ITEM 1. BUSINESS
On January 2, 1997, the Company completed a plan which changed, among several items, its name to Bontex, Inc. from Georgia Bonded Fibers, Inc. For further information, see General Business below.
The Company's consolidated financial statements and notes to the consolidated financial statements should be read as an integral part of this discussion. Except for historical data set forth herein, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements include, without limitation, statements about financing plans, cash flows, availability of capital, growth opportunities, benefits from new technologies, financial condition, capital expenditures, future results of operations or market conditions and involve certain risks, uncertainties and assumptions. The words "estimate," "project," "intend," "expect," "believe," and similar expressions are intended to identify forward-looking statements. These and other forward-looking statements are found at various places throughout this report, and you are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements should, therefore, be considered in light of various relevant factors. Actual results may differ materially from these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, excessive worldwide footwear inventories, a shrinking U.S. domestic market for Bontex products, decreased sales to key customers, increased competition from non-woven materials, the reduction of prices by competitors, the increase in the relative price of Bontex's products due to foreign currency devaluations, increased pulp and latex prices, capital illiquidity, unexpected foreign tax liabilities, the impact of any unusual items resulting from ongoing evaluations of the Company's business strategies, decreases in the Company's borrowing base, trading of Bontex common stock at a level where closing bid prices are too low to remain listed on the Nasdaq SmallCap Market, increased funding requirements for the Company's pension plan, inability to recover deferred tax assets, an inability by Bontex to renew its current credit facilities or obtain alternative financing, a market shift in demand from higher-quality products to more economical grade products with lower profit margins, higher energy prices, and increased costs of complying with environmental laws, and the impact of changes in political, economic or other factors, legal and regulatory changes or other external factors over which the Company has no control.
GENERAL BUSINESS
Bontex, Inc. (all references hereinafter to the "Registrant," "Company" or "Bontex" refer collectively to Bontex, Inc. and its wholly-owned and majority-owned subsidiaries unless otherwise indicated by context) was incorporated in June 1946 under the laws of the State of New Jersey. The Company originally began as a leather processing operation, and today, Bontex is a leading worldwide manufacturer and distributor of uncoated and coated elastomeric wet web impregnated fiberboard products. The Company's products are generally described by the trademark BONTEX, and are marketed to various industries, including footwear, headwear, luggage, leathergoods, allied industries, belt backing, gasketing, furniture, electronic integrated component packaging, and automotive industries. Bontex is a market leader in many of the areas in which the Company competes.
On January 2, 1997, the Company received the final state regulatory approvals of its proposal, which was adopted by the Company's stockholders at the Annual Meeting of Stockholders held on November 7, 1996, to change the state of incorporation of the Company to Virginia and effect Amended and Restated Articles of Incorporation. As a result of the restructuring, the Company was reincorporated as a Virginia corporation, with its principal place of business at One Bontex Drive, Buena Vista, Virginia 24416-1500, and the name of the Company was changed to "Bontex, Inc." The Company's common stock is traded on the Nasdaq SmallCap Market under the symbol "BOTX." The restructuring did not result in any material change in the business, management, assets, liabilities, or net worth of the Company. For further information, refer to Report on Form 8-K, Reorganization of
Georgia Bonded Fibers, Inc., dated January 2, 1997, and Proxy Statement for meeting of Annual Meeting of Stockholders held on November 7, 1996.
Competitive pricing pressures have had a large negative impact on the Company's sales and profitability as noted in Management's Discussion and Analysis incorporated by reference in Part II, Item 7 of this report. Sales have also been negatively affected by, among other things, the shift in domestic footwear production primarily to Asia. Nonwoven materials, however, continue to erode sales of cellulose based products, particularly with athletic footwear. Bontex is placing greater emphasis on the marketing of nonwoven products, and working to develop new domestic and export markets for impregnated cellulose products in an effort to increase sales. Management also recognizes the need to further diversify it's product line and Bontex has embarked on an aggressive plan to accomplish this in the near term.
ORGANIZATION
The Company maintains corporate headquarters, manufacturing, converting, sales office, and a warehouse facility in Buena Vista, Virginia; a wholly-owned manufacturing subsidiary, Bontex S.A. in Stembert, Belgium; a wholly-owned distribution and converting subsidiary, Bontex Italia S.r.l. in Villafranca, Verona, Italy; a wholly- owned distribution subsidiary, Bontex de Mexico, S.A. de C.V. in Leon, Mexico; Bontex Vietnam (Representative office); and a majority owned distribution subsidiary, Bontex Hong Kong Limited in Hong Kong. See the discussion under "Item 2.
ITEM 2. PROPERTIES
For information about liens and security interests held by banks on the Company's properties, see Note 4 of Notes to Consolidated Financial Statements contained in the Company's Annual Report, incorporated in Part II, Item 8 of this Report by reference.
The properties of the Company consist primarily of plant and equipment to manufacture and distribute the Company's products. The Company's corporate headquarters, manufacturing and converting facility in Buena Vista, Virginia continues to be modernized, upgraded, and expanded. In Stembert, Belgium, the subsidiary's plant is one of the most modern and highest capacity in the world for producing BONTEX type products, and the Company continues to invest in new equipment to maintain its high capacity and high level of efficiency. Bontex Italia S.r.l. operates from a modern distribution facility with new converting equipment. During fiscal 2001, the Company spent approximately $350,000, $275,000 and $130,000 to refurbish, upgrade and install equipment at Bontex USA, Bontex S.A., and other subsidiaries, respectively.
During fiscal 2001, the Company sold the Newark, New Jersey office and warehouse facility to the New Jersey Institute of Technology for $863,000. Included in other income is a gain of $803,000 from this sale, as the Company's net book value was approximately $60,000.
The total cost of capital expenditures, including the capital expenditures planned for environmental regulations at both Bontex USA and Bontex S.A. as discussed in the previous section regarding regulations, is estimated not to exceed $1.5 million for fiscal year 2002. The Company believes that cash generated from operations and credit facilities will be sufficient to meet these capital requirements.
The Company continues to manage the utilization of its assets in an effort to meet global growth objectives, marketplace forces, productivity and technology changes. The Company considers all its properties well maintained, and adequate for present and future requirements.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
During fiscal year 2000, the Ministere Des Finances, the Belgian tax authority, completed an examination of Bontex S.A.'s, the Company's Belgian subsidiary, tax returns for 1997, 1998 and 1999 and extended the tax examination to 1995 and 1996 based on certain items. Bontex S.A. has received notices of proposed tax adjustments to these tax returns. The proposed tax adjustments arise from items which are considered disallowed expenses by tax authorities, including commissions paid to certain distributors and clients, certain travel expenses and various smaller items, including allowances for doubtful receivables and certain insurance premiums. The proposed tax adjustments by the Belgian authorities approximate $820,000. The Company believes, based in part on written opinion of external counsel, it has meritorious legal defenses to many of the claims and the Company intends to defend such claims. The Company's best estimate of the most likely amount payable for the foregoing tax matters is $239,000, and accordingly, a provision for this amount was accrued at June 30, 2000. Similar deductions relating to the year ended June 30, 2000 and 2001 that in light of the current information may be disallowed have been treated as disallowed expenses in the calculation of those year's tax provisions.
Bontex USA received a renewal of its 5-year wastewater discharge permit on April 2, 2001. The new permit requires the Company to expand its wastewater treatment facility to increase the capacity of its equalization tank. The Company started the expansion this Summer and expects to complete it by the end of the calendar year. Prior to receiving the new permit, the Company had received a Notice of Violation from the DEQ. In general, the DEQ stated in the Notice of Violation that it had reason to believe that the Company's plant in Buena Vista, Virginia, might be out of compliance with whole effluent toxics limits. In addition, the Company has received a Notice of Violation from the DEQ alleging that in June 2001 the Company's plant in Buena Vista, Virginia, discharged wastewater solids in violation of Virginia law and/or the Company's wastewater discharge permit. The
Company has submitted detailed information to the DEQ relating to the Notices of Violation. At this stage, it is too early for the Company to make a reasonable estimate of the potential financial impact, if any, of these Notices of Violation.
In the normal course of business, the Company is subject to proceedings, lawsuits and other claims that are subject to many uncertainties, for which their outcomes are not predictable with assurance. There are no legal proceedings, lawsuits or other claims pending, other than those described above, against or involving the Company that, in the opinion of management, will have a material adverse impact upon the financial condition of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
EXECUTIVES OF THE REGISTRANT:
The following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement.
The names, ages and positions of the executives of the Company as of September 26, 2001 are listed below with their business experience with the Company for the past five years. Executive officers are appointed annually by the Board of Directors at the annual meeting of stockholders. There is no agreement or understanding between any executive and any other pursuant to which the executive was selected. Mr. Jeffrey C. Kostelni and Mr. Charles W. J. Kostelni are the sons of Mr. James C. Kostelni.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption "Common Stock and Dividend Data" on page 4 of the Company's Annual Report is incorporated herein by reference.
The Company's common stock is listed on the Nasdaq SmallCap Market. In order to maintain its listing on the Nasdaq SmallCap Market, among other things, the Company must maintain a minimum market value of the public float of its common stock of at least $1,000,000. If the closing bid price of the Company's common stock trades at a level below that necessary to maintain this minimum market value of its public float for thirty consecutive business days, the Company's common stock could become subject to delisting from the Nasdaq SmallCap Market. If delisted, trading in the Company's common stock could be conducted on the OTC Bulletin Board or in the over-the-counter market in what is commonly referred to as the "pink sheets." In the event of delisting, holders of the Company's common stock might find it more difficult to trade their common stock promptly and at reasonable prices or to obtain accurate quotations as to its price. It could also adversely affect the Company's ability to raise additional equity or financing, which in turn could result in a material effect on the Company's business, financial condition, liquidity and/or results of operations.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The five year data for the fiscal years 2001, 2000, 1999, 1998, and 1997 are included in the "Summary of Selected Ten Year Data" on page 4 of the Company's Annual Report and is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis" on pages 5 through 12 of the Company's Annual Report is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk in "Market Risk and Sensitivity" on pages 11 and 12 of the Company's Annual Report to is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and the independent auditors' report included on pages 13 through 29 of the Annual Report is incorporated herein by reference.
1. Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Years Ended June 30, 2001, 2000 and 1999.
2. Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 2001, 2000, and 1999.
3. Consolidated Balance Sheets as of June 30, 2001 and 2000.
4. Consolidated Statements of Cash Flows for the Years Ended June 30, 2001, 2000, and 1999.
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in independent auditors and no disagreements with independent auditors on any matter of accounting principles or practices, financial statement disclosure, or auditors' scope or procedure.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executives of the Registrant, see "Executives of the Registrant" at the end of Part I of this Report. For information with respect to the Directors of the Registrant, see "Election of Directors" at pages 4 through 6 of the Proxy Statement, which information is incorporated herein by reference. The information with respect to compliance with Section 16(a) of the Exchange Act, which is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" at page 17 of the Proxy Statement, is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Executive Compensation," "Compensation Committee Report on Executive Compensation" and "Stock Performance" at pages 9 through 16 of the Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information pertaining to stockholders beneficially owning more than five percent of the Registrant's common stock and the security ownership of management, which is set forth under the caption "Stockholdings of Certain Owners and Management" on pages 2 through 4 of the Proxy Statement, is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Related Party Transactions" on page 14 of the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1. Financial Statements: All financial statements of the Registrant as set forth under Item 8 of this Report on Form 10-K.
2. Financial statement schedules and the location in this Form 10-K are as follows:
SCHEDULE NUMBER DESCRIPTION PAGE
(a) Independent Auditors' Report on Financial Statement Schedule 18
(d) II Valuation and Qualifying Accounts for the years ended June 30, 2001, 2000 and 1999 19
All other schedules are omitted, as the required information is inapplicable, or the information is presented in the consolidated financial statements or related notes.
3. Exhibits to this Form 10-K are as follows:
*Management contract or compensatory plan or agreement required to be filed as an Exhibit to this Form 10-K pursuant to Item 14 (c).
**Portions of this Exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.
(b) Reports on Form 8-K: Form 8-K dated July 23, 2001 reporting under Item 5 thereof the resignation of Ms. Patricia Tischio.
(c) Exhibits - The response to this section of Item 14 is submitted as a separate section of this report.
(d) Financial statement schedules required by Regulation S-X are submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized on this 26th day of September, 2001.
BONTEX, INC.
by /s/James C. Kostelni -------------------------------- Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date
/s/James C. Kostelni September 26, 2001 -------------------------------------- ------------------ James C. Kostelni Chairman of the Board, President and Chief Executive Officer Director
/s/Jeffrey C. Kostelni September 26, 2001 --------------------------------------- ------------------ Jeffrey C. Kostelni Treasurer and Chief Financial Officer Director
/s/Charles W. J. Kostelni September 26, 2001 ------------------------------------ ------------------ Charles W. J. Kostelni Corporate Controller and Corporate Secretary Director
/s/Hadelin Mothet September 26, 2001 ------------------------------------- ------------------ Hadelin Mothet Financial Director Director
/s/William J. Binnie September 26, 2001 ------------------------------------- ------------------ William J. Binnie Director
/s/William B. D'Surney September 26, 2001 ------------------------------------ ------------------ William B. D'Surney Director
/s/Frank Mayorshi September 26, 2001 ------------------------------------- ------------------ Frank Mayorshi Director
/s/Joseph F. Raffetto September 26, 2001 --------------------------------------- ------------------ Joseph F. Raffetto Director
/s/Robert J. Weeks September 26, 2001 --------------------------------------- ------------------ Robert J. Weeks Director
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Bontex, Inc.:
Under date of August 22, 2001, except as to Note 4, which is as of September 12, 2001, we reported on the consolidated balance sheets of Bontex, Inc. and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of income (loss) and comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2001, as contained in the 2001 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the accompanying annual report on Form 10-K for the year 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as set forth under Item 14(a)2 of the accompanying annual report on Form 10-K for the year 2001. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP Roanoke, Virginia August 22, 2001, except as to Note 4, which is as of September 12, 2001
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS BONTEX, INC. AND SUBSIDIARIES
*Foreign currency translation (loss) **Uncollectible accounts written off, net of recoveries.
*Management contract or compensatory plan or agreement required to be filed as an Exhibit to this Form 10-K pursuant to Item 14 (c).
**Portions of this Exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.