SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
Commission File No. 333-72321
BGF Industries, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 2221 | 56-1600845 | ||
| (State of incorporation) | (Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
| 3802 Robert Porcher Way, Greensboro, North Carolina | 27410 | |
| (Address of registrant’s principal executive office) | (Zip Code) |
(336) 545-0011
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,000 shares of common stock, $1.00 par value, as of May 10, 2004.
QUARTERLY REPORT FOR THE THREE MONTHS ENDED March 31, 2004
TABLE OF CONTENTS
| Page No. | ||||
| PART I. |
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| Item 1. |
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| Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003 |
3 | |||
| 4 | ||||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited) |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 13 | ||||
| 13 | ||||
| 13 | ||||
| 14 | ||||
| 15 | ||||
| 16 | ||||
| 16 | ||||
| Item 3. |
17 | |||
| Item 4. |
17 | |||
| PART II. |
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| Item 6. |
18 | |||
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | — | $ | 3,964 | ||||
| Trade accounts receivable, less allowance for returns and doubtful accounts of $404 and $344, respectively |
17,062 | 13,415 | ||||||
| Inventories |
23,968 | 22,139 | ||||||
| Other current assets |
4,277 | 4,671 | ||||||
| Total current assets |
45,307 | 44,189 | ||||||
| Net property, plant and equipment |
42,914 | 43,863 | ||||||
| Other noncurrent assets, net |
4,254 | 4,453 | ||||||
| Total assets |
$ | 92,475 | $ | 92,505 | ||||
| LIABILITIES AND STOCKHOLDER’S DEFICIT | ||||||||
| Current liabilities: |
||||||||
| Cash overdraft |
$ | 151 | $ | — | ||||
| Accounts payable |
6,168 | 5,244 | ||||||
| Accrued liabilities |
11,096 | 14,004 | ||||||
| Current portion of capital lease obligation |
333 | 330 | ||||||
| Current portion of long-term debt |
1,200 | 1,200 | ||||||
| Total current liabilities |
18,948 | 20,778 | ||||||
| Long-term debt, net of discount of $925 and $973, respectively |
98,714 | 98,968 | ||||||
| Capital lease obligation, net of current portion |
1,752 | 1,837 | ||||||
| Deferred income taxes |
3,177 | 3,177 | ||||||
| Postretirement benefit and pension obligations |
6,224 | 5,287 | ||||||
| Total liabilities |
128,815 | 130,047 | ||||||
| Commitments and contingencies |
||||||||
| Stockholder’s deficit: |
||||||||
| Common stock, $1.00 par value. Authorized 3,000 shares; issued and outstanding 1,000 shares |
1 | 1 | ||||||
| Capital in excess of par value |
34,999 | 34,999 | ||||||
| Accumulated deficit |
(70,426 | ) | (71,628 | ) | ||||
| Accumulated other comprehensive loss |
(570 | ) | (570 | ) | ||||
| Loan to parent |
(344 | ) | (344 | ) | ||||
| Total stockholder’s deficit |
(36,340 | ) | (37,542 | ) | ||||
| Total liabilities and stockholder’s deficit |
$ | 92,475 | $ | 92,505 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
| For the Three Months Ended March 31, |
|||||||
| 2004 |
2003 |
||||||
| (unaudited) | |||||||
| Net sales |
$ | 38,844 | $ | 33,636 | |||
| Cost of goods sold |
32,219 | 29,060 | |||||
| Gross profit |
6,625 | 4,576 | |||||
| Selling, general and administrative expenses |
2,530 | 2,102 | |||||
| Operating income |
4,095 | 2,474 | |||||
| Interest expense |
2,880 | 3,654 | |||||
| Other (income) expense, net |
13 | (2 | ) | ||||
| Income (loss) before income taxes |
1,202 | (1,178 | ) | ||||
| Income tax benefit |
— | — | |||||
| Net income (loss) |
1,202 | (1,178 | ) | ||||
| Other comprehensive income net of tax: |
|||||||
| Reclassification to earnings |
— | 79 | |||||
| Total comprehensive income (loss) |
$ | 1,202 | $ | (1,099 | ) | ||
The accompanying notes are an integral part of the consolidated financial statements.
4
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| For the Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 1,202 | $ | (1,178 | ) | |||
| Adjustment to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation |
1,365 | 1,803 | ||||||
| Amortization |
216 | 694 | ||||||
| Amortization of discount on notes |
48 | 50 | ||||||
| Gain on disposal of equipment |
(2 | ) | — | |||||
| Postretirement benefit and pension obligations |
937 | 308 | ||||||
| Change in assets and liabilities: |
||||||||
| Trade accounts receivable, net |
(3,647 | ) | (3,578 | ) | ||||
| Other current assets |
394 | 5,242 | ||||||
| Inventories |
(1,829 | ) | (1,247 | ) | ||||
| Other assets |
(16 | ) | (11 | ) | ||||
| Accounts payable |
1,084 | 2,069 | ||||||
| Accrued liabilities |
(2,909 | ) | (2,047 | ) | ||||
| Net cash (used in) provided by operating activities |
(3,157 | ) | 2,105 | |||||
| Cash flows from investing activities: |
||||||||
| Purchases of property, plant and equipment |
(576 | ) | (187 | ) | ||||
| Proceeds from sale of equipment |
2 | — | ||||||
| Net cash used in investing activities |
(574 | ) | (187 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Book overdraft |
151 | — | ||||||
| Proceeds from revolving credit facility |
1,500 | 10,000 | ||||||
| Payments on revolving credit facility |
(1,500 | ) | (17,573 | ) | ||||
| Payments on term loan |
(302 | ) | — | |||||
| Payment received on loan to parent |
— | 10,124 | ||||||
| Payments on capital lease obligation |
(82 | ) | (81 | ) | ||||
| Deferred financing costs |
— | (1,380 | ) | |||||
| Net cash (used in) provided by financing activities |
(233 | ) | 1,090 | |||||
| Net increase (decrease) in cash and cash equivalents |
(3,964 | ) | 3,008 | |||||
| Cash and cash equivalents at beginning of period |
3,964 | 1,171 | ||||||
| Cash and cash equivalent at end of period |
— | $ | 4,179 | |||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid during the period for interest |
$ | 5,120 | $ | 5,512 | ||||
| Cash received during the period for income taxes |
$ | 401 | $ | 5,984 | ||||
| Supplemental disclosure of non-cash investing and financing activities |
||||||||
| Property and equipment financed in accounts payable |
$ | 39 | $ | 206 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
5
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of BGF Industries, Inc. (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the audited consolidated financial statements of BGF Industries, Inc. as of and for the year ended December 31, 2003 on file with the Securities and Exchange Commission in the Company’s 2003 Annual Report on Form 10-K.
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes in the facts and circumstances could have a significant impact on the resulting financial statements. The critical accounting policies that affect the Company’s more complex judgments and estimates are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 and in this Report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.”
2. Liquidity and Financial Condition
During the three months ended March 31, 2004, the Company continued to operate under its restructured business plan, which was implemented during 2002. The Company’s South Hill heavyweight fabrics facility has remained closed to reduce excess capacity and the Company has maintained its cost cutting initiatives. Industry and economic conditions had an adverse effect on the Company’s operations beginning in 2001. The Company incurred net losses of approximately $3,036 for the year ended December 31, 2003 and had a $37,542 stockholder’s deficit as of December 31, 2003. In the three months ended March 31, 2004, the Company generated net income of $1,202 and had a $36,340 stockholder’s deficit as of March 31, 2004.
The Company’s continued existence is dependent upon several factors including its ability to continue to generate sufficient operating cash flow to fund its operations and interest payments on its Senior Subordinated Notes and its ability to continue to meet its financial covenants and make required payments under the Wells Fargo Foothill (“WFF”) loan (See Note 7). While the Company’s performance to date in 2004 has been consistent with, or better than, the level of performance anticipated in its restructured business plan, there can be no assurance that the Company will be able to sustain its current level of operations. The Company continues to evaluate its current business plan in light of the current market conditions.
6
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
3. Inventories
Inventories consist of the following:
| March 31, 2004 |
December 31, 2003 | |||||
| (unaudited) | ||||||
| Supplies |
$ | 1,460 | $ | 1,502 | ||
| Raw materials |
2,420 | 1,546 | ||||
| Stock-in-process |
3,902 | 3,561 | ||||
| Finished goods |
16,186 | 15,530 | ||||
| $ | 23,968 | $ | 22,139 | |||
4. Property, Plant and Equipment, Net
Net property, plant and equipment consists of the following:
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Land |
$ | 3,155 | $ | 3,155 | ||||
| Buildings |
42,387 | 42,239 | ||||||
| Machinery and equipment |
82,561 | 82,314 | ||||||
| Gross property, plant and equipment |
128,103 | 127,708 | ||||||
| Less: accumulated depreciation |
(85,189 | ) | (83,845 | ) | ||||
| Net property, plant and equipment |
$ | 42,914 | $ | 43,863 | ||||
5. Other Noncurrent Assets, net
Other noncurrent assets, net consist of the following: