulations as Bontex in USA and
employment in Belgium.
As there are many customers globally who purchase BONTEX and convert it
into innersoles and other application components, the actual total worldwide
market penetration is difficult to estimate. However, Bontex has a strong market
position globally as supported by Bontex supplying most of the world's leading
branded footwear.
TRADEMARKS
Bontex utilizes trademarks on nearly all of its products, and believes
having such distinctive trademarks that are readily identifiable is an important
factor in creating and maintaining a market for its goods and services. This
further serves to identify the Company and distinguish its goods from goods of
others. The Company considers its BONTEX trademark and other trademarks to be
among its most valuable assets, and has registered its trademarks in over 70
countries. Bontex continues to vigorously protect its trademarks against
infringement. The Company's operations are not dependent to any significant
extent upon any single or related group of patents, licenses or concessions.
PRODUCTION AND SALES
Refer to Note 3 of Notes to the Consolidated Financial Statements in
the Company's Annual Report wherein information is provided regarding foreign
and domestic operations and export sales for the last three fiscal years. Such
information is incorporated in Part II, Item 8 of this report by reference.
Historically, Bontex has had a significant global presence, and one of
its major strategic objectives is to continue to expand this presence. The
Company's sales are diversified with one of the largest customer bases in the
industry we serve, as well as numerous geographic regions. Asia, where an
estimated 70 percent of global shoe production occurs, is the largest market for
Bontex products. The Company offers a wide range of elastomeric products for use
in a variety of applications. However, the majority of the Company's sales are
to the footwear industry. The Company intends to continue its strategy of
developing and broadening non-footwear sales.
Credit terms offered by the Company to meet competition have been
longer than terms normally available to the Company from its vendors. Some
seasonality exists in that the second half of each fiscal year is usually more
productive and consequently more profitable than the first half. This
seasonality is largely because of customers' buying cycles with scheduled
vacations, shutdowns and holidays, which normally occur during the first half of
each fiscal year. Substantially all export sales are denominated in US dollars,
negotiated letters of credit and sight drafts, and are covered by foreign credit
insurance. During the past three years, no single customer accounted for 10
percent or more of the Company's consolidated net sales.
Foreign operations, principally in Belgium and Italy, constitute a
significant portion of the Company's business. Production of BONTEX elastromeric
fiberboard products is allocated between the United States and Belgium
manufacturing facilities based on such factors as availability of capacity,
production efficiencies, logistical considerations, and foreign currency
exchange rates. The Company is currently operating at less than full capacity.
During the past three fiscal years, approximately 40 percent of total production
was manufactured in the United States. The backlog of firm orders in the United
States at the end fiscal 2001 was about three weeks production or approximately
$950,000 in sales. The current backlog at Bontex USA is approximately two weeks.
In Europe, the backlog at the end of fiscal year 2000 was about three weeks
production or approximately $1.2 million in sales. The current estimated
backlog at Bontex S.A. is approximately two weeks. The Company expects all the
orders in the backlog will be manufactured and shipped during the next fiscal
year.
6
The Company sells most of its products directly to customers through
its own sales force and commissioned sales representatives throughout the world.
The Company also sells products through distributors and other intermediaries
who may convert and resell these products to others. Bontex USA mainly services
North and South America, as well as certain Asian markets. Over the past three
years, Bontex USA's export sales to markets outside of the United States have
increased from approximately 50 to over 70 percent. This primarily reflects the
decline of the domestic market and continued emphasis on overseas markets.
Bontex USA maintains leased bonded warehouses in Patterson, New Jersey; St.
Louis, Missouri; Leon, Mexico; Cambridge, Ontario, Canada; Montreal, Quebec,
Canada. The Company established Bontex de Mexico, S.A. de C.V., as a marketing
distribution company in Leon, Mexico to directly facilitate sales in Mexico.
Bontex S.A. markets its products through its own sales force,
distributors and sales representatives in most countries in Europe, Central and
Eastern Europe, Africa, the Middle East, as well as certain Asian markets. The
Company's wholly-owned subsidiary, Bontex Italia S.r.l., services the Italian
market directly and through localized converters and commissioned
representatives.
Over the past several years, sales of Bontex cellulose insole products,
particularly to the athletic segment, have also declined because of the trend of
increased usage of nonwoven insole materials, an alternative material and
construction to cellulose board lasted construction. Nonwoven insole materials
are used mainly in force last or strobel-stitch applications, whereas Bontex
cellulose products are mainly used in cement or board lasted construction. The
overall volume of nonwoven strobel constructed footwear has leveled off, and
management believes board lasted footwear remains the predominant insole
material and construction worldwide. As part of the Company's sales initiatives,
Bontex has recently introduced a range of new nonwoven insole materials and
linings, marketed under the Bontex trade name, Bon-Stitch, which are sourced
from other manufacturers to further expand the Company's product base.
The Company maintains six Bontex liaison offices in select Asian
markets, a network of sales representatives in various countries where BONTEX is
marketed, as well as leased bonded warehouses in Korea, Vietnam, Taiwan, and the
Peoples Republic of China. For certain of its foreign markets, the Company uses
individual distributors. One distributor represented approximately 25 percent of
the Company's net consolidated sales. The Company believes that it is well
positioned to replace any of these distributors without materially impacting the
Company's marketing or financial operations. The Bontex liaison office in
Australia continues to perform the coordination of Asian operations covering,
among other countries, Japan, Korea, Taiwan, Hong Kong, Philippines, Indonesia,
New Zealand, Australia, Singapore and Malaysia. The Company has established a
sales subsidiary, Bontex Hong Kong Limited, in Hong Kong, to replace a
distributor for Hong Kong and the PRC New Territories. In Vietnam, the Company
has established a new sales representative office to directly service and
facilitate sales in the Vietnam market.
MATERIALS AND SUPPLIES
The Company purchases a broad range of raw materials sourced throughout
the world in connection with its manufacturing activities. More than one
supplier is available for all major raw materials. Bontex S.A. appears to have
available and receives adequate quantities of water and steam for processing in
Belgium. However, Bontex S.A. in Belgium is exploring their option to generate
their own steam, and Bontex S.A. may some day build a steam facility. The
manufacturing facility in the United States has an adequate supply of processing
water from wells and river sources.
The Company attempts to minimize the effects of cyclical changes in raw
material costs through purchase contracts, forward purchasing and the
application of technologies to improve process efficiencies. Principal cost
factors include the cost of raw materials, including pulp and latex, two primary
raw materials for the Company's products. During fiscal 2001, the Company
entered into a number of purchase commitments for certain commodities, including
pulp, latex and natural gas, for future manufacturing requirements in an effort
to manage the effects of market price fluctuations and to secure adequate raw
material supplies. If these purchase
7
commitments for pulp and latex had been in effect during all of 2001, the
Company would have had lower raw material prices. However, there is no guarantee
that these purchase commitments will result in lower purchase prices for the
Company. To the extent that these purchase commitments obligate the Company to
purchase pulp or latex at higher than the prevailing market prices, they could
result in higher costs. Please refer to Note 7 of the Notes to the Consolidated
Financial statements in the Company's Annual Report, wherein information is
provided regarding purchase commitments. Management intends to continue to
prudently utilize technology to manufacture high quality products while
attempting to reduce costs in all areas of operations in an effort to maintain
competitive selling prices. There can be no assurance, however, that increased
raw material prices will not continue to have an adverse effect on the Company's
operations or competitive position in the future.
Bontex USA maintains a limited private fleet of tractors and trailers
for long haul delivery of its products to customers throughout the United States
and Canada and to east coast ports for export shipments, in addition to
back-hauling of certain raw materials to reduce operating costs. The Company
also participates in numerous equipment interchange agreements for containers
with steamship lines to facilitate exports.
REGULATORY AND ENVIRONMENTAL MATTERS
As with other related manufacturers, the Company is subject to
regulations by various federal, state, foreign and local agencies concerning
compliance with environmental control statutes. These regulations impose
limitations on the use of chemicals in manufacturing processes and discharge of
effluent and emissions into the environment, and establish standards for solid
and hazardous waste disposal, treatment, and storage, as well as require the
Company to obtain and operate in compliance with the conditions of environmental
permits. Except as described below, the Company believes that it is in
substantial compliance with such existing domestic and foreign environmental
statues and regulations. Failure to comply with applicable environmental control
standards could result in interruption or termination of operations or could
require additional expenditures at these facilities.
In recent years, various agencies have increased their screening and
testing the effects of chemicals or mixtures, including those that occur
naturally. The Company's product formulations, in some instances, may include
compounds that are or will be subject to these tests. The Company continually
devotes significant resources to improve product formulation for, among other
things, comfort, health, cost, quality and other performance features.
The Company has made and intends to continue to make capital
investments, operating expenditures, and production adjustments in connection
with compliance with environmental laws and regulations. Because the Company is
essentially comprised of two fiberboard plants, Bontex USA and Bontex S.A.,
water quality discharge remains the primary environmental concern. Both plants
are operating new waste water treatment facilities, which, except as described
below, the Company believes to be operating within compliance of applicable
environmental requirements. Also, the actual costs of future environmental
compliance may differ from projected costs due to, among other things, continued
emergence of newer environmental laws and regulations and improving efficiencies
in environmental control or process technology developments.
Bontex USA received a renewal of its 5-year wastewater discharge permit
on April 2, 2001. The new permit requires the Company to expand its wastewater
treatment facility to increase the capacity of its equalization tank. The
Company started the expansion this Summer and expects to complete it by the end
of the calendar year. Prior to receiving the new permit, the Company had
received a Notice of Violation from the Virginia Department of Environmental
Quality (DEQ). In general, the DEQ stated in the Notice of Violation that it had
reason to believe that the Company's plant in Buena Vista, Virginia, might be
out of compliance with whole effluent toxics limits. In addition, the Company
has received a Notice of Violation from the DEQ alleging that in June 2001 the
Company's plant in Buena Vista, Virginia, discharged wastewater solids in
violation of Virginia law and/or the Company's wastewater discharge permit. The
Company has submitted detailed information to the DEQ relating to the Notices of
Violation. At this stage, it is too early for the Company to make a reasonable
estimate of the potential financial impact, if any, of these Notices of
Violation.
8
ITEM 2. PROPERTIES
For information about liens and security interests held by banks on the
Company's properties, see Note 4 of Notes to Consolidated Financial Statements
contained in the Company's Annual Report, incorporated in Part II, Item 8 of
this Report by reference.
The properties of the Company consist primarily of plant and equipment
to manufacture and distribute the Company's products. The Company's corporate
headquarters, manufacturing and converting facility in Buena Vista, Virginia
continues to be modernized, upgraded, and expanded. In Stembert, Belgium, the
subsidiary's plant is one of the most modern and highest capacity in the world
for producing BONTEX type products, and the Company continues to invest in new
equipment to maintain its high capacity and high level of efficiency. Bontex
Italia S.r.l. operates from a modern distribution facility with new converting
equipment. During fiscal 2001, the Company spent approximately $350,000,
$275,000 and $130,000 to refurbish, upgrade and install equipment at Bontex USA,
Bontex S.A., and other subsidiaries, respectively.
During fiscal 2001, the Company sold the Newark, New Jersey office and
warehouse facility to the New Jersey Institute of Technology for $863,000.
Included in other income is a gain of $803,000 from this sale, as the Company's
net book value was approximately $60,000.
The total cost of capital expenditures, including the capital
expenditures planned for environmental regulations at both Bontex USA and Bontex
S.A. as discussed in the previous section regarding regulations, is estimated
not to exceed $1.5 million for fiscal year 2002. The Company believes that cash
generated from operations and credit facilities will be sufficient to meet these
capital requirements.
The Company continues to manage the utilization of its assets in an
effort to meet global growth objectives, marketplace forces, productivity and
technology changes. The Company considers all its properties well maintained,
and adequate for present and future requirements.
ITEM 3. LEGAL PROCEEDINGS
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. Similar deductions relating to the year ended June 30, 2000 and 2001 that
in light of the current information may be disallowed have been treated as
disallowed expenses in the calculation of those year's tax provisions.
Bontex USA received a renewal of its 5-year wastewater discharge permit
on April 2, 2001. The new permit requires the Company to expand its wastewater
treatment facility to increase the capacity of its equalization tank. The
Company started the expansion this Summer and expects to complete it by the end
of the calendar year. Prior to receiving the new permit, the Company had
received a Notice of Violation from the DEQ. In general, the DEQ stated in the
Notice of Violation that it had reason to believe that the Company's plant in
Buena Vista, Virginia, might be out of compliance with whole effluent toxics
limits. In addition, the Company has received a Notice of Violation from the DEQ
alleging that in June 2001 the Company's plant in Buena Vista, Virginia,
discharged wastewater solids in violation of Virginia law and/or the Company's
wastewater discharge permit. The
9
Company has submitted detailed information to the DEQ relating to the Notices of
Violation. At this stage, it is too early for the Company to make a reasonable
estimate of the potential financial impact, if any, of these Notices of
Violation.
In the normal course of business, the Company is subject to
proceedings, lawsuits and other claims that are subject to many uncertainties,
for which their outcomes are not predictable with assurance. There are no legal
proceedings, lawsuits or other claims pending, other than those described above,
against or involving the Company that, in the opinion of management, will have a
material adverse impact upon the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVES OF THE REGISTRANT:
The following list is included as an unnumbered Item in Part I of this
report in lieu of being included in the Proxy Statement.
The names, ages and positions of the executives of the Company as of
September 26, 2001 are listed below with their business experience with the
Company for the past five years. Executive officers are appointed annually by
the Board of Directors at the annual meeting of stockholders. There is no
agreement or understanding between any executive and any other pursuant to which
the executive was selected. Mr. Jeffrey C. Kostelni and Mr. Charles W. J.
Kostelni are the sons of Mr. James C. Kostelni.
POSITION AND BUSINESS
NAME AND AGE EXPERIENCE FOR PAST FIVE YEARS
James C. Kostelni, 66 Chairman of the Board, President, and Chief
Executive Officer (since 1994), Chief Operating
Officer (since 1971) of the Company. Mr. Kostelni
has a Bachelor of Science Degree in Business
Administration. Director.
Jeffrey C. Kostelni, 35 Senior Vice President (since 1999); Chief Financial
Officer and Treasurer (since 1994) of the Company;
General Sales Manager of Bontex S.A., a subsidiary
of the Company in Belgium (1995-1999). Mr.
Kostelni has a Bachelor of Science Degree in
Accountancy and is a Certified Public Accountant.
Director.
10
Charles W. J. Kostelni, 37 Senior Vice President (since 1999), General Manager
(U.S. operations only) (since 1998), Corporate
Secretary (since 1997), Corporate Controller (since
1996) of the Company and General Sales Manager of
Bontex S.A., a subsidiary of the Company in Belgium
(since 1999). Prior thereto, Assistant Controller
(1994-1996) of the Company and Assistant Vice
President, Union Bank of Switzerland, New York
(1991-1995). Mr. Kostelni has a Bachelor of Science
Degree in Accountancy and is a Certified Public
Accountant. Director.
Larry E. Morris, 55 Technical Sales Director (since 1998) of the
Company; prior thereto, Technical Director (1983-
1998), Sales Director (1993-1998).
Michael J. Breton, 61 Corporate Director of International Operations of the
Company (since 1993), and General Manager of
Bontex S.A., a subsidiary of the Company (since
1987). Mr. Breton has a Bachelor of Science Degree
in Paper Technology.
Hadelin Mothet, 57 Financial Director and Assistant General Manager
(since 1985) of Bontex S.A. Mr. Mothet has a
Bachelor Degree in Accountancy. Director.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information set forth under the caption "Common Stock and Dividend
Data" on page 4 of the Company's Annual Report is incorporated herein by
reference.
The Company's common stock is listed on the Nasdaq SmallCap Market. In
order to maintain its listing on the Nasdaq SmallCap Market, among other things,
the Company must maintain a minimum market value of the public float of its
common stock of at least $1,000,000. If the closing bid price of the Company's
common stock trades at a level below that necessary to maintain this minimum
market value of its public float for thirty consecutive business days, the
Company's common stock could become subject to delisting from the Nasdaq
SmallCap Market. If delisted, trading in the Company's common stock could be
conducted on the OTC Bulletin Board or in the over-the-counter market in what is
commonly referred to as the "pink sheets." In the event of delisting, holders of
the Company's common stock might find it more difficult to trade their common
stock promptly and at reasonable prices or to obtain accurate quotations as to
its price. It could also adversely affect the Company's ability to raise
additional equity or financing, which in turn could result in a material effect
on the Company's business, financial condition, liquidity and/or results of
operations.
ITEM 6. SELECTED FINANCIAL DATA
The five year data for the fiscal years 2001, 2000, 1999, 1998, and
1997 are included in the "Summary of Selected Ten Year Data" on page 4 of the
Company's Annual Report and is incorporated herein by reference.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" on pages 5 through 12 of the
Company's Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk in "Market
Risk and Sensitivity" on pages 11 and 12 of the Company's Annual Report to is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and
the independent auditors' report included on pages 13 through 29 of the Annual
Report is incorporated herein by reference.
1. Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss) for the Years Ended June 30, 2001, 2000 and 1999.
2. Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 2001, 2000, and 1999.
3. Consolidated Balance Sheets as of June 30, 2001 and 2000.
4. Consolidated Statements of Cash Flows for the Years Ended June
30, 2001, 2000, and 1999.
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in independent auditors and no disagreements
with independent auditors on any matter of accounting principles or practices,
financial statement disclosure, or auditors' scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executives of the Registrant, see
"Executives of the Registrant" at the end of Part I of this Report. For
information with respect to the Directors of the Registrant, see "Election of
Directors" at pages 4 through 6 of the Proxy Statement, which information is
incorporated herein by reference. The information with respect to compliance
with Section 16(a) of the Exchange Act, which is set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" at page 17 of the
Proxy Statement, is incorporated herein by reference.
12
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Executive Compensation,"
"Compensation Committee Report on Executive Compensation" and "Stock
Performance" at pages 9 through 16 of the Proxy Statement is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information pertaining to stockholders beneficially owning more
than five percent of the Registrant's common stock and the security ownership of
management, which is set forth under the caption "Stockholdings of Certain
Owners and Management" on pages 2 through 4 of the Proxy Statement, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Related Party
Transactions" on page 14 of the Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1. Financial Statements: All financial statements of the Registrant
as set forth under Item 8 of this Report on Form 10-K.
2. Financial statement schedules and the location in this Form 10-K
are as follows:
SCHEDULE
NUMBER DESCRIPTION PAGE
(a) Independent Auditors' Report
on Financial Statement Schedule 18
(d) II Valuation and Qualifying Accounts for the
years ended June 30, 2001, 2000 and 1999 19
All other schedules are omitted, as the required information is
inapplicable, or the information is presented in the consolidated
financial statements or related notes.
13
3. Exhibits to this Form 10-K are as follows:
EXHIBIT
NUMBER DESCRIPTION
3 (i) Amended and Restated Articles of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit No. (iii) of Form 10-Q for the fiscal quarter
ended December 31, 1996)
3 (ii) Amended and Restated Bylaws of Bontex, Inc. (incorporated herein by reference to
Exhibit No. 3(i) of Form 10-Q for quarter ended March 31, 1998)
10 (i) *Executive Compensation Agreement dated January 22, 1997, between Bontex, Inc. and
James C. Kostelni (incorporated herein by reference to Exhibit 10(i) of Form 10-Q for
quarter ended March 31, 1997)
10 (ii) *Life Insurance Agreement between Georgia Bonded Fibers Inc. and James C. Kostelni
incorporated herein by reference to Exhibit 10.4 of Form 10-Q for quarter ended
December 31, 1993)
10 (iii) *Bontex S.A. Pension Plan (incorporated herein by reference to Exhibit No. 10(iv) of
Form 10-K for the fiscal year ended June 30, 1994)
10 (iv) *Georgia Bonded Fibers, Inc. Annual Incentive Plan (incorporated herein by reference
to Exhibit No. 10(v) of Form 10-K for the fiscal year ended June 30, 1994)
10 (v) *Supplemental Executive Compensation Agreement dated May 26, 1994, between
Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to
Exhibit No. of Form 10-K for the fiscal year ended June 30, 1994)
10 (vi) Special Consent Order between the Company and the State Water Control Board dated
July 22, 1994 (incorporated herein by reference to Exhibit No. 10(vii) of Form 10-K for
the fiscal year ended June 30, 1994)
10 (vii) Amended Consent Order between the Company and the Commonwealth of Virginia,
Department of Environmental Quality dated January 10, 1997. (incorporated herein by
reference to Exhibit No. 10(iv) of Form 10-Q for the quarter ended December 31, 1996)
10 (viii) Related party Marketing Agreement between Bontex, Inc. and Maxcomm, Inc. dated
February 16, 1999
10 (ix) *Bontex, Inc. Key Employee Stock Option Plan dated October 29, 1999 (incorporated
herein by reference to Exhibit 4(c) of the Form S-8 filed on February 28, 2000).
10 (x) *Amendment to Executive Compensation Agreement between Jeffrey C. Kostelni and
Bontex, Inc. dated January 27, 2000.
10 (xi) *Amendment to Executive Compensation Agreement between Charles W.J. Kostelni
and Bontex, Inc. dated January 27, 2000.
14
10 (xii) *Part-Time Employment Agreement, Settlement Agreement, General Release and Non-
Disclosure Agreement between Patricia S. Tischio and Bontex, Inc. dated April 30,
2000.
10 (xiii) **Pulp Supply Agreement No. 1 dated March 31, 2001.
10 (xiv) **Pulp Supply Agreement No. 2 dated March 31, 2001.
10 (xv) **Pulp Supply Agreement No. 3 dated March 31, 2001.
10 (xvi) Second Amendment to Loan and Security Agreement, dated September 12, 2001, by and
between Congress Financial Corporation and Bontex, Inc.
13 2001 Annual Report to Stockholders (such report, except to the extent incorporated
herein by reference, is being furnished for the information of the Commission only and
is not to be deemed filed as part of this Report on Form 10-K)
21 Subsidiaries of the Company
*Management contract or compensatory plan or agreement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14 (c).
**Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the SEC.
(b) Reports on Form 8-K: Form 8-K dated July 23, 2001 reporting under
Item 5 thereof the resignation of Ms. Patricia Tischio.
(c) Exhibits - The response to this section of Item 14 is submitted
as a separate section of this report.
(d) Financial statement schedules required by Regulation S-X are
submitted as a separate section of this report.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized on this 26th day of
September, 2001.
BONTEX, INC.
by /s/James C. Kostelni
--------------------------------
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date
/s/James C. Kostelni September 26, 2001
-------------------------------------- ------------------
James C. Kostelni
Chairman of the Board, President and
Chief Executive Officer
Director
/s/Jeffrey C. Kostelni September 26, 2001
--------------------------------------- ------------------
Jeffrey C. Kostelni
Treasurer and
Chief Financial Officer
Director
/s/Charles W. J. Kostelni September 26, 2001
------------------------------------ ------------------
Charles W. J. Kostelni
Corporate Controller and
Corporate Secretary
Director
/s/Hadelin Mothet September 26, 2001
------------------------------------- ------------------
Hadelin Mothet
Financial Director
Director
/s/William J. Binnie September 26, 2001
------------------------------------- ------------------
William J. Binnie
Director
/s/William B. D'Surney September 26, 2001
------------------------------------ ------------------
William B. D'Surney
Director
/s/Frank Mayorshi September 26, 2001
------------------------------------- ------------------
Frank Mayorshi
Director
16
/s/Joseph F. Raffetto September 26, 2001
--------------------------------------- ------------------
Joseph F. Raffetto
Director
/s/Robert J. Weeks September 26, 2001
--------------------------------------- ------------------
Robert J. Weeks
Director
17
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Bontex, Inc.:
Under date of August 22, 2001, except as to Note 4, which is as of September 12,
2001, we reported on the consolidated balance sheets of Bontex, Inc. and
subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of income (loss) and comprehensive income (loss), changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 2001, as contained in the 2001 annual report to
stockholders. These consolidated financial statements and our report thereon are
incorporated by reference in the accompanying annual report on Form 10-K for the
year 2001. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as set forth under Item 14(a)2 of the accompanying annual
report on Form 10-K for the year 2001. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Roanoke, Virginia
August 22, 2001, except
as to Note 4, which is as
of September 12, 2001
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BONTEX, INC. AND SUBSIDIARIES
BALANCE AT CHARGES TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS* DEDUCTIONS** OF PERIOD
YEAR ENDED JUNE 30, 2001
Reserves and allowances
deducted from asset accounts:
Allowances for doubtful accounts $170,000 $ (54,000) $ (8,000) $ 12,000 $ 96,000
YEAR ENDED JUNE 30, 2000
Reserves and allowances
deducted from asset accounts:
Allowances for doubtful accounts $ 128,000 $ 92,000 $ (15,000) $ 35,000 $ 170,000
YEAR ENDED JUNE 30, 1999
Reserves and allowances
deducted from asset accounts:
Allowances for doubtful accounts $ 268,000 $ (39,000) $ (7,000) $ 94,000 $ 128,000
*Foreign currency translation (loss)
**Uncollectible accounts written off, net of recoveries.
EXHIBIT INDEX
3 (i) Amended and Restated Articles of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit No. (iii) of Form 10-Q for the fiscal quarter
ended December 31, 1996)
3 (ii) Amended and Restated Bylaws of Bontex, Inc. (incorporated herein by reference to
Exhibit No. 3(i) of Form 10-Q for quarter ended March 31, 1998)
10 (i) *Executive Compensation Agreement dated January 22, 1997, between Bontex, Inc. and
James C. Kostelni (incorporated herein by reference to Exhibit 10(i) of Form 10-Q for
quarter ended March 31, 1997)
10 (ii) *Life Insurance Agreement between Georgia Bonded Fibers Inc. and James C. Kostelni
incorporated herein by reference to Exhibit 10.4 of Form 10-Q for quarter ended
December 31, 1993)
10 (iii) *Bontex S.A. Pension Plan (incorporated herein by reference to Exhibit No. 10(iv) of
Form 10-K for the fiscal year ended June 30, 1994)
10 (iv) *Georgia Bonded Fibers, Inc. Annual Incentive Plan (incorporated herein by reference
to Exhibit No. 10(v) of Form 10-K for the fiscal year ended June 30, 1994)
10 (v) *Supplemental Executive Compensation Agreement dated May 26, 1994, between
Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to
Exhibit No. of Form 10-K for the fiscal year ended June 30, 1994)
10 (vi) Special Consent Order between the Company and the State Water Control Board dated
July 22, 1994 (incorporated herein by reference to Exhibit No. 10(vii) of Form 10-K for
the fiscal year ended June 30, 1994)
10 (vii) Amended Consent Order between the Company and the Commonwealth of Virginia,
Department of Environmental Quality dated January 10, 1997. (incorporated herein by
reference to Exhibit No. 10(iv) of Form 10-Q for the quarter ended December 31, 1996)
10 (viii) Related party Marketing Agreement between Bontex, Inc. and Maxcomm, Inc. dated
February 16, 1999
10 (ix) *Bontex, Inc. Key Employee Stock Option Plan dated October 29, 1999 (incorporated
herein by reference to Exhibit 4(c) of the Form S-8 filed on February 28, 2000).
10 (x) *Amendment to Executive Compensation Agreement between Jeffrey C. Kostelni and
Bontex, Inc. dated January 27, 2000.
10 (xi) *Amendment to Executive Compensation Agreement between Charles W.J. Kostelni
and Bontex, Inc. dated January 27, 2000.
10 (xii) *Part-Time Employment Agreement, Settlement Agreement, General Release and Non-
Disclosure Agreement between Patricia S. Tischio and Bontex, Inc. dated April 30,
2000.
10 (xiii) **Pulp Supply Agreement No. 1 dated March 31, 2001.
10 (xiv) **Pulp Supply Agreement No. 2 dated March 31, 2001.
10 (xv) **Pulp Supply Agreement No. 3 dated March 31, 2001.
10 (xvi) Second Amendment to Loan and Security Agreement, dated September 12, 2001, by and
between Congress Financial Corporation and Bontex, Inc.
13 2001 Annual Report to Stockholders (such report, except to the extent incorporated
herein by reference, is being furnished for the information of the Commission only and
is not to be deemed filed as part of this Report on Form 10-K)
21 Subsidiaries of the Company
*Management contract or compensatory plan or agreement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14 (c).
**Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the SEC.
EX-10
3
btxex10xva.txt
EXHIBIT 10 (XIII)
Exhibit 10 (xiii)
SUPPLY AGREEMENT No. 1
MARCH 31, 2001
This Agreement is made on the date as set out below
BETWEEN
*, a company duly organized and existing under the laws of Sweden, having its
head offices at * (referred hereinafter * ) and its subsidiary *.
AND
Bontex Inc. and Bontex S.A., ( referred hereinafter Bontex)
WHEREAS, * desires to sell and Bontex desires to purchase, on the terms and
conditions hereinafter set forth, certain qualities of pulp to be manufactured
by * at its pulp manufacturing facility in *.
Now, therefore, the parties hereby agree as follows :
1. Definitions
- " Delivery point U.S. " shall mean the facility at Bontex
Inc. 1, Bontex Drive, Buena Vista 24416, Virginia,
U.S.A.
- " Delivery point Belgium " shall mean the facility at
Bontex S.A. Rue Slar B-4801 Stembert, Belgium.
- " Product or Products " shall mean Flashdried NBSK
Pulp.
- " USD " shall mean the lawful currency of the United
States of America.
- " ADMT " shall mean one thousand (1.000) kilograms
of air-dry pulp.
----------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
2. SUPPLY AND DELIVERY OF PRODUCTS
2.1 During the term of this Agreement * agrees to sell to Bontex and
Bontex agrees to purchase from * 8,000 (eight thousand) ADMT of
the Products annually.
2.2 Delivery terms: see Appendix no. 1.
3. PRICES AND PAYMENT
3.1 From January 1st to June 30th, 2001 the price is US $* per ADMT.
From July 1st 2001, for a period of 5 years, the price is US$ *
per ADMT. This figure is subject to revision according to
FOEX/PIX index. If the NBSK index is more than US$ * above or
below the agreed price, then shall the price be adjusted with *
percent of the increase or the decrease. Any adjustment to the
agreed base price because of index change will be made on the
basis of the actual index rate on the day of invoicing.
3.2 Payment terms : see Appendix no 1.
4. FORECAST AND ORDERS
4.1 Bontex will provide before the 15th of each month the quantities
to be delivered the following month.
5. PENALTY
5.1 If * fails to deliver the Product on the acknowledged delivery
date and such failure is not caused by Bontex or by any force
majeure event, * will purchase on open market equivalent pulp
and supply Bontex at Supply Contract price.
6. QUALITY OF PRODUCT
6.1 * shall supply the Products to Bontex in accordance with the
specifications in the Appendix 2 (technical data sheet quality
403).
---------------- 2
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
7. WARRANTY
7.1 Bontex warrants that it can lawfully enter into this Agreement
and that it has complied and will continue to comply with all
legal prerequisites and formalities or governmental laws or
regulations, which are necessary for Bontex' performance of
its obligations under this Agreement.
7.2 * warrants that it can lawfully enter into this Agreement and
that is has complied and will continue to comply with all legal
prerequisites and formalities or governmental laws or
regulations, which are necessary for * performance of its
obligations under this Agreement.
8. CONFIDENTIALITY
8.1 Each party shall retain all confidential information furnished
by the disclosing party to the receiving party hereunder as
strictly confidential, and shall refrain from disclosing the
same to any third party, except for the information which :
(i) is or falls within the public domain through no fault
of the receiving party or its affiliate ; or
(ii) is or has been known to the receiving party in good
faith as evidenced by its written records or other
competent proof before receipt of the said
information from a disclosing party ; or
(iii) is disclosed to the receiving party in good faith by
a third party who has the right to make such
disclosure.
8.2 Notwithstanding the above, a receiving party may disclose such
information:
a) to its employees who should have access to the
information to safeguard that the receiving party
pursuits according to this Agreement.
b) as required by law; or
c) to the extent such disclosure is necessary to achieve
the purposes of this Agreement.
9. TERM, TERMINATION
9.1 This Agreement enters into force on January 1, 2001 and it shall
remain in force for a period of five ( 5) years and six ( 6)
months.
---------------- 3
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
9.2 Notwithstanding the above, this Agreement may be terminated at
any time by either party sending a written notice to the other
in the event of a material breach of any conditions of this
Agreement by the other party continuing for a period of six
(6) months after notice by the non-defaulting party specifying
the default complained of, and failure of the defaulting party
to remedy such default within the above six (6) months period.
10. FORCE MAJEURE
10.1 A force majeure event shall mean any event or condition, not
existing as of the date hereof, not reasonably foreseeable as
of such date and not reasonably within the control of either
party, which prevents in whole or in material part the
performance of one of the parties of its obligations
hereunder. Without limiting the foregoing, the following shall
constitute force majeure events: Acts of state or governmental
action, epidemics, riots, war, strikes, lock outs, suspension,
termination, or interruption of utilities, fire, flood,
hurricane, earthquake, and explosion.
10.2 The party wishing to claim relief by reason of force majeure
event shall notify the other party in writing without delay.
11. ENTIRE AGREEMENT
11.1 This Agreement sets out the entire understanding between the
parties with regard to the subject matter hereof, and
supersedes and replaces all previous understandings and
agreements between the parties, whether oral or written, in
connection with the subject matter hereof.
11.2 Any amendments or supplements to this Agreement shall only be
valid if made in writing and duly executed by both parties
hereto.
12. NOTICES
12.1 Any notice to the other party in connection with this Agreement
shall be delivered in person or sent by registered letter or
telefax.
13. GENERAL CONDITIONS AND GOVERNING LAW
13.1. To the extent not otherwise agreed the GENERAL TRADE RULES
FOR WOODPULPS, 1975, shall apply for this Agreement.
---------------- 4
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
13.2 This Agreement and the legal relations between the parties
should be governed by the laws of UK and in case of a dispute
this should be settled under the Rules of Conciliation an
Arbitration of the International Chamber of Commerce in
London.
IN WITNESS WHEREOF, this Agreement has been duly executed in two identical
copies, one for each party.
* BONTEX S.A. BONTEX Inc.
______/s/________ ________/s/________ ______/s/_________
Date 5/9/01 Date 5/9/01 Date 5/10/01
------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
APPENDIX NO 1.
DELIVERY TERMS: DDU Stembert Mill and DDU Buena Vista respectively.
PAYMENT TERMS: Cash within 10 days from invoice date less 1,5 % discount for
deliveries to Stembert mill and 60 days net for deliveries to Buena Vista mill.
According to INCOTERMS 1990.
------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
*
TYPICAL CHARACTERISTICS
*
BLEACHED KRAFT SOFTWOOD PULP
(BLEACHED WITHOUT GASEOUOUS CHLORINE)
PULP FROM THE * MILL
Date: 98-12-07 Issued by: *, *
PROCESS INFORMATION:
Spruce and pine around 50% of each are used as wood supply, 70% arrives as logs,
the rest is waste chips from sawmills. The chips are continuously digested in a
Kamyr digester. After cleaning and washing follows an oxygen delignification
stage.
The final bleaching use the sequence D Eop DED, Chlorine dioxide, sodium
hydroxide, oxygen and hydrogen peroxide are chemicals used.
All pulp is flash dried.
PULP CHARACTERISTICS:
Brightness % ISO 90 SCAN-CM 11:95
Intrinsic Viscosity dm3/kg 900 SCAN-C 15:88
Ashes % 0.1 SCAN-C 6:62
Extractives (Acetone) % 0.05 SCAN-CM 93
Standards SCAN/ISO Testing climate 50% RH 23 "C
Beating rev PFI 2 200 3100 4300 5200 6800
Drainage Resistance (Degree)SR 20 25 30 35 45
Tensile index Nm/g 81 90 97 101 103
Breaking length m 8300 9200 9900 10300 10500
Burst index kPa m2/g 6.2 7.1 7.6 7.9 8.2
Tear index mN m2/g 15.5 13.5 12.4 11.7 11.2
Folding endurance 101og 3.17 3.2 3.28 3.30 3.33
Light Scattering Coeff. m2/kg 20.8 19.3 18.6 18.1 17.6
Opacity % 63.0 50.8 59.3 58.6 57.9
Density kg/m3 705 730 745 755 765
Air permeability, Gurley mm/kPa 6 49.0 21.8 14.0 8.9 2.5
-------------------------------------------------------------------------
* Address Telephone Telefax
*
* * * *
------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
*
TYPICAL CHARACTERISTICS
*
BLEACHED KRAFT SOFTWOOD PULP
(BLEACHED WITHOUT CHLORINE COMPONENTS)
PULP FROM THE * MILL
Date: 98-12-07 Issued by: *, *
PROCESS INFORMATION:
Spruce and pine around 50% of each are used as wood supply, 70% arrives as logs,
the rest is waste chips from sawmills. The chips are continuously digested in a
Kamyr digester. After cleaning and washing follows an oxygen delignification
stage.
The final bleaching is totally chlorine free. Peracetic acid, complexing agents,
hydrogen peroxide and sodium hydroxide are chemicals used.
All pulp is flash dried.
PULP CHARACTERISTICS:
Brightness % ISO 88 SCAN-CM 11:95
Intrinsic Viscosity dm3/kg 750 SCAN-C 15:88
Ash % 0.1 SCAN-C 6:62
Extractives (Acetone) % 0.05 SCAN-CM 93
Standards SCAN/ISO Testing climate 50% RH 23 (Degree)C
Beating rev PFI 2 000 3200 4100 4600 5900
Drainage Resistance (degree)SR 20 25 30 35 45
Tensile index Nm/g 79.5 89 93.5 96.5 100
Breaking length m 8100 9100 9500 9800 10200
Burst index kPa m2/g 6 6.8 7.3 7.6 8
Tear index mN m2/g 15.2 12.5 11.5 11.0 10.5
Folding endurance 101og 3.15 3.2 3.25 3.27 3.31
Light Scattering Coeff. m2/kg 20.8 19.0 18.5 17.5 16.8
Opacity % 63.0 61.6 60.0 59.0 57.5
Density kg/m3 700 730 745 755 765
Air permeability, Gurley mm/kPa 6 51.2 29.1 19.5 13.1 4.1
-------------------------------------------------------------------------
* Address Telephone Telefax
*
* * * *
------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
EX-10
4
btxex10xvb.txt
EXHIBIT 10 (XIV)
Exhibit 10 (xiv)
SUPPLY AGREEMENT NO. 2
March 31, 2001
This Agreement is made on the date as set out below
BETWEEN
*, a company duly organized and existing under the laws of Sweden, having its
head offices at * (referred hereinafter * ) and its subsidiary *.
AND
Bontex Inc. and Bontex S.A., ( referred hereinafter Bontex)
WHEREAS, * desires to sell and Bontex desires to purchase, on the terms and
conditions hereinafter set forth, certain qualities of pulp to be manufactured
by * at its pulp manufacturing facility in *.
Now, therefore, the parties hereby agree as follows :
1. DEFINITIONS
- " Delivery point U.S. " shall mean the facility at Bontex
Inc.1, Bontex Drive, Buena Vista 24416, Virginia, U.S.A.
- " Delivery point Belgium " shall mean the facility at
Bontex S.A. Rue Slar B-4801 Stembert, Belgium.
- " Product or Products " shall mean Flashdried
Unbleached Sulphite Pulp.
- " USD " shall mean the lawful currency of the United
States of America.
- "ADMT " shall mean one thousand (1.000) kilograms of
air-dry pulp.
--------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
2. SUPPLY AND DELIVERY OF PRODUCTS
2.1 During the term of this Agreement * agree to sell and Bontex
agrees to purchase from * 1200 (thousand two hundred) ADMT of
the Products annually.
2.2 Delivery terms : see Appendix no 1.
3. PRICES AND PAYMENT
3.1 From January 1st to June 30th, 2001 the price is US$ * per
ADMT.
From July 1st 2001, for a period of 5 years, the price is US$
* per ADMT. This figure is subject to revision according to
FOEX/PIX index. If the NBSK index is more than US$ * above or
below the US$ * level, then shall the price be adjusted with *
percent of the increase or the decrease. Any adjustment to the
agreed base price because of index change will be made on the
basis of the actual index rate on the day of invoicing.
3.2 Payment terms : see Appendix no 1.
4. FORECAST AND ORDERS
4.1 Bontex will provide before the 15th of each month the
quantities to be delivered the following month.
5. PENALTY
5.1 If * fails to deliver the Product on the acknowleged delivery
date and such failure is not caused by Bontex or by any force
majeure event, * will purchase on open market equivalent pulp
and supply Bontex at Supply Contract price.
6. QUALITY OF PRODUCT
6.1 * shall supply the Products to Bontex in accordance with the
specifications in the Appendix 3 (technical data sheet *).
-------------------- 2
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
7. WARRANTY
7.1 Bontex warrants that it can lawfully enter into this Agreement
and that it has complied and will continue to comply with all
legal prerequisites and formalities or governmental laws or
regulations, which are necessary for Bontex' performance of
its obligations under this Agreement.
7.2 * warrants that it can lawfully enter into this Agreement and
that is has complied and will continue to comply with all
legal prerequisites and formalities or governmental laws or
regulations, which are necessary for * performance of its
obligations under this Agreement.
8. CONFIDENTIALITY
8.1 Each party shall retain all confidential information furnished
by the disclosing party to the receiving party hereunder as
strictly confidential, and shall refrain from disclosing the
same to any third party, except for the information which :
(i) is or falls within the public domain through
no fault of the receiving party or its
affiliate ; or
(ii) is or has been known to the receiving party
in good faith as evidenced by its written
records or other competent proof before
receipt of the said information from a
disclosing party ; or
(iii) is disclosed to the receiving party in good
faith by a third party who has the right to
make such disclosure.
8.2 Notwithstanding the above, a receiving party may disclose such
information:
a) to its employees who should have access to
the information to safeguard that the
receiving party pursuits according to this
Agreement.
b) as required by law; or
c) to the extent such disclosure is necessary
to achieve the purposes of this
Agreement.
-------------------- 3
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
9. TERM, TERMINATION
9.1 This Agreement enters into force on January 1, 2001 and it
shall remain in force for a period of five ( 5) years and
six ( 6)months.
9.2 Notwithstanding the above, this Agreement may be terminated at
any time by either party sending a written notice to the other
in the event of a material breach of any conditions of this
Agreement by the other party continuing for a period of six
(6) months after notice by the non-defaulting party specifying
the default complained of, and failure of the defaulting party
to remedy such default within the above six (6) months period.
10. FORCE MAJEURE
10.1 A force majeure event shall mean any event or condition, not
existing as of the date hereof, not reasonably foreseeable as
of such date and not reasonably wi thin the control of either
party, which prevents in whole or in material part the
performance of one of the parties of its obligations
hereunder. Without limiting the foregoing, the following shall
constitute force majeure events: Acts of state or governmental
action, epidemics, riots, war, strikes, lock outs, suspension,
termination, or interruption of utilities, fire, flood,
hurricane, earthquake, and explosion.
10.2 The party wishing to claim relief by reason of force majeure
event shall notify the other party in writing without delay.
11. ENTIRE AGREEMENT
11.1 This Agreement sets out the entire understanding between the
parties with regard to the subject matter hereof, and
supersedes and replaces all previous understandings and
agreements between the parties, whether oral or written, in
connection with the subject matter hereof.
11.2 Any amendments or supplements to this Agreement shall only be
valid if made in writing and duly executed by both parties
hereto.
12. NOTICES
12.1 Any notice to the other party in connection with this
Agreement shall be delivered in person or sent by registered
letter or telefax.
-------------------- 4
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
13. GENERAL CONDITIONS AND GOVERNING LAW
13.1. To the extent not otherwise agreed the GENERAL TRADE RULES FOR
WOODPULPS, 1975, shall apply for this Agreement.
13.2 This Agreement and the legal relations between the parties
should de governed by the laws of UK and in case of a dispute
this should be settled under the Rules of Conciliation an
Arbitration of the International Chamber of Commerce in
London.
IN WITNESS WHEREOF, this Agreement has been duly executed in two identical
copies, one for each party.
* BONTEX S.A. BONTEX Inc.
______/s/_______ _______/s/_________ __________________
Date _5/9/01___ Date ____5/11/01____ Date _____________
-------------------- 5
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
APPENDIX NO 1.
DELIVERY TERMS: DDU Stembert Mill and DDU Buena Vista respectively.
PAYMENT TERMS: Cash within 10 days from invoice date less 1,5 % discount for
deliveries to Stembert mill and 60 days net for deliveries to Buena Vista mill.
According to INCOTERMS 1990.
-------------------- 6
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
*
TYPICAL CHARACTERISTICS
*
UNBLEACHED MAGNEFITE SOFTWOOD PULP
PULP FROM THE * MILL
Date: 98-12-07 Issued by: *, *
PROCESS INFORMATION:
Spruce is used as wood supply. Logs are barked and chipped at the mill. The
chips are digested with a magnelite process in batch digesters. Cleaning and
washing follows.
All pulp is flash dried.
PULP CHARACTERISTICS:
Kappa number 40 SCAN-C1:77
Brightness % ISO 68 SCAN-CM 11:95
Intrinsic Viscosity dm3/kg 985 SCAN-C 15:88
Ash % 1.1 SCAN-C 6:62
Extractives (Acetone) % 0.9 SCAN-CM 93
Standards SCAN/ISO Testing climate 50% RH 23(degree)C
Beating rev PFI 1050 1150 2250 2700 3350
Drainage Resistance (degree)SR 20 25 30 35 45
Tensile index Nm/g 75.5 84.5 89.5 91.5 94
Breaking length m 7700 8600 9100 9300 9600
Burst index kPa m2/g 4.95 5.6 6 6.15 6.25
Tear index mN m2/g 10.0 8.6 7.7 7.5 7.4
Light Scattering Coeff. m2/kg 17.7 15.9 14.6 14.0 13.4
Opacity % 73.1 70.5 68.4 67.0 65.4
Density kg/m3 720 755 770 780 795
Air permeability, Gurley mm/kPa 6 28.0 12.0 5.5 3.2 1.1
---------------------------------------------------------------------------
* Address Telephone Telefax
*
* * * *
- - - - - -
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
EX-10
5
btxex10xvc.txt
EXHIBIT 10 (XV)
Exhibit 10 (xv)
SUPPLY AGREEMENT NO. 3
March 31, 2001
This Agreement is made on the date as set out below
BETWEEN
*, a company duly organized and existing under the laws of Sweden, having its
head offices at * (referred hereinafter * ) and its subsidiary *.
AND
Bontex Inc. and Bontex S.A., ( referred hereinafter Bontex)
WHEREAS, * desires to sell and Bontex desires to purchase, on the terms and
conditions hereinafter set forth, certain qualities of pulp to be manufactured
by * at its pulp manufacturing facility in *.
Now, therefore, the parties hereby agree as follows :
1. DEFINITIONS
- " Delivery point U.S. " shall mean the facility at
Bontex Inc.1, Bontex Drive, Buena Vista 24416, Virginia,
U.S.A.
- " Delivery point Belgium " shall mean the facility at
Bontex S.A. Rue Slar B-4801 Stembert, Belgium.
- " Product or Products " shall mean Flashdried
unbleached sulphite Pulp.
- " USD " shall mean the lawful currency of the United
States of America.
- "ADMT " shall mean one thousand (1.000) kilograms of
air-dry pulp.
-----------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
2. SUPPLY AND DELIVERY OF PRODUCTS
2.1 During the term of this Agreement * agree to sell to Bontex
and Bontex agrees to purchase from * 300 (three hundred) ADMT
of the Products annually.
2.2 delivery terms : see Appendix no 1.
3. PRICES AND PAYMENT
3.1 From January 1st to June 30th, 2001 the price is US$ * per
ADMT.
From July 1st 2001, for a period of 5 years, the price is US$
* per ADMT. This figure is subject to revision according to
FOEX/PIX index. If the NBSK index is more than US$ * above or
below the US$ * level, then shall the price be adjusted with *
percent of the increase or the decrease. Any adjustment to the
agreed base price because of index change will be made on the
basis of the actual index rate on the day of invoicing.
3.2 Payment terms : see Appendix no 1.
4. FORECAST AND ORDERS
4.1 Bontex will provide before the 15th of each month the
quantities to be delivered the following month.
5. PENALTY
5.1 If * fails to deliver the Product on the acknowleged delivery
date and such failure is not caused by Bontex or by any force
majeure event, * will purchase on open market equivalent pulp
and supply Bontex at Supply Contract price.
6. QUALITY OF PRODUCT
6.1 * shall supply the Products to Bontex in accordance with the
specifications in the Appendix 4 (technical data sheet *).
----------------------- 2
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
7. WARRANTY
7.1 Bontex warrants that it can lawfully enter into this Agreement
and that it has complied and will continue to comply with all
legal prerequisites and formalities or governmental laws or
regulations, which are necessary for Bontex' performance of
its obligations under this Agreement.
7.2 * warrants that it can lawfully enter into this Agreement and
that is has complied and will continue to comply with all
legal prerequisites and formalities or governmental laws or
regulations, which are necessary for * performance of its
obligations under this Agreement.
8. CONFIDENTIALITY
8.1 Each party shall retain all confidential information furnished
by the disclosing party to the receiving party hereunder as
strictly confidential, and shall refrain from disclosing the
same to any third party, except for the information which :
(i) is or falls within the public domain through
no fault of the receiving party or its
affiliate ; or
(ii) is or has been known to the receiving party
in good faith as evidenced by its written
records or other competent proof before
receipt of the said information from a
disclosing party ; or
(iii) is disclosed to the receiving party in good
faith by a third party who has the right to
make such disclosure.
8.2 Notwithstanding the above, a receiving party may disclose such
information:
a) to its employees who should have access to
the information to safeguard that the
receiving party pursuits according to this
Agreement.
b) as required by law; or
c) to the extent such disclosure is necessary
to achieve the purposes of this
Agreement.
----------------------- 3
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
9. TERM, TERMINATION
9.1 This Agreement enters into force on January 1, 2001 and it
shall remain in force for a period of five ( 5) years and six
( 6)months.
9.2 Notwithstanding the above, this Agreement may be terminated at
any time by either party sending a written notice to the other
in the event of a material breach of any conditions of this
Agreement by the other party continuing for a period of six
(6) months after notice by the non-defaulting party specifying
the default complained of, and failure of the defaulting party
to remedy such default within the above six (6) months period.
10. FORCE MAJEURE
10.1 A force majeure event shall mean any event or condition, not
existing as of the date hereof, not reasonably foreseeable as
of such date and not reasonably within the control of either
party, which prevents in whole or in material part the
performance of one of the parties of its obligations
hereunder. Without limiting the foregoing, the following shall
constitute force majeure events: Acts of state or governmental
action, epidemics, riots, war, strikes, lock outs, suspension,
termination, or interruption of utilities, fire, flood,
hurricane, earthquake, and explosion.
10.2 The party wishing to claim relief by reason of force majeure
event shall notify the other party in writing without delay.
11. ENTIRE AGREEMENT
11.1 This Agreement sets out the entire understanding between the
parties with regard to the subject matter hereof, and
supersedes and replaces all previous understandings and
agreements between the parties, whether oral or written, in
connection with the subject matter hereof.
11.2 Any amendments or supplements to this Agreement shall only be
valid if made in writing and duly executed by both parties
hereto.
12. NOTICES
12.1 Any notice to the other party in connection with this
Agreement shall be delivered in person or sent by registered
letter or telefax.
----------------------- 4
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
13. GENERAL CONDITIONS AND GOVERNING LAW
13.1. To the extent not otherwise agreed the GENERAL TRADE RULES FOR
WOODPULPS, 1975, shall apply for this Agreement.
13.2 This Agreement and the legal relations between the parties
should be governed by the laws of UK and in case of a dispute
this should be settled under the Rules of Conciliation an
Arbitration of the International Chamber of Commerce in
London.
IN WITNESS WHEREOF, this Agreement has been duly executed in two identical
copies, one for each party.
* BONTEX S.A. BONTEX Inc.
______/s/__________ ________/s/_______ __________________
Date 5/9/01 Date 5/9/01 Date _____________
----------------------- 5
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
APPENDIX NO 1.
DELIVERY TERMS: DDU Stembert Mill and DDU Buena Vista respectively.
PAYMENT TERMS: Cash within 10 days from invoice date less 1,5 % discount for
deliveries to Stembert mill and 60 days net for deliveries to Buena Vista mill.
According to INCOTERMS 1990.
----------------------- 6
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
*
TYPICAL CHARACTERISTICS
*
UNBLEACHED KRAFT SOFTWOOD PULP
PULP FROM THE * MILL
Date: 98-12-07 Issued by: * , *
PROCESS INFORMATION:
Spruce and pine around 50% of each are used as wood supply. 70% arrives as logs,
the rest is waste chips from sawmills. The chips are continuously digested in a
Kamyr digester. After cleaning and washing of the pulp follows an extra super
washing before drying.
All pulp is flash dried.
PULP CHARACTERISTICS:
Kappa number 28 SCAN-C 1:77
Brightness % ISO 29 SCAN-CM 11:95
Intrinsic viscosity dm3/kg 1150 SCAN-C 15:88
Ash Content % 0.20 SCAN-C 6:62
Extractives (Acetone) % 0.13 SCAN-CM 93
Standards SCAN/ISO Testing climate 50% RH 23 (degree)C
Beating rev PFI 3500 5200 6200 7200 9000
Drainage Resistance (degree)SR 20 25 30 35 45
Tensile index Nm/g 95 99 102 102 104
Breaking length m 9700 10100 10350 10400 10600
Burst index kPa m2/g 7.3 7.6 7.8 8.0 8.4
Tear index mN m2/g 13.0 12.7 12.1 11.6 10.7
Folding endurance 401og 3.25 3.29 3.31 3.34 3.40
Light Scattering Coeff. M2/kg 16.0 15.1 14.4 14.0 13.6
Opacity % 93.6 93.1 92.4 92.1 91.6
Density kg/m3 717 750 759 770 780
Bulk cm3/g 1.39 1.33 1.32 1.30 1.28
Air permeability, Gurley mm/kPa s 18 9 4.3 2.4 1.1
------------------------------------------------------------------------------------------------
* Address Telephone Telefax
*
* * * *
-----------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
EX-10
6
btxex10xvi.txt
EXHIBIT 10 (XVI)
Exhibit 10 (xvi)
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement is made this 12th
day of September, 2001 by and between CONGRESS FINANCIAL CORPORATION, a Delaware
corporation ("Lender") and BONTEX, INC., a Virginia corporation ("Borrower").
RECITALS
Borrower and Lender entered into a certain Loan and Security Agreement
dated January 26, 2000 (together with all amendments, modifications, addenda and
supplements, the "Loan Agreement") and related documents, evidencing certain
financing arrangements between Lender and Borrower as more particularly
described therein.
Borrower and Lender entered into an Amendment to Loan and Security
Agreement on November 13, 2000 (the "First Amendment").
Borrower has requested certain additional modifications to the terms
and conditions of the Loan Agreement. Lender is willing to make the said
modifications, subject to the terms and conditions of this Amendment
("Amendment").
In addition, Borrower is not in compliance with certain financial
covenants in the Loan Agreement and has requested Lender to waive such
noncompliance, and Lender has agreed to such waiver in accordance with the terms
of this Amendment.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree, as of the date hereof (unless an earlier date is specified
herein), that the Loan Agreement is amended, as follows:
1. DELETED PROVISIONS. The following provisions of the Loan
Agreement are hereby deleted:
(a) Section 1.14 and all references in the Loan Agreement
to "Eurodollar Rate Loans";
(b) Section 1.15, and all references in the Loan
Agreement to "Eurodollar Rate";
(c) Section 1.22, and all references in the Loan
Agreement to "Interest Period";
(d) Section 3.1(b) and 3.1(c); and
(e) Section 3.5.
2. AMENDMENT TO REVOLVING LOAN PROVISIONS.
(a) Section 2.1 of the Loan Agreement is hereby amended
to read as follows:
"2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions
herein, Lender agrees to make Revolving Loans to Borrower from
time to time in amounts requested by Borrower in an aggregate
amount equal to the sum of:
(i) eighty-five percent (85%) of the Net
Amount of Eligible Accounts, plus
(ii) eighty-five percent (85%) of the Net
Amount of eligible Letter of Credit Accounts, plus
(iii) the lesser of: (A) the sum of (I) the
lesser of eighty-five percent (85%) of the net orderly
liquidation value or fifty-six percent (56%) of the Value of
Eligible Inventory consisting of finished goods (but not to
exceed $750,000) plus (II) the lesser of eighty-five (85%) of
the net orderly liquidation value or twelve percent (12%) of
the Value of Eligible Inventory consisting of raw materials
for such finished goods (but not to exceed $250,000); or (B)
One Million Dollars ($1,000,000); less
(iv) any Availability Reserves."
(b) Section 2.3, as amended, of the Loan Agreement is
hereby further amended by deleting the amount "$425,000", and substituting in
lieu thereof the amount "$400,000".
3. INTEREST RATE. Section 1.23 of the Loan Agreement is hereby
amended to read as follows:
"1.23 "Interest Rate" shall mean, as to Prime Rate Loans, a
rate of two percent (2.0%) per annum in excess of the Prime Rate, whether such
rate is higher or lower than any rate previously quoted to Borrower."
4. AMENDMENT TO COLLATERAL REPORTING PROVISIONS
(a) Subsection 7.3(d) of the Loan Agreement is hereby
amended by deleting the word "once" and substituting in lieu thereof the word
"twice".
(b) Subsection 7.4(a) of the Loan Agreement is hereby
amended to read as follows:
"(a) upon Lender's request, Borrower shall, at its
expense, no more than
2
once in any twelve (12) month period, but at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender;"
5. NET WORTH COVENANT. Section 9.14 of the Loan Agreement is
hereby amended to read as follows:
"9.14. Adjusted Tangible Net Worth. Borrower shall
continuously maintain Adjusted Tangible Net Worth of
not less than Five Million Dollars ($5,000,000) from
July 1, 2001 through December 31, 2001, not less than
Five Million Two Hundred Fifty Thousand Dollars
($5,250,000) from January 1, 2002 through March 31,
2002, and Five Million Five Hundred Thousand Dollars
($5,500,000) from April 1, 2002 and at all times
thereafter."
6. FEE. This Amendment is conditioned on the payment by Borrower
to Lender of a loan modification supplemental closing fee of $20,000, which
shall be fully earned as of the date hereof. Borrower authorizes Lender to
extend a Revolving Loan for such supplemental closing fee, subject to the terms
and conditions contained in the Loan Agreement.
7. COVENANT NONCOMPLIANCE WAIVER. Borrower acknowledges that as
of the date of this Amendment, Borrower is not in compliance with the
requirements of Section 9.14 of the Loan Agreement. Effective upon payment in
full of the amount set forth in Section 6 hereof, and in consideration thereof,
Lender waives such noncompliance through June 30, 2001. Lender's agreement to
waive such noncompliance shall not constitute a waiver of any other event which
may constitute an Event of Default or obligate Lender to any future waiver of
any Event of Default.
8. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to, and covenants with, Lender as follows, which representations,
warranties and covenants are continuing and shall survive the execution and
delivery hereof, and the truth and accuracy of, or compliance with each,
together with the representations, warranties and covenants in the other
Financing Agreements, being a continuing condition of the making of Loans by
Lender to Borrower:
(a) No Event of Default exists, and, with the exception
of those matters described in Schedule A attached hereto (which disclosure shall
not be construed as Lender's waiver of such Event of Default), no act, condition
or event which with notice or passage of time or both would constitute an Event
of Default exists or has occurred as of the date of this Amendment (after giving
effect to the amendments to the Loan Agreement made by this Amendment);
(b) This Amendment has been duly executed and delivered
by Borrower and is in full force and effect as of the date hereof and the
agreements and obligations of Borrower contained herein constitute legal, valid
and binding obligations of Borrower enforceable against Borrower in accordance
with their respective terms;
3
(c) Borrower has taken all necessary corporate action to
authorize the execution, delivery and performance of this Amendment;
(d) This Amendment is, or when executed by Borrower and
delivered to Lender, will be, duly executed and constitute a valid and legally
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms; and
(e) The execution by Borrower and delivery to Lender of
this Amendment is not and will not be in contravention of any order of any court
or other agency of government, law or any other indenture or agreement to which
wither Borrower is bound or the Articles of Incorporation or bylaws of Borrower
to be in conflict with, or result in a breach of, or constitute (with due notice
and/or passage of time) a default under any such indenture, agreement or
undertaking or result in the imposition of any lien, charge, encumbrance of any
nature on any property of Borrower.
9. Except as expressly amended herein, the terms and conditions
of the Loan Agreement are hereby reaffirmed and ratified in all respects, and
Borrower reaffirms each of the representations and warranties under the Loan
Agreement made by it, as if said representations and warranties were made and
given on and as of the date hereof.
10. This Amendment may be executed in any number of counterparts
and by different parties on separate counterparts (including by facsimile
transmission of executed signature pages hereto), each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
agreement. This Amendment shall become effective upon the execution and delivery
of a counterpart hereof by each of the parties hereof.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed on and as of the date and year first above written.
4
LENDER BORROWER
------ --------
CONGRESS FINANCIAL BONTEX, INC.
CORPORATION
By: /s/ Cindy B. Denbaum By: /s/ Jeffrey C. Kostelni
Title: VP Title: CFO
Address: Address:
------- -------
1133 Avenue of the Americas One Bontex Drive
New York, NY 10036 Buena Vista, Virginia 24116
5
SCHEDULE A
1. Tax Issue at Bontex SA:
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 has been accrued at June
30, 2001 and 2000. Similar deductions relating to the year ended June 30, 2000
that in light of the current information may be disallowed have been treated as
disallowed expenses in the calculation of the current year's tax provision. 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.
2. Normal EPA matters:
As with other related manufacturers, the Company is subject to
regulations by various federal, state, foreign and local agencies concerning
compliance with environmental control statutes. These regulations impose
limitations on the use of chemicals in manufacturing processes and discharge of
effluent and emissions into the environment, and establish standards for solid
and hazardous waste disposal, treatment, and storage, as well as require the
Company to obtain and operate in compliance with the conditions of environmental
permit. The Company believes that it is in substantial compliance with such
existing domestic and foreign environmental statues and regulations. Failure to
comply with applicable environmental control standards could result in
interruption of operations or could require additional expenditures at these
facilities.
In recent years, various agencies have increased their screening and
testing the effects of chemicals or mixtures, including those that occur
naturally. The Company's product formulations, in some instances, may include
compounds that are or will be subject to these tests. The Company continually
devotes significant resources to improve product formulation for, among other
things, comfort, health, cost, quality and other performance features.
The Company has made and intends to continue to make capital
investments, operating expenditures, and production adjustments in connection
with compliance with environmental laws and regulations. Since the Company is
essentially comprised of two fiberboard plants, Bontex USA and Bontex S.A.,
water quality discharge remains the primary environmental concern. Both plants
are operating new waste water treatment facilities, which the Company believes
to be operating
6
within compliance of applicable environmental requirements. Also, the actual
costs of future environmental compliance may differ from projected costs due to,
among other things, continued emergence of newer environmental laws and
regulations and improving efficiencies in environmental control or process
technology developments.
Bontex USA received a renewal of its 5-year wastewater discharge permit
on April 2, 2001. The new permit allows for an average of discharge limits that
were previously point limits. In addition, the zinc limit was removed from the
permit by the regulatory authorities as zinc was deemed not to be a component
significantly contributing to wastewater impact. The new permit will require the
Company to expand its wastewater treatment facility to increase the capacity of
its equalization tank. The Company expects to start the expansion this Summer
and complete it by the end of the calendar year. Prior to receiving the new
permit, the Company had received a Notice of Violation from the Virginia
Department of Environmental Quality (DEQ) dated March 14, 2001 regarding its
discharge of wastewater. In general, DEQ stated in the Notice of Violation that
it had reason to believe that the Company's plant in Buena Vista, Virginia, may
be out of compliance with wastewater discharge limitations. The Company expects
that this notice of Violation will result in a consent agreement with DEQ but
will not result in monetary damages that would have a material adverse effect on
the Company's financial condition, liquidity or results of operations.
7
EX-13
7
arsex13.txt
EXHIBIT 13
Exhibit 13
[FRONT COVER]
[Bontex logo] BONTEX [R]
[2001 Annual Report]
CONTENTS
[BONTEX SYMBOL] BONTEX [R]
CONSOLIDATED 2001 ANNUAL REPORT
"WITH OVER 50 YEARS OF EXPERIENCE, BONTEX IS A GLOBAL LEADER IN
OUR CORE INDUSTRIES WE SERVE. ALMOST ALL THE BRANDED FOOTWEAR
IN THE WORLD USE BONTEX, AND DURING
2001, BONTEX CONTINUED TO DEVELOP AND INTRODUCE MORE NEW AND ADVANCED PRODUCTS."
2 Mission Statement, Corporate and 5 Management's Discussion and
Product Profile Analysis
3 Message to Shareholders 13 Consolidated Financial Statements and
Notes
4 Financial Highlights 28 Independent Auditors' Report
CORPORATE HIGHLIGHTS
1946 Bontex was originally established as a leather 1996 The Company restructures and officially
processing operation in Newark, New Jersey. operates globally as Bontex, Inc., formerly
Georgia Bonded Fibers, Inc.
1954 Bontex elastomeric wet web cellulose materials
were first produced in Buena Vista, Virginia. 1997 Bontex export sales from USA exceed $10
million. Bontex establishes Bontex Hong
1959 Bontex goes public with stock issuance and listing Kong to further expand export sales.
on NASDAQ stock market. Bontex enters into key strategic
partnerships to market a range of
1969 Bontex begins Bontex SA investment in Belgium, nonwoven materials. Bontex becomes the
then and today, one of the world's largest and first global manufacturer in our industry to
highest capacity factories manufacturing be ISO 9001certified, SATRA accredited
elastomeric wet web fiberboard products. laboratory certified and SATRA Quality
Mark approval for several products.
1986 Bontex establishes a base of operations in Italy, as
Bontex Italia begins sales, marketing, and 1999- Three year transition as Bontex begins
converting operations. 2001 long-term repositioning as a multi-
dimensional company. Bontex introduced a
1995 Bontex sales exceed $50 million. Bontex broader range of materials, including
establishes Bontex de Mexico to expand export Bontex 90 Insole Seat-board, economical
sales. insole products, Bon-Stitch linings, and
Bon-Stitch next generation nonwoven
insoles. Bontex embarks on an advanced
material system for footwear and
non-footwear applications.
1
MISSION STATEMENT
OUR MISSION IS TO BE THE GLOBAL LEADER IN THE MARKETS
WE SERVE, BY PROVIDING CUSTOMERS WITH WORLD CLASS
QUALITY PRODUCTS AND SERVICE.
CORPORATE PROFILE
Bontex, Inc. was originally founded in June 1946 under the laws of the State of
New Jersey as a leather processing operation. Today, Bontex, Inc. ("Bontex" or
the "Company") is a leading worldwide manufacturer and distributor of uncoated
and coated elastomeric wet web impregnated fiberboard products, generally
described by the trademark BONTEX(R). BONTEX(R) is primarily used as an insole
material in footwear, as well as visorboard in headwear, dielectric sealing base
in automotive door panels, backing substrate, stiffener and laminating base in
luggage, leathergoods, and allied products. All BONTEX(R) fiberboard products
are designed to be "environmentally-friendly," because Bontex uses recycled and
primary cellulose fibers originally derived from trees, a renewable resource.
The Company maintains global headquarters, manufacturing and converting
facilities at Bontex USA, One Bontex Drive, Buena Vista, Virginia; European
headquarters and manufacturing at Bontex S.A., Stembert, Belgium; a distribution
and converting operation at Bontex Italia S.r.l., Villafranca, Verona, Italy;
and marketing organizations at Bontex de Mexico, S.A. de C.V., in Leon, Mexico,
Bontex Vietnam, Hochiminh City Vietnam, and Bontex Hong Kong R.O.C. Bontex also
maintains a network of liaison offices and distributors globally to market
Bontex products.
PRODUCT PROFILE
Bontex manufactures uncoated and coated BONTEX(R) fiberboard products;
breathable cushion foams, that are marketed under the trademarks BON-FOAM(R),
MAXXON(R) and SURE-FOAM(R), and are sold in a variety of grades for use as shock
absorbing insole material; BON-PEL(R), a wet web nonwoven substrate, which is
exceptionally strong and flexible; BONTEX(R) 48 MA, an uncoated visorboard for
use in military headwear, which has been approved by NATICK military laboratory.
Bontex also combines certain products, such as foams, fabrics, and vinyls, with
BONTEX(R) fiberboard. Additionally, Bontex is the exclusive distributor globally
to the footwear industry of an expanded polyurethane material manufactured by
Aearo Company-E.A.R. Specialty Composites, trademarked MAXXON(R) LS and
CONFOR(R). Bontex also markets to the footwear industry a range of nonwoven
products under the Company's trademark Bon-Stitch(R), primarily used as an
insole and vamp lining. Registered trademarks under which the Company markets
products include:
BONTEX(R) SUPERTEX(R) BON-PEL(R)nonwoven
MORI-FLEX(R) BON-FOAM(R)cushion BON-STITCH(R)
MAXXON(R)cushion VINTEX(R) SUR-V-LON(R)vinyl coated Bontex
BON-DOE(R) SIR-PEL(R) CONTOUR(R)
MORIMER(R) SURTEX(R) BONTEX(R)RECYCLED
Bontex is continuing to embark on repositioning the Company to manufacture and
supply a range of advanced material systems to both footwear and non-footwear
applications. During the previous three years, the Company has successfully
introduced several new products, and during the next year, the Company
anticipates introducing several additional new products.
2
MESSAGE TO SHAREHOLDERS
(Bontex Symbol) BONTEX [R] ONE BONTEX DRIVE
BUENA VISTA, VIRGINIA 24416-1500
email: bontex@bontex.com
http://www.bontex.com
Dear Fellow Shareholder:
As I write this letter, Bontex continues to work through one of the most
challenging periods in the history of the Company. I am pleased to report that
much progress has been made, and we are optimistic that fiscal 2002 will be a
pivotal year in returning Bontex to profitability, but much work remains ahead
of us. Our management team is committed to working aggressively to address the
operating losses and their impact on our financial position. We will continue to
evaluate all of our business strategies and we will take the necessary measures
considered appropriate to ensure the long-term success and profitability of
Bontex.
We are not pleased with the losses incurred by Bontex, and my message to
shareholders continues to focus on our efforts to return the Company to
profitability. Therefore, I will refer you to our Management's Discussion and
Analysis for further comments regarding the Company's financial performance and
the detailed description of the challenging operating conditions confronting
Bontex.
In the near term, our returning to profitability depends on increasing sales of
our core products and adjusting our cost structure so that Bontex can compete as
a low-cost supplier of quality elastomeric wet web fiberboard products. As
outlined in my letter to you last year, after an analysis of our business model
for the past fifty years, we realized that the long-term success of the Company
depends on changing into a multi-dimensional company. This entails an inherently
long process that requires the engagement of the entire Company. We are well
into the process and we remain focused on our key initiatives, but this major
effort will take much time.
We have been able to increase sales, in spite of the highly competitive
environment in which the Company operates, through our focused efforts to
maintain existing specification customers, add new specification and non-
specification customers, and bring new products to the marketplace. Our sales
volume increased by 17% this year, as compared to a 7% increase in volume last
year. We are confident that this momentum in sales will continue, as we remained
focused on all our sales initiatives.
In addressing our cost structure, we continue to implement several measures that
will contain costs, including new technologies for process controls and
formulation in manufacturing, purchase commitments for primary raw materials
with "partner" suppliers, which contribute to added stability in our purchase
prices as well as secure adequate raw materials, reorganize and stream-line our
sales network operations, staff reductions and other cost cutting measures. We
expect when all these measures are fully implemented and realized, these efforts
should contribute significantly to our annualized cost reductions.
Today, Bontex manufactures the highest quality products we have ever made, and
we will continue to be an improvement driven company. We are not only one of the
world's largest manufacturers and distributors of cellulose and nonwoven
insoling materials to the footwear industry, but we can boast that we are the
global leader in supplying these products to the high-end market segment of our
industry. We are also the leader in quality products, as supported by being the
first global manufacturer in our industry to be ISO 9001 with the SATRA Quality
Mark and a SATRA Accredited Laboratory.
We cannot simply maintain our position in the footwear industry. It is crucial
to increase our sales in order to provide a revenue and profit base from which
to build upon for both footwear and non-footwear products. During the past two
years, we have successfully increased our market share in our core footwear
business relative to the overall market and relative to our primary global
competitors through the introduction of our new products. Our new footwear
products, including our Bontex 90 Seat-board and Bon-Stitch nonwoven materials,
contributed over $2.0 million in sales last year. Furthermore, the introduction
of a range of economical cellulose products, the largest market segment for
Bontex type products, increased sales volume and contributed to better capacity
utilization. The positive effects of greater economies are expected to enhance
our competitive position in the future, especially with Bontex SA, our
production facility in Belgium, which we regard as the highest capacity and most
efficient factory in our industry worldwide. These sales increases were
partially offset by the aggressive pricing of our primary global competitor,
which has been costly to Bontex over the past few years. In spite of this
competitive situation, we have not lost any major specification accounts, but
the reduction in pricing and operating profits has been significant.
Our efforts to develop new non-footwear products also remain an important
priority. Although much progress has been made, significant work continues to be
ahead of us in order to develop new and viable specialty materials. We will
continue to utilize consultants with the technical knowledge to enable Bontex to
develop these new materials. The emphasis on increasing sales for the Company,
especially with Bontex USA, is an important priority, because the contraction of
the US domestic market has resulted in a loss of an important volume of this
business for the Company. As with all manufacturers, Bontex is volume sensitive,
and the lower the volume, the higher our per unit costs. Sales from new products
combined with cost cutting measures will be crucial to the profitability of the
Company.
Prior to closing my letter, a major event of historical significance has
occurred, which will affect Bontex and much of the world. The United States of
America has been attacked by terrorists with the devastation at the World Trade
Center in New York and the Pentagon near Washington DC. The ramifications of
these atrocities will be significant. We cannot predict with any certainty the
full ultimate impact on Bontex or on us as individuals, but the world we all
live in will be changed by this defining moment and tragedy. We can report that
Bontex has not yet been directly affected, but we will eventually work through
the resulting adversities. Our thoughts and prayers are with the victims of
these horrendous and unprecedented attacks.
We greatly appreciate our shareholders' support of our efforts to develop Bontex
into a more diverse company, as well as the commitment and invaluable role of
our Board of Directors, employees and distributors globally, and the loyalty and
trust from our customers.
s/James C. Kostelni
James C. Kostelni
Chairman and Chief Executive Officer
See accompanying safe harbor disclosure on page 5
------------------------------------------------------------------------------
Bontex, Inc., Bontex SA (Belgium), Bontex S.r.l. (Italy),
Bontex Hong Kong, Bontex de Mexico, Bontex Vietnam
3
BONTEX, INC. AND SUBSIDIARIES
Summary of Selected Ten Year Data1
(In Thousands, Except Per Share Data and Ratios)
YEARS ENDED JUNE 30,
2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
Net sales $ 42,504 $ 39,455 $ 39,325 $ 43,483 $ 50,333 $ 47,618 $ 50,998 $ 47,729 $ 46,710 $ 46,534
======== ======= ======== ======== ======== ======= ======= ======== ======== ========
Income (loss) before
cumulative effect of
change in accounting
principles $ (1,526) $ (659) $ (778) $ (446) $ 1,733 $ (602) $ (1,458) $ 935 $ 193 $ 942
Cumulative effect of
change in accounting
principles - - - - - - - 400 - -
-------- ------- -------- -------- -------- ------- ------- -------- -------- --------
Net income (loss) $ (1,526) $ (659) $ (778) $ (446) $ 1,733 $ (602) $ (1,458) $ 1,335 $ 193 $ 942
======== ======= ======== ======== ======== ======= ======= ======== ======== ========
Income (loss) per share:
Before cumulative effect
of change in accounting
principles $ (.97) $ (.42) $ (.49) $ (.28) $ 1.10 $ (.38) $ (.93) $ .60 $ .12 $ .60
Cumulative effect of change
in accounting principles - - - - - - - .25 - -
-------- ------- -------- -------- -------- ------- ------- -------- -------- --------
Net income (loss) $ (.97) $ (.42) $ (.49) $ (.28) $ 1.10 $ (.38) $ (.93) $ .85 $ .12 $ .60
======== ======= ======== ======== ======== ======= ======= ======== ======== ========
Total assets $ 27,439 $ 30,885 $ 31,164 $ 32,513 $ 32,906 $ 33,181 $ 39,527 $ 31,032 $ 28,840 $ 28,669
Total stockholders' equity $ 6,975 $ 8,948 $ 9,893 $ 10,891 $ 11,515 $ 10,308 $ 11,186 $ 12,080 $ 10,521 $ 10,825
Capital expenditures $ 747 $ 854 $ 1,067 $ 2,334 $ 2,389 $ 2,157 $ 1,704 $ 1,868 $ 1,226 $ 1,787
Cash flows provided by
(used in) operating
activities $ (774) $ 1,608 $ 122 $ 57 $ 3,037 $ 1,180 $ (2,073) $ 1,078 $ (122) $ 215
Long-term debt,
noncurrent $ 1,568 $ 2,327 $ 2,601 $ 2,256 $ 2,761 $ 2,330 $ 1,364 $ 1,511 $ 1,056 $ 1,493
Book value per share $ 4.43 $ 5.69 $ 6.29 $ 6.92 $ 7.32 $ 6.55 $ 7.11 $ 7.68 $ 6.69 $ 6.88
Cash dividends per
common share $ - $ - $ - $ - $ - $ - $ - $ - $ .05 $ -
Current ratio .94 .98 1.02 1.05 1.16 1.06 1.07 1.30 1.26 1.34
Total debt to equity ratio 2.93 2.45 2.15 1.99 1.86 2.22 2.53 1.57 1.74 1.65
Common Stock and Dividend Data
The stock of Bontex, Inc. was previously traded over the counter on the Nasdaq
National Market. Effective July 23, 1998, the stock of Bontex, Inc. was listed
on the Nasdaq SmallCap Market under the symbol BOTX. At September 10, 2001 there
were approximately 688 stockholders of record. No cash dividends were declared
or paid during fiscal years 1997 through 2001.
2001 2000 1999 1998 1997
------- ------ ----- ----- ------
HIGH Low High Low High Low High Low High Low
------ ------ -------- ----- ------- ----- ------ ------ ------- -----
First Quarter $ 2.25 $ 1.75 $ 2.75 $ 1.75 $ 3.38 $ 2.25 $ 9.63 $ 4.25 $ 4.00 $ 3.13
Second Quarter 2.00 1.25 2.63 1.50 2.62 1.50 8.50 4.50 5.13 3.50
Third Quarter 3.37 1.25 5.47 1.75 4.00 1.00 5.25 3.25 5.38 4.50
Fourth Quarter 2.70 1.75 3.75 1.75 3.00 1.50 4.25 2.88 5.00 4.25
4
BONTEX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company's consolidated financial statements and notes to the consolidated
financial statements should be read as an integral part of this discussion.
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, without limitation,
statements about financing plans, cash flows, availability of capital, growth
opportunities, benefits from new technologies, financial condition, capital
expenditures, future results of operations or market conditions and involve
certain risks, uncertainties and assumptions. The words "estimate," "project,"
"intend," "expect," "believe," and similar expressions are intended to identify
forward-looking statements. These and other forward-looking statements are found
at various places throughout this report, and you are cautioned not to place
undue reliance on these forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various relevant
factors. 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 competition from non-woven materials, the reduction of prices by
competitors, the increase in the relative price of Bontex's products due to
foreign currency devaluations, increased pulp and latex prices, capital
illiquidity, unexpected foreign tax liabilities, the impact of any unusual items
resulting from ongoing evaluations of the Company's business strategies,
decreases in the Company's borrowing base, trading of Bontex common stock at a
level where closing bid prices are too low to remain listed on the Nasdaq
SmallCap Market, increased funding requirements for the Company's pension plan,
inability to recover deferred tax assets, an inability by Bontex to renew its
current credit facilities or obtain alternative financing, a market shift in
demand from higher-quality products to more economical grade products with lower
profit margins, higher energy prices, and increased costs of complying with
environmental laws, and the impact of changes in political, economic or other
factors, legal and regulatory changes or other external factors over which the
Company has no control.
RESULTS OF OPERATIONS
OVERVIEW
Bontex, Inc. is one of the world's largest global manufacturers and distributors
of elastomeric wet web fiberboard products and nonwoven materials primarily used
as an insole material in footwear and as a stiffener or laminating base in
luggage and leather good applications. Management believes Bontex is the global
leader in manufacturing and supplying such quality component materials to the
high-end market segment, and furthermore, Bontex has one of the largest customer
bases in the world for its industry. During fiscal 2001, management estimates
the Company's overall market share increased relative to the Company's primary
global competitors, and management believes this momentum for improving market
position will continue. However, the increases in sales and sales volumes were
not enough to offset the increases in costs and other negative operating
conditions.
The following discussion and analysis describes continued challenging operating
conditions. The increase in operating losses can be attributed to a number of
factors, including increased competition resulting in reduced prices for the
Company's products, a major market shift from higher quality materials and
composite packages to more economical grade products with lower gross profit
margins, higher costs for primary raw materials, including pulps and latex, a
declining U.S. domestic market for our core footwear products, and the usage of
nonwoven materials as an insole material. In spite of the increased losses,
Bontex has taken steps to mitigate higher raw materials and operating costs, for
which the positive effects are expected to be
5
realized during the next fiscal year. Management maintains positive expectations
for improved profitability because of lower raw material costs, higher sales and
improved profit margins through the use of improved technologies, formulations
and process controls.
Sales of recently introduced new footwear products showed promise during the
year, but there can be no assurances that these new products, or other new
non-footwear products nearing the marketability stage, will contribute
significantly to the Company's sales volume. It is not possible to accurately
predict the viability of any of these products at this time, but Bontex has
embarked on a major effort to identify, develop and promote a more broad range
of advanced materials and technologies for domestic and export to footwear and
non-footwear industries.
SALES
Consolidated net sales were $42.5 million, $39.5 million, and $39.3 million, for
fiscal years 2001, 2000, and 1999, respectively. If the foreign currency
exchange rates had remained unchanged from last year to the current year,
consolidated net sales would have increased instead by $6.6 million or almost
17%, to $46 million, reflecting higher sales volumes. In other words, the
increase in the value of the US dollar relative to the Euro during fiscal 2001
resulted in a $3.6 million translation decrease in net sales. For the prior
year, there was a $2.6 million translation decrease in consolidated net sales in
comparing 2000 to 1999.
In spite of significant competition, Bontex has successfully increased the
Company's overall market share and strengthened the Company's position in
specification footwear sales, as well as increasing non-specification sales.
Management considers specification sales to be sales to those branded footwear
customers who specify Bontex materials to their contract factories.
Non-specification sales are sales to those customers who do not specifically
request Bontex products be used by their contract factories in the manufacturing
of their footwear products. Competitive pricing pressures, especially from the
Company's primary global competitor, have significantly reduced the Company's
prices and operating profits to a number of key specification accounts.
Management believes Bontex has not lost any specification accounts due to this
price competition, but there has been a significant cost and there is no
assurance that such competitive pricing will not further adversely affect the
Company's future sales and profitability.
The cellulose insole market continues to be affected by competition from
nonwoven materials and low quality products, especially in Far East markets. For
instance, there is an over-supply and over-capacity of low quality materials,
especially acute in China, which creates downward pressure on prices. Although
most of these low-end producers are not in direct competition with Bontex, their
impact on the market is pervasive. Bontex continues to allocate increased
resources to the Company's marketing network in China, Vietnam and Thailand.
Management has reorganized the Company's personnel and added staff in key areas
in order to continue the momentum initiated in previous years in these
increasingly important markets.
Bontex has successfully introduced a range of quality economical products in
response to competition from lower priced products, the largest market segment
for cellulose insole products. These lower priced quality Bontex products have
lower profit margins than the Company's high-end products, but contribute
positively to capacity utilization, because these products are high volume. In
addition, because Bontex believes the Company's factory in Belgium is the
world's most efficient and highest capacity machine, management believes Bontex
can profit from these lower-margin high volume products. Bontex has made
significant efforts to maintain as high prices as possible, but the competitive
nature of such commodity products has resulted in the increased volume of these
economical products.
Over the past several years, sales of Bontex cellulose insole products,
particularly to the athletic category, have also declined because of the trend
of increased usage of nonwoven insole materials, an alternative material and
construction to cellulose board lasted construction. Nonwoven insole materials
are used mainly in force last or strobel-stitch applications, whereas Bontex
cellulose products are mainly used in cement or
6
board lasted construction. The overall volume of nonwoven strobel constructed
footwear has leveled off, and management believes board lasted footwear remains
the predominant insole material and construction worldwide. As part of the
Company's sales initiatives, Bontex has recently introduced a range of new
nonwoven insole materials and linings, marketed under the Bontex trade name,
Bon-Stitch, which are sourced from other manufacturers to further expand the
Company's product base.
Also during the prior year, sales of the Company's recently introduced Bontex 90
Seat-board (patent pending) product continue to develop for high-end
applications, such as golf, soccer and other footwear applications requiring a
tuck-board. In 2001, sales of these new seat-board and nonwoven products totaled
over $2.1 million. Because Bontex does not manufacture these nonwoven products,
the Company's costing and prices are such that the Company's per unit margins
are relatively low as compared to the Company's manufactured products, which has
a tendency to lower the Company's overall margins. However, since the added cost
of marketing these products is not considered to be significantly more, the
Company's strategy is to have high volumes so that these added sales contribute
positively to covering overhead costs and to the Company's overall profits.
Bontex has an aggressive strategy to locate complimentary products and advanced
technologies and rapidly bring them to the marketplace. Sales from a number of
these new projects were expected to occur during fiscal year 2001, but
development was slower than anticipated. To date, the Company has incurred a
minor amount of research and development expenses related to development of
these new products. It is impossible to accurately predict the level of sales
potential or profitability at this time. However, management expects one or more
of these projects to generate sales during fiscal year 2002.
COSTS
The increases in sales were not enough to offset the impact of higher costs:
Cost of sales as a percent of net sales were 76.4 percent in 2001, 72.5 percent
of net sales in 2000, and 74.1 percent of net sales in 1999. Overall, gross
profits (net sales less cost of sales) declined from $10,857,000 in 2000 to
$10,051,000 in 2001, a decrease of $806,000. The increase in costs and lower
profit margins from 2000 to 2001 can be attributed mainly to higher raw material
costs, especially pulp and latex, competitive pricing pressures lowering selling
prices, lower priced product mix, including less converted or laminated products
and more sourced and economical products, and higher operating costs, including
higher natural gas prices used to generate steam for production, and higher
costs for waste water treatment processing. For example, higher raw material
costs in 2001 translated to an increase in operating costs and reduced operating
income of over $1.6 million relative to 2000. However, several of the Company's
cost control measures and higher sales volumes abated some of the higher raw
material costs. The decrease in costs as a percentage of sales from 1999 to 2000
was mainly due to lower raw material costs, improved efficiency from prior
investments and other cost control measures taken by management.
The Company has entered into a number of purchase commitments for certain
commodities, including pulp, latex and natural gas, for future manufacturing
requirements in an effort to manage the effects of market price fluctuations and
to secure adequate raw material supplies. If these purchase commitments for pulp
and latex had been in effect during all of 2001, the Company would have had
lower raw material prices. However, there is no guarantee that these purchase
commitments will result in lower purchase prices for the Company. To the extent
that these purchase commitments obligate the Company to purchase pulp, latex and
natural gas at higher than prevailing market prices, they could result in higher
costs.
The Company's United States operations use the last in, first out (LIFO) method
of inventory accounting. If the first-in, first-out, (FIFO) method of accounting
had been used, reported gross profit would have been higher by $101,000 in 2001,
higher by $28,000 in 2000, and lower by $93,000 in 1999. Net income would have
been higher by $61,000 or $0.04 per share in 2001, higher by $18,000 or $.01 per
share in 2000, and lower by $60,000 or $.04 per share in 1999.
7
Footwear production in North America continued to decline as more companies
closed domestic production facilities in favor of lower labor cost markets such
as China. While Bontex has a strong export program, selling and third party
costs tend to be higher for exports than for domestic sales. The Company
continues to pursue opportunities for footwear and non-footwear sales in the
United States.
As a percent of net sales, selling, general and administrative (SG&A) expenses
over the previous three years were 24.9 percent in 2001, 26.1 percent in 2000,
and 26.0 percent in 1999. The lower SG&A percentage in 2001 as compared to 2000
reflects sales increasing at a higher rate than related costs because of the
Company's continued efforts to control costs. In 2000 and 1999, the higher SG&A
percentages were mainly due to lower sales volumes, and higher costs, due to
among other things, higher legal costs associated with certain lawsuits against
the Company and some of its officers. These legal expenses did not recur in this
magnitude during 2000, but increased shipping costs, the addition of new sales
employees, and other related selling and marketing costs kept the SG&A
percentage from declining in 2000 relative to 1999.
The impact of the cost structure described above resulted in operating income
reversing from an operating income of $564,000 during 2000 to an operating loss
of $541,000 for 2001. Decreases in profitability occurred at both Bontex USA and
Bontex Belgium, but the largest portion of the operating losses was with Bontex
USA. Over the past several years, the volume of business for Bontex USA has
declined considerably because of several factors, including a contracting US
domestic market. This decline in sales combined with competitive pricing
pressures and higher operating costs for, among other things, raw materials,
resulted in much higher operating losses. Management has implemented several
initiatives as described in this discussion and analysis to address this
situation, and progress has been made to reduce costs and increase sales, but
there is no assurance that these steps will return Bontex USA to profitability.
Interest expense remained relatively stable from 2000 to 2001, because the
decline in interest rates during the year was offset by the increases in
borrowing to fund higher sales and operating losses. The decrease in interest
expense from 1999 to 2000 was due primarily to a decrease in long and short-term
borrowing because of lower sales, which was offset somewhat by higher interest
rates.
The consolidated income tax expense for the Company was $901,000 in 2001, as
compared to an income tax expense of $335,000 in 2000 and an income tax benefit
of $208,000 in 1999. The income tax expense in 2001 is primarily due to the
recording of a valuation allowance for the deferred tax assets of Bontex USA.
Based on the evaluation of relevant factors, including the recurring losses at
Bontex USA over the past several years, a valuation allowance of $1,022,000 was
recorded at June 30, 2001. The income tax expense in 2000 was significantly
higher than 1999 due to a $239,000 tax accrual established with respect to a
prior years tax examination of one of the Company's foreign subsidiaries.
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
that 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, (or 250,000 Euros, the local reporting currency for Bontex SA), and,
accordingly, a provision for this amount was accrued at June 30, 2000. The
accrual amount in Euros remained at 250,000 at June 30, 2001, but due to
fluctuations in the value of the Euro relative to the USA dollar, the amount
reported translates to $212,000 at June 30, 2001. Similar deductions relating to
the years ended June 30, 2001 and 2000 that in light of the current information
may be
8
disallowed have been treated as disallowed expenses in the calculation of those
year's tax provisions. The Company's actual liability pursuant to the foregoing
examination may exceed $212,000, and such excess liability could adversely
affect the Company's financial condition.
PROFITABILITY
The net loss of $1.5 million or $0.97 per share incurred in 2001 compares
unfavorably to $659,000 or $0.42 per share net loss in 2000, and to the loss of
$778,000 or $0.49 per share in 1999. The net loss during 2001 would have been
higher by $482,000; however, during the year Bontex, Inc. sold the Company's
warehouse facility in Newark, New Jersey, and recorded in Other Income/Expense -
net a one-time gain of $803,000 or net gain of approximately $482,000 after
considering the impact of taxes. Additionally, as previously described, the
recording of the valuation allowance for deferred income tax assets of Bontex
USA increased the current year net loss by $1,022,000.
Management is working aggressively to reverse these unprofitable results. The
coming year will be a pivotal year, and management will continually evaluate the
Company's business strategies and all options, and if, circumstances warrant,
management will take the necessary measures considered appropriate for the
Company's long-term profitability.
Historically, the financial performance of Bontex has been directly related to
cycles in key raw materials, particularly pulp and latex. However, over the past
few years, higher raw material costs combined with the lower sales volumes of
the Company's Bontex cellulose materials, particularly for Bontex USA, have
resulted in especially negative operating conditions. Management continues to
pursue several measures, including process controls and formulation
efficiencies, to better enable the Company to cope with fluctuations in volume
and raw material costs in the future, as well as several initiatives to increase
sales. However, as previously noted, selling price reductions due to the
Company's competitive situation have offset a large portion of the Company's
cost reductions. Management remains optimistic for the future, but there can be
no assurances that increased raw materials prices or decreased volume of sales
will not have an on-going adverse impact on the Company's operations or
competitive position in the future.
INTERNATIONAL SALES AND OPERATIONS
Bontex continues to export a predominant portion of its production to countries
globally, especially to the Far East, where an estimated 70 percent of global
shoe production occurs. For instance, China is the single largest market in the
world for Bontex type products, as it is estimated that approximately half of
the world's footwear is manufactured in China. The Company's sales to the Far
East are denominated in US dollars, which serves to limit the Company's exposure
to foreign currency exchange gains and losses. However, there remains some
foreign currency exchange exposure for the Company's sales in that Bontex USA
continues to have limited level of sales denominated in other currencies, mostly
with the Mexican peso and Canadian dollar. The exchange losses during 2001 and
1999 are mainly due to declines in value of the Mexican peso, Canadian dollar
and the overall strength of the US dollar during that period. The relative
strength of the US dollar makes Bontex products more expensive than locally
sourced materials abroad, which has an adverse impact on the Company's
competitive position.
Bontex remains an international company. Almost 90 percent of the Company's
sales are to customers outside of the United States, with Asia/Pacific
representing over 48 percent of net sales. Europe and Middle East markets
represent the next largest markets for Bontex products, representing
approximately 32 percent of net sales. Furthermore, almost 60 percent of the
Company's manufacturing is outside of the United States. No one customer
represents more than 10 percent of the Company's total sales, and we have an
extensive customer base.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have decreased significantly over
the past few years, due to net losses and investments in capital and facility
improvements deemed necessary by management. Management believes that the
Company's capital structure is sufficient to finance short and long-term
operations and objectives.
EBITDA, defined as operating income plus depreciation and amortization, is
considered a primary measure of the Company's ability to generate cash flow.
EBITDA remained positive but decreased from $1,886,000 in 2000 to $758,000 in
2001, mainly because of the operating losses. EBITDA margin, defined as EBITDA
as a percent of net sales, was 1.8 percent in 2001, 4.8 percent in 2000 and 3.4
percent in 1999. The decline in EBITDA margin from 2000 to 2001 was mainly due
to decreased profitability and increase in net sales, and the improvement in
EBITDA margin from 1999 to 2000 was primarily due to the growth in operating
income, partially offset by increases in sales.
Cash flows provided by (used in) operations totaled $(774,000), $1.6 million,
and $122,000 in 2001, 2000 and 1999, respectively. Operating cash flows were
adversely affected by higher costs, reflected in proportionately higher payments
to suppliers, higher inventory balances, and decreases in accounts payables and
accrued expenses, which were partially offset by a decrease in trade
receivables. In 2000, operating cash flows were primarily due to an increase in
accounts payable and accrued expenses, which was partially offset by an increase
in accounts receivable and other receivables. In 1999, operating cash flows were
mainly due to reductions in inventory. Trade accounts receivable decreased $1.5
million to $10.7 million at June 30, 2001, as compared to last year due
primarily to improved collections and aging, as well as a decrease due to
fluctuations in foreign currencies resulting in a translation decrease of
approximately $800,000. Inventories at June 30, 2001 are lower by $21,000
compared to 2000 balances due mainly to increased efforts to improve turnover
and global stock requirements, as well as a foreign currency translation
decrease. The Company's cash conversion efficiency, cash flows from operations
divided by net sales, decreased from 4.1 percent in 2000 to (1.8) percent this
year, as compared to a cash conversion efficiency ratio of less than 1.0 percent
in 1999. The Company's current ratio has decreased slightly from .98 in 2000 to
.94 this year, reflecting, among other things, funding of operating losses and
capital additions through current debt.
Capital expenditures for property, plant and equipment (PP&E) totaled $747,000
in 2001, $854,000 in 2000 and $1.1 million in 1999. The PP&E additions reflect
the Company's commitment to invest in new technologies so that the Company can
remain a global leader in manufacturing the highest quality products at the
lowest cost. Competition is principally based on price, delivery and quality,
and the Company's future success will depend on the Company's ability to
maintain the Company's leadership position and to anticipate and to respond to
various competitive factors affecting the industry, including pricing
strategies, environmental mandates, and other such market trends. Capital
expenditures in 2001 were lower than prior years due to controls to limit costs
in this area. Through targeted capital and other investments, the Company
believes that Bontex Belgium's facility has developed into one of the most
efficient and highest capacity operation of its type in the world. Bontex USA
has invested in facility improvements that further enhance its reliability as a
supplier to the markets the Company serves.
Bontex has also invested heavily in environmental equipment at both
manufacturing facilities to protect the environment and help ensure compliance
with government mandates. Future capital investments will primarily relate to
non-recurring items in process controls to improve production efficiencies and
the environment. These projects are expected to help maintain Bontex as an
industry leader in quality, efficiency, and reliability.
As previously discussed, Bontex sold the Company's Newark, New Jersey warehouse
facility during 2001, for proceeds of $863,000 resulting in a gain of $803,000
(after tax gain of $482,000). The proceeds from this
10
sale were utilized for operations and repayment of debt. Bontex continues to
service its customers in the New York metropolitan area from a leased office and
warehouse.
On June 30, 2001, the Company had loans of $10.9 million outstanding consisting
of $8.8 million short-term and $2.1 million long-term. The $537,000 increase in
short-term borrowings principally corresponds to the $1 million decrease in
accounts payable and accrued expenses and the funding of operating losses, which
was partially offset by decreases in receivables. The weighted average interest
rate on short-term borrowings during 2001 and 2000 was 6.6 and 7.3 percent,
respectively. Financial instruments and market risk are discussed in more detail
below under Market Risk and Sensitivity.
On January 26, 2000, Bontex USA paid off and terminated its credit facility with
Wachovia Bank, N.A., and entered into a loan and security agreement with
Congress Financial Corporation/First Union providing for a secured credit
facility and a term loan. The new credit facility provides for a revolving loan
in an amount up to $4 million, based on a lending formula that evaluates, among
other items, the current accounts receivable and inventory of Bontex USA, which
are pledged as collateral in addition to certain non-current assets. The lending
availability fluctuates daily. Based on the lending formula, from the inception
of the loan through June 30, 2001, an average amount of approximately $3.1
million has been available and borrowed by Bontex USA under the revolving loan.
This credit facility with Congress expires in January 2002. Further, on five
days notice to Bontex USA, Congress may change the lending formula and in effect
reduce the amount available to Bontex USA under the revolving loan. The new
credit facility also requires Bontex USA to maintain a specified adjusted
tangible net worth. At June 30, 2001, Bontex USA was not in compliance with the
debt covenant ratio, but the Company subsequently received a waiver for the
non-compliance and a reset in the debt covenant ratio for which Bontex was
within compliance, as well as increase the Bontex USA's interest rate by 1% to a
rate of prime plus 2 percent. Management anticipates future compliance with the
revised debt covenant ratio, but there can be no assurance the Company will
remain in compliance. Bontex USA may not be able to renew its credit facility
with Congress or to obtain alternative financing on acceptable terms, which
could cause a material adverse impact on the Company's financial condition,
liquidity and/or results of operations. Please refer to Note 4 of Notes to the
Consolidated Financial Statements for further details regarding the Company's
indebtedness.
MARKET RISK AND SENSITIVITY
As previously discussed, the Company is exposed to certain risks related to
interest rates, foreign currencies 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 not to speculate on interest rates, foreign currencies and commodities in the
markets. Fair Value of Financial Instruments (dollars in thousands):
FACE AMOUNT/ Estimated
CARRYING AMOUNT Fair Value
June 30, 2001
Interest Rate Exposure:
Long-term debt $ 2,146 $ 2,023
Short-term debt $ 8,788 $ 8,788
June 30, 2000
Interest Rate Exposure:
Long-term debt $ 2,953 $ 2,695
Short-term debt $ 8,251 $ 8,251
11
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. Weighted average variable rates are based on implied
forward rates in the yield curve at the reporting date.
Financial instruments held for other than trading purposes at June 30, 2001
(dollars in thousands).
EXPECTED MATURITY DATE
There- Estimated
2002 2003 2004 2005 after Total Fair Value
LIABILITIES
Long-term debt:
Fixed Rate $ 378 $ 432 $ 396 $ 223 $ --- $ 1,429 $ 1,306
Average Interest Rate 5.99% 5.96% 5.96% 5.82% --- 6.03%
Variable Rate $ 200 $ 200 $ 200 $ 117 $ --- $ 717 $ 717
Average Interest Rate 8.00% 8.00% 8.00% 8.00% --- 8.00%
At June 30, 2001, the Company had no outstanding interest rate swap agreements.
Therefore, approximately $9.5 million of variable rate debt is subject to the
risk of interest rate changes. Additionally, approximately $7.7 million of the
Company's debt is denominated in Euro, and because the Euro is the operating
currency for the Company's wholly-owned subsidiaries for which this debt
pertains, this debt is not considered subject to the market risk associated with
foreign currencies. The above market risk sensitivity analysis does not fully
reflect the potential net market risk exposure, because other market risk
exposures may exist in other transactions.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -
A Replacement of FASB No. 125." This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The Company does not expect that the
adoption of SFAS No. 140 will have a material impact on the Company's results of
operations, financial position or cash flows.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets." Statement 141 specifies
criteria intangibles assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. Statement 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their residual values, and reviewed for impairment in
accordance with Statement 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The Company is required to
adopt the provisions of Statement 141 immediately, and Statement 142 is
effective July 1, 2002. The adoption of Statement 141 did not have a material
impact on the Company's results of operations, financial position or cash flows,
and the adoption of Statement 142 is not expected to have a material impact on
the Company's results of operations, financial position or cash flows.
12
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS) AND CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS):
2001 2000 1999
NET SALES $ 42,504 $ 39,455 $ 39,325
COST OF SALES 32,453 28,598 29,152
----------- ----------- ------------
Gross Profit 10,051 10,857 10,173
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,592 10,293 10,224
----------- ----------- ------------
Operating income (loss) (541) 564 (51)
----------- ----------- ------------
OTHER (INCOME) EXPENSES:
Interest expense 853 834 923
Interest income (8) (2) (3)
Foreign currency exchange (gain) loss 28 (29) 40
Other - net (789) 85 (25)
----------- ----------- ------------
84 888 935
----------- ----------- ------------
LOSS BEFORE INCOME TAXES (625) (324) (986)
INCOME TAX EXPENSE (BENEFIT) 901 335 (208)
----------- ----------- ------------
NET LOSS (1,526) (659) (778)
----------- ----------- ------------
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (447) (286) (220)
----------- ----------- ------------
COMPREHENSIVE LOSS $ (1,973) $ (945) $ (998)
=========== =========== ============
NET LOSS PER SHARE $ (.97) $ (.42) $ (.49)
=========== =========== ============
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY: 2001 2000 1999
Stockholders' Equity, beginning balance $ 8,948 $ 9,893 $ 10,891
Net loss (1,526) (659) (778)
Other comprehensive loss
Foreign currency translation adjustment (447) (286) (220)
----------- ----------- ------------
Stockholders' Equity, ending balance $ 6,975 $ 8,948 $ 9,893
=========== =========== ============
See accompanying notes to consolidated financial statements
13
BONTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000
ASSETS
CURRENT ASSETS:
Cash $ 320 $ 457
Trade accounts receivable, less allowance for doubtful
accounts of $96 ($170 at 2000) 10,700 12,187
Other receivables 629 378
Inventories 5,444 5,465
Deferred income taxes 35 135
Income taxes refundable - 49
Other current assets 166 120
---------- ------------
Total current assets 17,294 18,791
---------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 276 350
Building and building improvements 5,259 5,525
Machinery, furniture and equipment 17,691 17,797
Construction in progress 387 526
---------- ------------
Less accumulated depreciation and amortization 14,020 13,491
---------- ------------
Net property, plant and equipment 9,593 10,707
Deferred income taxes - 736
Other assets, net 552 651
---------- ------------
Total assets $ 27,439 $ 30,885
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 8,788 $ 8,251
Long-term debt due currently 578 626
Accounts payable 6,808 7,756
Accrued expenses 1,869 1,902
Income taxes payable 368 594
---------- ------------
Total current liabilities 18,411 19,129
Long-term debt, less current portion 1,568 2,327
Deferred income taxes 9 42
Other long-term liabilities 476 439
---------- ------------
Total liabilities 20,464 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 5,935 7,461
Accumulated other comprehensive income (668) (221)
---------- ------------
Total stockholders' equity 6,975 8,948
---------- ------------
Total liabilities and stockholders' equity $ 27,439 $ 30,885
========== ============
See accompanying notes to consolidated financial statements.
14
BONTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(IN THOUSANDS)
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 42,968 $ 37,378 $ 39,152
Cash paid to suppliers and employees (42,632) (34,886) (38,237)
Interest received 8 4 10
Interest paid (843) (814) (931)
Income taxes received (paid), net (275) (74) 128
----------- ----------- ------------
Net cash provided by (used in) operating activities (774) 1,608 122
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 886 - -
Purchases of property, plant and equipment (747) (854) (1,067)
----------- ----------- ------------
Net cash provided by (used in) investing activities 139 (854) (1,067)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings, net 1,133 (404) 898
Long-term debt incurred - 545 547
Principal payments on long-term debt (617) (752) (669)
----------- ----------- ------------
Net cash provided by (used in) financing activities 516 (611) 776
----------- ----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (18) (22) (12)
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH (137) 121 (181)
CASH AT BEGINNING OF YEAR 457 336 517
----------- ----------- ------------
CASH AT END OF YEAR $ 320 $ 457 $ 336
=========== =========== ============
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss $ (1,526) $ (659) $ (778)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,299 1,322 1,372
Gain on sale of property, plant and equipment (803) - -
Provision for bad debts (54) 92 (39)
Deferred income taxes 803 (154) (191)
Change in assets and liabilities:
(Increase) decrease in trade accounts and other receivables 674 (1,226) (522)
(Increase) decrease in inventories (537) (5) 547
(Increase) decrease in other assets (113) (186) 146
Increase (decrease) in accounts payable and accrued
expenses (394) 1,988 (367)
Increase (decrease) in income taxes payable (175) 421 143
Increase (decrease) in other liabilities 52 15 (189)
----------- ----------- ------------
Net cash provided by (used in) operating activities $ (774) $ 1,608 $ 122
=========== =========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Construction in progress accrued in accounts payable $ 115 $ - $ -
=========== =========== ============
See accompanying notes to consolidated financial statements.
15
BONTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The accounts of Bontex, Inc. and its wholly-owned subsidiaries,
Bontex S.A., Belgium, Bontex Italia, S.r.l., Italy and Bontex de Mexico C.V.,
Mexico, and its majority-owned subsidiary, Bontex Hong Kong Limited, (the
Company) are included in the consolidated financial statements after elimination
of significant intercompany accounts and transactions. Bontex Hong Kong
Limited's minority interest is not presented separately because it is not
material to the Company's consolidated financial statements.
FOREIGN CURRENCY TRANSLATION - The financial statements of the Company's
subsidiaries outside the United States are measured using the local currency as
the functional currency. Assets and liabilities of these foreign subsidiaries
are translated into U.S. dollars at the rates of exchange as of the balance
sheet date. The resulting translation adjustments are included in other
comprehensive income as foreign currency translation adjustment and in
accumulated other comprehensive income. Income and expense items are translated
at weighted average monthly exchange rates in effect during the year. Gains and
losses from foreign currency transactions are included in net income (loss).
CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost of
inventories maintained in North America is determined on the last-in, first-out
(LIFO) method and in Europe on the first-in, first-out (FIFO) and weighted
average methods.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation and amortization are provided by the straight-line method
over the estimated useful lives of the related assets. Estimated useful lives
are 10 to 40 years for buildings and building improvements, and 3 to 25 years
for machinery, furniture and equipment.
OTHER ASSETS - Other assets consist principally of cash surrender value of life
insurance, trademarks and various deposits. Trademark costs are amortized on a
straight-line basis over five years.
REVENUE RECOGNITION - Sales and cost of sales are recognized at the time of
product shipment or delivery to the customer, based on sales terms.
STOCK OPTIONS - The Company uses the disclosure provisions of SFAS No. 123,
"Accounting for Stock Based Compensation" (Note 6). The Company continues to
measure compensation expense for its stock-based compensation plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees."
EARNINGS PER SHARE - Net loss per share has been computed on the basis of the
weighted average number of common shares outstanding during each year (1,572,824
shares). Diluted earnings per share is not presented because the effect of stock
options is anti-dilutive. See note 6 for information relating to stock options
that could potentially dilute basic earnings per share in the future.
16
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - When appropriate, the Company
enters into interest rate swap transactions to manage its interest rate
exposure, and on a limited basis, the Company has previously managed its
exposure to pulp price changes with pulp futures. Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued in June 1998. This Statement addresses the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. On July 1, 2000, the
Company adopted the provisions of this Statement. Since the Company did not have
any derivatives during 2001, there was no impact on the Company's financial
statements; however, the Company has used in the past and continues to consider
in the future the use of derivative instruments and hedging activities,
accordingly, this statement could have an impact on the Company's future
financial statements.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF - The
Company reviews its long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
estimated fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or estimated fair value less costs to sell.
INCOME TAXES - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
[2] INVENTORIES
Cost of inventories of approximately $1,325 in 2001 and $1,873 in 2000, is
determined by the last-in, first-out method (LIFO). Replacement cost for LIFO
inventories approximated $1,740 in 2001 and $2,187 in 2000. Inventories of
approximately $4,119 in 2001 and $3,592 in 2000, are determined by the first-in,
first-out (FIFO) and weighted average bases. Inventories are summarized as
follows:
2001 2000
Finished goods $ 4,020 $ 3,849
Raw materials 1,180 1,222
Supplies 659 708
---------- ----------
Inventories at FIFO and weighted average cost 5,859 5,779
LIFO reserves 415 314
---------- ----------
$ 5,444 $ 5,465
========== ==========
During 2001 and 1999, LIFO layers were reduced resulting in charging lower
inventory costs to cost of sales of $57 and $255, respectively. In 2000, no LIFO
layers were reduced.
17
[3] BUSINESS SEGMENT INFORMATION AND INTERNATIONAL OPERATIONS
Bontex, Inc. and all majority-owned subsidiaries are predominantly engaged in
one business segment with the manufacturing and distribution of uncoated and
coated BONTEX(R) elastomeric fiberboard products. The Company operates
manufacturing facilities at Bontex USA in North America and Bontex S.A. in
Belgium. BONTEX(R) products are primarily used as an insole material in
footwear, as well as visorboard in headwear, stiffener and laminating base for
luggage, leathergoods and allied industries globally.
Information related to net sales by geographic area follows:
NORTH AMERICA Asia/Pacific Europe/Middle East Latin America Total
2001 $ 6,128 $ 20,493 $ 13,800 $ 2,083 $ 42,504
2000 6,731 16,366 14,264 2,094 39,455
1999 7,086 15,301 15,315 1,623 39,325
No single customer accounts for 10 percent or more of the Company's consolidated
net sales for 2001, 2000 and 1999. One distributor accounted for 23.2 percent in
2001, 19.2 percent in 2000 and 15.2 percent in 1999 of the Company's
consolidated net sales.
Information related to the North American and European operations follows:
North American European
Operations Operations Eliminations Consolidated
2001:
Total assets $ 13,792 $ 15,726 $ (2,079) $ 27,439
Net income (loss) (1,545) 19 - (1,526)
Operating income (loss) (1,470) 929 - (541)
Net sales 16,880 26,028 (404) 42,504
Interest expense 335 518 - 853
Depreciation and amortization 806 493 - 1,299
Income tax expense 839 62 - 901
Total expenditures for additions to
property, plant and equipment 339 408 - 747
2000:
Total assets $ 16,046 $ 16,904 $ 2,065 $ 30,885
Net loss (508) (151) - (659)
Operating income (loss) (733) 1,297 - 564
Net sales 16,861 22,990 (396) 39,455
Interest expense 372 462 - 834
Depreciation and amortization 815 507 - 1,322
Income tax expense (benefit) (151) 486 - 335
Total expenditures for additions to
property, plant and equipment 381 473 - 854
18
1999:
Total assets $ 14,817 $ 18,345 $ (1,998) $ 31,164
Net income (loss) (829) 51 - (778)
Operating income (loss) (1,327) 1,276 - (51)
Net sales 15,661 23,954 (290) 39,325
Interest expense 308 615 - 923
Depreciation and amortization 794 578 - 1,372
Income tax expense (benefit) (402) 194 - (208)
Total expenditures for additions to
property, plant and equipment 389 678 - 1,067
Retained earnings of foreign operations not available for distribution amounted
to approximately $243 and $757 at June 30, 2001 and 2000, respectively.
[4] LONG-TERM DEBT AND FINANCING AGREEMENTS
The following long-term debt was outstanding as of June 30, 2001 and 2000:
2001 2000
Loan payable to a United States bank in monthly installments of $17 through
January 2005, at an interest rate of prime plus 1% (8% and 10.5% at June
30, 2001 and 2000, respectively); collateralized by property and equipment
located in the U.S. and subject to various loan covenants. $ 717 $ 917
4.70% loan payable to a Belgian bank in quarterly
installments of $7 through June 2005. 118 166
4.70% loan payable to a Belgian bank in quarterly
installments of $13 through June 2005. 210 296
5.20% loan payable to a Belgian bank in quarterly
installments of $26 through June 2005. 420 592
5.50% loan payable to a Belgian bank in quarterly
installments of $7 through June 2005. 105 148
5.85% loan payable to a Belgian bank in quarterly
installments of $20 through June 2005. 324 455
3.95% loan payable to a Belgian bank in quarterly
installments of $21 through April 2004. 252 379
---------- -------------
2,146 2,953
Less long-term debt due currently 578 626
---------- -------------
Long-term debt $ 1,568 $ 2,327
========== =============
19
The principal payments of long-term debt are as follows:
2002 $ 578
2003 632
2004 596
2005 340
----------
Total $ 2,146
==========
The loans payable to a Belgian bank are collateralized with a mortgage on Bontex
S.A.'s buildings and the right to request a second mortgage on the buildings.
European operations have short-term credit facilities totaling approximately
$6,824 and $7,186 at June 30, 2001 and 2000, respectively. As of June 30,
borrowings under these facilities were as follows:
2001 2000
Short-term bank loans with variable interest rates, ranging
from 5.66% to 6.9% at June 30, 2001 and 4.77% to 7.45%
at June 30, 2000 $ 6,263 $ 5,100
Overdrafts 7 -
---------- ----------
$ 6,270 $ 5,100
========== ==========
Three banks in Belgium share a security interest in most of the assets of Bontex
S.A. for 37.5 percent of the credit facilities granted, and the right to request
additional security interest of another 37.5 percent of the credit facilities
granted. As of June 30, 2001 and 2000, one of the banks under these facilities
had the right to request a security interest up to $1,051 and $1,184,
respectively. Bontex S.A. committed to one of the banks to maintain certain
covenants which were met at June 30, 2001.
Bontex USA has a line of credit arrangement whereby Bontex USA may borrow up to
$4,000 based on the value of certain assets, at prime plus 1.00 percent (8% at
June 30, 2001 and 10.5% at June 30, 2000). At June 30, 2001 and 2000, Bontex USA
had borrowings of $2,518 and $3,151, respectively, which is to the limit of
availability based on the lending formula. There was no additional available
credit on this facility at June 30, 2001 and 2000. The secured line of credit is
collateralized by trade accounts receivable, inventory and other noncurrent
assets.
Consolidated weighted average interest rates on short-term borrowings at June
30, 2001 and 2000 are 6.6 and 6.9 percent, respectively.
In January 2000, Bontex USA refinanced its previous long and short-term debt
with a new secured debt agreement. The short-term debt agreement is subject to
renewal and is scheduled to expire in January 2002. During 2001 and 2000, Bontex
USA was subject to various loan covenants under its secured debt agreements and
has pledged certain current and non-current assets as collateral. Bontex USA was
in compliance with the applicable debt covenants at June 30, 2000, but Bontex
USA was not in compliance with the applicable covenants at June 30, 2001. On
September 12, 2001, Bontex USA received a waiver for this noncompliance, and the
various debt covenants were reset to levels so that the Company was in
compliance, as well as increased the Company's interest rate by 1 percent to
prime plus 2 percent.
20
[5] INCOME TAXES
The U.S. and foreign components of income tax expense (benefit) are as follows:
CURRENT Deferred Total
2001:
Federal $ - $ 756 $ 756
State - 83 83
Foreign 98 (36) 62
----------- ----------- ----------
$ 98 $ 803 $ 901
=========== =========== ==========
2000:
Federal $ - $ (136) $ (136)
State - (15) (15)
Foreign 489 (3) 486
----------- ----------- ----------
$ 489 $ (154) $ 335
=========== =========== ==========
1999:
Federal $ (151) $ (210) $ (361)
State (17) (24) (41)
Foreign 151 43 194
----------- ----------- ----------
$ (17) $ (191) $ (208)
=========== =========== ==========
Income tax expense (benefit) differs from the expected tax expense (benefit),
computed by applying the U.S. Federal corporate rate to loss before income
taxes, as follows:
2001 2000 1999
Federal income tax at statutory rate (34%) $ (213) $ (110) $ (334)
Increase (reduction) in income taxes
resulting from:
Foreign income at other than U.S. rates (1) 82 25
State and local taxes, net of federal
income tax benefit (12) (10) (27)
Valuation allowance 1,022 - -
Accrual for tax examination - 239 -
Other differences, net 105 134 128
----------- ----------- ----------
Income tax expense (benefit) $ 901 $ 335 $ (208)
=========== =========== ==========
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, (or 250,000 Euros, the local reporting currency
21
for Bontex SA), and accordingly, a provision for this amount has been accrued at
June 30, 2000. The accrual amount in Euros remained at 250,000 at June 30, 2001,
but due to fluctuations in the value of the Euro relative to the USA dollar, the
amount reported translates to $212,000 at June 30, 2001. Similar deductions
relating to the years ended June 30, 2001 and 2000 that in light of the current
information may be disallowed have been treated as disallowed expenses in the
calculation of those year's tax provisions.
The components of deferred tax assets and liabilities at June 30, 2001 and 2000
are presented below:
2001 2000
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $ 22 $ 15
Inventories, principally due to additional costs capitalized for tax
purposes 140 101
Other assets, due to difference in amortization of Trademarks 178 170
Accrued pension and retirement benefits 142 117
Net operating loss carryforwards 1,472 1,263
Alternative minimum tax credit carryforwards 36 36
Other 53 81
--------- ----------
Total gross deferred tax assets 2,043 1,783
--------- ----------
Less: Valuation allowance (1,022) -
Net deferred tax assets 1,021 1,783
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation
and capital gain recognition (983) (942)
Other (12) (12)
--------- ----------
Total gross deferred tax liabilities (995) (954)
--------- ----------
Net deferred tax asset $ 26 $ 829
========= ==========
The U.S. and foreign components of the net deferred tax asset at June 30, 2001
and 2000 are presented below:
CURRENT NONCURRENT TOTAL
2001:
U.S. Operations $ - $ - $ -
European Operations 35 (9) 26
---------- --------------- -----------
$ 35 $ (9) $ 26
========== =============== ===========
2000:
U.S. Operations $ 103 $ 736 $ 839
European Operations 32 (42) (10)
---------- --------------- -----------
$ 135 $ 694 $ 829
========== =============== ===========
At June 30, 2001, in addition to an alternative minimum tax credit carryforward
of $36 at Bontex USA, the Company had approximately $4,123 at Bontex USA in net
operating loss carryforwards to offset future taxable income, of which $258,
$361, $851, $1,491, $512 and $650 at Bontex USA expire in 2010, 2011, 2013,
2019, 2020, and 2021, respectively.
22
At June 30, 2001, the Company has not recognized a deferred tax liability of
$106 for the cumulative amount of undistributed income of its foreign
subsidiaries, because there are no plans to pay dividends in the foreseeable
future. As of June 30, 2001, undistributed income of the foreign subsidiaries
was approximately $1,969, of which approximately $243 is not available for
distribution.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based upon the level of
historical taxable income/losses, anticipation of future taxable income over the
periods for which the deferred tax assets are deductible, reversal of the
temporary differences and available tax planning strategies, management believes
it is more likely than not the Company will not realize a portion of these
deferred tax assets. Accordingly, based on the evaluation of relevant factors, a
valuation allowance in the amount of $1,022 relating to the US component of the
deferred tax assets was recorded at June 30, 2001.
[6] RETIREMENT AND COMPENSATION PLANS
The Company has pension plans covering substantially all full-time domestic
employees and certain foreign employees. The benefits from the Company's
domestic contributory defined benefit plan are based upon years of service and
the employee's average earnings for the five highest consecutive years of
compensation during the ten years immediately preceding retirement. Participant
contributions to the plan were 3.5 percent of employee annual earnings for
fiscal years ending June 30, 2001, 2000 and 1999. The Company's funding policy
is to contribute amounts to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
and any such additional amounts as the Company may determine to be appropriate
from time to time. Annual provisions for accrued pension costs are based on
independent actuarial valuations.
The Plan's change in benefit obligation, change in plan assets, funded status
and amounts recognized in the Company's consolidated financial statements at
June 30 for its United States pension plan are as follows:
2001 2000
Actuarial present value of benefit obligations:
Accumulated benefit obligation $ 4,778 $ 4,491
============= ===========
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 5,271 $ 5,240
Service cost 142 111
Interest cost 404 381
Plan participants' contributions 71 68
Actuarial (gain) loss 227 (91)
Benefits paid (331) (438)
------------- -----------
Benefit obligation at end of year $ 5,784 $ 5,271
============= ===========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 5,429 $ 5,710
Actual return on plan assets 204 89
Plan participants' contributions 71 68
Benefits paid (331) (438)
------------- -----------
Fair value of plan assets at end of year $ 5,373 $ 5,429
============= ===========
23
Funded status $ (311) $ 158
Unrecognized net actuarial loss (gain) (134) (533)
Unrecognized prior service cost 103 118
Unrecognized transition obligation (49) (65)
------------- -----------
Accrued benefit costs $ (391) $ (322)
============= ===========
The Company's net periodic benefit costs for its United States pension plan for
the years ended June 30, 2001, 2000 and 1999 include the following components:
2001 2000 1999
Service cost $ 213 $ 179 $ 193
Interest cost 404 381 384
Expected return on plan assets (476) (496) (517)
Net amortization and deferral (1) (29) (20)
----------- ----------- -----------
Net periodic benefit cost $ 140 $ 35 $ 40
=========== =========== ===========
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 7.75 percent for 2001, 2000 and
1999. The rate of increase for future compensation levels used in determining
the obligation was 5.0 percent for 2001, 2000, and 1999. The expected long-term
rate of return on plan assets in 2001, 2000 and 1999 was 9.0 percent.
Pension assets are held under a group annuity contract with an insurance
company. Certain amounts are commingled with the general assets of the insurance
company and the remainder is invested in separate accounts, managed by the
insurance company, which include domestic equity, domestic government, corporate
and private placement bonds and domestic real estate equity.
The pension expense relating to the foreign subsidiary's insured pension and
disability plan amounted to $66, $96, and $62, in 2001, 2000, and 1999,
respectively. Benefits are based on years of service and the average of the last
five years annual earnings.
The Company provides certain supplemental retirement benefits to the President
of the Company. Expenses related to these benefits were approximately $49 in
1999. There was no expense for 2001 and 2000. The agreement contains a change in
control provision that would accelerate the payment of these benefits. The
maximum liability under this agreement, in such event, would be approximately
$226.
The Company has granted stock options to certain key executives to purchase
shares of the Company's common stock. These options generally vest in six months
or less and expire 10 years from the grant date. Additional information with
respect to stock option activity is as follows:
NUMBER Weighted Average
OF SHARES Exercise Price
Outstanding at June 30, 1998 - -
Granted during the year ended June 30, 1999 112,000 4.90
---------------
Outstanding at June 30, 1999 112,000 4.90
Granted during the year ended June 30, 2000 59,997 2.00
Cancelled during the year ended June 30, 2000 (60,000) 4.90
---------------
Outstanding at June 30, 2000 and 2001 111,997 3.35
===============
Options exercisable at June 30, 2000 52,000 4.90
===============
Options exercisable at June 30, 2001 111,997 3.35
===============
24
The following table summarizes information about stock options outstanding and
exercisable at June 30, 2001:
STOCK OPTIONS OUTSTANDING AND EXERCISABLE:
Weighted Average Weighted
Range of Number of Remaining Average
Exercise Options Contractual Exercise
Prices Outstanding Life in Years Price
$ 2.00 - $5.63 111,997 7.75 $ 3.35
The Company applies APB Opinion No. 25 in accounting for its stock-based
compensation and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. Had compensation cost
for the stock options been determined consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts shown below:
2001 2000 1999
Net Loss:
As reported $ 1,526 $ 659 $ 778
Pro forma $ 1,526 $ 709 $ 826
Net Loss Per Share:
As Reported $ .97 $ .42 $ .49
Pro forma $ .97 $ .46 $ .52
The weighted average fair value of stock options granted during 2000 and 1999
was $1.29 and $.67 per share, respectively. These amounts were determined using
the Black-Scholes option-pricing model. The assumptions used in the model were
as follows for stock options granted in 2000 and 1999:
2000 1999
Risk-free interest rate 6.30% 5.93%
Expected volatility of common stock 55.3% 44.5%
Dividend yield - -
Expected life of options in years 10 8 to 8.8
[7] 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.
INTEREST RATE SWAPS - At June 30, 2001 and 2000, the Company had no outstanding
interest rate swap agreements. At June 30, 1999, the Company had one outstanding
interest rate swap agreement with a
25
bank having a notional amount of $1,000, which terminated January 20, 2000. This
swap agreement provided for the payment of interest based on a fixed rate of
6.35 percent, and remained unchanged over the term of the agreement. The
floating rate of the swap agreement was based on the London Inter Bank Offered
Rate (LIBOR) and was reset every 90 days based on market conditions. The nature
of the swap agreement changed variable rate debt to fixed rate debt. The
interest rate differential paid or received under the swap was recognized over
the term of the contract as adjustments are made to the effective yield of the
underlying debt. An interest premium of $6, and $44, was paid during 2000 and
1999, respectively.
As of June 30, 2001, approximately $9.5 million of variable rate debt is not
covered by interest rate swaps and is therefore subject to market risk of rate
changes.
COMMODITIES - The Company has periodically managed its exposure to pulp price
changes with pulp futures. During fiscal years 2001, 2000 and 1999 the Company
did not hold any related derivatives for pulp futures.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The following assumptions were used by the
Company to estimate the fair value of its financial instruments: The carrying
amounts reported in the balance sheets for cash, cash equivalents, trade
accounts receivable, other receivables, short-term borrowings, accounts payable
and accrued expenses approximate fair value because of the short maturity of
these instruments. The fair value of long-term debt is estimated using
discounted cash flows based on the Company's incremental borrowing rates, and
approximates $2,023 at June 30, 2001.
[8] COMMITMENTS AND CONTINGENCIES
REGULATORY AND ENVIRONMENTAL MATTERS -As with other related manufacturers, the
Company is subject to regulations by various federal, state, foreign and local
agencies concerning compliance with environmental control statutes. These
regulations impose limitations on the use of chemicals in manufacturing
processes and discharge of effluent and emissions into the environment, and
establish standards for solid and hazardous waste disposal, treatment, and
storage, as well as require the Company to obtain and operate in compliance with
the conditions of environmental permits. Except as described below, the Company
believes that it is in substantial compliance with such existing domestic and
foreign environmental statues and regulations. Failure to comply with applicable
environmental control standards could result in interruption or termination of
operations or could require additional expenditures at these facilities.
In recent years, various agencies have increased their screening and testing the
effects of chemicals or mixtures, including those that occur naturally. The
Company's product formulations, in some instances, may include compounds that
are or will be subject to these tests. The Company continually devotes
significant resources to improve product formulation for, among other things,
comfort, health, cost, quality and other performance features.
The Company has made and intends to continue to make capital investments,
operating expenditures, and production adjustments in connection with compliance
with environmental laws and regulations. Because the Company is essentially
comprised of two fiberboard plants, Bontex USA and Bontex S.A., water quality
discharge remains the primary environmental concern. Both plants are operating
new waste water treatment facilities, which, except as described below, the
Company believes to be operating within compliance of applicable environmental
requirements. Also, the actual costs of future environmental compliance may
differ from projected costs due to, among other things, continued emergence of
newer environmental laws and regulations and improving efficiencies in
environmental control or process technology developments.
Bontex USA received a renewal of its 5-year wastewater discharge permit on April
2, 2001. The new permit requires the Company to expand its wastewater treatment
facility to increase the capacity of its equalization tank. The Company started
the expansion this Summer and expects to complete it by the end of the calendar
year. Prior to receiving the new permit, the Company had received a Notice of
Violation from the Virginia Department of Environmental Quality (DEQ). In
general, the DEQ stated in the Notice of Violation that it
26
had reason to believe that the Company's plant in Buena Vista, Virginia, might
be out of compliance with whole effluent toxics limits. In addition, the Company
has received a Notice of Violation from the DEQ alleging that in June 2001 the
Company's plant in Buena Vista, Virginia, discharged wastewater solids in
violation of Virginia law and/or the Company's wastewater discharge permit. The
Company has submitted detailed information to the DEQ relating to the Notices of
Violation. At this stage, it is too early for the Company to make a reasonable
estimate of the potential financial impact, if any, of these Notices of
Violation.
LITIGATION - In the normal course of business, the Company is subject to
proceedings, lawsuits and other claims which are subject to many uncertainties,
for which their outcomes are not predictable with assurance. There are no legal
proceedings, lawsuits or other claims pending, other than those discussed in
note 5 and this note 8 above, against or involving the Company that, in the
opinion of management, will have a material adverse impact upon the financial
condition of the Company.
PURCHASE COMMITMENTS - In connection with purchasing certain commodities (pulps,
latex and natural gas) for future manufacturing requirements, the Company enters
into a number of purchase commitments, as deemed appropriate, to manage the
effects of market price fluctuations and to secure adequate raw material
supplies. These purchase commitments have limited terms ranging from 1 to 5
years, and the Company expects future sales will be sufficient to meet these
requirements.
LEASES - Rental expenses for all operating leases amounted to $124, $106, and
$117 in 2001, 2000, and 1999 respectively. The Company anticipates future rental
expenses for operating leases to be no more than $130 each year for the next
five years.
[9] QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended June 30, 2001 and 2000:
QUARTER ENDED
--------------------------------------------------------------------
YEAR ENDED JUNE 30, 2001 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
Net Sales $ 9,128 $ 10,768 $ 11,576 $ 11,032
Gross Profit 2,135 2,520 2,659 2,737
Other (income) expense, net 189 (558) 245 208
Income (loss) before income taxes (447) 383 (347) (214)
Net Income (loss) (290) 236 (233) (1,239)
Income (loss) per common share $ (.18) $ .15 $ (.15) $ (.79)
QUARTER ENDED
--------------------------------------------------------------------
YEAR ENDED JUNE 30, 2000 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
Net Sales $ 8,059 $ 9,954 $ 10,466 $ 10,976
Gross Profit 1,921 2,677 2,960 3,299
Other expense, net 192 216 217 263
Income (loss) before income taxes (683) (167) 107 419
Net Income (loss) (539) (111) 19 (28)
Income (loss) per common share $ (.34) $ (.07) $ .01 $ (.02)
During the second quarter ended December 31, 2000, the Company sold its
warehouse facility in Newark, New Jersey resulting in a non-recurring gain
recorded in Other Income/Expense - net of $803 or a net gain of $482 or $0.31
per share after considering the impact of taxes. During the fourth quarter ended
June 30, 2001, the Company recorded a $1,022 valuation allowance for the
deferred income tax assets of Bontex USA, which increased the net loss by $1,022
or $0.65 per share.
27
INDEPENDENT AUDITORS' REPORT
KPMG LLP [logo]
10 S. Jefferson Street, Suite 1710
Roanoke, VA 24011-1331
The Board of Directors and Stockholders of Bontex, Inc.:
We have audited the accompanying consolidated balance sheets of Bontex, Inc. and
subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of income (loss) and comprehensive income (loss), changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bontex, Inc. and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2001, in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
August 22, 2001, except
as to note 4, which is as
of September 12, 2001
28
---------------------------------------------------
DIRECTORS, EXECUTIVES & OFFICERS
---------------------------------------------------
James C. Kostelni + Chairman of the Board, President,
Chief Executive Officer and Director
William J. Binnie +* Director
Michael J. Breton Director of International Operations
William B. D'Surney Director
Douglas Hamm Controller
Charles W. J. Kostelni Senior Vice President, Corporate Controller,
Corporate Secretary and Director
Jeffrey C. Kostelni Senior Vice President, Treasurer,
Chief Financial Officer and Director
Frank B. Mayorshi +* Director
Hadelin Mothet Financial Director and Director
Dr. Joseph Raffetto Director
Robert J. Weeks +* Director
+Member of Executive Committee
*Member of Audit Committee
---------------------------------------------------
COUNSEL
---------------------------------------------------
WOODS, ROGERS & HAZLEGROVE, P.L.C.
Attorneys at Law Roanoke, Virginia
---------------------------------------------------
INDEPENDENT AUDITORS
---------------------------------------------------
KPMG LLP
Certified Public Accountants Roanoke, Virginia
---------------------------------------------------
TRANSFER AGENT
---------------------------------------------------
REGISTRAR & TRANSFER COMPANY Cranford, New Jersey
---------------------------------------------------
29
LOCATIONS
WORLD HEADQUARTERS AND NORTH AMERICAN
MANUFACTURING
Bontex, Inc.
One Bontex Drive
Buena Vista, Virginia 24416-1500 U.S.A.
800-733-4234 / 540-261-2181
E-mail: bontex@bontex.com
Website: http://www.bontex.com
EUROPEAN HEADQUARTERS AND MANUFACTURING
Bontex S. A.
Rue Slar
4801 Stembert, Belgium
E-mail: bontexsa@mail.att.net
Website: http://www.bontex.be
INTERNATIONAL LIAISON OFFICES
Bontex Australia
20 Munro Street
Macleod VIC 3085
Australia
Bontex Korea
Rm. 601, Songnam Bldg.
76-1, 4Ga, Chung Angdong
Chung-Gu, Busan, 600-014, Korea
Bontex Taiwan
8FL., No. 52, Sec. 2
Chung Shan N. Rd.
Taipei, 10419, Taiwan
SALES AND DISTRIBUTION CENTERS
Bontex Italia S.r.l.
Via Francia
37069 Villafranca (Verona)
Italy
Bontex De Mexico, S. A. De C. V.
Boulevard Mariano Excobedo #801 Interior 2
Colonia Andrade, C. P. 37370
Leon, Guanajuato
Mexico
Bontex Hong Kong
301 International Trade Centre
11 Sha Tsui Road, Tsuen Wan
Hong Kong
Bontex Vietnam
Floor 2, Room 204, 99 Pasteur St.
Dist.1, HCMC Vietnam
30
STOCKHOLDERS' INFORMATION
ANNUAL MEETING
10:30 a.m. November 7, 2001
Best Western Inn at Hunt Ridge
Willow Springs Drive
Lexington, Virginia 24450
INDEPENDENT AUDITORS
KPMG LLP
10 S. Jefferson Street, Suite 1710
Roanoke, Virginia 24011-1331
REGISTRAR AND TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Post Office Box 1010
Cranford, New Jersey 07106
FORM 10-K
A copy of the Company's 10-K filed with the Securities and Exchange
Commission is available without charge to any stockholder. Requests should
be sent to the attention of:
Corporate Controller
Bontex, Inc.
One Bontex Drive
Buena Vista, Virginia 24416-1500
31
BONTEX logo
The Bontex(R) logo is a registered trademark of Bontex, Inc.
Bontex, Inc. is an equal opportunity employer.
Accepted by the American Podiatric Medical
Association (Logo)
BS EN ISO 9001 Registered Company SATRA
(Logo)
National Accreditation of Certification Bodies
(Logo)
SATRA Footwear Technology Centre (Logo)
Recycled Paper (Logo)
32
EX-21
8
btxex21.txt
EXHIBIT 21
EXHIBIT 21
LISTING OF SUBSIDIARIES
There are five active subsidiaries of the Company:
Name Under which
Name of Subsidiary Jurisdiction of Incorporation Subsidiary Does Business
Bontex S.A. Belgium Same
Bontex Italia S.r.l. Italy Same
Bontex, Inc. Virginia Same
Bontex de Mexico Mexico Same
GB Bontex Hong Kong Limited Hong Kong Same