-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rt4lSNlcHp6K4rh3PIQBNFg+mI8QanvUQyLYaRyJGe5JEGspkbY7I0wu4vjosXuh 9m6GZrPoBcFwMP2nsRxPpQ== 0000906504-96-000057.txt : 19961001 0000906504-96-000057.hdr.sgml : 19961001 ACCESSION NUMBER: 0000906504-96-000057 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA BONDED FIBERS INC CENTRAL INDEX KEY: 0000041052 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 221427551 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05200 FILM NUMBER: 96636793 BUSINESS ADDRESS: STREET 1: ONE BONTEX DR CITY: BUENA VISTA STATE: VA ZIP: 24416 BUSINESS PHONE: 7032612181 MAIL ADDRESS: STREET 1: PO BOX 751 CITY: BUENA VISTA STATE: VA ZIP: 24416 10-K 1 FORM 10-K 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, 1996 Number 0-5200 GEORGIA BONDED FIBERS, INC. Exact name of Registrant as specified in its charter NEW JERSEY 22-1427551 State of Incorporation IRS Employer No. ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-0751 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 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 ( ) Aggregated market value of the voting stock held by non-affiliates of the Registrant: $2,648,082 at August 29, 1996 On August 29, 1996, the Registrant had 1,572,824 shares of $.10 par value common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: (1) Portions of the registrant's Annual Report to Stockholders are incorporated by reference into Parts I and II hereof. (2) Portions of the registrant's Proxy Statement dated October 4, 1996 issued in connection with the annual meeting of shareholders to be held November 7, 1996 are incorporated by reference into Parts III hereof. TABLE OF CONTENTS PART I ITEM DESCRIPTION PAGE 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 9 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 9 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. . . . . . . . . . . . . . .11 8. Financial Statements and Supplementary Data. . . . . . . . . . . .11 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures . . . . . . . . . . . . . .11 PART III 10. Directors and Executives of the Registrant . . . . . . . . . . . .12 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . .12 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . .12 13. Certain Relationships and Related Transactions . . . . . . . . . .12 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . .12 PART I ITEM 1. BUSINESS GENERAL BUSINESS - ---------------- Georgia Bonded Fibers, Inc. (All references hereinafter to the "Registrant," "Company" or "Bontex" refer collectively to Georgia Bonded Fibers, Inc. and its wholly-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, 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. The Company's Board of Directors has approved a proposal whereby the Company's state of incorporation would be changed from New Jersey to Virginia. The reorganization would not result in any changes in the business, management, assets, liabilities or net worth of the Company. The reorganization is subject to approval by the stockholders of Georgia Bonded Fibers, Inc. at the Annual Meeting of Shareholders to be held on November 7, 1996, and is described in more detail in the Proxy Statement dated October 4, 1996. ORGANIZATION - ------------ The Company maintains corporate headquarters, sales offices, and a warehouse facility in Newark, New Jersey; a wholly-owned manufacturing facility at Bontex USA, Buena Vista, Virginia; a wholly-owned manufacturing subsidiary, Bontex S.A., Stembert, Belgium; a wholly-owned distribution and converting subsidiary, Bontex Italia s.r.l., Villafranca, Verona, Italy; and a wholly-owned distribution subsidiary, Bontex de Mexico, S.A. de C.V., Leon, Mexico. The Company utilizes a wholly-owned foreign sales corporation, Bontex Inc., organized and existing under the laws of the Virgin Islands to facilitate export sales. Additionally, Bontex maintains a network of liaison offices -- Bontex Canada, Bontex Korea, Bontex Taiwan, Bontex Hong Kong, Bontex China, Bontex Indonesia, Bontex Philippines, and Bontex Australia -- to service Asian markets. The Company employs 94 full-time and 2 part-time people in Buena Vista, Virginia; 3 full-time employees and 2 part-time employees in Newark, New Jersey; 81 full-time and 2 part-time employees in Belgium; 9 employees in Italy; and 1 full-time and 1 part-time employee in Mexico. Revenue per employee was approximately $249,000 and $253,000 in fiscal years 1996 and 1995, 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 USA manufactures uncoated and coated BONTEX fiberboard products; PVC 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 wet web 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 PVCs, to BONTEX fiberboard. Additionally, Bontex USA is the exclusive distributor globally to the footwear industry of an expanded polyurethane material manufactured by E.A.R. Specialty Composites, a division of Cabot Safety Corporation, 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 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 converting facilities continue to show increased volume and open new market areas in coated and composite items converted on BONTEX substrates. The Company's marketing emphasis is to capitalize on the positive performance of these products. Management believes that Bontex is well positioned for growth due to the high quality and market acceptance of our products, as well as our significant market penetration in developed and developing markets. RESEARCH AND DEVELOPMENT - ------------------------ The Company's research efforts are directed primarily toward developing new products, processing techniques, and improving product performance, often in close association with customers. During 1996, the Company was assigned a patent by the United States Patent Office for Leather-Like Hoof Pad of Composite Material. The product is a hoof pad adapted for attachment between the hoof of a horse and a horseshoe. Presently, the product is not marketable, but may be at a future time. The Company has also dedicated much of its efforts to customizing many composite products with BONTEX fiberboard products. These products have increased sales of combination packages, primarily designed to take advantage of the current increased emphasis on comfort in footwear products. A series of dual-density (two-layer) foam packages have been designed, and sales of these products have been positive since their introduction. Bontex has embarked on the implementation of the International Organization for Standardization quality assurance system ISO 9000 at both the United States and Belgium manufacturing facilities. Bontex SA was certified ISO 9001 during 1996, and Bontex USA is striving for registration of ISO 9000 during 1997. The immediate impact of ISO 9000 on sales is anticipated to be minimal; however, management regards ISO 9000 with significant importance in 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, and customer service. Presently, it is management's opinion that the Company offers superior product quality and customer service in major markets globally. 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 the last fiscal year, its products were in approximately 45 to 50 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 four major manufacturers of material similar to BONTEX. These competitors are located in Germany, Italy, Finland, and the former USSR. The Company estimates that it sells approximately 45 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. There are a number of manufacturers of elastomeric fiberboard materials in Asia; however, there are four major competitors operating in Taiwan and the Peoples Republic of China, which has a tendency to impact selling prices. There is a 5 percent duty on BONTEX products going into Taiwan. The Company has petitioned the US trade representatives to eliminate these duties. Bontex has received notification that the Republic of China (R.O.C.) has agreed to reduce and phase-out these duties, but no definitive time-frame has been announced. 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. RISK MANAGEMENT PROGRAM - ----------------------- The Company is exposed to the inherent risks associated with conducting business globally. These risks include export duties, quotas, restrictions on the transfer of funds, political instability, and foreign currency exchange rate fluctuations. The Company closely monitors its method of operating in each country and adopts strategies responsive to changing economic and political environments. During fiscal 1995, the Company experienced extreme volatility in the foreign currency markets. The foreign currency exchange losses in fiscal 1995 totaled approximately $1.5 million, of which approximately $500,000 was recovered during fiscal 1996. The higher than normal exchange losses were the result of the large decreases in the value of the US dollar, Italian lire, and Mexican peso. During the twelve months leading up to June 30, 1995, the Italian lire and US dollar decreased in value relative to the Belgian franc by 13 and 12 percent, respectively, and the Mexican peso reduced in value by more than 100 percent relative to the US dollar. The largest portion of these exchange losses occurred at Bontex S.A., the Belgium subsidiary. A significant portion of the Belgium subsidiary's sales are denominated in US dollars and Italian lire, and consequently, subject to the risk of foreign exchange rate fluctuations. Management has implemented a revised Risk Management Program (RMP) as a coordinated approach to managing the Company's exposure to foreign currency exchange rate fluctuations. The overall policy of the RMP is to match currency denominations of assets with liabilities, in a manner intended to reduce the Company's foreign currency exposure. Additionally, Bontex S.A. has utilized forward exchange contracts and other approved hedging instruments to manage currency risks. Since the full implementation of the revised RMP, the effects of exchange volatility have been ameliorated. Management cannot predict the likelihood of such developments occurring again in the future. All transactions denominated in foreign currencies are not hedged (i.e., Mexican peso, Canadian dollar, etc.) since the volume of such transactions is limited and therefore the cost to hedge is considered prohibitive. These international markets are regarded as excellent opportunities for future growth and profits, and management will continue to monitor the situation and evaluate various alternatives to manage exposure to such risks. The Company also manages interest rate risk to protect the Company's margins and financial position from future rate increases by participating in interest rate swaps. The interest rate swap arrangements provide for the payment of interest based on fixed rates of interest rather than variable rates. The Company seeks to mitigate the possible impact of interest rate fluctuations on its short-term variable rate debt. At June 30, 1995 and 1994, the total notional amount of the Company's foreign currency exchange contracts totaled $5.0 million and $4.0 million, respectively. At June 30, 1996, the Company did not have any such foreign currency exchange contracts. The total notional amount of the Company's interest rate swap contracts totaled $2.9 million and $2.8 million at June 30, 1996 and 1995, respectively. The notional amount of these contracts does not represent the direct credit exposure. Rather, credit exposure may be defined as the market value of the contract and the ability of the counter- party to perform its payment obligations under the agreement. The Company's interest rate swap agreements require the Company to pay a fixed rate. Therefore, this risk is reduced in a declining interest rate environment as the Company is generally in a payable position, and this risk is increased in rising interest rate environment as the Company is generally in a receivable position. The Company seeks to control the credit risk of its interest rate swap agreements and other financial instruments through credit exposure limits and monitoring procedures. The Company may be exposed to a credit loss in the event of nonperformance by the other party to an interest rate swap agreement. All interest rate swaps and foreign exchange contracts are with established banks, and the Company does not anticipate such nonperformance. TRADEMARKS - ---------- Georgia Bonded Fibers utilizes trademarks on nearly all of its products, and believes having such distinctive trademarks which 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 these trademarks in over 70 countries. Georgia Bonded Fibers 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 to Stockholders wherein information is provided regarding foreign and domestic operations and export sales for the last three fiscal years. Such information is incorporated herein by reference, pursuant to General Instruction G(2). 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 among a large customer base, as well as numerous geographic regions. The Company has one of the largest customer bases in the industries we serve. 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 sales to Asia are negotiation of letters of credit and sight drafts, and are covered by foreign credit insurance. A leading athletic footwear company, who specified BONTEX to sourcing contractors globally, accounted for approximately 9.2 percent of the Company's consolidated sales during fiscal 1996 (14.6% and 13.7% in 1995 and 1994, respectively). Foreign operations, principally in Belgium and Italy, constitute a significant portion of the Company's business. Production of BONTEX 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 moderately near 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 of the fiscal year was about five weeks production or approximately $1.8 million in sales. The current backlog at Bontex USA is approximately four weeks. In Europe, the backlog at the end of the fiscal year was four weeks production or approximately $2.0 million in sales. The present backlog at Bontex S.A. is four weeks. The Company expects all the orders in the backlog will be manufactured and shipped during the next fiscal year. The Company sells most of its products directly to customers through its own sales force and commissioned sales representatives throughout the United States. 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 43% to over 51%. This primarily reflects the decline of the domestic market and increased emphasis on overseas markets. Bontex USA maintains leased bonded warehouses in St. Louis, Missouri; Leon, Mexico; Cambridge, Ontario, Canada; and 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. Currently, sales in Mexico are not significant and have not grown as planned due to the 1994 devaluation of the peso. Bontex continues to view the Mexican market with guarded optimism for future growth. Bontex S.A. markets its products through 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. 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, Taiwan, and the Peoples Republic of China. For certain of its foreign markets, the Company uses individual distributors. One distributor represents approximately 13.5 percent of the Company's net consolidated sales, and 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 well through the coordination of Asian operations covering, among others, Japan, Korea, Taiwan, Hong Kong, Philippines, Indonesia, New Zealand, Australia, Singapore and Malaysia. The Company is in the process of establishing a sales subsidiary in Hong Kong, to replace a distributor for Hong Kong and the PRC New Territories. STATUS OF PROPOSED PROJECT - -------------------------- On July 27, 1994, the Company's Board of Directors authorized management to investigate the establishment of a manufacturing facility in Malaysia. The Company's plans to establish a manufacturing facility in Asia remains an important priority. Bontex Sdn Bhd was incorporated during fiscal 1996, and is being considered not only as a way of enabling the Company to strengthen its presence in Asia, but also to expand its global manufacturing network. The project was delayed so that management could focus on immediate issues and return the Company to profitability. Construction and completion of the proposed project are subject to a number of significant conditions, including the profitability of the Company, final approval by the Company's Board of Directors, procurement of capital, and Malaysian regulatory approvals. Management projects that the proposed costs for Bontex Sdn Bhd is estimated to be in the order of magnitude of $10 million. At the time of this filing, management cannot provide a more definitive schedule or projected financial information for the proposed project with confidence and accuracy, since such timing and projections may vary significantly based on ultimate circumstances. MATERIALS AND SUPPLIES - ---------------------- The Company purchases a broad range of raw materials sourced throughout the world in connection with 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 for processing. 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, specifically pulp and latex, two primary raw materials for the Company's products. The price of pulp and latex increased by approximately 100 percent and 56 percent, respectively, during the eighteen months leading up to December 31, 1995. Management has implemented various measures in an attempt to manage the situation, including raising selling prices, capital enhancements to improve production efficiencies and several cost control measures through better utilization of existing resources. Management intends to continue to prudently apply 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 all 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 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 statutes and regulations. Failure to comply with applicable environmental control standards could result in interruption of operations or could require additional expenditures at these facilities. The Company has made and intends to continue to make capital investments, operating expenditures, and production adjustments in connection with compliance to environmental laws and regulations. Since the Company is essentially comprised of two fiberboard plants, water quality discharge remains a primary environmental concern. A private water quality consulting firm has completed an extensive analysis and plans for compliance at both plants have been implemented. On July 22, 1994, the Company entered into a Special Consent Order with the Virginia Department of Environmental Quality (DEQ) committing the Company to construct a waste water treatment facility to address certain effluent limitations in its Virginia Pollution Discharge Elimination Permit. Construction of the USA waste treatment facility was completed during fiscal 1996 at an aggregate cost of almost $2.0 million. The waste water treatment plant appears to be operating within compliance of applicable environmental requirements. The Belgium government has imposed new regulations requiring a formal water treatment plant to be installed at Bontex S.A. The first phase of the waste water treatment facility in Belgium is under construction and is anticipated to be completed in 1997 at an estimated cost of $1.5 million. The facility in the USA is also impacted by regulations concerning air emissions relating to the operation of certain coating and converting equipment. The Company has entered into a Consent Order with DEQ to which the Company has committed to take appropriate corrective action with respect to air quality emissions and to achieve compliance by September 30, 1997. An air quality consultant has completed an extensive analysis to characterize and verify mill wide air emissions. The Company is developing and implementing certain air emission controls. The cost of the air control technologies based on current information is expected to be approximately $250,000. Estimates of the costs of future environmental compliance may differ from projected costs due to, among other things, continued emergence of new environmental laws and regulations and improving efficiencies in environmental control or process technology developments. At the present time, based on preliminary estimates, the Company anticipates that consolidated capital expenditures for environmental compliance in fiscal 1997 will aggregate approximately $2.0 million; however, this estimate could change due to ultimate circumstances. ITEM 2. PROPERTIES For information about interest and security interests held by banks in the Company's properties, see Note 4 of Notes to Consolidated Financial Statements contained in the Company's 1996 Annual Report to Stockholders. Such information is incorporated herein by reference, pursuant to General Instruction G(2). The properties of the Company consist primarily of wholly-owned plant and equipment to manufacture and distribute the Company's products. In Newark, New Jersey, the Company owns an office building and warehouse. Corporate headquarters and sales office are maintained at the Newark building, and the warehouse is used for the distribution of the Company's products in the northeastern region of the United States. The Newark facility is located in an area where the potential of being acquired as part of a revitalization development project has increased. At the time of this filing, the Registrant is unable to determine the ultimate impact, if any, of this situation on the Company's operations. The Company's 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 in the world for producing BONTEX type products, and the Company continues to invest in new equipment to maintain its level of efficiency. Bontex Italia s.r.l. operates from a modern distribution facility with new converting equipment. During fiscal 1996, the Company spent approximately $1,600,000, $400,000 and $54,000 to refurbish, upgrade and install equipment at Bontex USA, Bontex S.A., and Bontex Italia s.r.l., respectively. 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 $2.5 million for fiscal year 1997. The Company believes that cash generated from operations and current credit facilities will be sufficient to meet these capital requirements. The Company continues to manage the utilization of its assets in order to meet global growth objectives, marketplace forces, productivity and technology changes, while at the same time, attempting to ensure that these assets are generating economic value for the shareholder. The Company considers all its properties well maintained, in good operating condition, and adequate for present and future requirements. RECENT PRONOUNCEMENT - -------------------- In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This standard is effective for transactions occurring after December 31, 1996 and shall be applied prospectively. Based on management's review, the adoption of SFAS No. 125 is not expected to have a material impact, if any, on the Company's financial position and results of operations. ITEM 3. LEGAL PROCEEDINGS To the Company's knowledge, there are no legal proceedings, lawsuits, and other claims pending against or involving the Company which, in the opinion of management, will have a material adverse impact upon the results of operations or 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: Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Stockholders to be held on November 7, 1996. The names, ages and positions of the executives of the Company as of September 19, 1996 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. James C. Kostelni is the brother-in- law to Mrs. Patricia S. Tischio. Mr. Jeffrey C. Kostelni and Mr. Charles W. J. Kostelni are the sons of Mr. James C. Kostelni. Previous and present duties and responsibilities: Position and Business Name and Age Experience for Past Five Years - ------------ ------------------------------ James C. Kostelni, 61 Chairman of the Board, President, and Chief Executive Officer of the Company (since 1994), President and Chief Operating Officer (since 1971). Mr. Kostelni has a Bachelor of Science Degree in Business Administration Jeffrey C. Kostelni, 30 Chief Financial Officer and Treasurer (since 1994); General Sales Manager of Bontex S.A., a subsidiary of the Company (since 1995) and Assistant Controller (1993-1994) of the Company; prior thereto, Senior Auditor, Deloitte & Touche, Washington, D.C. Mr. Kostelni has a Bachelor of Science Degree in Accountancy and is a Certified Public Accountant. Charles W. J. Kostelni, 32 Corporate Controller (since 1996); prior thereto Assistant Controller (since 1994); prior thereto, Assistant Vice President, Union Bank of Switzerland, New York and Associate Investment Banker, Chase Manhattan Bank, New York. Mr. Kostelni has a Bachelor of Science Degree in Accountancy and is a Certified Public Accountant. David A. Dugan, 49 Controller (since 1988) and Corporate Secretary (since 1993) of the Company; prior thereto, Assistant Corporate Secretary of the Company (1991-93). Mr. Dugan has a Masters in Business Administration and is a Certified Public Accountant. Patricia S. Tischio, 57 Assistant Corporate Secretary (since 1994) and Corporate Office Manager (since 1989) of the Company. Mrs. Tischio has a Bachelor of Arts Degree in English. Larry E. Morris, 50 Technical Director (since 1983) and Sales Director (since 1993); prior thereto, Manufacturing Director of the Company (1983-1993). Mr. Morris has a Bachelor of Science Degree in Chemical Engineering. Michael J. Breton, 56 Corporate Director of International Operations of the Company (since 1993), and General Manager of Bontex S.A., a Subsidiary of the Company (since 1987); prior thereto, Director of European Operations (1987-1993). Mr. Breton has a Bachelor of Science Degree in Paper Technology. 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 5 of the Company's 1996 Annual Report to Stockholders is incorporated herein by reference, pursuant to General Instruction G(2). ITEM 6. SELECTED FINANCIAL DATA "Summary of Selected Five Year Data" on page 5 of the Company's 1996 Annual Report to Stockholders is incorporated herein by reference, pursuant to General Instruction G(2). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 6 through 10 of the Company's 1996 Annual Report to Stockholders are incorporated herein by reference, pursuant to General Instruction G(2). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant and the independent auditors' report included on pages 11 through 25 of the 1996 Annual Report to Stockholders, are herein incorporated by reference, pursuant to General Instruction G(2): 1. Consolidated Statements of Income (Loss) for the Years Ended June 30, 1996, 1995 and 1994 2. Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 1996, 1995, and 1994 3. Consolidated Balance Sheets as of June 30, 1996 and 1995 4. Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995, and 1994 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 auditor's scope or procedure. PART III ITEM 10. DIRECTORS AND EXECUTIVES 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 for the Annual Meeting of Stockholders to be held November 7, 1996, 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 Compliance" at page 14 of the Proxy Statement for the Annual Meeting of Stockholders to be held November 7, 1996, is incorporated herein by reference pursuant to General Instruction G(3). ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions "Executive Compensation," "Compensation Committee Report on Executive Compensation," "Compensation Committee Interlocks and Insider Participation," and "Stock Performance" at pages 7 through 14 of the Proxy Statement for the Annual Meeting of Stockholders to be held November 7, 1996, is incorporated herein by reference pursuant to General Instruction G(3). 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 captions "Stock Ownership of Certain Beneficial Owners" and "Stock Ownership of Management" on pages 2 through 3 of the Proxy Statement for the Annual Meeting of Stockholders to be held on November 7, 1996, is incorporated herein by reference pursuant to General Instruction G(3). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Related Transactions" on page 13 of the Proxy Statement for the Annual Meeting of Stockholders to be held on November 7, 1996 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 as of June 30, 1996, 1995 and 1994 and for the years then ended 17 (d) II Valuation and Qualifying Accounts 18 All other schedules are omitted, as the required information is inapplicable, or the information is presented in the consolidated financial statements or related notes. 3. Exhibits to this Form 10-K are as follows: EXHIBIT NUMBER DESCRIPTION 3 (i) Certificate of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit No. 3(i) of Form 10-K for the fiscal year ended June 30, 1994) 3 (ii) Bylaws of the Company, as amended (incorporated herein by reference to Exhibit No. 3(ii) of Form 10-K for the fiscal year ended June 30, 1994) 10 (i) *Executive Compensation Agreement dated June 29, 1989, between Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to Exhibit 10.1 of Form 10-Q for quarter ended September 30, 1993) 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. 10(vi) 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) Consent Order between the Company and the Commonwealth of Virginia, Department of Environmental Quality dated May 20, 1996. 10 (viii) *Georgia Bonded Fibers, Inc. 1995-1996 Senior Management Incentive Plan 13 1996 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 27 Financial Data Schedule - ---------------- * Management contract or compensatory plan or agreement required to be filed as an Exhibit to this Form 10-K pursuant to Item 14 (c). (b) Reports on Form 8-K: None (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 separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by undersigned, hereunto duly authorized on this 24th day of September, 1996. GEORGIA BONDED FIBERS, 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 Company and in the capacities and on the dates indicated. Date /s/James C. Kostelni September 24, 1996 - -------------------------------- ------------------ James C. Kostelni Chairman of the Board, President Chief Executive Officer Director /s/Jeffrey C. Kostelni September 24, 1996 - -------------------------------- ------------------ Jeffrey C. Kostelni Treasurer Chief Financial Officer Director /s/David A. Dugan September 24, 1996 - -------------------------------- ------------------ David A. Dugan Controller and Corporate Secretary /s/Michael J. Breton September 24, 1996 - -------------------------------- ------------------ Michael J. Breton Corporate Director of International Operations and General Manager, Bontex S.A. Director /s/Larry E. Morris September 24, 1996 - -------------------------------- ------------------ Larry E. Morris Technical Director and Director of Marketing/Sales Director /s/Patricia S. Tischio September 24, 1996 - -------------------------------- ------------------ Patricia S. Tischio Assistant Corporate Secretary Director /s/William J. Binnie September 24, 1996 - -------------------------------- ------------------ William J. Binnie Director /s/William B. D'Surney September 24, 1996 - -------------------------------- ------------------ William B. D'Surney Director /s/Frank Mayorshi September 24, 1996 - -------------------------------- ------------------ Frank Mayorshi Director /s/Joseph F.Raffetto September 24, 1996 - -------------------------------- ------------------ Joseph F. Raffetto Director /s/Robert J. Weeks September 24, 1996 - -------------------------------- ------------------ Robert J. Weeks Director INDEPENDENT AUDITORS' REPORT - ---------------------------- The Board of Directors and Stockholders of Georgia Bonded Fibers, Inc.: Under date of August 9, 1996, we reported on the consolidated balance sheets of Georgia Bonded Fibers, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income (loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1996, as contained in the 1996 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as set fourth under Item 14(a)2 on page 12 of the accompanying annual report on Form 10-K for the year 1996. 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. s/KPMG Peat Marwick LLP Roanoke, Virginia August 9, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS GEORGIA BONDED FIBERS, INC., AND SUBSIDIARIES Balance at Charges to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts* Deductions** Period - ----------- ---------- ----------- ---------- ------------ ------ YEAR ENDED JUNE 30, 1996 Reserves and allowances deducted from asset accounts: Allowances for doubtful accounts $156,000 $66,000 ($6,000) $82,000 $134,000 YEAR ENDED JUNE 30, 1995 Reserves and allowances deducted from asset accounts: Allowances for doubtful accounts $183,000 $42,000 $12,000 $81,000 $156,000 YEAR ENDED JUNE 30, 1994 Reserves and allowances deducted from asset accounts: Allowances for doubtful accounts $175,000 $34,000 $4,000 $30,000 $183,000
*Foreign currency translation gain (loss) **Uncollectable accounts written off, net of recoveries Exhibit Index ------------- 3 (i) Certificate of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit No. 3(i) of Form 10-K for the fiscal year ended June 30, 1994) 3 (ii) Bylaws of the Company, as amended (incorporated herein by reference to Exhibit No. 3(ii) of Form 10-K for the fiscal year ended June 30, 1994) 10 (i) *Executive Compensation Agreement dated June 29, 1989, between Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to Exhibit 10.1 of Form 10-Q for quarter ended September 30, 1993) 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. 10(vi) 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) Consent Order between the Company and the Commonwealth of Virginia Department of Environmental Quality dated May 20, 1996. 10 (viii) *Georgia Bonded Fibers, Inc. 1995-1996 Senior Management Incentive Plan 13 1996 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 27 Financial Data Schedule - --------------- * Management contract or compensatory plan or agreement required to be filed as an Exhibit to this Form 10-K pursuant to Item 14 (c). EX-10 2 EXHIBIT 10 (VII) Exhibit 10 (vii) (Seal of Commonwealth of Virginia Department of Environmental Quality) COMMONWEALTH of VIRGINIA DEPARTMENT OF ENVIRONMENTAL QUALITY CONSENT ORDER ------------- WITH ---- GEORGIA BONDED FIBERS, INC., d/b/a BONTEX One Bontex Drive BUENA VISTA, VIRGINIA 24416 Registration No. 20342 SECTION A: Purpose - ------------------ To establish a plan of corrective action for Georgia Bonded Fibers, Inc., d/b/a Bontex, to comply with State Air Pollution Control Board Regulations for the Control and Abatement of Air Pollution and applicable conditions of Bontex's Stationary Source Permit. SECTION B: References - --------------------- Unless the context indicates otherwise, the following words and terms have the meanings assigned to them below: 1. "Va. Code" means the Code of Virginia (1950), as amended. 2. "Board" or "SAPCB" means the State Air Pollution Control Board, a Citizens' Board of the Commonwealth of Virginia described in Va. Code Section 10.1-1301 and Section 10.1-1184. Particular powers and duties of the Board are referred to in Section C of this document. 3. "Order" means this Consent Order. 4. "SAPCB Regulations" means the "State Air Pollution Control Board Regulations for the Control and Abatement of Air Pollution," VR 120-01-01 et seq. 5. "Department" means the Department of Environmental Quality, an agency of the Commonwealth described in Va. Code Section 10.1-1183. 6. "Director" means the Director of the Department, whose powers and duties are prescribed in Va. Code Section 10.11185. 7. "Bontex" refers to Georgia Bonded Fibers, Inc., One Bontex Drive, Buena Vista, Virginia 24416, a fiberboard plant located in Rockbridge County, Virginia. 8. "DEQ staff" refers to the Department of Environmental Quality - Regional Office staff. Agreement with Bontex Registration No. 20342 Page 2 9. "The Permit" means the Stationary Source Permit to Relocate and Operate two Keeler gas and/or distillate oil-fired boilers issued by DEQ staff to Bontex on April 29, 1993. SECTION C: Authority - --------------------- 1. Chapter 13 of Title 10.1 of the Code creates the Board and vests in it the authority to supervise and control various aspects of air pollution in the Commonwealth. Among the Board's powers are the authority to promulgate regulations "abating, controlling and prohibiting" air pollution, found in Va. Code Section 10.1-1308 and Section 10.1-1184, and the power to issue permits for stationary air pollution sources, found at Va. Code Section 10.1-1322. 2. Pursuant to its authority, the Board has promulgated the SAPCB Regulations, VR 120-01-01 et seq., which first took effect March 17, 1972, and have been amended. 3. Pursuant to Va. Code Sections 10.1-1307(D), 10.1-1309, and 10.1-1184, the Board has the authority to issue orders to diminish or abate the causes of air pollution and to enforce its rules and regulations. Orders of the Board are enforceable pursuant to Va. Code Section 10.1-1316. 4. The Director is the executive officer of the Board. Under Va. Code Section 10.1-1185, the Director performs those duties required of him by the Board. Those powers and duties conferred and imposed upon the Director under Va. Code Section 10.1-1307.3 are continued under Va. Code Section 10.1-1185. Va. Code Section 10.1-1187 states: The conditions, requirements, provisions, contents, powers, and duties of any section, article, or chapter of the Code in effect on March 31, 1993, relating to those agencies consolidated in this act shall apply to the Department of Environmental Quality until superseded by new legislation. 5. Under Va. Code Section 10.1-1307.3, the Director is authorized to supervise, administer and enforce the provisions of Chapter 13 of Title 10.1 of the Code, as well as the rules, regulations, and orders of the Board. Additionally, the Director has such powers as are conferred upon him by the Board. The SAPCB Regulations Appendix F contains the Delegation of Authority from the Board to the Director. In Paragraph II (A) of Appendix F, the Director is given the authority to act to abate or control air pollution, approve consent agreements and consent orders, and perform other duties as prescribed by law or regulation and, as required, to carry out the policies and directives of the Board. Agreement with Bontex Registration No. 20342 Page 3 SECTION D: Findings - -------------------- 1. Part IV of the SAPCB Regulations sets emissions standards for visible emissions and fugitive dust/emissions. Section ###-##-#### prohibits the discharge of visible emissions with greater than 20% opacity, except for one 6-minute period in any one hour of not more than 60% opacity. 2. On February 26, 1991, State Air Pollution Control Board staff issued a Notice of Exceedence to Georgia Bonded Fibers for a violation of the opacity standard observed on February 7, 1991, at the boiler stack. 3. On April 29, 1993, the Department of Environmental Quality issued a Stationary Source Permit to Relocate and Operate two Keeler gas and/or distillate oil-fired boilers serving the plant. Condition 5 of the Permit limits visible emissions from the boiler stack. Such emissions shall not exceed 10% opacity except during one 6-minute period in any one hour in which visible emissions shall not exceed 20% opacity. 4. Since issuance of the Permit, DEQ staff have observed emissions of 100% opacity from the boiler stack on at least 2 occasions. Bontex believed the apparent violation observed by DEQ staff on October 19, 1993, was caused by a malfunctioning oil-fired burner, and the company was in the process of replacing the burner with a gas-fired burner. The second apparent violation, documented by DEQ staff on April 5, 1994, occurred while Bontex was developing corrective action measures to decrease visible emissions from the coating process. DEQ staff have met with Bontex to discuss these recurring violations, and issued a Letter of Admonition to the company on January 24, 1996. 5. Bontex submitted a corrective action plan on November 29, 1995, for resolving the opacity problem caused by the PVC process on the coating line. DEQ staff have reviewed and approved the plan, which has been incorporated into Appendix A of this Consent Order. SECTION E: Agreement and Order - ------------------------------- Accordingly, the Board orders and Bontex agrees that: 1. As part of its ongoing effort to minimize visible emissions, Bontex shall implement the 18-month schedule of compliance set out in Appendix A of this Order. 2. For periods when the PVC foam process is run on the PVC coating line, Bontex take all actions practicable to minimize visible emissions from the boiler stack. At all other times, Bontex shall meet the visible emissions requirement of the permit for the boiler stack. 3. This Order shall not relieve Bontex of its obligation to comply with all other terms and conditions of the Permit. Agreement with Bontex Registration No. 20342 Page 4 4. The Department may modify, rewrite, or amend this Order with the consent of Bontex, for good cause shown by Bontex, or on its own motion after notice and an opportunity for a hearing. 5. So long as this Order remains in effect, Bontex waives the right to any hearing pursuant to Va. Code Section 10.1-1309 and to judicial review of any issue of fact or law contained herein. Nothing herein, however, shall be construed as a waiver of the right to a hearing or to judicial review of any action taken by the Board to enforce this Order. 6. Failure by Bontex to comply with any of the terms of this Order shall constitute a violation of an Order of the Board. Nothing herein shall waive the initiation of appropriate enforcement actions or the issuance of additional Orders as appropriate by the Board as a result of such violations. Nothing herein shall affect appropriate enforcement actions by any other federal, state, or local regulatory authority. 7. Bontex shall not be responsible for failure to comply with any of the terms and conditions of this Order if such non-compliance is caused by earthquake, flood, or other act of God, fire, war, riot, strike, failure of material or services to be delivered as contracted, or other occurrence resulting in impossibility of compliance where Bontex shows that such occurrence and non-compliance were beyond its control and were not due to a lack of good faith or diligence on the part of Bontex, and if, within fifteen (15) days of any event listed above, which Bontex intends to assert will result in the impossibility of compliance, Bontex notifies DEQ of the occurrence of such event. 8. Bontex declares it has received fair and due process under the Administrative Process Act (Va. Code Section 9-6.14:1 et seq.), as affected by Va. Code Section 10.1-1309. 9. This Order shall become effective upon execution by both parties and shall continue in effect until: (a) Completion of all tasks outlined in the attached Appendix A; and (b) Bontex achieves compliance with the visible emission limitation of the Permit. The foregoing Consent Order has been executed on behalf of the Department of Environmental Quality and on behalf of Bontex, each by its duly authorized representatives, on the dates indicated below. DEPARTMENT OF ENVIRONMENTAL QUALITY OF THE COMMONWEALTH OF VIRGINIA May 20, 1996 BY: s/R. Bradley Chewning - --------------------------- --------------------------------- (date) Peter W. Schmidt Director Agreement with Bontex Registration No. 20342 Page 5 GEORGIA BONDED FIBERS, INC., d/b/a BONTEX 5/14/96 BY: s/Harmonson H. Floyd, Jr. - --------------------------- --------------------------------- (date) TITLE: Dir. of Mfg/Chief Engineer -------------------------------- STATE OF VIRGINIA COUNTY OF Rockbridge ---------- The foregoing instrument was acknowledged before me this 14th day of May, ---- --- 1996, by Harmonson H. Floyd, Jr, who is Dir. of Mfg/Chief Engineer on behalf ---------------------- -------------------------- of Georgia Bonded Fibers, Inc., d/b/a Bontex. s/Charles Armstrong ---------------------------------- Notary Public My commission expires March 31, 1999 --------------------------------------- Agreement with Bontex Registration No. 20342 Page 6 APPENDIX A In order to comply with the provisions of the State Air Pollution Control Law, SAPCB regulations, and the Permit, Bontex agrees to the following schedule of compliance: 1. Verify the PVC Line emission profile by evaluating potential emissions and by quantifying and speciating VOC and particulate emissions by June 30, 1996. 2. Evaluate the available technologies to reduce visible emissions from the boiler stack and select the appropriate control technology by September 30, 1996. 3. Build and/or have delivered the appropriate control equipment and related materials by March 31, 1997. 4. Install the control equipment by May 31, 1997. 5. Achieve final compliance with the visible emissions limitation of the Permit by September 30, 1997. A Visible Emission Evaluation (VEE) shall be conducted prior to this date in accordance with 40 CFR Part 60, Appendix A, Method 9, to demonstrate compliance. Bontex agrees to notify DEQ's Valley Regional Office, in writing, at least seven (7) days prior to the VEE to allow DEQ staff to be present during the test. 6. No later than 14 days following a date identified in the above schedule of compliance, Bontex shall submit to DEQ's Valley Regional Office a written notice of compliance or non-compliance with the scheduled item. In the case of noncompliance, the notice shall include the cause of noncompliance, any remedial actions taken, and the probability of meeting the next scheduled item. EX-10 3 EXHIBIT 10 (VIII) Exhibit 10 (viii) GEORGIA BONDED FIBERS, INC. 1995 - 1996 SENIOR MANAGEMENT INCENTIVE PLAN The 1995-1996 Senior Management Incentive Plan is designed to promote the interests of Georgia Bonded Fibers, Inc. (GBF), by providing an incentive to Senior Managers whose decisions and actions significantly affect the growth and profitability of GBF. 1. PARTICIPANTS ------------ Participation in the plan will be limited to Senior Managers of GBF whose decisions and actions significantly affect the Company's growth, new product development, expanded markets, cost containment, and profitability. Each year the Compensation Committee shall recommend, for approval by the Board, all employees selected for participation, including the amount of their maximum incentive award. 2. AWARD AND OBJECTIVES FOR 1995 - 1996 ------------------------------------ A. For the year ending June 30, 1996, Georgia Bonded Fibers, Inc. will pay a bonus to James C. Kostelni, CEO; Jeffrey Kostelni, CFO; David A. Dugan, Controller/Corporate Secretary; Patricia Tischio, Assistant Corporate Secretary; Charles Kostelni, Assistant Controller; Larry Morris, Technical/Sales Director; Harmonson Floyd, Chief Engineer/Director of Manufacturing; Mike Breton, Director of International Operations Bontex SA; Pierre Pallage, Technical/Plant Manager Bontex SA; Hadelin Mothet, Financial Director/Assistant General Manager Bontex SA; Tarcisio Pasquali, General Manager Bontex Italia s.r.l., should earnings of Georgia Bonded Fibers, Inc. exceed specified amounts for the year ending June 30, 1996. The amounts of earnings for the year 1995 - 1996 will earn for the participant a percentage of their base salary. The levels of bonus payments are established as follows:
PRE-TAX EARNINGS ----------------------------------------------------------------- FLOOR TARGET CEILING ----- ------ ------- $1,650,000 $2,000,000 $3,000,000 EARNS 10% OF EARNS 20% OF EARNS 30% OF BASE SALARY BASE SALARY BASE SALARY
B. If the pre-tax earnings in (a) above are met, the participants will be eligible to double their bonus earnings in (a), should GBF sales increase by 6% or more over the 1994 - 1995 sales. Earnings which fall between floor and target or target and ceiling will be interpolated between these plateaus and the bonus will be increased to reflect the increased performance. Should earnings not meet the floor, a bonus will not be paid. 3. MISCELLANEOUS ------------- A. In the first quarter of the plan year, each selected participant will be notified, in writing, of the amount and terms of the incentive awards. The plan year begins the 1st of July and ends the 30th of June of the following year. B. Payment of each participant's award will be made as soon as possible after the end of the plan year, preferably by end of the first quarter. Incentive awards will be paid in dollars, and paid to the participants no later than ninety (90) days of the end of the fiscal year. C. Each participant may earn their award based on an evaluation of the individual's performance against specific objectives. The base salary will be the annual amount paid the participant as of July 1, 1995. D. In the event of death, retirement, or termination (except for cause), a pro rata share of the participant's award, if earned, will be based on an evaluation of the period of actual participation. Only the Board of Directors, with the recommendation from the Compensation Committee, may approve payment before the end of the plan year. E. At the end of the plan year, the Compensation Committee will make the determination of the appropriate payment, or lack thereof. The Committee will recommend to the Board of Directors an amount considered appropriate; and that the Board of Directors authorize the payment of the additional compensation. It may recommend to the Board of Directors an increase or decrease in the amount of any or all incentive awards if, in its sole judgment, extraordinary or unanticipated circumstances warrant such action. F. This plan may be terminated at any time, effective July 1 of the following year. This plan may be altered or amended at any time, with the recommendation of the Compensation Committee and the approval of the entire Board, as long as such revisions do not impair the rights of any participant granted an award. G. The terms of this plan do not constitute a contract or employment for a defined period, and all participants continue as employees at will. EX-13 4 ANNUAL REPORT Exhibit 13 CONSOLIDATED 1996 ANNUAL REPORT - --------------------------------------------------------------------------- BONTEX (registered trademark) For Fiscal Year Ended June 30, 1996 (Picture of soccer players and soccer ball - athletic shoes) PAGE BONTEX (registered trademark)/SUR-V-LON (registered trademark) (Picture of luggage) hangs tough! When you hang a BONTEX recycled cellulose (registered trademark)/ (Graphic of Tag) fibers originally SUR-V-LON (registered DURABLE derived from trees, a trademark) tag on your BEAUTIFUL renewable natural luggage, attache', resource. portfolio, or handbag, SUR you get high performance -V- All BONTEX products that hang LON (registered trademark) tough. Vinyl-Coated products are MORI- BONTEX FRESH (registered BONTEX (registered trademark) treated trademark)/SUR-V-LON to resist mold-type (registered trademark) growth related to traveled the world over bacteria and fungi. for many years and make reliable first class Please call, write traveling companions. or fax BONTEX (registered trademark) BONTEX (registered for samples. trademark) products are designed to be "environmentally friendly" BONTEX (registered because we use primary and trademark) a member of Bontex, One Bontex Drive, Buena Vista, VA 24416-0751. SATRA (540) 261-2181. Fax: 540-261-3784. Manufactured: BONTEX (registered trademark) Buena Vista, VA 24416-0741. http://www.bontex.com. E-Mail: bontex@bontex.com Bontex S.A. Belgium. Distributed and converted by BONTEX (registered trademark) Italy, S.R.L., Villafranca, Verona, Italy. Bontex (registered trademark) de Mexico, Leon, Mexico BONTEX (registered trademark) GEORGIA BONDED FIBERS, INC. Consolidated 1996 Annual Report - ---------------------------------------------------------------------------- BONTEX 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. - ---------------------------------------------------------------------------- CONTENTS 2 Corporate and Product Profile 3 Message to Shareholders 5 Financial Highlights 6 Management's Discussion and Analysis 11 Financial Statements 25 Independent Auditors' Report CORPORATE PROFILE Georgia Bonded Fibers, Inc. was founded 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, generally described by the trademark BONTEX (registered trademark). BONTEX (registered trademark) 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 (registered trademark) 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 its corporate headquarters in Newark, New Jersey; manufacturing facilities at Bontex USA, One Bontex Drive, Buena Vista, Virginia and at Bontex S.A., Stembert, Belgium; a distribution and converting operation at Bontex Italia s.r.l., Villafranca, Verona, Italy; and a distribution subsidiary, Bontex de Mexico, S.A. de C.V., in Leon, Mexico. Bontex also maintains a network of liaison offices and distributors globally to market Bontex products. PRODUCT PROFILE Bontex manufactures uncoated and coated BONTEX (registered trademark) fiberboard products; PVC breathable cushion foams, that are marketed under trademarks BON-FOAM (registered trademark), MAXXON (registered trademark) and SURE-FOAM (registered trademark), and are sold in a variety of grades for use as shock absorbing insole material; BON-PEL (registered trademark), a wet web nonwoven substrate, which is exceptionally strong and flexible; BONTEX (registered trademark) 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 PVC's, with BONTEX (registered trademark) fiberboard. Additionally, Bontex is the exclusive distributor globally to the footwear industry of an expanded polyurethane material manufactured by E.A.R. Specialty Composites, a division of Cabot Safety Corporation, trademarked MAXXON (registered trademark) LS and CONFOR (registered trademark). Registered trademarks the Company markets products include: BONTEX (registered trademark) SUPERTEX (registered trademark) BON-PEL (registered trademark) MORI-FLEX (registered trademark) nonwoven BON-FOAM (registered trademark) BON-STITCH (registered trademark) cushion MAXXON (registered trademark) VINTEX (registered trademark) cushion SUR-V-LON (registered trademark) BON-DOE (registered trademark) vinyl coated Bontex SIR-PEL (registered trademark) BONTEX (registered trademark) 200 RECYCLED MORIMER (registered trademark) BONTEX (registered trademark) 300 RECYCLED SURTEX (registered trademark) E-mail: bontex@bontex.com http://www.bontex.com (Graphic of a Satra ISO 9000 Seal) BONTEX (registered trademark) Georgia Bonded Fibers, Inc. Message to Shareholders DEAR FELLOW SHAREHOLDER: Before the start of 1996, we expected it to be a year of exceptional challenges in our efforts to return the Company to profitability. During the second half of fiscal 1996, Georgia Bonded Fibers, Inc. and its wholly-owned subsidiaries (Bontex) generated consolidated operating profits of $1.5 million, despite a 6.3 percent decline in sales. The decline in sales was principally due to a decrease in retail sales. These positive operating results were not enough to offset the operating losses incurred during the first six months, and consequently, the Company posted a consolidated net loss of $602,000 or $.38 per share for the year ended June 30, 1996. This represents an improvement of $856,000 over last year's net loss of $1.5 million or $.93 per share. Consolidated net sales for the year totaled $47.6 million, as compared to last year's record consolidated net sales of almost $51 million. The twelve months preceding December 31, 1995 were undoubtedly one of the most challenging periods in the history of the Company. We were confronted with unprecedented upward spiraling raw material costs, extreme volatility in foreign exchange markets and a decline in sales. We implemented several key measures that laid the foundation for our Company to address these external conditions. Significant progress was made in several of these critical areas, including the successful implementation of selling price increases, capital improvements designed to enhance production efficiencies, a revised Risk Management Program to hedge the Company's exposure to foreign currency volatility, as well as various cost control measures. The positive impact of the preceding measures contributed to the Company's return to profitability during the second half of the fiscal year, and accordingly, we believe that the Company is well positioned as we enter into our new fiscal year. The decrease in sales primarily reflects a global slowdown in retail sales of the various industries Bontex serves. The Company's overall market position remains positive, and our market penetration in several key areas continues to improve. Consistent with our strategic plan, our Company will continue to take measures to respond to competitive pressures. Management is aggressively pursuing an action plan within our strategic objectives focused on maintaining our position as a primary leader in the global market. A key element in our strategy for future success is, of course, the development of new and innovative products, as well as continued expansion of our customer base. The improvement in operating conditions compared to the prior year was most evident during the final quarter of fiscal 1996. Prices for raw materials and foreign currency exchange markets have moderated. We believe that our revised Risk Management Program continues to be effective in managing our Company's exposure to foreign currencies, and accordingly, exchange gains or losses should not be material in the future. The Company continues to minimize as much as possible the effects of cyclical changes in costs through certain purchase contracts, and the application of new technologies to improve both product quality and process efficiencies. Over the past five years, consolidated capital investments aggregated approximately $8.7 million. Such capital investments represent a commitment by the Company in our future, and these investments have contributed positively to the Company's operating efficiencies. Fiscal year 1997 represents our fiftieth anniversary. Since the founding of our Company by Mr. Hugo Surmonte, Bontex has developed into a primary global manufacturer and distributor of elastomeric wet web fiberboard products. Our mission to be the global leader in our industry by providing our customers with high quality Bontex products and service has remained unchanged. The Company's plan to establish a manufacturing subsidiary in Asia remains an important priority in improving our access to the world's largest market for Bontex products. Bontex Sdn. Bhd. was incorporated during fiscal 1996; however, the project in Asia was delayed so that management could focus on immediate issues and return the Company to profitability. We must remain focused on our efforts by providing superior value by utilizing modern technologies, and remain committed to our shared partnership with our customers, employees, suppliers and shareholders. We realize that there are many challenges that lie ahead of us; however, we are confident that our greatest achievements will be in the future, as derived from the foundation developed over the past half century. Management has implemented a financial plan to improve the Company's financial condition. This plan includes a number of important measures to increase working capital, reduce debt, invest judiciously in essential capital projects, and reinvest earnings. These budgetary and financial controls should contribute to improving our Company's financial position and enhance shareholders' value. Additionally, our Company's Board of Directors has proposed, subject to shareholder approval, that the Company change its situs from New Jersey to Virginia and simultaneously make various important changes to the Company's Certificate/Articles of Incorporation. These proposed changes will be accomplished by merging the Company into a wholly-owned Virginia subsidiary. The reorganization would not result in any change in business, management, net worth, assets or liabilities of the Company. Furthermore, the transaction is generally intended to qualify as a tax-free reorganization. The only purpose of the merger is to effectuate these proposed changes. The Company's Board of Directors believes that these proposals, which will be voted on at the upcoming annual meeting of shareholders, are essential to our long-term success and will inure to our Company's benefit as we enter the twenty-first century. We are pleased to announce that Bontex has developed a web site on the Internet located at http://www.bontex.com. The Bontex web site reflects our commitment to continual improvement in marketing Bontex products and enhancing customer service. The Bontex web pages are tailored to customers by providing useful product specification information, as well as enhanced communication via e-mail. Please visit our web site and leave us your comments. Bontex is a forward-looking company utilizing available technologies to service the global market. We are proud of the fact it has been our Company's policy to protect the environment in which we all work and live. It is an important responsibility to which the Company has dedicated significant resources over the years. The majority of these environmental expenditures relate to the design and construction of waste water treatment plants at our Company's manufacturing facilities in the USA and Belgium. The waste water treatment plant in Buena Vista, Virginia, USA, was completed during fiscal 1996, and utilizes state of the art, cost effective processes adapting innovative technologies. A facility designed to meet Belgian regulatory requirements is under construction and is scheduled to be completed during 1997. Bontex is committed to continuing to conduct business in a fashion that will respect and preserve the environment. We are very proud of all our employees, representatives and distributors globally for their outstanding teamwork. We are particularly grateful to all our customers for their trust in us, and we thank you, our shareholders, for your continued support of the Company and its management. We believe that the current management team has the experience and skills to lead our Company into the twenty-first century in achieving our mission. Sincerely, s/James C. Kostelni James C. Kostelni Chairman of the Board and Chief Executive Officer Bontex, One Bontex Drive, Buena Vista, VA 24416-0751 Telephone: 540-261-2181 Fax: 540-261-3784 E-Mail: bontex@bontex.com http://www.bontex.com Bontex S.A. Belgium, Bontex S.R.L. Italy, Bontex De Mexico, Bontex Hong Kong
GEORGIA BONDED FIBERS, INC. AND SUBSIDIARIES Summary of Selected Five Year Data (In Thousands, Except Per Share Data) Years ended June 30, -------------------------------------------------------- 1996 1995 1994 1993 1992 Net sales $47,618 $50,998 $47,729 $46,710 $46,534 ======= ======= ======= ======= ======= Income (loss) before cumulative effect of change in accounting principle $ (602) $(1,458) $ 935 $ 193 $ 942 Cumulative effect of change in accounting principle - - 400 - - ------- ------- ------- ------- ------- Net income (loss) $ (602) $(1,458) $ 1,335 $ 193 $ 942 ======= ======= ======= ======= ======= Income (loss) per share: Before cumulative effect of change in accounting principle $ (.38) $ (.93) $ .60 $ .12 $ .60 Cumulative effect of change in accounting principle - - .25 - - ------- ------- ------- ------- ------- Net income (loss) $ (.38) $ (.93) $ .85 $ .12 $ .60 ======= ======= ======= ======= ======= Total assets $33,181 $39,527 $31,032 $28,840 $28,669 Capital expenditures $ 2,157 $ 1,704 $ 1,868 $ 1,226 $ 1,787 Long-term debt $ 2,330 $ 1,364 $ 1,511 $ 1,056 $ 1,493 Book value per share $ 6.55 $ 7.11 $ 7.68 $ 6.69 $ 6.88 Cash dividends declared per common share* $ - $ - $ - $ .05 $ - - ---------------
*A cash dividend of $.05 was paid during the second quarter of 1993. Common Stock and Dividend Data The stock of Georgia Bonded Fibers, Inc. is traded over the counter on the NASDAQ National Market under the symbol BOTX. At August 30, 1996, there were approximately 639 shareholders of record. No cash dividends have been declared or paid during fiscal years 1996 and 1995.
Range of Bid Prices ------------------- Fiscal Year Ended High Low June 30, 1996 First Quarter $ 4.25 $ 2.75 Second Quarter 3.875 2.375 Third Quarter 3.25 2.375 Fourth Quarter 4.375 2.875 1995 First Quarter $ 6.00 $ 5.00 Second Quarter 6.50 5.50 Third Quarter 5.50 3.50 Fourth Quarter 4.125 2.984
GEORGIA BONDED FIBERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS General During fiscal year 1996, the Company was confronted with challenging operating conditions. In spite of the difficult situation that existed in the market place, our Company returned to profitability and generated positive operating results during the second half of the year. However, these positive results were not sufficient to offset the losses incurred during the first half of the year. Operating conditions have improved with more stable raw material costs, the benefits of which were mostly evident during the fourth quarter. The Company's operating margins remain under constant pressure from, among other things, increasing environmental related costs and higher prices for raw materials. Except for the historical data set forth herein, the following discussion contains certain forward-looking information. The Company's actual results may differ materially from these projected results. Factors that could cause or contribute to such differences include, but are not limited to, level of sales to key customers, actions by competitors, and fluctuations in the price of primary raw materials and foreign currency exchange rates. Results of Operations Consolidated net sales for 1996 totaled $47.6 million, a decline of $3.4 million or 6.6 percent as compared to the prior year's record level of $51 million. The decline in sales reflects a general global slowdown in retail sales of the various industries the Company serves. The Company recorded a consolidated net loss of $602,000 or $.38 per share for fiscal 1996, as compared to the net loss of $1,458,000 or $.93 per share during the prior year. These operating losses were primarily due to high raw material costs. During fiscal 1994, the Company recorded consolidated sales of $47.7 million and net income of $1.3 million or $.85 per share. The record net income earned during 1994 reflects the positive impact of stable foreign currency exchange rates and raw material prices, as well the impact of a one- time gain of $400,000 resulting from the cumulative effect of adopting FASB 109, "Accounting for Income Taxes." Cost of sales as a percent of net sales was 77.1 percent in 1996; 77.3 percent in 1995; and 73.1 percent in 1994. The higher costs of sales during 1996 and 1995 largely reflect the significant increase in raw material costs, particularly with pulp. The lower cost of sales in 1994 was primarily the result of more stable raw material prices and efficiency gains realized from expanded volume. The Company's goal is to mitigate effects of cyclical changes in costs through purchase contracts, forward purchasing, and application of technologies to improve process efficiencies. Cost trends leading up to December 31, 1995 indicated increased inflationary pressures. The cost of pulp and latex, two primary raw materials for the Company's products, increased by more than 100 percent and 56 percent, respectively, during the eighteen months leading up to December 31, 1995. Furthermore, costs relating to environmental controls continue to increase, resulting in continued pressure on the Company's operating margins. The adverse fluctuation in raw material costs reduced the Company's profitability by approximately $1.5 million during the first six months of fiscal 1996. Management has implemented various measures in an attempt to manage the situation, including raising selling prices, capital enhancements to improve production efficiencies, a revised Risk Management Program and various cost control measures. The impact of the preceding measures contributed to the Company's return to profitability during the third quarter of fiscal year 1996. Operating conditions have improved since December 31, 1995, the impact of which was mostly evident during the final quarter of fiscal 1996. Management currently believes that the Company is well positioned as it enters the next fiscal year. Management intends to continue to prudently apply technology to manufacture high quality products while working 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 have an adverse effect on the Company's operations or competitive position in the future. It is difficult to predict future raw material costs, as well as to implement timely selling price increases for the Company's finished goods due to the globally competitive environment in which the Company operates. The Company's United States operations uses the last-in, first-out (LIFO) method of inventory accounting; however, for comparison purposes with other companies, if the first-in, first-out (FIFO) method of accounting had been used, reported gross profit would have been lower by $147,000 in 1996; higher by $342,000 in 1995; and lower by $23,000 in 1994. Net income would have been lower by $95,000 or $.06 per share in 1996 and higher by $212,000 or $.13 per share in 1995 and lower by $14,000 or $.01 per share for 1994. As a percent of net sales, selling, general and administrative (SG&A) expenses over the previous three years were relatively stable at 23.1 percent in 1996; 23.4 percent in 1995; and 22.8 percent in 1994. The decrease in SG&A costs from 1995 to 1996 was due largely to various cost control measures and the decline in sales. The increase in the 1995 SG&A percentage as compared to 1994 was mainly due to certain marketing related expenses increasing at a higher rate than sales. SG&A costs were reduced by $159,000 during fiscal 1996, relating to the reversal of an accrual as described in Note 6 of the Notes to the Consolidated Financial Statements. The increase in interest expense over the past three years is mainly due to higher interest rates and increased borrowings. Proceeds from expanded credit facilities were utilized for planned capital additions, such as the mandated environmental projects, as well as funding of operations. A large portion of the Company's debt consists of short-term credit facilities with floating interest rates. To protect the Company's financial position from future interest rate increases, the Company entered into a number of interest rate swap agreements, to provide for fixed interest payments and stable cash outflows. These agreements are described in Note 7 of the Notes to the Consolidated Financial Statements. The consolidated effective income tax rate for the Company was 23 percent in 1996; 37.9 percent in 1995; and 43 percent in 1994. The income tax benefit in 1996 and 1995 was attributed to the operating losses, reflecting $317,000 and $781,000, respectively, in tax benefits from net operating loss carryforwards. The higher effective tax rate in 1994 was principally due to higher taxable income, particularly at the Company's European subsidiaries where income tax rates are higher. Refer to Note 5 of the Notes to Consolidated Financial Statements for further details regarding income taxes. International Sales & Operations The Company's international sales continue to be the largest portion of sales, reflecting management's strategic emphasis on developing international markets and the contraction of the US market for Bontex (registered trademark) products. The Company's international subsidiaries represented approximately 60 percent of consolidated net sales over the past three years. Export sales from the US in 1996, 1995 and 1994 were $9.8 million, $9.2 million and $8.8 million, respectively. US export sales are generally denominated in US dollars. Foreign currency exchange rates have different effects from year to year on the translation of the income statement and balance sheet. Income statements of foreign subsidiaries are translated using the weighted average currency exchange rate in effect during the year, and the balance sheet is translated using the currency exchange rate in effect at year end. The impact of the rate decrease from 1995 to 1996 and 1994 to 1995 resulted in net sales being higher by approximately $600,000 and $3.2 million, respectively. The fluctuation in foreign currency exchange from 1993 to 1994 resulted in net sales being lower by approximately $3.6 million. On the balance sheet, foreign currency exchange rates at June 30, 1996 were higher than the currency exchange rates at June 30, 1995, which resulted in a translation decrease of approximately $1.5 million in total assets, as compared to the translation increase of approximately $3 million last year. International operations are subject to certain inherent risks, including currency fluctuations, export duties, restrictions on transfer of funds and political instability. Management continually monitors and assesses these inherent risks, and evaluates various alternatives to manage exposure to such risks. The exposure to foreign currency exchange losses represents the risk that eventual net cash flows resulting from a sale or purchase will be adversely affected by changes in exchange rates. During 1995, the Company experienced extreme volatility in the foreign exchange markets. This unusual volatility resulted in larger than normal currency exchange losses, and accordingly, management revised its Risk Management Program (RMP). The revised RMP is a coordinated approach in the management of foreign currency risks: The overall policy of the RMP is to match currency denominations of the Company's assets with those of its liabilities, in a manner intended to reduce the Company's foreign currency exposure. The revised RMP appears to be effectively managing the Company's exposure to foreign currencies, and accordingly, foreign currency exchange gains and losses in the future are not expected to be material. However, prior to full implementation of our revised RMP, total foreign currency exchange gains and losses were a gain of $496,000 in 1996; a loss in 1995 of $1.5 million; and a gain of $247,000 for 1994. The exchange gain in 1996 represents a recovery of a portion of the exchange losses incurred during the prior year. The higher than normal exchange losses in 1995 are mainly the result of the decrease in value of the US dollar, Italian lire and Mexican peso. During the twelve months leading up to June 30, 1995, the Italian lire and US dollar decreased in value relative to the Belgian franc by 13 percent and 12 percent, respectively, and the Mexican peso reduced in value by more than 100 percent relative to the US dollar. The revised RMP should greatly reduce these exchange losses; however, management cannot assure that such exchange losses will not occur again in the future. All transactions denominated in foreign currencies are not hedged (i.e., Mexican peso, Canadian dollar, etc.) since the volume of such transactions is limited and therefore the cost to hedge is considered prohibitive. The Company regards these international markets as excellent opportunities for future growth in revenues and profits, and will continue to attempt to manage these risks in the most cost-effective manner. Foreign exchange contracts were utilized during fiscal 1994 to manage the exposure of sales denominated in U.S. dollars at Bontex SA. Forward exchange contracts were valued at market value at fiscal year end, and the resulting unrealized foreign currency gain of $267,000 was recorded in 1994. The favorable valuation of these contracts was largely due to the contract exchange rate being higher than the market rate. Refer to Note 7 of the Notes to Consolidated Financial Statements for further details regarding foreign exchange contracts. Liquidity and Capital Resources The Company's capital structure (total assets less current liabilities) continues to finance short- and long-range business objectives, and at June 30, 1996, and 1995 totaled $12.6 million and $12.7 million, respectively. The Company's capital structure primarily consists of shareholders' equity, and over the past two years, long-term debt represented approximately 18.4 and 11 percent of capital structure for 1996 and 1995, respectively. The Company's requirements for capital during the previous two fiscal years have principally been for capital related expenditures and funding operations. Cash flows provided by operations totaled $1.2 million in 1996 and used in operations totaled $2.1 million in 1995. Cash flows from operations in 1994 totaled $1.1 million. Cash flows used in investing activities mainly represent acquisition of property, plant and equipment. These capital investments totaled $2.2 million, $1.7 million and $1.9 million in 1996, 1995 and 1994, respectively. Net cash flows used in financing activities totaled $2.3 million in 1996, and net cash flows from financing activities were $5.7 million and $149,000 in 1995 and 1994, respectively. Cash and cash equivalents decreased by $3.7 million to $715,000, largely due to funding of operations, planned capital additions, and the net decrease in short-term borrowings. Last year's cash balances were larger than normal because the Company was holding certain deposits in anticipation of improved foreign currency exchange rates. Trade accounts receivable decreased approximately $1.2 million to $14.1 million at June 30, 1996, as compared to last year, primarily because of lower sales volume and currency translation adjustments. Other receivables primarily consist of value added taxes (VAT) the Company's European subsidiaries have paid for which the Company will receive a refund. Inventory balances at June 30, 1996 were $5.5 million, down from $7.7 million the prior year. The decrease in inventory is mainly because of the consumption of higher priced inventories. Management continues to implement controls over finished goods and raw material inventories to control costs through the reduction of stock, seconds, and scrap. The increase in deferred income tax assets primarily reflects the recorded income tax benefit from net operating losses. At June 30, 1996, the Company had approximately $3.0 million in net operating loss carryforwards to offset future taxable income, of which approximately $600,000 and $400,000 expire in 2010 and 2011, respectively. Approximately $2.0 million of the net operating loss carryforwards do not expire. The ultimate realization of the deferred tax assets is dependent upon the Company generating $3.7 million in future taxable income during the tax carryforward period. Certain factors beyond management's control can affect future levels of taxable income, including prices for primary raw materials. Management is confident that it is more likely than not that the Company will realize these deferred tax assets, reflecting, as previously discussed, improved operating conditions during the last six months of the fiscal year 1996 and the benefits from the various measures implemented by management, as well as based upon the level of anticipated future taxable income. Additionally, management believes the existing net deductible temporary differences will reverse during the periods in which the Company generates net taxable income. The Company's historical earnings further support this position: During fiscal 1994, which was the last year the Company had similar operating conditions with regard to the price of pulp, the Company generated income before income taxes and nonrecurring items of $1.6 million. Accordingly, no allowances are provided for deferred tax assets. Refer to Note 5 of the Notes to Consolidated Financial Statements for further details regarding income taxes. The plant and equipment additions mainly represent capital expenditures for mandated environmental controls, and various capital improvements to enhance the productivity of manufacturing and converting facilities in the United States, Belgium, and Italy. Capital expenditures for 1997 are projected not to exceed $2.5 million. Accounts payable decreased $2.3 million to $8.0 million at June 30, 1996, as compared to the prior year. The payable balances last year were higher than normal mainly because of accruals relating to capital additions and higher raw material inventory balances. Short-term borrowing decreased $2.3 million to $9.4 million at June 30, 1996 and primarily corresponds to the decrease in cash and inventories. The increase in long-term debt was primarily due to the funding of capital additions. Subsequent to June 30, 1996, the Company entered into financing agreements whereby the Company secured and expanded existing credit facilities. These secured credit facilities contain various loan covenants, including the maintenance of certain minimum financial ratios and borrowing base requirements. The Company was in compliance with the applicable debt covenants subsequent to June 30, 1996. As a result of the decrease in various financial ratios, $1.8 million of the long-term debt was classified as current at June 30, 1995. The Company subsequently obtained a waiver from such requirements at June 30, 1995. During fiscal year 1996, the Company obtained a modified secured debt agreement. The Company was in compliance with the applicable amended covenants at June 30, 1996, and accordingly, such debt was classified as long-term. Refer to Note 4 of the Notes to Consolidated Financial Statements for further details regarding Long-term Debt and Financing Agreements. The Company believes current credit facilities combined with cash flows from operations will be sufficient to meet future operating and capital requirements for the foreseeable future. The Company's ratio of current assets to current liabilities declined from 1.07 to 1.05 at June 30, 1996, reflecting the $738,000 decrease in working capital. These changes are primarily attributed to capital additions and operating losses. The ratio of total liabilities to equity improved at fiscal year end to 2.22 from 2.53 the prior year. Management has implemented a financial plan to improve the Company's financial condition. This financial plan includes measures to increase working capital, reduce debt, invest in essential capital projects and reinvest earnings for future expansion and operations. Environment As with all related manufacturers, the Company is subject to regulation by various federal, state, foreign and local agencies concerning compliance with environmental control statutes. These regulations impose limitations on the discharge of effluent and emissions into the environment, and establish standards for treatment, storage and disposal of hazardous wastes, as well as require the Company to obtain and operate in compliance with the conditions of permits and other governmental authorizations. During fiscal 1996, the Company completed the construction of the waste water treatment plant in the USA at an aggregate cost over the past three years of almost $2 million. The waste water treatment plant in Belgium is under construction and is scheduled to be completed during 1997. The Belgian treatment plant is expected to cost approximately $1.5 million. The Company in the USA is developing and implementing certain air emission controls. The cost of the air control technologies based on current information is projected to be approximately $250,000. The Company has made and intends to continue to make substantial capital investments and operating expenditures, as well as production adjustments, in connection with compliance with environmental laws and regulations. Estimates of future costs for environmental compliance may differ from final costs due to, among other things, continued emergence of new environmental laws and regulations, as well as technological developments. Refer to Note 8 of the Notes to the Consolidated Financial Statements for further details regarding environmental matters. Accounting Change In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The Company changed its method of accounting for income taxes effective July 1, 1993, to adopt the new accounting standard. The cumulative effect of the change in accounting principle increased net income by $400,000 or $.25 per share, as reported separately in the statement of income for the year ended June 30, 1994, as described in Notes 1 and 5 of Notes to the Consolidated Financial Statements. In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of." This statement establishes the accounting standards for the impairment of long-lived assets and certain identifiable intangibles to be disposed of. This standard is effective for financial statements beginning after December 15, 1995, which for the Company would be fiscal 1997. Based on management's review, the adoption of SFAS No. 121 is not expected to have a material impact, if any, on the Company's financial position and results of operations. In June 1996, the Financial Accounting Standards board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This standard is effective for transactions occurring after December 31, 1996 and shall be applied prospectively. Based on management's review, the adoption of SFAS No. 125 is not expected to have a material impact, if any, on the Company's financial position and results of operations.
GEORGIA BONDED FIBERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) and CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended June 30, 1996, 1995 and 1994 (In Thousands, Except Per Share Data) Consolidated Statements of Income (Loss): 1996 1995 1994 NET SALES $47,618 $50,998 $47,729 COST OF SALES 36,736 39,398 34,886 ------- ------- ------- Gross Profit 10,882 11,600 12,843 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,979 11,913 10,865 ------- ------- ------- Operating income (loss) (97) (313) 1,978 ------- ------- ------- OTHER (INCOME) EXPENSES: Interest expense 1,288 984 668 Interest income (93) (219) (47) Foreign currency exchange (gain) loss (496) 1,477 (247) Other - net (14) (209) (35) ------- ------- ------- 685 2,033 339 ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (782) (2,346) 1,639 INCOME TAXES (180) (888) 704 ------- ------- ------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (602) (1,458) 935 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES - - 400 ------- ------- ------- Net income (loss) $ (602) $(1,458) $ 1,335 ======= ======= ======= INCOME (LOSS) PER SHARE: Before cumulative effect of change in accounting principle $ (.38) $ (.93) $.60 Cumulative effect of change in accounting for income taxes -- -- .25 ------- ------- ------- Net income (loss) $ (.38) $ (.93) $ .85 ======= ======= =======
Consolidated Statements of Changes in Stockholders' Equity: 1996 1995 1994 Stockholders' Equity, beginning balance $11,186 $12,080 $10,521 Retained earnings (602) (1,458) 1,335 Foreign currency translation adjustment (276) 564 224 ------- ------- ------- Stockholders' Equity, ending balance $10,308 $11,186 $12,080 ======= ======= =======
See accompanying notes to consolidated financial statements.
GEORGIA BONDED FIBERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1996 and 1995 (In Thousands, Except Per Share Data) ASSETS 1996 1995 CURRENT ASSETS: Cash and cash equivalents $ 715 $ 4,379 Trade accounts receivable, less allowance for doubtful accounts of $134 ($156 at 1995) 14,078 15,300 Other receivables 527 490 Inventories 5,495 7,650 Deferred income taxes 676 449 Income taxes refundable 14 145 Other current assets 116 227 ------- ------- Total current assets 21,621 28,640 ------- ------- PROPERTY, PLANT AND EQUIPMENT: Land 298 271 Building and building improvements 4,785 4,383 Machinery, furniture and equipment 15,755 14,256 Construction in progress 782 1,578 ------- ------- 21,620 20,488 Less accumulated depreciation and amortization 11,165 10,621 ------- ------- Net property, plant and equipment 10,455 9,867 Deferred income taxes 442 333 Other assets 663 687 ------- ------- Total assets $33,181 $39,527 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 9,416 $11,674 Accounts payable 8,047 10,339 Accrued expenses 2,345 2,622 Income taxes payable 169 - Long-term debt due currently 566 2,189 ------- ------- Total current liabilities 20,543 26,824 Long-term debt 2,330 1,364 Other long-term liabilities - 153 ------- ------- Total liabilities 22,873 28,341 ------- ------- STOCKHOLDERS' EQUITY: Common stock of $.10 par value. Authorized 3,000,000 shares; issued and outstanding 1,572,824 shares 157 157 Additional capital 1,551 1,551 Retained earnings 7,611 8,213 Foreign currency translation adjustment 989 1,265 ------- ------- Total stockholders' equity 10,308 11,186 ------- ------- Total liabilities and stockholders' equity $33,181 $39,527 ======= =======
See accompanying notes to consolidated financial statements.
GEORGIA BONDED FIBERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 1996, 1995 and 1994 (In Thousands) 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $50,552 $50,133 $46,595 Cash paid to suppliers and employees (48,226) (51,227) (44,091) Interest received 98 212 47 Interest paid, net of amount capitalized (1,330) (986) (674) Income taxes paid, net of refunds 86 (205) (799) ------- ------- ------- Net cash provided by (used in) operating activities 1,180 (2,073) 1,078 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments - - (123) Proceeds from maturities of short-term investments - 123 419 Proceeds from sales of property, plant and equipment 75 39 22 Acquisition of property, plant and equipment (2,157) (1,704) (1,868) ------- ------- ------- Net cash used in investing activities (2,082) (1,542) (1,550) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings, net (1,740) 4,288 (265) Long-term debt incurred 115 2,000 701 Principal payments on long-term debt and capital lease obligations (694) (569) (287) ------- ------- ------- Net cash provided by (used in) financing activities (2,319) 5,719 149 ------- ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (443) 913 24 ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,664) 3,017 (299) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,379 1,362 1,661 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 715 $ 4,379 $ 1,362 ======= ======= ======= RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income (loss) $ (602) $(1,458) $ 1,335 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Cumulative effect of change in accounting principle - - (400) Depreciation and amortization 1,100 1,072 821 (Gain) loss on sale of property, plant and equipment 13 (15) (14) Provision for bad debts 66 42 34 Deferred income taxes (387) (885) 220 Donated property - (82) - Change in assets and liabilities: (Increase) decrease in trade accounts and other receivables 660 471 (1,996) (Increase) decrease in inventories 2,123 (2,360) 575 (Increase) decrease in other assets 22 70 (550) Increase (decrease) in accounts payable and accrued expenses (1,940) 1,493 1,144 Increase (decrease) in income taxes 273 (159) 113 Increase (decrease) in other liabilities (148) (262) (204) ------- ------- ------- Net cash provided by (used in) operating activities $ 1,180 $(2,073) $ 1,078 ======= ======= ======= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Donated property $ - $ 82 $ - ======= ======= ======= Construction in progress accrued in payables $ 76 $ 178 $ 75 ======= ======= =======
See accompanying notes to consolidated financial statements. GEORGIA BONDED FIBERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996, 1995 and 1994 (All amounts in thousands except share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The accounts of Georgia Bonded Fibers, Inc. and its wholly- owned subsidiaries, Bontex S.A., Belgium, Bontex Italia, s.r.l., Italy and Bontex de Mexico C.V., Mexico, (the Company) are included in the consolidated financial statements after elimination of significant intercompany accounts and transactions. Foreign Currency Translation - Assets and liabilities of the Company's foreign operations are translated from foreign currencies into U.S. dollars at exchange rates in effect as of the close of the year and income statement amounts are translated at the weighted average currency exchange rates in effect during the year. Adjustments from financial statement translation are shown as a separate component of stockholders' equity. Gains and losses resulting from foreign currency transactions are included in net income. Cash Equivalents - Cash equivalents of $791 at June 30, 1995, consist of collateralized overnight repurchase agreements. 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) and in Europe on the first-in, first-out (FIFO) and weighted average bases. Property, Plant and Equipment - Property, plant and equipment are stated at cost. Machinery and equipment held under capital leases are stated at the present value of minimum lease payments at the inception of the lease. The Company capitalizes interest cost as a component of the cost of major construction in progress. Capitalized interest during the years ended June 30, 1996 and 1995 totaled $142 and $8, respectively. Depreciation and Amortization - Depreciation is 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. Machinery and equipment held under capital leases are amortized by the straight-line method over the shorter of the lease term or estimated useful life of the asset. Amortization of assets held under capital leases is included in depreciation and amortization of property, plant and equipment. Other Assets - Other assets consist principally of deferred loan costs, trademarks, prepaid pension costs and various deposits. The deferred loan costs are amortized over the life of the loans. Trademark costs are amortized on a straight-line basis over five years. Financial Instruments - The Company enters into interest rate swap transactions to manage its interest rate exposure. Income or expense arising from these transactions is accounted for as an adjustment to interest expense over the life of the agreements. The Company also enters into forward foreign exchange contracts to manage the exposure of sales by Bontex S.A. which are denominated in U.S. dollars to changes in foreign currency exchange rates. The contracts mature at various dates, are valued at market and the resulting gain or loss is recorded in the income statement. Revenue Recognition - Sales and cost of sales are recognized at the time of product shipment or delivery to the customer, based on shipping terms. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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. Change in Accounting Principle - The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective July 1, 1993. Among other provisions, this standard requires the Company to record deferred income taxes using the enacted corporate income tax rates for the years in which the taxes will be paid. Because corporate income tax rates at July 1, 1993, were lower than the rates that existed when the deferred taxes were originally recorded, the cumulative effect of the adoption of the new standard increased net income by $400, and is reported separately in the consolidated statement of income for the year ended June 30, 1994. Apart from this benefit, the new accounting principle had no material effect on net income in 1994 and did not affect cash flows. Income Per Share - Income per share has been computed on the basis of the number of shares outstanding during each year (1,572,824 shares). 2. INVENTORIES Cost of inventories of approximately $1,716 in 1996, and $1,881 in 1995, is determined by the last-in, first-out method (LIFO). Inventories of approximately $3,779 in 1996, and $5,769 in 1995, are determined by the first-in, first-out (FIFO) and weighted average bases.
Inventories are summarized as follows: 1996 1995 Finished goods $ 3,731 $ 3,644 Raw materials 1,791 4,148 Supplies 603 635 ------- ------- Inventories at FIFO 6,125 8,427 LIFO reserves 630 777 ------- ------- $ 5,495 $ 7,650 ======= =======
During 1996, 1995 and 1994, LIFO layers were reduced resulting in charging lower inventory costs to cost of sales of $91, $173 and $131, respectively. 3. BUSINESS SEGMENT INFORMATION AND INTERNATIONAL OPERATIONS Georgia Bonded Fibers, Inc. (Bontex) and its wholly-owned subsidiaries are predominantly engaged in the manufacturing and distribution of uncoated and coated BONTEX (registered trademark) elastomeric fiberboard products. BONTEX (registered trademark) 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. Export sales for Georgia Bonded Fibers, Inc. totaled $9,761, $9,161 and $8,827 in 1996, 1995 and 1994, respectively. Sales to Asian countries represent approximately 84 percent of total export sales for Georgia Bonded Fibers, Inc. during the past three years. For the past three years, sales to one customer ranged from approximately 9 percent to 15 percent of consolidated net sales. Information related to the domestic and foreign operations follows:
United States European Operations Operations Eliminations Consolidated 1996: Total assets $15,110 $20,412 $(2,341) $33,181 Total liabilities 6,540 17,090 (757) 22,873 Net sales 18,486 29,507 (375) 47,618 Loss before income taxes (188) (585) (9) (782) Net loss (60) (531) (11) (602) 1995: Total assets $14,311 $27,426 $(2,210) $ 39,527 Total liabilities 5,785 23,310 (754) 28,341 Net sales 19,735 31,541 (278) 50,998 Loss before income taxes (933) (1,424) 11 (2,346) Net Loss (615) (854) 11 (1,458) 1994: Total assets $13,318 $19,808 $(2,094) $ 31,032 Total liabilities 4,177 15,413 (638) 18,952 Net sales 20,635 27,341 (247) 47,729 Income before income taxes and cumulative effect of change in accounting principle 26 1,456 157 1,639 Net income 394 784 157 1,335
Retained earnings of foreign operations not available for distribution amounted to approximately $579 and $808 at June 30, 1996 and 1995, respectively. 4. LONG-TERM DEBT AND FINANCING AGREEMENTS The following long-term debt was outstanding as of June 30, 1996 and 1995:
1996 1995 10.50% loan payable to a bank in the United States in quarterly installments of $77 through June 2001; collateralized by accounts receivable, inventory and other noncurrent assets in the U.S. and subject to various loan covenants $1,538 $1,846 7.72% loan payable to an agency of the Belgian government in ten annual installments beginning May 15, 1992. Five annual installments of $89 are outstanding at June 30, 1996 447 590 9.73% loan payable to an agency of the Belgian government in one remaining annual installment due in July 1995 - 58 7.72% loan payable to an agency of the Belgian government in ten annual installments beginning September 1995. Nine annual installments of $80 are outstanding at June 30, 1996 718 878 6.15% loan payable to an agency of the Belgian government in ten annual installments of $10 beginning 1997 104 - 12.25% loan payable to a bank in Italy in monthly installments of $10 through March 1997; collateralized by plant and equipment in Italy 89 181 ------ ------ 2,896 3,553 Less long-term debt due currently 566 2,189 ------ ------ Long-term debt $2,330 $1,364 ====== ======
The principal payments of long-term debt are as follows:
1997 $ 566 1998 581 1999 477 2000 477 2001 475 Thereafter 320 ------- Total $ 2,896 =======
The loans payable to an agency of the Belgian government provide the lender the right to request a first mortgage on Bontex S.A.'s property, plant and equipment. European operations have short-term credit facilities totaling approximately $8,429 and $11,424 at June 30, 1996 and 1995, respectively. As of June 30, borrowings under these facilities were as follows:
1996 1995 Short-term bank loans with various interest rates between 4.35% and 9.88% $ 8,187 $11,274 Overdrafts 242 150 ------- ------- $ 8,429 $11,424 ======= =======
As of June 30, 1996 and 1995, one of the bankers under these facilities had the right to request a security interest. Subsequent to June 30, 1996, the Company renegotiated its credit facilities in Belgium with five banks sharing a security interest in most of the assets of Bontex S.A. for half the amount of the credit facilities granted, and the right to request a security interest in the amount of the other half of the credit facilities granted. Georgia Bonded Fibers, Inc. has an unsecured line of credit arrangement with a bank whereby Georgia Bonded Fibers, Inc. may borrow up to $250 at the prime rate of interest. Georgia Bonded Fibers, Inc. has a secured line of credit arrangement with another bank whereby Georgia Bonded Fibers, Inc. may borrow up to $1,000 at the prime rate or London Inter Bank Offered Rate (LIBOR) plus a prime margin ranging from 50 to 100 basis points or a LIBOR margin ranging from 240 to 290 basis points, depending on which rate is utilized and certain financial ratios. At June 30, 1996 and 1995, Georgia Bonded Fibers, Inc. had borrowings of $987 and $250, respectively, outstanding under these lines of credit. Subsequent to June 30, 1996, Georgia Bonded Fibers, Inc. renegotiated its lines of credit whereby the Company may borrow up to $1,500. The new secured line of credit is collateralized by the same security as the refinanced long-term debt discussed below. Consolidated weighted average interest rates on short-term borrowings at June 30, 1996 and 1995 are 8.0 and 7.5 percent, respectively. Georgia Bonded Fibers, Inc. is subject to various loan covenants under the secured debt agreement and has pledged certain current and noncurrent assets as security. As a result of the decrease in various financial ratios, $1.8 million of the long-term debt was classified as current at June 30, 1995. The Company later obtained a waiver from such requirements at June 30, 1995. During fiscal year 1996, the Company obtained a modified secured debt agreement. The Company was in compliance with the applicable amended covenants at June 30, 1996, and accordingly, such debt was classified as long-term. Subsequent to June 30, 1996, the Company refinanced this debt. The new secured debt agreement also contains various loan covenants, including the maintenance of certain minimum financial ratios and borrowing base requirements, as well as a lower interest rate of 8.5 percent. Additionally, the refinancing resulted in a $38 write-off of deferred financing costs related to the early extinguishment of debt to be recognized during fiscal 1997. 5. INCOME TAXES As discussed in note 1, the Company adopted Statement of Financial Accounting Standards No. 109 as of July 1, 1993. The cumulative effect of this change in accounting for income taxes is $400, and is reported separately in the statement of income for the year ended June 30, 1994. The U.S. and foreign components of the provision (benefit) for income taxes are presented as follows:
Current Deferred Total 1996: Federal $ (91) $ (49) $(140) State - (5) (5) Foreign 298 (333) (35) ----- ----- ----- $ 207 $(387) $(180) ===== ===== ===== 1995: Federal $(136) $(174) $(310) State (1) (7) (8) Foreign 134 (704) (570) ----- ----- ----- $ (3) $(885) $(888) ===== ===== ===== 1994: Federal $ 6 $ 34 $ 40 State (13) 5 (8) Foreign 491 181 672 ----- ----- ----- $ 484 $ 220 $ 704 ===== ===== =====
The provision (benefit) for income taxes differs from the expected tax expense (benefit), computed by applying the U.S. Federal corporate rate to income or loss before income taxes and cumulative effect of change in accounting principle, as follows:
1996 1995 1994 Federal income tax at statutory rate $ (265) $ (798) $ 557 Increase (reduction) in income taxes resulting from: Foreign Sales Corporation - (23) (75) Foreign income (loss) at other than U.S. rates 64 (115) 161 State and local taxes, net of federal income tax benefit (3) (5) (12) Other differences, net 24 53 73 ------ ------ ------ Provision (benefit) for income taxes $ (180) $(888) $ 704 ====== ====== ====== Effective income tax rate 23% 38% 43% ====== ====== ====== U.S. Federal statutory income tax rate 34% 34% 34% ====== ====== ======
The components of deferred tax assets and liabilities at June 30, 1996 and 1995 are presented below:
1996 1995 Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 25 $ 29 Inventories, principally due to additional costs capitalized for tax purposes 97 94 Other assets, due to difference in amortization of trademarks 118 100 Accrued pension and retirement benefits 144 205 Net operating loss carryforwards 1,130 813 Alternative minimum tax credit carryforwards 90 99 Other 90 5 ------ ------ Total gross deferred tax assets 1,694 1,345 ------ ------ Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation and capital gain recognition (554) (542) Other (22) (21) ------ ------ Total gross deferred tax liabilities (576) (563) ------ ------ Net deferred tax asset $1,118 $ 782 ====== ======
The U.S. and foreign components of the net deferred tax asset at June 30, 1996 and 1995 are presented below:
Current Noncurrent Total 1996: Bontex USA $ 91 $ 266 $ 357 Bontex S.A. 585 176 761 ------ ------ ------ $ 676 $ 442 $1,118 ====== ====== ====== 1995: Bontex USA $ 277 $ 26 $ 303 Bontex S.A. 148 307 455 Bontex Italia 24 - 24 ------ ------ ------ $ 449 $ 333 $ 782 ====== ====== ======
At June 30, 1996, in addition to the alternative minimum tax credit carryforward of $90 at Bontex USA, the Company had approximately $3,000 ($1,000 at Bontex USA and $2,000 at Bontex S.A.) in net operating loss carryforwards to offset future taxable income, of which approximately $600 and $400 at Bontex USA expire in 2010 and 2011, respectively. The net operating loss carryforwards at Bontex S.A. have no expiration date. The Bontex S.A. carryforwards are limited to the larger of $638 or 50 percent of income before tax each year, except the fiscal 1996 loss carryforward, which is not limited during fiscal 1997. Deferred tax assets at June 30, 1996 include $451 related to the alternative minimum tax credit and net operating loss carryforwards at Bontex USA, and $769 related to operating loss carryforwards at Bontex S.A. For the past two years the Company has experienced losses before income taxes of approximately $782 and $2,346 in 1996 and 1995, respectively. The Company will need to generate future taxable income of approximately $1,700 at Bontex USA and $2,000 at Bontex S.A. during the tax carryforward periods to realize the deferred tax assets. 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, anticipation of future taxable income over the periods 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 realize these deferred tax assets. At June 30, 1996, the Company has not recognized a deferred tax liability of $43 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, 1996, undistributed income of the foreign subsidiaries was approximately $853, of which approximately $579 is not available for distribution. 6. PENSION PLANS The Company has pension plans covering substantially all full-time domestic employees and certain foreign employees. The benefits from the Company's domestic 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. 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 funded status and amounts recognized in the Company's consolidated financial statements at June 30 for its United States pension plan are as follows:
1996 1995 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits (1996, $4,021 and 1995, $3,610) $ (4,044) $ (3,649) ======== ======== Projected benefit obligation for service rendered to date $ (5,217) $ (4,882) Plan assets 4,346 4,138 -------- -------- Plan assets less than projected benefit obligation (871) (744) Unrecognized prior service cost 177 192 Unrecognized net loss from past experience different from that assumed 429 435 Unrecognized net asset at July 1, 1986, net of amortization (131) (148) -------- -------- Accrued pension cost $ (396) $ (265) ======== ========
The Company's net pension cost for the years ended June 30, 1996, 1995 and 1994 include the following components:
1996 1995 1994 Service cost-benefits earned during the period $ 200 $ 243 $ 233 Interest cost on projected benefit obligation 366 344 345 Net amortization and deferral 2 180 (162) ----- ----- ----- 568 767 416 Less actual return on assets and employee contributions 407 530 176 ----- ----- ----- Net pension cost $ 161 $ 237 $ 240 ===== ===== =====
The weighted average discount rates used in determining the actuarial present value of the projected benefit obligations were 7.75 percent for 1996 and 1995 and 7.0 percent for 1994. The rate of increase for future compensation levels used in determining the obligation was 4.5 percent for 1996 and 5.5 for 1995 and 1994. The expected long-term rate of return on plan assets in 1996, 1995 and 1994 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, at contract value, and the remainder is invested in separate accounts, which include domestic equity, domestic government, corporate and private placement bonds and domestic real estate equity, of the insurance company, at fair value. The pension expense relating to the foreign subsidiary's insured pension and disability plan amounted to $86, $76 and $69 in 1996, 1995 and 1994, 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. Expenses related to these benefits were approximately $143 in 1996 and $132 in 1995 and 1994. 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 $600. On October 3, 1994, the Board of Directors adopted a deferred compensation agreement, with Hugo N. Surmonte, Chairman of the Board of Directors. The deferred compensation agreement requires the Company pay Mr. Surmonte $150 per year, after his retirement from the Company and during his lifetime, and if Mr. Surmonte's death precedes his spouse's death, that such amounts shall be paid to his spouse for the remainder of her life. On October 5, 1994, Mr. Surmonte retired from the Company. On October 10, 1994, Mr. Surmonte died and per the agreement his widow, Marie G. Surmonte, received the benefit until her death on June 2, 1996. During fiscal year 1996, the Company paid $138 to Mrs. Surmonte, and reversed the remaining balance of $159 for this accrued liability. 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. Foreign Exchange Contracts - Bontex S.A. entered into a $5,000 option contract during 1995, to manage the exposure of sales denominated in U.S. dollars to changes in foreign currency exchange rates. The contract matured in 1996. The Company entered into no new foreign exchange contracts during 1996. Interest Rate Swaps - At June 30, 1996, the Company had three outstanding interest rate swap agreements with banks having an aggregate notional amount of $2,892, of which $797, $500 and $1,595 will terminate on June 18, 1997, January 20, 1998 and June 15, 1999, respectively. These swap agreements provide for the payment of interest based on fixed rates ranging from 5.80 percent to 6.55 percent, and remain unchanged over the term of the agreements. The floating rates of the debt agreements are based on the Brussels Inter Bank Offering Rate (BIBOR) or the London Inter Bank Offered Rate (LIBOR) and are reset every 90 days based on market conditions. The nature of the swap agreements changes certain variable rate debt to fixed rate debt. Interest rate differentials paid or received under these swaps are recognized over the life of the contracts as adjustments are made to the effective yield of the underlying debt. An interest premium of $34 and $20 was paid during 1996 and 1995, respectively. In the event of lowering BIBOR or LIBOR rates, the Company is exposed to the higher fixed rates. Furthermore, the Company may be exposed to credit loss in the event of nonperformance by the other party to the interest rate swap agreement. However, the Company does not anticipate such nonperformance. 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 sheet 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 the carrying amount in the balance sheets. Unrealized gains or losses on the fair value of foreign exchange contracts and interest rate swap agreements are estimated based on current interest and foreign exchange rates. The contract or notional amounts and estimated fair value of the Company's material off balance sheet financial instruments at June 30, 1996 and 1995 are as follows:
1996 1995 Contract or Contract or Notional Amount Fair Value Notional Amount Fair Value Interest rate swaps $2,892 $ (108) $2,782 $(57) Purchased option contract - - $5,000 $ 68
8. COMMITMENTS AND CONTINGENCIES Regulatory and Environmental Matters - As with all 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 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 statutes and regulations. Failure to comply with applicable environmental control standards could result in interruption of operations or could require additional expenditures at these facilities. The Company has made and intends to continue to make capital investments, operating expenditures, and production adjustments in connection with compliance to environmental laws and regulations. Since the Company is essentially comprised of two fiberboard plants, water quality discharge remains the primary environmental concern. A private water quality consulting firm has completed an extensive analysis and plans for compliance at both plants have been implemented. On July 22, 1994, the Company entered into a Special Consent Order with the Virginia Department of Environmental Quality (DEQ) committing the Company to construct a waste water treatment facility to address certain effluent limitations in its Virginia Pollution Discharge Elimination Permit. Construction of the USA waste treatment facility was completed during fiscal 1996 at an aggregate cost of almost $2.0 million. The waste water treatment plant appears to be operating within compliance of applicable environmental requirements. The Belgium government has imposed new regulations requiring a formal water treatment plant to be installed at Bontex S.A. The first phase of the waste water treatment facility in Belgium is under construction and is anticipated to be completed in 1997 at an estimated cost of $1.5 million. The facility in the USA is also impacted by regulations concerning air emissions relating to the operation of certain coating and converting equipment. The Company has entered into a Consent Order with DEQ to which the Company has committed to take appropriate corrective action with respect to air quality emissions and to achieve compliance by September 30, 1997. An air quality consultant has completed an extensive analysis to characterize and verify mill air emissions. The Company is developing and implementing certain air emission controls. The cost of the air control technologies based on current information is expected to be approximately $250. Estimates of the costs of future environmental compliance are unaudited and 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. At the present time, based on preliminary estimates, the Company anticipates that consolidated capital expenditures for environmental compliance in fiscal 1997 will aggregate approximately $2.0 million; however, this estimate could change due to ultimate circumstances. Litigation - In the normal course of business, the Company is subject to proceedings, lawsuits and other claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There are no legal proceedings, lawsuits or other claims pending against or involving the Company which, in the opinion of management, will have a material adverse impact upon the consolidated results of operations or financial condition of the Company. Leases - Rental expenses for all operating leases amounted to $131, $112 and $84 in 1996, 1995 and 1994, respectively. (KPMG PEAT MARWICK LETTERHEAD) KPMG PEAT MARWICK LLP 213 South Jefferson Street Roanoke, VA 24011 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Georgia Bonded Fibers, Inc.: We have audited the accompanying consolidated balance sheets of Georgia Bonded Fibers, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income (loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1996. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit 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 Georgia Bonded Fibers, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1996, in conformity with generally accepted accounting principles. As discussed in notes 1 and 5 to the consolidated financial statements, the Company changed its method of accounting for income taxes on July 1, 1993 to adopt the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." s/KPMG Peat Marwick LLP Roanoke, Virginia August 9, 1996 - -------------------------------- DIRECTORS, EXECUTIVES & OFFICERS - -------------------------------- James C. Kostelni ^ Chairman of the Board, President, Chief Executive Officer, Director William J. Binnie * Director Michael J. Breton Corporate Director of International Operations, Director William B. D'Surney Director David A. Dugan Controller and Corporate Secretary Charles W. J. Kostelni Corporate Controller Jeffrey C. Kostelni Treasurer and Chief Financial Officer, Director Frank B. Mayorshi ^* Director Larry E. Morris Technical and Sales Director, Director Dr. Joseph F. Raffetto Director Patricia S. Tischio Assistant Corporate Secretary, Director Robert J. Weeks ^* Director ^ Member of Executive Committee * Member of Audit Committee ------- COUNCIL ------- Woods, Rogers & Hazlegrove, P.L.C. Roanoke, Virginia Attorneys at Law -------------------- INDEPENDENT AUDITORS -------------------- KPMG Peat Marwick LLP Roanoke, Virginia Certified Public Accountants -------------- TRANSFER AGENT -------------- Registrar & Transfer Company Roanoke, Virginia (Graphic of web screen on computer) Visit Bontex on the INTERNET at ww.bontex.com Visit Bontex on the INTERNET @http://www.bontex.com Bontex is a leading worldwide manufacturer and distributor of uncoated and coated elastomeric Bontex (registered trademark) fiberboard products. Bontex products are manufactured in a wide range of qualities, gauges, and colors depending on your specification requirements and end-use applications. Bontex (registered trademark) is primarily used as an insole material in footwear, as well as visorboard in headwear, backing substrate, stiffener and laminating base in luggage, leathergoods, furniture, automotive, and allied products. The Bontex Global Network can meet your worldwide elastomeric fiberboard requirements. Contact Bontex via the INTERNET by visiting our web site at http://www.bontex.com. Bontex USA Bontex SA Bontex Italia One Bontex Drive Rue Slar Via Francia Buena Vista, VA 24416-0751 4801 Stembert 1-37069 Villafranca United States of America Belgium (Verona) Italy Tel: (540) 261-2181 +32 87 33 71 47 +39 45 630 34 12 Fax: (540) 261-3784 +32 87 31 07 23 +39 45 630 35 88 E-Mail: bontex@bontex.com ATTMAIL:bontexsa ATTMAIL:bontexsrl GO WITH BONTEX FOR HIGH PERFORMANCE! SHAREHOLDERS' LOCATIONS INFORMATION - --------------------------------------- ---------------------------------- United States Manufacturing Corporate Headquarters, Sales Bontex and Distribution Center One Bontex Drive Georgia Bonded Fibers, Inc. Buena Vista, Virginia 24416-0751 15 Nuttman Street 800-733-4234 Newark, New Jersey 07103 E-mail: Bontex @ bontex.com Annual Meeting European Headquarters and Manufacturing 10:30 a.m. November 7, 1996 Bontex S. A. Best Western Inn at Hunt Ridge Rue Slar Willow Springs Drive 4801 Stembert, Belgium Lexington, Virginia 24450 ATT Mail: Bontex S.A. Independent Auditors Sales and Distribution Centers KPMG Peat Marwick LLP Bontex Italia s.r.l. 213 South Jefferson Street Via Francia Roanoke, Virginia 24011 37069 Villafranca (Verona) Italy Registrar and Transfer Agent Registrar and Transfer Company Bontex De Mexico, S. A. De C. V. 10 Commerce Drive Boulevard Mariano Excobedo #801 Post Office Box 1010 Colonia Andrade, C. P. 37370 Cranford, New Jersey 07106 Leon, Guanajuato Mexico Form 10-K International Liaison Offices A copy of the Company's 10-K filed Bontex Australia with the Securities and Exchange 20 Munro Street Commission is available without Macleod VIC 3085 charge to any shareholder. Australia Requests should be sent to the attention of: Bontex Hong Kong Flat B3, 12/F, Paterson Bldg. Controller 7 Great George Street Bontex Causeway Bay, Hong Kong One Bontex Drive Buena Vista, Virginia 24416-0751 Bontex Korea Rm. 601, Songnam Bldg. ---------------------------------- 76-1, 4Ga, Chung Angdong Chung-Gu, Busan, Korea BONTEX (registered trademark) Georgia Bonded Fibers, Inc. Bontex Taiwan 8F1, No. 52, Sec. 2 The Bontex (registered trademark) Chung Shan N. Rd. is a registered trademark of Taipei, 10419, Taiwan Georgia Bonded Fibers, Inc. North American Warehouse Facilities Georgia Bonded Fibers, Inc, is an Newark, New Jersey equal opportunity employer Franklin, Tennessee St. Louis, Missouri ---------------------------------- Cambridge, Ontario, Canada Montreal, Quebec, Canada (Recycle Symbol) Recycled Paper Village Huron, Quebec, Canada [Q.] WHAT IS COSSETTING? [A.] CONSUMERS CALL IT COMFORTABLE! BONTEX (registered trademark) 244W BONFOAM (registered trademark) CUSHION HEEL PAD DUAL DENSITY BONFOAM (registered trademark) CUSHION FABRIC HEEL PAD COVER CONTOUR (registered trademark)-MAXXON (registered trademark) CUSHION FABRIC COVER (GRAPHIC OF CUSHIONED INNER SOLE) BONFOAM (registered trademark)/CONTOUR (registered trademark)-MAXXON (registered trademark) BONFOAM (registered trademark)/ The dynamic interaction between CONTOUR (registered trademark)-MAXXON the foot and weight transfer is (registered trademark) DUAL DENSITY accommodated and high pressure CUSHION INSOLES from BONTEX points are minimized. Also (registered trademark) meets the BONFOAM (registered trademark)- challenge of providing comfort MAXXON (registered trademark) and protecting feet from harsh CUSHION INSOLES have moisture environmental discomforts. Whether vapor transmission properties. the footwear you manufacture is bound for hard ground, wet and cold With BONFOAM (registered trade- conditions, high impact and abrasive mark)/CONTOUR (registered trade- conditions or just leisure wear. mark)-MAXXON (registered trade- BONFOAM (registered trademark)/CONTOUR mark) DUAL DENSITY CUSHION (registered trademark)-MAXXON INSOLES combined with BONTEX (registered trademark) DUAL DENSITY (registered trademark) consumers (registered trademark) CUSHION will see and feel comfort at the INSOLES combined with point of purchase when trying on BONTEX (registered trademark) your footwear in the store. reduces internal shoe discomforts and provides cossetting. BONTEX (registered trademark) has created materials for hand- BONFOAM (registered trademark)/ bags, luggage and headwear, too. CONTOUR (registered trademark)-MAXXON BONTEX (registered trademark) registered trademark) DUAL DENSITY products are designed to be CUSHION INSOLES combined with BONTEX "environmentally friendly." registered trademark) enables the BONTEX (registered trademark) shoe bottom to conform elastically uses recycled and primary to the shape of the foot and cellulose fibers originally distribute pressure during any derived from trees, a renewable activity. resource. Please call, write or fax BONTEX (registered trademark) for samples. BONTEX (registered trademark) a member of Bontex, One Bontex Drive, Buena Vista, VA 24416-0751. SATRA (540) 261-2181. Fax: 540-261-3784. Manufactured: BONTEX (registered trademark) Buena Vista, VA 24416-0741. http://www.bontex.com. E-Mail: bontex@bontex.com Bontex S.A. Belgium. Distributed and converted by BONTEX (registered trademark) Italy, S.R.L., Villafranca, Verona, Italy. Bontex (registered trademark) de Mexico, Leon, Mexico BONTEX (registered trademark) PRODUCTS A WORLD CLASS TAG TEAM. (Graphic of tag) When you tag your products (Graphic of tag) with BONTEX (registered trade- mark), BONFOAM (registered trade- mark), MAXXON (registered trade- mark), or SUR-V-LON (registered trademark), you have a world class tag team in your corner. BONTEX (registered trademark) products are tough, durable, light and flexible. Every BONTEX (registered trademark) product is designed to be "environmentally friendly." All BONTEX (registered trade- mark) products are MORI-FRESH (registered trademark) treated to resist mold-type growth related to bacteria and fungi. (Graphic of tag) (Graphic of tag) BONTEX (registered trademark) uses primary and recycled cellulose fibers originally derived from trees, a renewable natural resource. Please call, write or fax BONTEX (registered trademark) today for samples. BONTEX (registered trademark) (Graphic of tag) a member of Bontex, One Bontex Drive, Buena Vista, VA 24416-0751. SATRA (540) 261-2181. Fax: 540-261-3784. Manufactured: BONTEX (registered trademark) Buena Vista, VA 24416-0741. http://www.bontex.com. E-Mail: bontex@bontex.com Bontex S.A. Belgium. Distributed and converted by BONTEX (registered trademark) Italy, S.R.L., Villafranca, Verona, Italy. Bontex (registered trademark) de Mexico, Leon, Mexico EX-21 5 LISTING OF SUBSIDIARIES EXHIBIT 21 ---------- LISTING OF SUBSIDIARIES There are six 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. Virgin Islands Same Bontex de Mexico Mexico Same Bontex Canada Canada Same Bontex Sdn Bhd Malaysia Same
EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GEORGIA BONDED FIBERS, INC.'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1996, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS AND ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS JUN-30-1996 JUN-30-1996 715 0 14,212 134 5,495 21,621 21,620 11,165 33,181 20,543 2,330 0 0 157 10,151 33,181 47,618 47,618 36,736 47,715 685 66 1,288 (782) (180) (602) 0 0 0 (602) (.38) (.38)
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