-----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, F4w/I5EaEJ+buzAJhRlrabwp5sO3XV3XkjOI/egCW/ordL35GUV50xFBtM/BaK6+ bn3bPJIbgWZyqyfUTdD68w== 0000906504-97-000060.txt : 19970930 0000906504-97-000060.hdr.sgml : 19970930 ACCESSION NUMBER: 0000906504-97-000060 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BONTEX INC CENTRAL INDEX KEY: 0000041052 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 221427551 STATE OF INCORPORATION: VA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05200 FILM NUMBER: 97686962 BUSINESS ADDRESS: STREET 1: ONE BONTEX DRIVE CITY: BUENA VISTA STATE: VA ZIP: 24416-0751 BUSINESS PHONE: (540) 261-2181 MAIL ADDRESS: STREET 1: PO BOX 751 CITY: BUENA VISTA STATE: VA ZIP: 24416 FORMER COMPANY: FORMER CONFORMED NAME: GEORGIA BONDED FIBERS INC DATE OF NAME CHANGE: 19920703 10-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, 1997 Number 0-5200 BONTEX, INC. Exact name of Registrant as specified in its charter VIRGINIA 54-0571303 State of Incorporation IRS Employer No. ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-1500 Address of principal executive offices Zip code Registrant's telephone number (540) 261-2181 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class $.10 par value common stock Indicate by check mark whether the Registrant (1) has filed all annual, quarterly and other reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months with the Commission, and (2) has been subject to the filing requirements for at least the past 90 days: ( x ) Yes ( ) No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ( ) Aggregated market value of the voting stock held by non-affiliates of the Registrant: $3,484,309 at August 29, 1997 On August 29, 1997, the Registrant had 1,572,824 shares of $.10 par value common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: (1) Portions of the Registrant's Annual Report to Stockholders are incorporated by reference into Parts I and II hereof. (2) Portions of the Registrant's Proxy Statement dated September 18, 1997 issued in connection with the annual meeting of shareholders to be held October 14, 1997 are incorporated by reference into Part III hereof. TABLE OF CONTENTS PART I ITEM PAGE 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 10 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 10 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 12 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 12 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 12 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 13 PART III 10. Directors and Executive Officers of the Registrant. . . . . . . . . 13 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 13 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13. Certain Relationships and Related Transactions. . . . . . . . . . . 13 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 PART I ITEM 1. BUSINESS On January 2, 1997, the Company completed a reorganization plan which changed, among several items, its name to Bontex, Inc. from Georgia Bonded Fibers, Inc. For further information see General Business below. Except for the historical data set forth herein, the following discussion contains forward-looking information. The Company's actual results may differ materially from these projected results because of inherent limitations with such model characteristics and assumptions. Factors that could cause or contribute to such differences include, but are not limited to, level of sales to key customers, actions of competitors, fluctuations in the prices of primary raw materials and foreign currency exchange rates. GENERAL BUSINESS - ---------------- Bontex, Inc. (all references hereinafter to the "Registrant," "Company" or "Bontex" refer collectively to Bontex, 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. On January 2, 1997, the Company received the final State regulatory approvals of its proposal, which was adopted by the Company's stockholders at the Annual Meeting of Stockholders held on November 7, 1996, to change the state of incorporation of the Company to Virginia and effect Amended and Restated Articles of Incorporation (the "Reorganization"). As a result of the Reorganization, the Company is now a Virginia corporation, with its principal place of business at One Bontex Drive, Buena Vista, Virginia 24416-1500, and the name of the Company has been changed to "Bontex, Inc." The Company's common stock continues to be traded on the Nasdaq-NMS under the symbol "BOTX." The Reorganization did not result in any change in the business, management, assets, liabilities, or net worth of the Company. For further information, refer to Report on Form 8-K, Reorganization of Georgia Bonded Fibers, Inc., dated January 2, 1997, and Proxy Statement for meeting of Shareholders held on November 7, 1996. ORGANIZATION - ------------ The Company maintains corporate headquarters, manufacturing, converting, sales office, and a warehouse facility in Buena Vista, Virginia; a wholly-owned manufacturing subsidiary, Bontex S.A., Stembert, Belgium; a wholly-owned distribution and converting subsidiary, Bontex Italia S.r.l., Villafranca, Verona, Italy; a wholly-owned distribution subsidiary, Bontex de Mexico, S.A. de C.V., Leon, Mexico, and a majority owned distribution subsidiary, Bontex Hong Kong Limited, Hong Kong; and sales office and warehouse in Newark, New Jersey, which the Company plans to sell during fiscal year 1998. See the discussion under Item 2. Properties, below. The Company utilizes a wholly-owned foreign sales corporation organized and existing under the laws of the Virgin Islands to facilitate export sales. Additionally, Bontex maintains a network of liaison offices, Bontex Korea, Bontex Taiwan, Bontex China, Bontex Indonesia, Bontex Philippines, and Bontex Australia to service Asian markets. The Company employs 98 full-time and 2 part-time people in Buena Vista, Virginia; 2 full-time employees in Newark, New Jersey; 81 full-time and 2 part-time employees in Belgium; 9 employees in Italy; 1 full-time and 1 part- time employee in Mexico and 1 full-time employee in Hong Kong. Revenue per employee was approximately $257,000 and $249,000 in fiscal years 1997 and 1996, 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 hybrid nonwoven substrate, which is exceptionally strong and flexible; BONTEX 48 MA, an uncoated visorboard for use in military headwear, which has been approved by NATICK military laboratory. Bontex USA also combines certain products, such as foams, fabrics, and vinyls, with BONTEX fiberboard. Additionally, Bontex USA is the exclusive distributor globally to the footwear industry of an expanded polyurethane material manufactured by Aero E.A.R. Specialty Composites, under the trademarks MAXXON LS and CONFOR. MAXXON LS and CONFOR have moisture vapor transmission characteristics and are used for sock-linings and cushion insoles in various types of footwear. CONFOR is a trademark of E.A.R. Specialty Composites. Bontex 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. 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 completed implementation of the International Organization for Standardization quality assurance system ISO 9001 at both the United States and Belgium manufacturing facilities. Bontex SA was certified ISO 9001 during 1996, and Bontex USA during 1997. The impact of ISO 9001 on sales is anticipated to be minimal; however, management regards ISO 9001 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 five major manufacturers of material similar to BONTEX. These competitors are located in Germany, Italy, Finland, Slovenia and the former USSR. The Company estimates that it sells approximately 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 fourteen 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. Foreign Exchange gains and losses were reduced to an immaterial level in 1997 and through the use of the RMP are expected to continue at an immaterial level under anticipated circumstances. 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 to some extent. 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, the total notional amount of the Company's foreign currency exchange contracts totaled $5.0 million. At June 30, 1997 and 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 $1.9 million and $2.9 million at June 30, 1997 and 1996, 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 increased in a declining interest rate environment as the Company is generally in a payable position, and this risk is reduced 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. A portion of variable rate debt is not protected by interest rate swaps. Financial instruments are by nature subject to the risk of loss arising from adverse changes in market rates and prices. Refer to Note 7 of the Notes to the Consolidated Financial Statements in the Company's Annual Report to Stockholders for information regarding interest rates, financial instruments, and market risk. All interest rate swaps and foreign exchange contracts are with established banks, and the Company does not anticipate such nonperformance. As a matter of policy, the Company does not engage in speculative transactions, nor does the Company hold or issue financial instruments for trading purposes. TRADEMARKS - ---------- Bontex 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. Bontex continues to vigorously protect its trademarks against infringement. The Company's operations are not dependent to any significant extent upon any single or related group of patents, licenses or concessions. PRODUCTION AND SALES - -------------------- Refer to Note 3 of Notes to the Consolidated Financial Statements in the Company's Annual Report 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 denominated in US dollars, negotiated letters of credit and sight drafts, and are covered by foreign credit insurance. During the past three years sales to one customer ranged between six and nine percent of consolidated net sales. Foreign operations, principally in Belgium and Italy, constitute a significant portion of the Company's business. Production of BONTEX elastromeric fiberboard products is allocated between the United States and Belgium manufacturing facilities based on such factors as availability of capacity, production efficiencies, logistical considerations, and foreign currency exchange rates. The Company is currently operating 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 $1.7 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 $1.8 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 60%. This primarily reflects the decline of the domestic market and continued 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 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. Over the past few years a greater portion of footwear, especially athletic, shoes, is strobel stiched using non woven materials in place of Bontex type products. The Company will begin in 1998 marketing a range of non woven materials. While a positive impact on sales is expected, this cannot be assured and it is not possible to quantify the impact at this time. 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 has established a sales subsidiary, Bontex Hong Kong Limited, in Hong Kong, to replace a distributor for Hong Kong and the PRC New Territories. STATUS OF PROPOSED PROJECT IN MALAYSIA - -------------------------------------- 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 has been delayed so that management can focus on immediate issues and return the Company to profitability, as well as monitor industry and market trends. 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 approximately $10 million. At the time of this filing, management cannot provide a more definitive schedule or projected financial information for the proposed project 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 its manufacturing activities. More than one supplier is available for all major raw materials. Bontex S.A. appears to have available and receives adequate quantities of water 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. In January 1996, pulp prices declined to $500 per ton. Since then, pulp prices have recovered and trends toward higher prices are expected to continue. 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 with environmental laws and regulations. Since the Company is essentially comprised of two fiberboard plants, water quality discharge remains a primary environmental concern. Over the past two years, the Company completed two waste water treatment facilities at an aggregate cost of over $ 4 million. The waste water treatment plant in the USA has been operational since 1996, and the plant in Belgium became operational in 1997. 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 December 31, 1997. An air quality consultant has completed an extensive analysis to characterize and verify mill wide air emissions. The cost of the air control technologies based on current information is expected to be approximately $250,000. The Company has installed the required equipment and has been operating it effectively since September 10, 1997, and is awaiting final DEQ approval. 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 1998 will aggregate approximately $400,000; 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 1997 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. The Company's corporate headquarters, manufacturing and converting facility in Buena Vista, Virginia continue 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 1997, the Company spent approximately $954,000, $1.4 million and $44,000 to refurbish, upgrade and install equipment at Bontex USA, Bontex S.A., and Bontex Italia S.r.l., respectively. In Newark, New Jersey, the Company owns an office building and warehouse. A sales office is 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. In June 1997, the Company's Board of Directors, in response to decreasing demand in the domestic markets, approved a plan to restructure the Company's operations in the Northeast. The restructuring plan focuses on the Company's Newark, New Jersey operation and will involve closing the Company's current Newark warehouse facility. The Company expects the restructuring to generate significant operating efficiency improvements which should contribute to the long-term profitability of the Company. Net pretax savings are projected to be significant, and principally consist of reduced salaries, operating and overhead costs for the Newark facility. The Company plans to dispose of the warehouse facility within the next year. The related restructuring charges at June 30, 1997 are immaterial to the financial statements, because the net realizable value of the Newark warehouse facility exceeds the net carrying amount. Future cash outlays and expenditures for the restructuring are not expected to be material. 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 $400,000 for fiscal year 1998. 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. The Company considers all its properties well maintained, and adequate for present and future requirements. 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, would have a material adverse impact upon the results of operations, liquidity 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 October 14, 1997. The names, ages and positions of the executives of the Company as of September 19, 1997 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, 62 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. Director. Jeffrey C. Kostelni, 31 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. Mr. Kostelni has a Bachelor of Science Degree in Accountancy and is a Certified Public Accountant. Director. Charles W. J. Kostelni, 33 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, 50 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, 58 Assistant Corporate Secretary (since 1994) and Office Manager (since 1989) of the Company. Mrs. Tischio has a Bachelor of Arts Degree in English. Director. Larry E. Morris, 51 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. Director. Michael J. Breton, 57 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. Director.
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Common Stock and Dividend Data" on page 5 of the Company's 1997 Annual Report to Stockholders is incorporated herein by reference, pursuant to General Instruction G(2). The following lists the securities sold by Bontex within the past three years which were not registered under the Securities Act of 1933: On January 22, 1997, as part of the Executive Compensation Agreement between Bontex, Inc. and James C. Kostelni, President and Chief Executive Officer of the Company, Mr. Kostelni was granted stock options to purchase 80,000 shares of the Company's common stock at an option price of $4.50 per share, which was the fair market value of the shares on the date of grant. The options are exercisable on the date of grant and have a maximum term of ten years. The options were granted in a private placement in reliance on Section 4(2) under the Securities Act of 1933. No options have been exercised as of the date hereof. ITEM 6. SELECTED FINANCIAL DATA The five year data for the fiscal years 1997, 1996, 1995, 1994, and 1993 are included in the "Summary of Selected Ten Year Data" on page 5 of the Company's 1997 Annual Report to Stockholders and 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" on pages 6 through 11 of the Company's 1997 Annual Report to Stockholders is 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 12 through 26 of the 1997 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, 1997, 1996 and 1995 2. Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 1997, 1996, and 1995 3. Consolidated Balance Sheets as of June 30, 1997 and 1996 4. Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996, and 1995 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 EXECUTIVE OFFICERS OF THE REGISTRANT For information with respect to the executives of the Registrant, see "Executives of the Registrant" at the end of Part I of this Report. For information with respect to the Directors of the Registrant, see "Election of Directors" at pages 4 through 6 of the Proxy Statement for the Annual Meeting of Stockholders to be held October 14, 1997, which information is incorporated herein by reference. The information with respect to compliance with Section 16(a) of the Exchange Act, which is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" at page 15 of the Proxy Statement for the Annual Meeting of Stockholders to be held October 14, 1997, 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" and "Stock Performance" at pages 7 through 14 of the Proxy Statement for the Annual Meeting of Stockholders to be held October 14,1997, 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 October 14, 1997, is incorporated herein by reference pursuant to General Instruction G(3). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 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 18 Schedule (d) II Valuation and Qualifying Accounts for the 19 years ended June 30, 1997, 1996 and 1995 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) Amended and Restated Articles of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit No. (iii) of Form 10-Q for the fiscal quarter ended December 31, 1996) 10 (i) *Executive Compensation Agreement dated January 22, 1997, between Bontex, Inc. and and James C. Kostelni (incorporated herein by reference to Exhibit 10(i) of Form 10-Q for quarter ended March 31, 1997) 10 (ii) *Life Insurance Agreement between Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to Exhibit 10.4 of Form 10-Q for quarter ended December 31, 1993) 10 (iii) *Bontex S.A. Pension Plan (incorporated herein by reference to Exhibit No. 10(iv) of Form 10-K for the fiscal year ended June 30, 1994) 10 (iv) *Georgia Bonded Fibers, Inc. Annual Incentive Plan (incorporated herein by reference to Exhibit No. 10(v) of Form 10-K for the fiscal year ended June 30, 1994) 10 (v) *Supplemental Executive Compensation Agreement dated May 26, 1994, between Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to Exhibit No. of Form 10-K for the fiscal year ended June 30, 1994) 10 (vi) Special Consent Order between the Company and the State Water Control Board dated July 22, 1994 (incorporated herein by reference to Exhibit No. 10(vii) of Form 10-K for the fiscal year ended June 30, 1994) 10 (vii) Amended Consent Order between the Company and the Commonwealth of Virginia, Department of Environmental Quality dated January 10, 1997 (incorporated herein by reference to Exhibit No. 10(iv) of Form 10-Q for the quarter ended December 31, 1996) 10 (viii) *Georgia Bonded Fibers, Inc. 1996-1997 Senior Management Incentive Plan 13 1997 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 Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized on this 26th day of September, 1997. BONTEX, INC. By /s/James C. Kostelni -------------------- Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date /s/James C. Kostelni September 26, 1997 - -------------------- ------------------ James C. Kostelni Chairman of the Board, President and Chief Executive Officer Director /s/Jeffrey C. Kostelni September 26, 1997 - ---------------------- ------------------ Jeffrey C. Kostelni Treasurer and Chief Financial Officer Director /s/Charles W. J. Kostelni September 26, 1997 - ------------------------- ------------------ Charles W. J. Kostelni Corporate Controller and Assistant Treasurer /s/David A. Dugan September 26, 1997 - ----------------- ------------------ David A. Dugan Controller and Corporate Secretary /s/Michael J. Breton September 26, 1997 - -------------------- ------------------ Michael J. Breton Corporate Director of International Operations and General Manager, Bontex S.A. Director /s/Larry E. Morris September 26, 1997 - ------------------ ------------------ Larry E. Morris Technical Director and Director of Marketing/Sales Director /s/Patricia S. Tischio September 26, 1997 - ---------------------- ------------------ Patricia S. Tischio Assistant Corporate Secretary Director /s/William J. Binnie September 26, 1997 - -------------------- ------------------ William J. Binnie Director /s/William B. D'Surney September 26, 1997 - ---------------------- ------------------ William B. D'Surney Director /s/Frank Mayorshi September 26, 1997 - ----------------- ------------------ Frank Mayorshi Director /s/Joseph F.Raffetto September 26, 1997 - -------------------- ------------------ Joseph F. Raffetto Director /s/Robert J. Weeks September 26, 1997 - ------------------ ------------------ Robert J. Weeks Director INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Bontex, Inc.: Under date of August 13, 1997, we reported on the consolidated balance sheets of Bontex, Inc.(formerly Georgia Bonded Fibers, Inc.) and subsidiaries as of June 30, 1997 and 1996, 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, 1997, as contained in the 1997 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the accompanying annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as set forth under Item 14(a)2 of the accompanying annual report on Form 10-K for the year 1997. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Roanoke, Virginia August 13, 1997
SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS BONTEX, INC. (formerly 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, 1997 Reserves and allowances deducted from asset accounts: Allowances for doubtful accounts $134,000 $75,000 $(7,000) $83,000 $119,000 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
*Foreign currency translation gain (loss) **Uncollectable accounts written off, net of recoveries Exhibit Index 3 (i) Amended and Restated Articles of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit No. (iii) of Form 10-Q for the fiscal quarter ended December 31, 1996) 10 (i) *Executive Compensation Agreement dated January 22, 1997, between Bontex, Inc. and and James C. Kostelni (incorporated herein by reference to Exhibit 10(i) of Form 10-Q for quarter ended March 31, 1997) 10 (ii) *Life Insurance Agreement between Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to Exhibit 10.4 of Form 10-Q for quarter ended December 31, 1993) 10 (iii) *Bontex S.A. Pension Plan (incorporated herein by reference to Exhibit No. 10(iv) of Form 10-K for the fiscal year ended June 30, 1994) 10 (iv) *Georgia Bonded Fibers, Inc. Annual Incentive Plan (incorporated herein by reference to Exhibit No. 10(v) of Form 10-K for the fiscal year ended June 30, 1994) 10 (v) *Supplemental Executive Compensation Agreement dated May 26, 1994, between Georgia Bonded Fibers, Inc. and James C. Kostelni (incorporated herein by reference to Exhibit No. of Form 10-K for the fiscal year ended June 30, 1994) 10 (vi) Special Consent Order between the Company and the State Water Control Board dated July 22, 1994 (incorporated herein by reference to Exhibit No. 10(vii) of Form 10-K for the fiscal year ended June 30, 1994) 10 (vii) Amended Consent Order between the Company and the Commonwealth of Virginia, Department of Environmental Quality dated January 10, 1997 (incorporated herein by reference to Exhibit No. 10(iv) of Form 10-Q for the quarter ended December 31, 1996) 10 (viii) *Georgia Bonded Fibers, Inc. 1996-1997 Senior Management Incentive Plan 13 1997 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 (VIII) GEORGIA BONDED FIBERS, INC. 1996-1997 SENIOR MANAGEMENT INCENTIVE PLAN The 1996 - 1997 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 and subsidiaries 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 1996-1997 ---------------------------------- 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 Dugan, Controller/Corporate Secretary; Patricia Tischio, Assistant Corporate Secretary; Charles Kostelni, Corporate Controller/Assistant Treasurer; Larry Morris, Technical/Sales Director; Harmonson Floyd, Chief Engineer/Director of Manufacturing; Mike Breton, Director of International Operations, Bontex S.A.; Pierre Pallage, Technical/Plant Manager, Bontex S.A.; Hadelin Mothet, Financial Director/Assistant General Manager, Bontex S.A.; Tarcisio Pasquali, General Manager, Bontex Italia. Should sales and earnings of Georgia Bonded Fibers exceed specified amounts for the year ending June 30, 1997, as presented in the Fiscal 1997 Budget dated 6/16/96, each participant will receive 10 percent of their base salary:
Consolidated ------------ Net Sales $49,500,000 Operating Profit $ 3,099,465
The above financial targets for revenues and profitability are based on the Fiscal 1997 Budget with the following exchange rates: US$/BF 31; US$/ITL 1585; and BF/ITL 2.00. The impact of material changes in foreign currency exchange rates on the translation of the financial statements will be excluded from the comparison of these financial objectives to actual results. Furthermore, the Company must be in profitable position as determined sufficient by the Compensation Committee after considering the impact of the translation adjustments for the payment of any bonuses under the Senior Management Incentive Plan. B. Each participant can earn an additional 10 percent of their base salary for achieving measurable individual objectives assigned to them by their immediate supervisor, as approved by the Chief Executive Officer (CEO) or Compensation Committee. 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 or within 90 days after the end of the plan year. Incentive awards will be paid in dollars. 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, 1996. 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 3 EXHIBIT 13 50th Anniversary (Bontex symbol) BONTEX 1997 ANNUAL REPORT (Graphic: Concentric circles with explosion from center of circles and continents of world at top of explosion.) BONTEX Cellulose Visorboard is More Environmentally Friendly Than Plastic By using primary and recycled cellulose fibers, Bontex (registered trademark) is an environmentally friendly product for visors, brims and size bands in headwear and insoles for footwear. BONTEX (registered trademark) visorboard, brims and size band materials absorb perspiration during wear. BONTEX (registered trademark) will wick and absorb perspiration on an ongoing continuous basis. Headwear produced with BONTEX (registered trademark) and worn during active sports or work in hot weather will contribute toward comfort and performance. (Left Photo appears here - Golfer outline) (Center Photo appears here - 2 Bontex hats) (Right Photo appears here - Worker using a chainsaw) Besides coming from a renewable resource - trees, BONTEX (registered trademark) has many practical qualities that make it more appealing than plastic for retailers and manufacturers. Stitches cleanly with less needle and thread breakage MORI-FRESH (registered trademark) treated which retards the growth of harmful bacteria, fungi and mold. Tight, flexible and versatile meets military specifications. - - washable, dry cleanable and is dimensionally stable - - pliable and retains its shape - - available in colors, sheets or rolls and in various degrees of rigidity - - available worldwide One Bontex Drive, Buena Vista, VA 24416-1500 Telephone : 540-261-2181 Fax: 540-261-3784 E-Mail: bontex@bontex.com http://www.bontex.com Manufactured: Bontex (registered trademark) Buena Vista, VA Bontex (registered trademark) S.A. Stembert, Belgium Dist. and Converted by: Bontex (registered trademark) Italia S.r.l. Villafranca, Verona, Italy. Bontex (registered trademark) de Mexico, Leon, Mexico Bontex (registered trademark) Hong Kong (Bontex symbol) BONTEX (registered trademark) BONTEX (registered trademark) Consolidated 1997 Annual Report CONTENTS 2 Mission Statement, Corporate and Product Profile 3 Message to Shareholders 5 Financial Highlights 6 Management's Discussion and Analysis 12 Financial Statements and Notes 26 Independent Auditors' Report CORPORATE HIGHLIGHTS - 50TH ANNIVERSARY 1946 Bontex was originally established as a leather processing operation in Newark, New Jersey. 1954 Bontex elastomeric wet web cellulose materials were first produced in Buena Vista, Virginia. 1959 Bontex goes public with stock issuance and listing on NASDAQ stock market. 1969 Bontex begins Bontex SA investment in Belgium, then and today, the world's largest and most efficient factory manufacturing elastomeric wet web fiberboard products. 1982 Bontex sales surpass $30 million, and operating profits exceed $3.2 million. Bontex begins specification marketing program to expand sales globally. 1986 Bontex establishes a base of operations in Italy, as Bontex Italia begins sales, marketing, and converting operations. 1990 Bontex sales exceed $40 million. 1992 Bontex enters strategic partnership to market polyurethane foams. 1995 Bontex sales exceed $50 million. Bontex establishes Bontex de Mexico to expand export sales. 1996 The Company reorganizes and officially operates globally as Bontex, Inc., formerly Georgia Bonded Fibers, Inc. 1997 Bontex export sales from USA exceed $10 million. Bontex establishes Bontex Hong Kong to further expand export sales. Bontex enters into a key strategic partnership to market nonwoven materials. Bontex becomes the first global manufacturer in our industry to be ISO 9001 certified. MISSION STATEMENT Our Mission is to be the global leader in the markets we serve, by providing customers with world class quality products and service. CORPORATE PROFILE Bontex, Inc. was originally founded in June 1946 under the laws of the State of New Jersey. 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 global headquarters, manufacturing and converting facilities at Bontex USA, One Bontex Drive, Buena Vista, Virginia; European headquarters and manufacturing at Bontex S.A., Stembert, Belgium; a distribution and converting operation at Bontex Italia S.r.l., Villafranca, Verona, Italy; and distribution subsidiaries at Bontex de Mexico, S.A. de C.V., in Leon, Mexico and Bontex Hong Kong R.O.C. Bontex also maintains a network of liaison offices and distributors globally to market Bontex products. PRODUCT PROFILE Bontex manufactures uncoated and coated BONTEX (registered trademark) fiberboard products; PVC breathable cushion foams, that are marketed under the 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 vinyls, with BONTEX (registered trademark) fiberboard. Additionally, Bontex is the exclusive distributor globally to the footwear industry of an expanded polyurethane material manufactured by Aearo E.A.R. Specialty Composites, trademarked MAXXON (registered trademark) LS and CONFOR (registered trademark). Bontex also markets to the footwear industry a range of nonwoven products under the company's trademark BON-STITCH (registered trademark), primarily used for various stitch construction footwear. Registered trademarks under which the Company markets products include: BONTEX (registered trademark) BON-PEL (registered trademark) nonwoven BON-FOAM (registered trademark) cushion MAXXON (registered trademark) cushion SUR-V-LON (registered trademark) vinyl coated Bontex SIR-PEL (registered trademark) MORIMER (registered trademark) SURTEX (registered trademark) SUPERTEX (registered trademark) MORI-FLEX (registered trademark) BON-STITCH (registered trademark) VINTEX (registered trademark) BON-DOE (registered trademark) BONTEX (registered trademark) 200 RECYCLED BONTEX (registered trademark) 300 RECYCLED MESSAGE TO SHAREHOLDERS (Bontex letterhead) (Bontex symbol) BONTEX (registered trademark) ONE BONTEX DRIVE BUENA VISTA, VIRGINIA 24416-1500 email: 74313.2761@compuserve.com http://www.bontex.com Dear Fellow Shareholder: In 1997, we built upon the positive momentum established last year, as this year's results reflect significant improvement. We are pleased to report to you that Bontex, Inc. and its wholly-owned subsidiaries recorded consolidated net sales of $50.3 million and generated consolidated operating profits of $4.0 million and consolidated net income of $1.7 million or $1.10 per share for the year ended June 30, 1997. This represents the second highest year on record for net sales, and the highest level of net income and operating profits in the history of the Company. Relative to the prior fiscal year, net consolidated sales increased $2.7 million or 5.7 percent, operating profits increased by $4.1 million, and net income improved from a loss of $602,000 or $0.38 per share. This past year marked a milestone for the Company, because it was a year of transformation as we prepared for the future. Management implemented the Reorganization Plan (the "Plan") approved last year by our shareholders. We not only changed our name and logo, but we also further refined our strategic plans for future growth, and most importantly, increased profitability and shareholders' value. Many of the Plan's key initiatives, which are described in this letter, symbolize the dynamism of the Company. We will capitalize on the Bontex (registered trademark) brand name, which is one of our most valuable assets. The corporate name change not only better links the Company with its widely respected product lines, but also recognizes the significant contribution of international operations and export sales of the Company. All the Company's foreign subsidiaries have been known as Bontex for many years. The Company's international sales continue to be the largest portion of sales, reflecting our strategic emphasis on developing international markets and regrettably, the contraction of the US domestic market. The Company's international subsidiaries have accounted for approximately 60 percent of net consolidated sales over the past several years. To further expand our international sales, the Company established a venture in Hong Kong to directly market our products in China, the world's largest market for Bontex (registered trademark) products. The Company's plan to establish a manufacturing facility in Asia still remains an important priority; although it has been delayed so that management can focus on immediate issues in returning the Company to profitability, as well as monitor long-term market and industry trends. Since the founding of our Company fifty years ago, Bontex has developed into the primary global manufacturer and distributor of high quality elastomeric wet web fiber board products. Our mission is to be the global leader in our industry, by providing customers with high quality Bontex (registered trademark) products and services. To that end, we continue to develop new products, improve existing products and innovate new applications. In 1997, our R&D efforts resulted in the introduction of a number of new products, including several new composite packages for, among other things, comfort, cleated footwear and snowboarding. These measures, coupled with present and future initiatives, should contribute to our Company's future growth and profitability. Quality has always been a cornerstone of the Company's identity, and further demonstrating our quality leadership, during 1997 Bontex became the first manufacturer in our industry to have ISO 9001 certified quality assurance systems at all manufacturing facilities. Management regards ISO 9001 as being crucial in maintaining a competitive advantage in quality globally; however, ISO 9001 is only one part of our quality program; and it alone does not guarantee our leadership. The best measure of quality is our ability to deliver customer satisfaction. Bontex leads our industry in several important areas and market segments, and we continue to expand our role as a global market leader. Bontex remains focused on all our key strategic objectives. Another important development during 1997 was our strategic alliance with a well known Italian manufacturer of quality nonwoven materials. Bontex will market and distribute nonwoven products manufactured to Bontex specifications under the Bontex (registered trademark) trademark BON-STITCH (registered trademark). Over the past few years, an increasing portion of footwear, especially athletic footwear, is strobel stitch constructed using nonwoven insole materials. This additional product further enhances our market position to effectively service the entire spectrum of footwear, provides an added degree of product diversification and ultimately should lead to sales growth. As we stated in last year's annual report, the Company was well positioned as we entered fiscal 1997, because of the positive impact of a number of key measures previously implemented by management to increase sales and control costs, as well as the favorable effect of moderated raw material costs. The Company has generated profits consecutively over the previous six quarters. We remain optimistic about fiscal 1998; however, the prices of pulp and other raw materials have risen over the past several months and may continue to rise. Management has implemented various measures in an attempt to manage the situation, including purchasing forward, capital enhancements to improve production efficiencies, and other cost control measures. Further to this, management is exploring various alternatives that may enable the Company to achieve more stability in profits and better management of cash flows, as part of our Risk Management Program and financial plan. The financial plan implemented last year to improve the Company's financial position and enhance shareholders' value remains a crucial priority. This plan includes a number of important measures to increase working capital, reduce debt, invest judiciously in essential capital projects and reinvest earnings. Much progress was made as these budgetary and financial controls have contributed positively to enhancing shareholder value and improving the Company's financial position. The Company's capital structure (total assets less current liabilities) continues to finance short and long range business objectives, and at June 30, 1997, capital structure totaled $14.6 million, an increase of $1.8 million or 14.1 percent. An important measure of our progress is reflected in the Company's share price and market capitalization. As of June 30, 1997, the price of the Company's stock increased 34.4 percent, representing an increase in market capitalization of $2.0 million. We continue to uphold high environmental standards. Protecting the environment in which we all work and live is an important responsibility to which the Company has dedicated significant resources over the years. The Company has recycled for many years and continues to develop environmentally- friendly products. Bontex (registered trademark) products are made from recycled and primary cellulose fibers originally derived from trees, a renewable resource. Bontex has invested several millions of dollars over the past years to have one of the most environmentally-friendly manufacturing facilities in our industry: We have converted our boilers from coal to cleaner burning and more efficient natural gas; we have restored land previously used for waste disposal and storage; and we have reduced the amount of process water consumed. Over the past few years, Bontex has invested over $4 million in waste water treatment plants utilizing state of the art, cost effective and innovative technologies. Bontex is committed to conducting business in a fashion that is not only good for business, but also in a manner that will respect and preserve our environment. We are proud of all our employees, representatives and distributors globally for their outstanding teamwork. We are particularly grateful to all of our customers for their trust placed in Bontex, and we greatly appreciate all of our shareholders, for your continued support of the Company and its management. James C. Kostelni Chairman of the Board and Chief Executive Officer Bontex, Inc., One Bontex Drive, Buena Vista, VA 24416-1500 Telephone: (540) 261-2181 Fax: (540) 261-3784 Email: bontex@bontex.com http://www.bontex.com Bontex SA (Belgium), Bontex S.r.l. (Italy), Bontex Hong Kong, Bontex de Mexico
BONTEX, INC. AND SUBSIDIARIES Summary of Selected Ten Year Data (In Thousands, Except Per Share Data and Ratios) Years ended June 30, -------------------- 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 Net sales $50,333 $47,618 $50,998 $47,729 $46,710 $46,534 $44,734 $41,223 $39,676 $33,376 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Income (loss) before extraordinary item and cumulative effect of change in accounting principles 1,733 (602) (1,458) 935 193 942 212 167 143 313 Extraordinary item - - - - - - - - 212 - Cumulative effect of change in accounting principles - - - 400 - - 99 - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) $ 1,733 $ (602) $(1,458) $ 1,335 $ 193 $ 942 $ 311 $ 167 $ 355 $ 313 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Income (loss) per share: Before extraordinary item and cumulative effect of change in accounting principles $ 1.10 $ (.38) $ (.93) $ .60 $ .12 $ .60 $ .14 $ .11 $ .09 $ .20 Extraordinary item - - - - - - - - .14 - Cumulative effect of change in accounting principles - - - .25 - - .06 - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) $ 1.10 $ (.38) $ (.93) $ .85 $ .12 $ .60 $ .20 $ .11 $ .23 $ .20 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Total assets $32,906 $33,181 $39,527 $31,032 $28,840 $28,669 $22,753 $21,547 $20,598 $18,746 Total stockholders' equity $11,515 $10,308 $11,186 $12,080 $10,521 $10,825 $ 9,313 $ 9,254 $ 8,758 $ 8,574 Capital expenditures $ 2,389 $ 2,157 $ 1,704 $ 1,868 $ 1,226 $ 1,787 $ 1,591 $ 1,047 $ 642 $ 465 Cash flows provided by (used in) operating activities $ 3,037 $ 1,180 $(2,073) $ 1,078 $ (122) $ 215 $ 2,024 $ 30 $ 792 $ 55 Long-term debt $ 2,761 $ 2,330 $ 1,364 $ 1,511 $ 1,056 $ 1,493 $ 964 $ 193 $ 361 $ 524 Book value per share $ 7.32 $ 6.55 $ 7.11 $ 7.68 $ 6.69 $ 6.88 $ 5.92 $ 5.88 $ 5.57 $ 5.45 Cash dividends declared per common share* $ - $ - $ - $ - $ .05 $ - $ - $ .10 $ - $ .09 Current ratio 1.16 1.06 1.07 1.30 1.26 1.34 1.43 1.46 1.53 1.63 Total debt to equity ratio 1.86 2.22 2.53 1.57 1.74 1.65 1.44 1.33 1.35 1.19 Capital structure $14,570 $12,819 $12,703 $14,162 $12,224 $12,991 $10,950 $10,146 $ 9,750 $ 9,740
*A cash dividend of $.05,$.10, and $.09 was paid during the second quarter of 1993, 1990, and 1988, respectively. Common Stock and Dividend Data The stock of Bontex, Inc. is traded over the counter on the NASDAQ National Market under the symbol BOTX. At September 8, 1997 there were approximately 692 shareholders of record. A cash dividend was paid during fiscal year 1993. No cash dividends were declared or paid during fiscal years 1994 through 1997. The table below sets forth the range of bid prices for a share of Bontex common stock:
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- High Low High Low High Low High Low High Low ---- --- ---- --- ---- --- ---- --- ---- --- First Quarter $4.00 $3.13 $4.25 $2.75 $6.00 $5.00 $4.75 $3.75 $7.75 $5.50 Second Quarter 5.13 3.50 3.88 2.38 6.50 5.50 5.25 4.50 6.63 4.25 Third Quarter 5.38 4.50 3.25 2.38 5.50 3.50 5.25 4.25 5.50 4.25 Fourth Quarter 5.00 4.25 4.38 2.88 4.13 2.98 5.50 4.50 5.50 4.00
BONTEX, INC. AND SUBSIDIARIES (Formerly Georgia Bonded Fibers, Inc.) MANAGEMENT'S DISCUSSION AND ANALYSIS General Overall business conditions during 1997 were favorable for the Company. The global economy, particularly concerning sales of footwear products at the retail level, grew at a moderate rate, with interest rates and inflation at comparatively low levels. As stated in last year's annual review, the Company's operating conditions during fiscal year 1997 were expected to improve as compared to 1996, mainly reflecting lower raw material costs. However, the Company's operating margins remain under constant pressure from, among other things, increasing environmental related costs, competitive pressures and higher prices for raw materials. The Company's financial statements and notes to the financial statements should be read as an integral part of this review. 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 because of inherent limitations with such model characteristics and assumptions. Factors that could cause or contribute to such differences include, but are not limited to, level of sales to key customers, actions of competitors, fluctuations in the prices of primary raw materials and foreign currency exchange rates. Results of Operations Consolidated net sales for 1997 totaled $50.3 million, an increase of $2.7 million or 5.7 percent as compared to the prior year's level of $47.6 million. The increase in 1997 sales is primarily due to higher average selling prices and added sales volumes, demonstrating the positive impact of the Company's marketing program and favorable economic conditions. During fiscal 1996, the Company recorded consolidated net sales of $47.6 million, a decline of $3.4 million, as compared to the $51.0 million in 1995. The decline in sales from 1995 to 1996 reflected a general global slowdown in retail sales to the various industries the Company serves. (Bar Graph Appears Here) Net Sales (Millions of Dollars) 1997 $ 50.3 1996 $ 47.6 1995 $ 51.0 1994 $ 47.7 1993 $ 46.7
The Company generated consolidated net income of $1.7 million or $1.10 per share in 1997, as compared to the net losses of $602,000 or $.38 per share and $1,458,000 or $.93 per share for 1996 and 1995, respectively. These positive operating results reflect the continued impact of various measures implemented by management to increase sales and improve profitability, as well as the effect of lower pulp prices. The prior year operating losses were primarily due to higher raw material costs. Cost of sales as a percent of net sales was 68 percent in 1997; 77.1 percent in 1996; and 77.3 percent in 1995. The Company's goal is to mitigate the effects of cyclical changes in costs through purchase contracts, forward purchasing, and application of technologies to improve process efficiencies. Further to this, management is exploring various alternatives that may enable the Company to create more stability with pulp purchases as part of our Risk Management Program, in addition to manufacturing and marketing products less sensitive to pulp costs. Cost trends leading up to December 31, 1995 indicated increased inflationary pressures. (Bar Graph Appears Here) Gross Profit (Millions of Dollars) 1997 $ 16.1 1996 $ 10.9 1995 $ 11.6 1994 $ 12.8 1993 $ 11.5
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. In January 1996, pulp prices declined considerably, from a high of $1,000 per ton to $500 per ton. Since then, pulp prices have recovered and recent trends for higher pulp prices are expected to continue in 1998. Furthermore, costs relating to environmental controls continue to increase, resulting in continued pressure on the Company's operating margins. 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 operating profits in 1997. Management currently believes that the Company is well positioned as it enters the next fiscal year; however, operating margins are expected to be adversely impacted by increased costs. 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 use 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 $285,000 in 1997, lower by $147,000 in 1996, and higher by $342,000 in 1995. Net income would have been lower by $181,000 or $.12 per share in 1997, lower by $95,000 or $.06 per share in 1996 and higher by $212,000 or $.13 per share in 1995. As a percent of net sales, selling, general and administrative (SG&A) expenses over the previous three years were relatively stable at 24 percent in 1997; 23.1 percent in 1996; and 23.4 percent in 1995. The $1.1 million increase in SG&A from 1996 to 1997 can be attributed to higher sales, marketing, freight, advertising and compensation related costs. Additionally, SG&A costs for 1996 were lower than normal because of the reversal of a deferred compensation accrual of $159,000, as described in Note 6 of the Notes to the Consolidated Financial Statements. The decrease in SG&A costs from 1995 to 1996 was due largely to various cost control measures and the decline in sales. The decrease in interest expense over the past year was primarily due to the reduction of debt. The weighted-average interest rate on short-term borrowings during 1997 and 1996 was 7.9 and 8.0 percent, respectively. The higher interest expense during 1996 is mainly due to higher interest rates and increased borrowings. Proceeds from credit facilities were utilized for planned capital additions, such as mandated environmental projects, as well as funding of operations. A large portion of the Company's debt consists of short-term credit facilities with variable 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. However, a portion of the variable rate debt is not covered by interest rate swaps, and as such, is subject to market risk of rate changes. Financial instruments, by their nature, are exposed to such market risk, which is the risk of loss arising from adverse changes in market rates and prices. Interest rate swap agreements and market risks of financial instruments are described in Note 7 of the Notes to the Consolidated Financial Statements. The consolidated effective income tax rate for the Company was 39.1 percent in 1997; 23 percent in 1996; and 37.9 percent in 1995. The higher effective tax rate in 1997 was principally due to higher taxable income, particularly at the Company's European subsidiaries where income tax rates are higher. The income tax benefit in 1996 and 1995 was attributed to the operating losses, reflecting $317,000 and $781,000, respectively, in net operating loss carryforwards. 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. Asian countries continue to be the largest sales market for Bontex, as over 67 percent of the world's footwear are produced in the Far East, per the 1997 SATRA World Report. The Company's international subsidiaries represented approximately 60 percent of consolidated net sales over the past three years. Export sales from the US in 1997, 1996 and 1995 were $13.8 million, $9.8 million and $9.2 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. The impact of the rate increase from 1996 to 1997 resulted in net sales being lower by approximately $2 million, and the exchange rate decreases from 1995 to 1996 and 1994 to 1995 resulted in net sales being higher by approximately $600,000 and $3.2 million, respectively. On the balance sheet, foreign currency exchange rates at June 30, 1997 were higher than the currency exchange rates at June 30, 1996, which resulted in a translation decrease of approximately $2.7 million in total assets, as compared to the translation decrease of approximately $1.5 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, as supported by the significant reduction of foreign exchange gains and losses in 1997, and accordingly, such exchange gains and losses in the future are not expected to be material. However, prior to implementation of our revised RMP, total foreign currency exchange gains and losses were a gain of $496,000 in 1996 and a loss in 1995 of $1.5 million. The exchange gain in 1996 represents a recovery of a portion of the exchange losses accrued 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. 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. Refer to Notes 1 and 7 of the Notes to Consolidated Financial Statements for further details regarding currencies, market risks and financial instruments. 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, 1997 and 1996 totaled $14.6 million and $12.8 million, respectively. The increase in capital structure is primarily due to the reduction of short-term borrowings. The Company's capital structure primarily consists of stockholders' equity, and over the past two years, long-term debt represented approximately 19 percent of capital structure. The Company's requirements for capital during the previous two fiscal years have principally been for capital related expenditures and funding operations. The Company's Cash Conversion Efficiency (cash flows from operations/net sales) improved considerably from 2.48% the prior year to 6.03% this year, reflecting higher cash flows from operations resulting from, among other things, improved profit margins. Cash flows from operations totaled $3.0 million and $1.2 million in 1997 and 1996, respectively. Cash flows used in operations in 1995 totaled $2.1 million. Cash flows used in investing activities mainly represent acquisition of property, plant and equipment. These capital investments totaled $2.4 million, $2.2 million and $1.7 million in 1997, 1996 and 1995, respectively. Net cash flows from financing activities totaled $249,000 in 1997, net cash flows used in financing activities totaled $2.3 million in 1996, and net cash flows from financing activities were $5.7 million in 1995. Cash and cash equivalents increased by $658,000 to $1.4 million, and largely represent financing and hedging positions with respect to the Company's European operations. Trade accounts receivable decreased approximately $456,000 to $13.6 million at June 30, 1997, as compared to last year, primarily because of improved collections and currency translation adjustments. Inventory balances at June 30, 1997 were $5.3 million, down from $5.5 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 decrease in deferred income tax assets primarily reflects the utilization of approximately $2.3 million or 75 percent of the net operating loss carryforwards. At June 30, 1997, the Company had approximately $747,000 in net operating loss carryforwards to offset future taxable income, of which approximately $250,000 and $361,000 expire in 2010 and 2011, respectively. Approximately $136,000 of the net operating loss carryforwards do not expire. The ultimate realization of the alternative minimum tax credit and net operating loss carryforwards is dependent upon the Company generating approximately $1.0 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 and foreign currency exchange rates. Management believes that it is more likely than not that the Company will realize its deferred tax assets, as a result of, among other things, the Company's tax planning strategies, positive operating conditions and cost control measures implemented by management, and based on the level of anticipated future taxable income. Additionally, management currently believes that the existing net deductible temporary differences will reverse during the periods in which the Company generates net taxable income. Accordingly, no allowances are provided for deferred tax assets. 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 1998 are projected not to exceed $700,000. Accounts payable decreased $526,000 to $7.5 million at June 30, 1997, 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 borrowings decreased $1.4 million to $8 million at June 30, 1997 and primarily correspond to the decrease in accounts receivable and inventories. The $431,000 increase in long-term debt was primarily due to the funding of capital expenditures, partially offset by long-term debt principal payments. 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 at June 30, 1997. 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 improved from 1.06 at June 30, 1996 to 1.16 at June 30, 1997, and the Days of Working Capital ratio (DWC) (working capital/(net sales/365 days)) more than doubled from 9.65 last year to 21.86, primarily reflecting the $1.8 million increase in working capital. The ratio of total liabilities to equity improved at fiscal year end to 1.86 from 2.22 the prior year. These changes are primarily attributed to positive operating results. Management has implemented a financial plan to help continue to improve the Company's financial condition. This financial plan includes measures to increase working capital, reduce debt, invest in essential capital projects and retain earnings for future expansion and operations. Restructuring In June 1997, the Company's Board of Directors, in response to decreasing demand in the domestic markets, approved a plan to restructure the Company's U.S. operations in the Northeast. The restructuring plan focuses on the Company's Newark, New Jersey operation and will involve closing the Company's current Newark warehouse facility. The Company expects the restructuring to generate significant operating efficiency improvements which should contribute to the long-term profitability of the Company. Net pretax savings are projected to be significant, and principally consist of reduced salaries, operating and overhead costs for the Newark facility. The Company plans to dispose of the warehouse facility within the next year. The related restructuring charges at June 30, 1997 are immaterial to the financial statements, because the net realizable value of the Newark warehouse facility exceeds the net carrying amount. Future cash outlays and expenditures for the restructuring are not expected to be material. 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 1997, the Company completed the construction of the waste water treatment plant in Belgium at an aggregate cost over the past three years of approximately $2 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 believes that it is in substantial compliance with applicable environmental laws and regulations. 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 Changes In connection with the granting of stock options in 1997, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of" in March 1995 and SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" in June 1996, of which neither had a material impact on the Company's consolidated financial position, results of operations or liquidity. Refer to Note 1 of Notes to the Consolidated Financial Statements for further details regarding SFAS No. 121 and 125. Recently, the Financing Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," SFAS No. 129, "Disclosure of Information about Capital Disclosure," SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." These statements are effective for fiscal years beginning after December 15, 1997. The Company does not anticipate the adoption of these statements to have a material effect on its consolidated financial positions, results of operations or liquidity.
BONTEX, INC. AND SUBSIDIARIES (Formerly Georgia Bonded Fibers, Inc.) CONSOLIDATED STATEMENTS OF INCOME (LOSS) and CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended June 30, 1997, 1996 and 1995 (In Thousands, Except Per Share Data) Consolidated Statements of Income (Loss): 1997 1996 1995 NET SALES $ 50,333 $ 47,618 $ 50,998 COST OF SALES 34,241 36,736 39,398 ------- ------- ------- Gross profit 16,092 10,882 11,600 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,083 10,979 11,913 ------- ------- ------- Operating income (loss) 4,009 (97) (313) ------- ------- ------- OTHER (INCOME) EXPENSES: Interest expense 1,247 1,288 984 Interest income (45) (93) (219) Foreign currency exchange (gain) loss (26) (496) 1,477 Other - net (13) (14) (209) ------- ------- ------- 1,163 685 2,033 ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES 2,846 (782) (2,346) INCOME TAXES 1,113 (180) (888) ------- ------- ------- NET INCOME (LOSS) $ 1,733 $ (602) $ (1,458) ======= ======= ======= NET INCOME (LOSS) PER SHARE $ 1.10 $ (.38) $ (.93) ======= ======= ======= Consolidated Statements of Changes in Stockholders' Equity: 1997 1996 1995 Stockholders' Equity, beginning balance $ 10,308 $ 11,186 $ 12,080 Net income (loss) 1,733 (602) (1,458) Foreign currency translation adjustment (526) (276) 564 ------- ------- ------- Stockholders' Equity, ending balance $ 11,515 $ 10,308 $ 11,186 ======= ======= ======= See accompanying notes to consolidated financial statements.
BONTEX, INC. AND SUBSIDIARIES (Formerly Georgia Bonded Fibers, Inc.) CONSOLIDATED BALANCE SHEETS June 30, 1997 and 1996 (In Thousands, Except Share and Per Share Data) ASSETS 1997 1996 CURRENT ASSETS: Cash $ 1,373 $ 715 Trade accounts receivable, less allowance for doubtful accounts of $119 ($134 at 1996) 13,622 14,078 Other receivables 551 527 Inventories 5,276 5,495 Deferred income taxes 321 676 Income taxes refundable 76 14 Other current assets 131 116 ------- ------- Total current assets 21,350 21,621 ------- ------- PROPERTY, PLANT AND EQUIPMENT: Land and land improvements 347 298 Building and building improvements 5,332 4,785 Machinery, furniture and equipment 16,176 15,755 Construction in progress 808 782 ------- ------- 22,663 21,620 Less accumulated depreciation and amortization 11,631 11,165 ------- ------- Net property, plant and equipment 11,032 10,455 Deferred income taxes - 442 Other assets 524 663 ------- ------- Total assets $ 32,906 $ 33,181 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 8,019 $ 9,416 Accounts payable 7,521 8,047 Accrued expenses 2,079 2,164 Income taxes payable 139 169 Long-term debt due currently 578 566 ------- ------- Total current liabilities 18,336 20,362 Long-term debt 2,761 2,330 Deferred income taxes 108 - Other long-term liabilities 186 181 ------- ------- Total liabilities 21,391 22,873 ------- ------- STOCKHOLDERS' EQUITY: Preferred stock of no par value. Authorized 10,000,000 shares; none issued - - Common stock of $.10 par value. Authorized 10,000,000 shares; issued and outstanding 1,572,824 shares 157 157 Additional capital 1,551 1,551 Retained earnings 9,344 7,611 Foreign currency translation adjustment 463 989 ------- ------- Total stockholders' equity 11,515 10,308 ------- ------- Total liabilities and stockholders' equity $ 32,906 $ 33,181 ======= =======
See accompanying notes to consolidated financial statements.
BONTEX, INC. AND SUBSIDIARIES (Formerly Georgia Bonded Fibers, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 1997, 1996 and 1995 (In Thousands) 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 48,846 $ 50,552 $ 50,133 Cash paid to suppliers and employees (44,283) (48,226) (51,227) Interest received 45 98 212 Interest paid, net of amount capitalized (1,220) (1,330) (986) Income taxes paid, net of refunds (351) 86 (205) ------- ------- ------- Net cash provided by (used in) operating activities 3,037 1,180 (2,073) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of short-term investments - - 123 Proceeds from sales of property, plant and equipment - 75 39 Acquisition of property, plant and equipment (2,389) (2,157) (1,704) ------- ------- ------- Net cash used in investing activities (2,389) (2,082) (1,542) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings, net (403) (1,740) 4,288 Long-term debt incurred 2,675 115 2,000 Principal payments on long-term debt and capital lease obligations (2,023) (694) (569) ------- ------- ------- Net cash provided by (used in) financing activities 249 (2,319) 5,719 ------- ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (239) (443) 913 ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 658 (3,664) 3,017 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 715 4,379 1,362 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,373 $ 715 $ 4,379 ======= ======= ======= RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income (loss) $ 1,733 $ (602) $ (1,458) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,189 1,100 1,072 (Gain) loss on sale of property, plant and equipment 1 13 (15) Provision for bad debts 75 66 42 Deferred income taxes 844 (387) (885) Donated property - - (82) Change in assets and liabilities: (Increase) decrease in trade accounts and other receivables (807) 660 471 (Increase) decrease in inventories (261) 2,123 (2,360) Decrease in other assets 16 22 70 Increase (decrease) in accounts payable and accrued expenses 320 (2,121) 1,493 Increase (decrease) in income taxes (78) 273 (159) Increase (decrease) in other liabilities 5 33 (262) ------- ------- ------- Net cash provided by (used in) operating activities $ 3,037 $ 1,180 $ (2,073) ======= ======= ======= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Donated property $ - $ - $ 82 ======= ======= ======= Construction in progress accrued in payables $ 49 $ 76 $ 178 ======= ======= =======
See accompanying notes to consolidated financial statements. BONTEX, INC. AND SUBSIDIARIES (Formerly Georgia Bonded Fibers, Inc.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997, 1996 and 1995 (All amounts in thousands except share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The accounts of Bontex, Inc. (formerly 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, and its majority-owned subsidiary, Bontex Hong Kong Limited, (the Company) are included in the consolidated financial statements after elimination of significant intercompany accounts and transactions. Foreign Currency Translation - The financial statements of the Company's subsidiaries outside the United States are measured using the local currency as the functional currency. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at the rates of exchange as of the balance sheet date. The resulting translation adjustments are included as a separate component of stockholders' equity. Translation gains or losses for Bontex de Mexico C.V., a wholly-owned subsidiary located in a highly inflationary country, are not material, and as such, are included as a separate component of stockholders' equity. Income and expense items are translated at weighted average monthly exchange rates in effect during the year. Gains and losses from foreign currency transactions are included in net income (loss). Cash Equivalents - For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Inventories - Inventories are stated at the lower of cost or market. Cost of inventories maintained in North America is determined on the last-in, first-out (LIFO) 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, 1997, 1996 and 1995 totaled zero, $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 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 has also entered into forward foreign currency 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 fair value and the resulting gain or loss included in net income (loss). 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 and Forward-Looking Data - 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. Except for the historical data set forth herein, certain forward-looking information is contained in these disclosures. Actual amounts may differ from these projections. Factors that could cause or contribute to such differences include inherent limitations of model characteristics and assumptions. Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was issued in June 1996, and is effective for transfers and servicing of financial assets and extinguishment of liabilities after December 31, 1996. Adoption of this statement did not have a material impact on the Company's consolidated financial position, results of operations, or liquidity. Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of - The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of," on July 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's consolidated financial position, results of operations, or liquidity. 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). The calculation of weighted average shares outstanding does not include the effect of common stock options since their impact on the weighted average shares outstanding is less than three percent. Stock Options - In connection with the granting of stock options in 1997, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock- based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Reclassification - Certain reclassifications have been made to the 1996 consolidated financial statements to conform with the 1997 presentation. 2. INVENTORIES Cost of inventories of approximately $2,517 in 1997 and $1,716 in 1996, is determined by the last-in, first-out method (LIFO). Replacement costs for LIFO inventories approximated $2,862 in 1997 and $2,346 in 1996. Inventories of approximately $2,759 in 1997 and $3,779 in 1996, are determined by the first-in, first-out (FIFO) and weighted average bases. Inventories are summarized as follows: 1997 1996 Finished goods $ 2,908 $ 3,731 Raw materials 2,067 1,791 Supplies 646 603 ------ ------ Inventories at FIFO and weighted average cost 5,621 6,125 LIFO reserves 345 630 ------ ------ $ 5,276 $ 5,495 ====== ======
During 1997, 1996 and 1995, LIFO layers were reduced resulting in charging lower inventory costs to cost of sales of $37, $91 and $173, respectively. 3. BUSINESS SEGMENT INFORMATION AND INTERNATIONAL OPERATIONS On January 2, 1997, Bontex, Inc. completed a reorganization plan which changed, among other things, its name from Georgia Bonded Fibers, Inc. and the state of incorporation to Virginia from New Jersey. The reorganization did not result in any change in business, management, net worth, assets or liabilities of the Company. Bontex, Inc. and all majority-owned subsidiaries are predominantly engaged in the manufacturing and distribution of uncoated and coated BONTEX (registered trademark) elastomeric fiberboard products. The Company operates manufacturing facilities at Bontex USA in North America and Bontex S.A. in Belgium. 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 from Bontex USA totaled $13,776, $9,761 and $9,161 in 1997, 1996 and 1995, respectively. Sales to Asian countries represent approximately 48, 44 and 47 percent of total export sales for the Company in 1997, 1996 and 1995, respectively. For the past three years, sales to one customer ranged from approximately 6 percent to 9 percent of consolidated net sales. Information related to the North American and European operations follows:
North American European Operations Operations Eliminations Consolidated 1997: Total assets $ 15,551 $ 19,801 $ (2,446) $ 32,906 Total liabilities 6,320 15,656 (585) 21,391 Net sales 21,141 29,709 (517) 50,333 Income before income taxes 1,105 1,741 - 2,846 Net income 784 949 - 1,733 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)
Retained earnings of foreign operations not available for distribution amounted to approximately $846 and $579 at June 30, 1997 and 1996, respectively. 4. LONG-TERM DEBT AND FINANCING AGREEMENTS The following long-term debt was outstanding as of June 30, 1997 and 1996:
1997 1996 8.50% loan payable to a bank in the United States in quarterly installments of $80 through July 2001; collateralized by accounts receivable, inventory and other noncurrent assets in the U.S. and subject to various loan covenants $ 1,360 $ - 10.50% loan payable to a bank in the United States in quarterly installments of $77 through June 2001; collateralized by accounts receivable and inventory and other noncurrent assets in the U.S. and subject to various loan covenants. Refinanced August 1996 - 1,538 7.72% loan payable to an agency of the Belgian government in ten annual installments beginning May 15, 1992. Four annual installments of $78 are outstanding at June 30, 1997 311 447 7.72% loan payable to an agency of the Belgian government in ten annual installments beginning September 1995 to 2004. Eight annual installments of $69 are outstanding at June 30, 1997 556 718 6.15% loan payable to an agency of the Belgian government in ten annual installments of $111 beginning September 1997 to 2006 1,112 104 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 ------ ------ 3,339 2,896 Less long-term debt due currently 578 566 ------ ------ Long-term debt $ 2,761 $ 2,330 ====== ======
The principal payments of long-term debt are as follows:
1998 $ 578 1999 578 2000 578 2001 578 2002 262 Thereafter 765 ------ Total $ 3,339 ======
The loans payable to an agency of the Belgian government have a mortgage on Bontex S.A.'s buildings and the right to request a second mortgage on the buildings. European operations have short-term credit facilities totaling approximately $7,976 and $8,429 at June 30, 1997 and 1996, respectively. As of June 30, borrowings under these facilities were as follows:
1997 1996 Short-term bank loans with various interest rates between 3.85% and 9.99% $ 6,588 $ 8,187 Overdrafts 233 242 ------ ------ $ 6,821 $ 8,429 ====== ======
Five banks in Belgium share 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. As of June 30, 1997 and 1996, one of the bankers under these facilities had the right to request a security interest. Bontex USA has secured lines of credit arrangements with a bank whereby Bontex USA may borrow up to $1,750 at the one month London Inter Bank Offered Rate (LIBOR) plus 2.50 percent (8.19 percent at June 30, 1997). At June 30, 1997 and 1996, Bontex USA had borrowings of $1,198 and $987, respectively, outstanding under lines of credit. The secured lines of credit are collaterized by the same security as the refinanced long-term debt discussed below. Consolidated weighted average interest rates on short-term borrowings at June 30, 1997 and 1996 are 7.9 and 8.0 percent, respectively. During 1997 and 1996, Bontex USA was subject to various loan covenants under its secured debt agreements and has pledged certain current and noncurrent assets as security. Bontex USA was in compliance with the applicable covenants at June 30, 1997 and 1996, including the maintenance of certain minimum financial ratios and borrowing base requirements. In August 1996, Bontex USA refinanced its previous long-term debt with a new secured debt agreement resulting in a $38 write-off of deferred financing costs related to the early extinguishment of debt which was recognized during fiscal 1997. 5. INCOME TAXES The U.S. and foreign components of the provision (benefit) for income taxes are presented as follows:
Current Deferred Total 1997: Federal $ 41 $ 246 $ 287 State (1) 29 28 Foreign 229 569 798 ----- ------ ------- $ 269 $ 844 $ 1,113 ===== ====== ======= 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) ===== ====== =======
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 as follows:
1997 1996 1995 Federal income tax at statutory rate $ 968 $ (265) $ (798) Increase (reduction) in income taxes resulting from: Foreign Sales Corporation (96) - (23) Foreign income(loss) at other than U.S. rates 116 64 (115) State and local taxes, net of federal income tax benefit 18 (3) (5) Other differences, net 107 24 53 ------ ------ ------ Provision for income taxes $ 1,113 $ (180) $ (888) ====== ====== ====== Effective income tax rate 39% 23% 38% U.S. Federal statutory income tax rate 34% 34% 34%
The components of deferred tax assets and liabilities at June 30, 1997 and 1996 are presented below:
1997 1996 Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 22 $ 25 Inventories, principally due to additional costs capitalized for tax purposes 101 97 Other assets, due to difference in amortization of trademarks 136 118 Accrued pension and retirement benefits 144 144 Net operating loss carryforwards 277 1,130 Alternative minimum tax credit carryforwards 88 90 Other 159 90 ------ ------ Total gross deferred tax assets 927 1,694 ------ ------ Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation and capital gain recognition (690) (554) Other (24) (22) ------ ------ Total gross deferred tax liabilities (714) (576) ------ ------ Net deferred tax asset $ 213 $ 1,118 ====== ======
The U.S. and foreign components of the net deferred tax asset at June 30, 1997 and 1996 are presented below:
Current Noncurrent Total 1997: U.S. Operations $ 136 $ (54) $ 82 European Operations 185 (54) 131 ---- ----- ------ $ 321 $ (108) $ 213 ==== ===== ====== 1996: U.S. Operations $ 91 $ 266 $ 357 European Operations 585 176 761 ---- ----- ------ $ 676 $ 442 $ 1,118 ==== ===== ======
At June 30, 1997, in addition to the alternative minimum tax credit carryforward of $88 at Bontex USA, the Company had approximately $747 ($611 at Bontex USA and $136 at Bontex S. A.) in net operating loss carryforwards to offset future taxable income, of which $250 and $361 at Bontex USA expire in 2010 and 2011, respectively. The net operating loss carryforwards at Bontex S.A. have no expiration date. Deferred tax assets at June 30, 1997 include $311 related to the alternative minimum tax credit and net operating loss carryforwards at Bontex USA, and $54 related to net operating loss carryforwards at Bontex S.A. For 1996 and 1995 the Company experienced losses before income taxes of approximately $782 and $2,346, respectively. The Company realized $853 of the deferred tax assets during 1997 as a result of generating taxable income. The Company will need to generate future taxable income of $870 at Bontex USA and $136 at Bontex S.A. during the tax carryforward periods to realize the alternative minimum tax credit and net operating loss carryforwards. 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, 1997, the Company has not recognized a deferred tax liability of $90 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, 1997, undistributed income of the foreign subsidiaries was approximately $1,799, of which approximately $846 is not available for distribution. 6. RETIREMENT AND COMPENSATION PLANS The Company has pension plans covering substantially all full-time domestic employees and certain foreign employees. The benefits from the Company's domestic 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:
1997 1996 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits (1997, $4,225 and 1996, $4,021) $ (4,235) $ (4,044) ====== ====== Projected benefit obligation for service rendered to date $ (5,242) $ (5,217) Plan assets 4,868 4,346 ------ ------ Plan assets less than projected benefit obligation (374) (871) Unrecognized prior service cost 162 177 Unrecognized net loss from past experience different from that assumed (68) 429 Unrecognized net asset at July 1, 1996, net of amortization (115) (131) ------ ------ Accrued pension cost $ (395) $ (396) ====== ======
The Company's net periodic pension expense for the years ended June 30, 1997, 1996 and 1995 include the following components:
1997 1996 1995 Service cost-benefits earned during the period $ 175 $ 200 $ 243 Interest cost on projected benefit obligation 370 366 344 Net amortization and deferral 190 2 180 ---- ---- ---- 735 568 767 Less actual return on assets and employee contributions 620 407 530 ---- ---- ---- Net pension cost $ 115 $ 161 $ 237 ==== ==== ====
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligations was 7.75 percent for 1997, 1996 and 1995. The rate of increase for future compensation levels used in determining the obligation was 5.0 percent for 1997, 4.5 percent for 1996 and 5.5 for 1995. The expected long-term rate of return on plan assets in 1997, 1996 and 1995 was 9.0 percent. Pension assets are held under a group annuity contract with an insurance company. Certain amounts are commingled with the general assets of the insurance company and the remainder is invested in separate accounts, 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 $69, $86, and $76 in 1997, 1996 and 1995, respectively. Benefits are based on years of service and the average of the last five years annual earnings. The Company adopted a tax deferred compensation benefit plan for certain executives during fiscal year 1997. The plan allows the employee to defer up to four percent of his compensation with a Company match of up to one percent of compensation. The Company's contribution funds life insurance policies on each executive, with the Company as owner and beneficiary. The Company's expense for the plan in 1997 totaled $3. The Company provides certain supplemental executive compensation to the President. Expenses related to these benefits were approximately $146 in 1997, $143 in 1996 and $132 in 1995. 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 $700. 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 required the Company pay Mr. Surmonte $150 per year, after his retirement from the Company and during his lifetime, and if Mr. Surmonte's death preceded 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. During fiscal year 1997, the Company has granted stock options to a key executive to purchase 80,000 shares of the Company's common stock. The option price of $4.50 per share on all outstanding options is equal to the fair market value of the stock at the date of grant. Options are exercisable from the date of grant and have a term of 10 years. The Company applies APB Opinion No. 25 in accounting for its stock-based compensation and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. The per shares weighted- average fair value of stock options granted during 1997 was $2.77 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: no expected dividend yield, risk-free interest rate of 6.6 percent expected volatility of 36.7 percent, and an expected life of ten years. Had compensation cost for the granted options been determined consistent with SFAS No. 123, the Company's net income and net income per share for 1997 would have been reduced to the pro forma amounts indicated below:
Net income: As reported $ 1,733 ======= Pro forma $ 1,592 ======= Net income per share: As reported $ 1.10 ======= Pro forma $ 1.01 =======
7. FINANCIAL INSTRUMENTS The Company uses various financial instruments in the normal course of business. By their nature, all such instruments involve risk, and the Company's maximum potential loss may exceed amounts recorded in the balance sheet. As is customary for these types of instruments, the Company does not require collateral or other security from other parties to these instruments. However, because the Company manages exposure to credit risk through credit approvals, credit limits and monitoring procedures, the Company believes that reserves for losses are adequate. The Company uses derivative financial instruments for the purpose of hedging currency and interest rate exposures. As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes. 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 1997 and 1996. Interest Rate Swaps - The Company has two outstanding interest rate swap agreements with banks having an aggregate notional amount of $1,889, of which $500 and $1,389 will terminate on 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 $67, $34 and $20 was paid during 1997, 1996 and 1995, respectively. 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 approximate 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, 1997 and 1996 are as follows:
1997 1996 Contract or notional Fair Value Contract or notional Fair Value Amount Amount Interest rate swaps $1,889 $ (76) $2,892 $ (108)
The Company entered into an interest rate swap for $1 million subsequent to June 30, 1997 which is not reflected in the above table, but included in the following Market Risk of Financial Instruments disclosure. This interest rate swap replaces the $500 agreement currently outstanding and will terminate on January 20, 2000. Market Risk of Financial Instruments - Market risk is the risk of loss arising from adverse changes in market rates and prices. The following disclosures provide certain forward-looking data concerning potential exposures to market risk. By its nature, such forward-looking information is an estimate of what could occur in the future and is dependent on model characteristics and assumptions. As a result, actual future gains and losses will differ from those reported. These disclosures are not precise indicators of expected future losses, but rather are indicators of remote or reasonably possible losses. The following table provides certain financial information concerning the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For interest rate swaps, the table presents expected notional amounts and weighted average interest rates by expected (contractual) maturity dates. For debt obligations, the table presents expected principal balances and related weighted average interest rates by expected maturity dates.
Derivative financial instruments (held for other than trading purposes): Expected Balances and Rates (Unaudited) Fair -------------------------------------------------- As of June 30, Value 1997 1998 1999 2000 2001 2002 Interest Rate Swaps Variable to fixed $ (76) $ 1,889 $ 2,389 $ 1,000 - - - Average pay rate 6.38% 6.45% 6.40% - - - Other financial instruments: Expected Balances and Rates (Unaudited) Fair -------------------------------------------------- As of June 30, Value 1997 1998 1999 2000 2001 2002 Lines of Credit, net of Interest Rate Swaps Variable rate debt $ 6,130 $ 6,130 $ 5,630 $ 7,019 $ 8,019 $ 8,019 $ 8,019 Average variable interest rate 7.90% 7.90% 7.90% 7.90% 7.90% 7.90% Long-term Debt Fixed rate debt $ 3,339 $ 3,339 $ 2,761 $ 2,183 $ 1,605 $ 1,027 $ 765 Average fixed interest 7.51% 7.44% 7.34% 7.15% 6.76% 6.58%
The Company's interest rate swaps fix the rate of interest for $1.9 million of $8 million total variable rate debt. In the event of lowering BIBOR or LIBOR rates, the Company is exposed to higher fixed rates. The $6.1 million variable rate debt not covered by the interest rate swaps is subject to market risk of rate changes. In the above analysis, current rates are those rates paid by the Company during the previous twelve months, and it assumes that future interest rates will remain constant during the next four years. Future variable interest rates are estimates of the Company's future cost of capital, and are based on the Company's previous 3 years of interest rates. The level of financing for the lines of credit are assumed to be the same for all periods. The above market risk sensitive analysis does not fully reflect the potential net market risk exposure, because other market risk exposures may exist in other transactions, including commodity positions and other financial instruments. 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 statues and regulations. Failure to comply with applicable environmental control standards could result in interruption of operations or could require additional expenditures at these facilities. 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. Construction of waste water treatment facilities has been completed at both plants. 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 waste water treatment plant at Bontex S.A. has been completed during fiscal 1997 and appears to be operating within compliance of applicable environmental requirements. 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 December 31, 1997. An air quality consultant has completed an extensive analysis to characterize and verify mill air emissions. The Company has purchased and is installing 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 1998 will aggregate approximately $400; 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. Purchase Commitments - In connection with purchasing certain commodities (pulps and latex) for future manufacturing requirements, the Company enters into a number of purchase commitments, as deemed appropriate, to manage the effects of market price fluctuations and to secure adequate raw material supplies. These purchase commitments have limited terms and the Company expects future sales will be sufficient to meet these requirements. Leases - Rental expenses for all operating leases amounted to $113, $131 and $112 in 1997, 1996 and 1995, respectively. The Company anticipates future rental expense for operating leases to approximate $110 each year for the next five years. Independent Auditors' Report KPMG PEAT MARWICK LLP 10 S. Jefferson Street, Suite 1710 Roanoke, VA 24011-1331 Independent Auditors' Report The Board of Directors and Stockholders of Bontex, Inc.: We have audited the accompanying consolidated balance sheets of Bontex, Inc. (formerly Georgia Bonded Fibers, Inc.) and subsidiaries as of June 30, 1997 and 1996, 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, 1997. 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 Bontex, Inc. and subsidiaries as of June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP August 13, 1997 - -------------------------------- 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 - ------- COUNSEL - ------- 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 Cranford, New Jersey LOCATIONS North American Warehouse - ------------------------------------------- Facilities Newark, New Jersey Global Headquarters and U. S. Manufacturing Franklin, Tennessee Bontex, Inc. St. Louis, Missouri One Bontex Drive Cambridge, Ontario, Canada Buena Vista, Virginia 24416-1500 Montreal, Quebec, Canada 800-733-4234 Village Huron, Quebec, Canada E-mail: bontex @ bontex.com http://www.bontex.com SHAREHOLDERS' INFORMATION European Headquarters and Manufacturing ---------------------------- Bontex S. A. Rue Slar Annual Meeting 4801 Stembert, Belgium 10:30 a.m. October 14, 1997 E-mail: bontexsa @ mail.att.net Best Western Inn at Hunt Ridge Willow Springs Drive Sales and Distribution Centers Lexington, Virginia 24450 Bontex Italia S.r.l. Via Francia N. 1 Independent Auditors 37069 Villafranca KPMG Peat Marwick LLP Verona, Italy 10 S. Jefferson Street E-mail: bontexit @ ats.it Suite 1710 Roanoke, Virginia 24011-1331 Bontex de Mexico, S. A. de C. V. Boulevard Mariano Escobedo #801 Registrar and Transfer Agent Colonia Andrade, C. P. 37370 Registrar and Transfer Company Leon, Guanajuato 10 Commerce Drive Mexico Post Office Box 1010 Cranford, New Jersey 07106 Bontex Hong Kong Limited 2108 Mega Trade Centre 1-6 Mei Wan Street Form 10-K Tsuen Wan, Hong Kong A copy of the Company's 10-K filed with the Securities and International Liaison Offices Exchange Commission is Bontex Australia available without charge to 20 Munro Street any shareholder. Macleod 3085 Victoria, Australia Requests should be sent to the attention of: Bontex Korea Rm. 601, Songnam Bldg. Corporate Controller 76-1, 4GA, Chungang-Dong Bontex, Inc. Chung-Gu, Busan, Korea One Bontex Drive Buena Vista, Virginia 24416-1500 Bontex Taiwan 8F1, No. 52, Sec. 2 Chung Shan N. Rd. -------------------------------- Taipei, 10419, Taiwan Bontex (registered trademark) The Bontex (registered trademark) logo is a registered trademark of Bontex, Inc. Bontex, Inc, is an equal opportunity employer -------------------------------- (Recycled paper symbol) Recycled Paper (Bontex symbol) BONTEX/BONFOAM Cushion Insole Products BONFOAM (registered trademark)/CONTOUR (registered trademark)/MAXXON (registered trademark) dual density cushion insoles from BONTEX (registered trademark) meet the challenge of providing comfort and protecting feet from harsh environmental discomforts. Whether the footwear you manufacture is bound for hard ground, wet and cold conditions, high impact and abrasive conditions, or just leisure wear, BONFOAM (registered trademark)/CONTOUR (registered trademark)/MAXXON (registered trademark) Dual or Tri-Density cushion insoles combined with BONTEX (registered trademark) reduces internal shoe discomforts. BONFOAM (registered trademark)/CONTOUR (registered trademark)/MAXXON (registered trademark) products can be combined with any BONTEX (registered trademark) product to enable the shoe bottom to conform with the shape of the foot and distribute pressure during any activity. The dynamic interaction between the foot and weight transfer is accommodated and high pressure points are minimized. Customers will see and feel the comfort the very first time they try on your footwear. MORI-FRESH (registered trademark) treated which retards the growth of harmful bacteria fungi and mold. (Photo appears here - Cowboy on horse) (Bontex symbol) BONTEX (registered trademark) One Bontex Drive, Buena Vista, VA 24416-1500 Telephone : 540-261-2181 Fax: 540-261-3784 E-Mail: bontex@bontex.com http://www.bontex.com Manufactured: Bontex (registered trademark) Buena Vista, VA Bontex (registered trademark) S.A. Stembert, Belgium Dist. and Converted by: Bontex (registered trademark) Italia S.r.l. Villafranca, Verona, Italy. Bontex (registered trademark) de Mexico, Leon, Mexico Bontex (registered trademark) Hong Kong (Bontex symbol) BONTEX Research and Development BONTEX (registered trademark) has a SATRA certified laboratory. BONTEX (registered trademark) is committed to total quality management as demonstrated by certification ISO 9001 for the design, development and manufacture of elastomeric saturated cellulose fiberboard products for footwear, luggage, headwear, automotive and allied industries. BONTEX (registered trademark) products receive the American Podiatrist Medical Association (APMA) seal of acceptance after undergoing stringent clinical and laboratory tests. The APMA seal of acceptance means BONTEX (registered trademark) products conform to APMA guidelines and were found to assist in foot health and comfort. BONTEX (registered trademark) has a research and development interface program available on a partnership basis with our customers. BONTEX (registered trademark) welcomes the opportunity to explore new applications and new formulations of elastomeric impregnated fiberboard products. BONTEX (registered trademark) products are MORI-FRESH (registered trademark) treated which retards the growth of harmful bacteria, fungi and mold. (Photo appears here - Pyrex lab decanters) (Bontex symbol) BONTEX (registered trademark) One Bontex Drive, Buena Vista, VA 24416-1500 Telephone : 540-261-2181 Fax: 540-261-3784 E-Mail: bontex@bontex.com http://www.bontex.com Manufactured: Bontex (registered trademark) Buena Vista, VA Bontex (registered trademark) S.A. Stembert, Belgium Dist. and Converted by: Bontex (registered trademark) Italia S.r.l. Villafranca, Verona, Italy. Bontex (registered trademark) de Mexico, Leon, Mexico Bontex (registered trademark) Hong Kong EX-21 4 EXHIBIT 21 EXHIBIT 21 ---------- LISTING OF SUBSIDIARIES There are five active subsidiaries of the Company:
Name Under which Name of Subsidiary Jurisdiction of Incorporation Subsidiary Does Business ------------------ ----------------------------- ------------------------ Bontex S. A. Belgium Same Bontex Italia S.r.l. Italy Same Bontex, Inc. Virgin Islands Same Bontex de Mexico Mexico Same Bontex Hong Kong Limited Hong Kong Same
EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BONTEX, INC.'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30, 1997, AS SET FORTH IN THE COMPANY'S 1997 ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS JUN-30-1997 JUN-30-1997 1,373 0 14,292 119 5,276 21,350 22,663 11,631 32,906 18,336 2,761 157 0 0 11,358 32,906 50,333 50,417 34,241 46,324 0 75 1,247 2,846 1,113 1,733 0 0 0 1,733 1.10 1.10
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