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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2003
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 (I.R.S. Employer
Classification Code Number) 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)
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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 14, 2003.
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BGF INDUSTRIES, INC.
QUARTERLY REPORT FOR THE THREE MONTHS AND NINE MONTHS
ENDED March 31, 2003
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002....................... 3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months
ended March 31, 2003 and 2002 (unaudited)............................................................. 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 (unaudited)..... 5
Notes to the Consolidated Financial Statements........................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview.............................................................................................. 11
Critical Accounting Policies.......................................................................... 12
Environmental Issues.................................................................................. 12
Results of Operations................................................................................. 13
Liquidity and Capital Resources....................................................................... 14
Recent Accounting Pronouncements...................................................................... 15
Disclosure Regarding Forward Looking Statements....................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................... 16
Item 4. Controls and Procedures.................................................................................. 16
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................................... 17
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
2003 2002
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,179 $ 1,171
Trade accounts receivable, less allowance for returns
and doubtful accounts of $345 and $316, respectively 13,775 10,197
Inventories 23,882 22,635
Other current assets 4,432 9,674
-------- --------
Total current assets 46,268 43,677
Net property, plant and equipment 46,326 47,943
Intangible assets, net 3,140 2,453
Other noncurrent assets, net 298 288
-------- --------
Total assets $ 96,032 $ 94,361
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 6,458 $ 4,389
Accrued liabilities 8,196 10,322
Current portion of capital lease obligation 331 329
Current portion of long-term debt, net of discount of
$1,167 and $1,217, respectively 103,833 111,356
-------- --------
Total current liabilities 118,818 126,396
Capital lease obligation, net of current portion 2,080 2,163
Deferred income taxes 3,206 3,206
Postretirement benefit and pension obligations 9,018 8,711
-------- --------
Total liabilities 133,122 140,476
-------- --------
Commitments and contingencies
Stockholder's equity (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 (69,770) (68,592)
Accumulated other comprehensive loss (1,476) (1,555)
Loan to parent (844) (10,968)
-------- --------
Total stockholder's equity (deficit) (37,090) (46,115)
-------- --------
Total liabilities and stockholder's equity (deficit) $ 96,032 $ 94,361
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
3
BGF INDUSTRIES, INC.
(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,
--------------------
2003 2002
------- -------
(unaudited)
Net sales .............................................. $33,636 $36,343
Cost of goods sold ..................................... 29,060 35,822
------- -------
Gross profit ..................................... 4,576 521
Selling, general and administrative expenses ........... 2,102 1,343
------- -------
Operating income (loss) .......................... 2,474 (822)
Interest expense ....................................... 3,654 3,333
Other income, net ...................................... (2) --
------- -------
Loss before income taxes ............................ (1,178) (4,155)
Income tax benefit ..................................... -- (1,616)
------- -------
Net loss ............................................ (1,178) (2,539)
Other comprehensive income net of tax:
Reclassification to earnings ........................ 79 --
Change in fair value of cash flow hedge ............. -- 87
------- -------
Total comprehensive loss ............................... $(1,099) $(2,452)
======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
4
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the Three Months
Ended March 31,
--------------------
2003 2002
-------- ---------
(unaudited)
Cash flows from operating activities:
Net loss $ (1,178) $ (2,539)
Adjustment to reconcile net loss to net cash provided by
operating activities:
Depreciation 1,803 2,271
Amortization 694 188
Amortization of discount on notes 50 50
Deferred income taxes -- (1,153)
Postretirement benefit and pension obligations 308 363
Change in assets and liabilities:
Trade accounts receivable, net (3,578) (4,268)
Other current assets 5,242 (4)
Inventories (1,247) 2,610
Other assets (11) (141)
Accounts payable 2,069 5,128
Accrued liabilities (2,047) (2,287)
-------- --------
Net cash provided by operating activities 2,105 218
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (187) (1,242)
-------- --------
Net cash used in investing activities (187) (1,242)
-------- --------
Cash flows from financing activities:
Book overdraft -- 2,012
Proceeds from revolving credit facility 10,000 17,000
Payments on revolving credit facility (17,573) (18,000)
Payment received on loan to parent 10,124 --
Payments on capital lease obligation (81) --
Deferred financing costs (1,380) --
-------- --------
Net cash provided by financing activities 1,090 1,012
-------- --------
Net increase (decrease) in cash and cash equivalents 3,008 (12)
Cash and cash equivalents at beginning of period 1,171 22
-------- --------
Cash and cash equivalent at end of period $ 4,179 $ 10
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 5,512 $ 5,666
======== ========
Cash paid (received) during the period for income taxes $ (5,984) $ 587
======== ========
Supplemental disclosure of non-cash investing and financing activities
Property and equipment financed in accounts payable $ 206 $ 319
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
5
BGF INDUSTRIES, INC.
(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, 2003 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, 2002 on file with the Securities and Exchange Commission in
the 2002 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, 2002 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
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, which
contemplate the Company's continued existence as a going concern. The Company
experienced a rapid deterioration of its liquidity and financial condition
beginning in the second quarter of 2002 which continued throughout the remainder
of 2002 as a result of worsening industry and economic conditions that had an
adverse effect on its ability to generate revenue and sufficient liquidity to
fund its operations. The Company incurred net losses for the year ended December
31, 2002 of approximately $140,573 and had an $82,719 working capital deficiency
and a $46,115 stockholder's deficit as of December 31, 2002. The Company
incurred net losses of $1,178 for the three months ended March 31, 2003 and had
a $72,550 working capital deficiency and a $37,090 stockholder's deficit as of
March 31, 2003.
During the three months ended March 31, 2003, the Company continued to operate
under its restructured business plan which was implemented during the three
months ended June 30, 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. The Company has continued to explore
strategic alternatives including a possible capital restructuring and
alternative financing arrangements.
On February 14, 2003, the Company entered into a short term financing
arrangement with CIT Business Credit (the "CIT Facility"). This provided the
Company with the financing to reimburse all senior lenders under its previously
existing Senior Credit Facility prior to the expiration of a forbearance
agreement executed on August 13, 2002 with the lenders under the Senior Credit
Facility. Also, on February 14, 2003, the Company was able to make the interest
payment originally due on January 15, 2003 on the Company's 10 1/4% Series B
Senior Subordinated Notes within the 30-day grace period. During March 2003, the
Company fully repaid the CIT Facility and in April 2003, the Company terminated
the financing arrangement. (See Note 7).
On May 14, 2003, the Company received a commitment letter from Foothill Capital
Corporation ("FCC") for a five year financing arrangement (the "FCC Loan"),
subject to certain conditions precedent to closing. The FCC Loan is for a
maximum revolver credit line of $40,000 (see Note 7). However, there can be no
assurance that the Company will be successful in its efforts to obtain this
additional financing or any other financing that would be sufficient to sustain
its business operations.
The Company's continued existence is dependent upon several factors including
its ability to generate sufficient operating cash flow to fund its operations
and interest payments on its Senior Subordinated Notes, and secure additional
and/or replacement financing to meet its working capital needs. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
6
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
2. Liquidity and Financial Condition - (Continued)
As discussed further in Note 11, an affiliate and major supplier of the Company,
Advanced Glassfiber Yarns LLC ("AGY") filed for bankruptcy under Chapter 11 of
the US Bankruptcy Code, in December 2002. This could result in the risk that
obtaining raw material from sources other than AGY would be more costly and
could be disruptive to the Company's business. There has been no impact on the
Company's operations in the first quarter of 2003. The Company has not fully
implemented contingency plans to secure alternative supplies of raw materials.
3. Inventories
Inventories consist of the following:
March 31, December 31,
2003 2002
----------- ------------
(unaudited)
Supplies........................................... $ 1,400 $ 1,460
Raw materials...................................... 2,008 1,285
Stock-in-process................................... 4,066 3,729
Finished goods..................................... 16,408 16,161
------- -------
$23,882 $22,635
======= =======
4. Property, Plant and Equipment, Net
Net property, plant and equipment consists of the following:
March 31, December 31,
2003 2002
----------- ------------
(unaudited)
Land............................................... $ 3,155 $ 3,155
Buildings.......................................... 42,214 42,214
Machinery and equipment............................ 80,991 80,803
-------- --------
Gross property, plant and equipment................ 126,360 126,172
Less: accumulated depreciation..................... (80,034) (78,229)
-------- --------
Net property, plant and equipment.................. $ 46,326 $47,943
======== ========
5. Intangible Assets, net
Intangible assets consist of the following:
March 31, December 31,
2003 2002
----------- ------------
(unaudited)
Amortized intangible assets:
Debt issuance costs $ 4,982 $ 4,102
Prepaid lease costs 82 82
Accumulated amortization (1,949) (1,756)
------- -------
3,115 2,428
Unamortized intangible assets:
Unrecognized pension prior service cost 25 25
------- -------
Total intangible assets, net $ 3,140 $ 2,453
======= =======
7
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The debt issuance costs are being amortized over the lives of the respective
debt instruments. The prepaid lease costs are being amortized over the lease
term.
In connection with obtaining new financing in 2003, the Company incurred $1,205
of deferred financing fees related to the new financing arrangement with CIT
Business Credit ("CIT"), of which $480 has been amortized as of March 31, 2003.
The net balance of these fees will be written off in the second quarter 2003 due
to the termination of the CIT Facility, as discussed in Note 7. In connection
with efforts to pursue long-term financing, the Company incurred $175 of
deferred financing fees during the three months ended March 31, 2003. The fees
related to the pursuit of obtaining long-term financing will be amortized over
the life of the long-term financing arrangement.
Amortization of deferred financing charges of $594 and $188 for the three months
ended March 31, 2003 and 2002, respectively, has been included in interest
expense. In 2003, BGF wrote off $100 of net debt issuance costs related to the
Senior Credit Facility. These costs have been classified as interest expense in
the accompanying financial statements.
6. Accrued Liabilities
Accrued liabilities consist of the following:
March 31, December 31,
2003 2002
----------- ------------
(unaudited)
Interest $2,172 $ 4,764
Environmental 2,752 2,772
Payroll 847 146
Profit sharing and other benefits 307 1,137
Restructuring 50 99
Medical benefits 650 650
Other 1,418 754
------ -------
Total accrued liabilities $8,196 $10,322
====== =======
Profit sharing and other benefits. In 2002, the Company approved a management
bonus of $1,050 to be paid in 2003 when liquidity permitted. This bonus was paid
in the first quarter of 2003.
Restructuring. In August 2002, the Company announced the closure of its South
Hill heavyweight fabrics facility, which became effective on October 1, 2002.
This resulted in a reduction of the Company's salary and wage workforce by
approximately 10%. Cash payments applied against the restructuring reserve in
the first quarter of 2003 were approximately $49.
Environmental. A September 1998 environmental site assessment discovered
reportable quantities of polychlorinated biphenyls ("PCBS") in soil at the
Altavista plant in and around the former site of a heat transfer oil tank that
the previous owner of the facility had removed in 1986, before the Company's
1988 acquisition by the Porcher Group. The Company immediately reported the
contamination to United States Environmental Protection Agency ("EPA") and the
Virginia Department of Environmental Quality ("VDEQ").
The Company worked with the EPA and VDEQ to establish a sampling protocol. The
assessment revealed that the plant was contaminated with PCBs inside in several
rooms, outside in the soil, on the roof, in the sanitary and storm sewers, and
in the creeks to which the storm sewers drain. The Company has also been
informed that PCBs may have migrated their way into the city's water treatment
plant. A Site Characterization Report ("SCR") was submitted to the EPA in April
2001. The EPA responded to that report in May 2002 with a request for additional
assessment. The Company responded to the EPA's request in late June 2002 and
proposed actions consistent with the EPA's request. The Company completed the
additional assessment in January 2003 and expects to file an addendum to the SCR
in the second quarter of 2003. The Company's environmental reserve reflects the
estimated remediation costs for the Altavista plant as obtained from an
environmental specialist. However, such remediation costs are subject to
approval of a remediation plan by the EPA that has not been obtained at this
time. The Company also has contamination issues at its Cheraw facility. The
estimated loss due to this contamination is $354, which is also reflected in the
reserve.
8
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The Company believes that these reserves may need to be increased, but the
Company is unable to derive a more reliable estimate at this time as actual
costs remain uncertain. The Company does not anticipate significant cash
outflows associated with this liability in the next twelve months as the
remediation plan has not been submitted to and approved by the EPA. However,
there can be no assurance that the Company will not be required to respond to
its environmental issues on a more immediate basis and that such response, if
required, will not result in significant cash outlays.
7. Debt
Debt consists of the following:
March 31, December 31,
2003 2002
----------- ------------
(unaudited)
Senior Credit Facility:
Revolving Credit Facility $ -- $ 7,573
Senior Subordinated Notes, net of unamortized
discount of $1,167 and $1,217, respectively 98,833 98,783
Note payable to parent 5,000 5,000
-------- --------
Total debt $103,833 $111,356
======== ========
During 2002, the Company had a Senior Credit Facility with a syndicate of
lenders expiring in September 2003. On August 13, 2002, the Company and its
senior lenders executed a forbearance agreement with respect to breaches of
certain financial covenants under the Senior Credit Facility. The forbearance
agreement was intended to expire on March 31, 2003. This agreement and amendment
to the Senior Credit Facility provided for the following: (1) waiver of
compliance with a certain interest coverage ratio until the quarter ended March
31, 2003, (2) a lower required level of consolidated net worth beginning with
the quarter ended September 30, 2002, (3) available funding of up to
approximately $24,000, in total, under the revolver, term loan, swingline, and
letter of credit portions of the facility, (4) a requirement to reduce the
aggregate level of outstanding commitments by $1,500 per month beginning August
31, 2002 and $2,000 per month, after the term loan has been reduced to zero,
thereafter, (5) borrowing rates based on leverage ratio, and (6) an exit fee to
be paid to the lenders, $250 by December 31, 2002 and $1,250 by March 31, 2003
for a total of $1,500, to be waived by the lenders if an event of default did
not occur and the principal balance was permanently reduced in full within these
respective time periods. The $250 was paid in December 2002. As a result of the
new financing agreement with CIT Business Credit described below, the additional
$1,250 exit fee was waived.
On February 14, 2003, the Company entered into a short-term financing
arrangement with CIT Business Credit (the "CIT Facility"). This provided the
Company with the financing to reimburse all senior lenders under the Senior
Credit Facility prior to the expiration of the forbearance agreement discussed
above. Also, on February 14, 2003, BGF was able to make the interest payment
originally due on January 15, 2003 on the Senior Subordinated Notes within the
30 day grace period. The CIT Facility was scheduled to expire on June 30, 2003
and provided for the following: (1) a borrowing base with advance rates on
eligible accounts receivable and eligible finished goods inventories of 85% and
15%, respectively with a $10,000 maximum borrowing cap; (2) a $250 weekly
reduction of the uncapped collateral; (3) borrowing rates of LIBOR + 325 basis
points or Chase Bank rate + 150 basis points; and (4) certain financial
covenants including a minimum fixed charge coverage ratio and a cap on capital
expenditures. In March 2003, the Company repaid the full amount of its
borrowings under the CIT Facility and in April 2003, the Company terminated its
arrangement with CIT. The Company paid an early termination fee of $100 in April
2003.
On May 14, 2003, the Company received a commitment letter from Foothill Capital
Corporation ("FCC") for a five year financing arrangement (the "FCC Loan"),
subject to certain conditions precedent to closing. The FCC Loan is for a
maximum revolver credit line of $40,000 with an L/C sub-line of $4,000, an
inventory sub-line of $15,000 and a term loan sub-line of $6,000 of which the
principal would be amortized over 60 months. FCC would have a first priority,
perfected security interest in the Company's assets. The FCC Loan would provide
for the following: (1) a borrowing base with advance rates on eligible accounts
receivable and eligible finished goods and raw materials inventory of 85%, 45%
and 35%, respectively, with inventory to be capped at the lesser of the eligible
inventory calculation, $15,000 or 80% of the net orderly liquidation value; (2)
borrowing rates of LIBOR + 3.25% or the Wells Fargo Prime Rate (RR) + 1.00% for
the revolver with a 50 basis points increase if outstanding advances exceed
$7,000 and of LIBOR + 3.5% or RR + 1.00% for the term loan with, at all times, a
minimum rate of 5% for both facilities;
9
BGF INDUSTRIES, INC.
(a wholly owned subsidiary of Glass Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(3) certain financial covenants including (i) a minimum closing availability of
$12,000 including unrestricted cash on hand, (ii) a minimum excess availability
at all times, (iii) a minimum monthly EBITDA level in 2003 building to a
trailing 12 month calculation in 2004 and (iv) a cap on yearly capital
expenditures of $2,000 and; (4) an early termination fee of 5% in year one
decreasing by 1% each year thereafter. The FCC proceeds would be used to (1)
finance ongoing working capital, capital expenditures, and general corporate
needs of the Company, (2) retire other outstanding debt and; (3) fund certain
fees and expenses associated with the loan transaction. The FCC Loan will be
guaranteed by the Company's parent, Glass Holdings. Although the Company expects
to consummate the FCC financing during the second quarter of 2003, there can be
no assurance that such financing will be obtained or that it will be obtained on
the terms previously described. However, there can be no assurance that the
Company will be successful in its efforts to obtain additional financing in
order to sustain its business operations.
The Senior Subordinated Notes have been classified as a current liability as of
March 31, 2003 and December 31, 2002 due to the fact that payment of interest
due in 2003 is contingent upon the Company's ability to improve its liquidity in
2003. Interest is at 10.25% and is payable semi-annually in January and July
through 2009.
The fair value of the Senior Subordinated Notes as of May 12, 2003 and March 31,
2003 was approximately $47,000 and $42,000, respectively.
On August 13, 2002, the Company received $5,000 from Glass Holdings under a loan
agreement whereby the loan is payable on demand at anytime after June 30, 2003.
Interest on the loan is at 3.25% and is payable quarterly in arrears beginning
December 2002 or may be added to the principal amount of the loan.
8. Segment Information
The Company operates in one business segment that manufactures specialty woven
and non-woven fabrics for use in a variety of industrial and commercial
applications. The Company's principal market is the United States. Net sales
information by geographic area is presented below, with sales based on the
location of the customer. The Company does not have any long-lived assets
outside the United States.
For the Three Months Ended
March 31,
--------------------------
2003 2002
------- -------
(unaudited)
United States...................................... $31,808 $34,917
Foreign............................................ 1,828 1,426
------- -------
$33,636 $36,343
======= =======
9. Commitments and Contingencies
As discussed in Note 6, the Company has environmental exposures associated with
two of its manufacturing facilities.
From time to time, the Company is involved in various other legal proceedings
and environmental matters arising in the ordinary course of business. Management
believes, however, that the ultimate resolution of such matters will not have a
material adverse impact of the Company's financial position or results of
operations.
As permitted by Delaware law, the Company has entered into indemnification
agreements whereby it indemnifies its directors and officers for certain events
or occurrences while the director or officer is, or was, serving at the
Company's request, in such capacity. The maximum potential amount of future
payments that the Company could be required to make under these agreements is
limited. As a result of its insurance coverage, the Company believes that the
estimated fair value of the Company's indemnification agreements with directors
and officers is minimal. No liabilities have been recorded for these agreements
as of March 31, 2003.
10
10. Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standard Board ("FASB"), issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51". The primary objective of the Interpretation is to
provide guidance on the identification of entities for which control is achieved
through means other than voting rights and how to determine when and where
business enterprises should consolidate the variable interest entity. Management
does not believe this Interpretation will have a material impact on the Company.
11. Related Party Transactions
An affiliate of the Company, AGY, is also a major supplier and filed for
bankruptcy under Chapter 11 of the US Bankruptcy Code in December 2002. This
could result in the risk that obtaining raw materials from sources other than
AGY would be more costly and could be disruptive to the Company's business. The
Company has not fully implemented contingency plans to secure alternative
supplies of raw materials as of March 31, 2003. The Company purchased $6,169 of
raw materials from AGY in the first quarter of 2003.
During the first quarter of 2003, the Company's parent, Glass Holdings, received
a tax refund related to the filing of the 2002 consolidated tax return. In March
2003, $15,619 of this tax refund was remitted to BGF, of which $9,624 was
applied to the loan receivable from Glass Holdings. The remaining balance of
$5,995 reduced the Company's income tax receivable. An additional $500 from
Glass Holdings was received during the first quarter of 2003 and was also
applied against the loan receivable.
12. Subsequent Event
As discussed in Note 7, the CIT Facility was terminated in April 2003. On May
14, 2003, the Company received a commitment letter from FCC for a five year
financing arrangement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains forward-looking statements with respect to our
operations, industry, financial condition and liquidity. These statements
reflect our assessment of a number of risks and uncertainties. Our actual
results could differ materially from the results anticipated in these forward
looking statements as a result of certain factors set forth in this Quarterly
Report. An additional statement made pursuant to the Private Securities
Litigation Reform Act of 1995 and summarizing certain of the principal risks and
uncertainties inherent in our business is included herein under the caption
"Disclosure Regarding Forward Looking Statements." You are encouraged to read
this statement carefully.
You should read the following discussion and analysis in conjunction with the
accompanying consolidated financial statements and related notes, and with our
audited consolidated financial statements and related notes as of and for the
year ended December 31, 2002 set forth in our 2002 Annual Report on Form 10-K.
Overview
Our business focuses on the production of value-added specialty woven and
non-woven fabrics made from glass, carbon and aramid yarns. Our fabrics are a
critical component in the production of a variety of electronic, filtration,
composite, insulation, construction and commercial products. Our glass fiber
fabrics are used by our customers in printed circuit boards, that are integral
to virtually all advanced electronic products, including computers and cellular
telephones. Our fabrics are also used by our customers to strengthen, insulate
and enhance the dimensional stability of hundreds of products that they make for
their own customers in various markets, including aerospace, transportation,
construction, power generation and oil refining.
The economic downturn that began during 2001 caused most companies in the
electronics industry (a significant market segment of our business) to
re-evaluate their expectations with respect to how they believed they would
perform through 2002. We did not immediately experience the effects of changing
conditions in the economy or the electronics industry and believed that the
downturn in the electronics industry (based on historically high levels of
demand) was likely to be temporary. Accordingly, we proceeded to maintain our
normal levels of production through mid 2001 based on our belief that the
economy would recover, demand would increase and that we would be largely
unaffected by a decline in the electronics industry. During the second half of
2001, when management determined that the electronics industry would not improve
during the remainder of the year, we engaged in an aggressive inventory and cost
reduction program that has continued into 2003. Sales of electronics fabrics
decreased $3.4 million, or 28.8%, for the three months ended March 31, 2003 as
compared to March 31, 2002.
Recent conditions in the aerospace industry, which is a large component of our
composite fabrics market, have negatively impacted sales of our composite
fabrics. We believe that the airline industry may continue to experience losses
throughout 2003.
11
Accordingly, airlines are seeking to conserve cash by deferring or cancelling
aircraft purchases. Sales of composite fabrics increased $0.5 million, or 4.6%,
for the three months ended March 31, 2003 as compared to March 31, 2002. At this
time, we expect the composite market to remain relatively flat through the
second quarter of 2003.
Sales of our filtration fabrics used by industrial customers to control
emissions into the environment increased $1.2 million, or 18.5%, for the three
months ended March 31, 2003 as compared to March 31, 2002. This increase is due
to an increase in demand for replacement filtration bags.
We have taken certain steps to restructure our operations aimed at strengthening
business including, but not limited to, (i) maintaining an aggressive cost
cutting program, (ii) closing our South Hill heavy weight fabrics facility and
consolidating the operations into our newly constructed South Hill multilayer
facility to reduce excess capacity and (iii) engaging the crisis management
consulting firm of Realization Services, Inc. to assist in formulating and
implementing a plan to restructure operations and explore other strategic
alternatives including a possible capital restructuring. The plan is essentially
focused on maximizing our asset utilization and reducing inventory levels and
costs. In 2002, we reduced inventories $16.4 million, or 42.1%, to $22.6 million
as of December 31, 2002 from $39.0 million as of December 31, 2001. Inventory
increased $1.3 million , or 5.8%, to $23.9 million as of March 31, 2003 as
compared to December 31, 2002. This increase was due to a rebuild of inventory
after the shut down of our plants during two weeks at the end of 2002. As of
March 31, 2003, we reduced our debt by $7.6 million, or 6.8%, to $103.8 million
as compared to $111.4 million as of December 31, 2002. We are currently
exploring long term asset based financing and expect to have an arrangement
finalized by the end of the second quarter of 2003.
On May 14, 2003, we received a commitment letter from Foothill Capital
Corporation ("FCC") for a five year financing arrangement (the "FCC Loan"),
subject to certain conditions precedent to closing. The FCC Loan is for a
maximum revolver credit line of $40.0 million (see "Liquidity and Capital
Resources"). Although we expect to consummate the FCC financing during the
second quarter of 2003, there can be no assurance that such financing will be
obtained or that it will be obtained on the terms described in this Quarterly
Report. Furthermore, there can be no assurance that we will be successful in our
efforts to obtain other financing in order to sustain our business operations.
There can be no assurance that we will be successful in our efforts to
restructure our operations or that a restructuring of our operations will
actually improve our operating results or financial condition. There also can be
no assurance that we will obtain on satisfactory terms, if at all, the financing
we need to sustain our business operations or continue to make required payments
on our Senior Subordinated Notes. These matters raise substantial doubt about
our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Critical Accounting Policies
The preparation of financial statements and accompanying notes in conformity
with generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported. Changes in the facts and
circumstances could have a significant impact on the resulting financial
statements. The critical accounting policies that affect our more complex
judgments and estimates are described in the Annual Report on Form 10-K for the
year ended December 31, 2002. Significant charges recorded in the first quarter
of 2003 include:
Debt Issuance Costs. In connection with the CIT Business Credit agreement (the
"CIT Facility") entered into on February 13, 2003, we paid approximately $1.2
million of deferred financing fees. These costs have been recorded as an asset
and are being amortized to interest expense over the life of the CIT Facility,
which is through June 30, 2003. Upon termination of the CIT Facility in April,
2003, the net balance of these deferred financing costs will be written off to
interest expense. Also, in connection with the pursuit of long-term financing,
we have incurred approximately $0.2 million of deferred financing fees. These
fees have been recorded as an asset and will be amortized to interest expense
over the life of any newly-obtained long-term arrangement. In 2003, we wrote off
$0.1 million of net debt issuance costs related to the Senior Credit Facility,
which was paid off as of February 14, 2003.
Environmental Issues
In the course of a September 1998 environmental site assessment, we discovered
reportable quantities of polychlorinated biphenyls ("PCBs") in soil at the
Altavista facility in and around the former site of a heat transfer oil tank
that the previous owner of the facility had removed in 1986, before BGF's 1988
acquisition. We immediately reported the contamination to the Environmental
Protection Agency (the "EPA") and the Virginia Department of Environmental
Quality ("VDEQ").
We worked with the EPA and VDEQ to establish a sampling protocol. The assessment
revealed that the plant was contaminated with PCBs inside in several rooms,
outside in the soil, on the roof, in the sanitary and storm sewers, and in the
creeks to which the storm sewers drain. We have also been informed that PCBs may
have migrated their way into the city's water treatment plant. A Site
Characterization report was submitted to the EPA in April 2001. The EPA
responded to that report in May 2002 with a
12
request for additional assessment. We responded to the EPA's request in late
June 2002 and proposed actions consistent with EPA's request. We also have
contamination issues at our Cheraw facility.
In November 2002, we obtained a new State Operating Permit governing air
emissions for the Altavista facility. Previously, the facility was considered a
candidate for Title V air permitting status, however facility emissions were
significantly lower than the Title V threshold and the facility applied for and
received the State Operating Permit. In January 2003 the Multilayer facility,
located in South Hill, applied for a new air Operating Permit. The new permit is
pending VDEQ review. This facility's air emissions are very low and qualify the
facility as either a Synthetic or True Minor air emission source.
In April the VDEQ officially confirmed the South Hill Multilayer Plant's air
emissions were very low. The DEQ, by mutual determination with BGF, agreed that
the potential and actual emissions are so low that a stationary air permit is
not required for this facility. As a result the existing permit for the plant
was rescinded. A letter was received from the DEQ stating the facility is exempt
from permitting requirements. These DEQ findings confirmed BGF's negligible
impact on air quality and further clarify the low risk and minimal environmental
degradation associated with the Multilayer facility.
As of March 31, 2003, we have recorded a reserve of $2.8 million for
environmental exposure, which reflects the estimated remediation costs for the
Altavista facility as obtained from an environmental specialist. However, such
remediation costs are subject to approval of a remediation plan by the EPA,
which has not been obtained at this time. The estimated loss for the Cheraw
facility due to this contamination is $0.4 million, which is also reflected in
the reserve.
We believe that these reserves may need to be increased, but we are unable to
derive a more reliable estimate at this time as actual costs remain uncertain.
We do not anticipate significant cash outflows associated with this liability in
the next twelve months as the remediation plan has not been submitted to and
approved by the EPA. However, there can be no assurance that the Company will
not be required to respond to its environmental issues on a more immediate basis
and that such response, if required, will not result in significant cash
outlays.
Results of Operations
The following table summarizes our historical results of operations as a
percentage of net sales:
For the Three Months
Ended March 31,
--------------------
2003 2002
----- -----
(unaudited)
Net sales ............................................... 100.0% 100.0%
Cost of goods sold ...................................... 86.4 98.6
----- -----
Gross profit ......................................... 13.6 1.4
Selling, general and administrative expenses ............ 6.2 3.7
----- -----
Operating income (loss) .............................. 7.4 (2.3)
Interest expense ........................................ 10.9 9.2
Other (income), net -- --
----- -----
Loss before income taxes ................................ (3.5) (11.5)
Income tax benefit ...................................... -- (4.5)
----- -----
Net loss ................................................ (3.5)% (7.0)%
===== =====
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Net Sales. Net sales decreased $2.7 million, or 7.4%, to $33.6 million in the
three months ended March 31, 2003 from $36.3 million in the three months ended
March 31, 2002. This decrease was primarily due to lower sales of electronics
fabrics used in multi-layer and rigid printed circuit boards which decreased
$3.4 million, or 28.8%, lower sales of insulation fabrics used in various
composite materials which decreased $0.5 million, or 20.8%, and lower sales of
construction products which decreased $0.4 million, or 32.5%, during the first
quarter of 2003 as compared to the first quarter of 2002. These decreases were
partially offset by an increase in sales of filtration fabrics of $1.2 million,
or 18.5%, and an increase in sales of composite fabrics of $0.5 million, or
4.6%, over the comparable period in 2002. The decrease in sales of electronics
fabrics was primarily a result of lower demand in the electronics industry that
has continued throughout 2002 and 2003. In addition, the decrease in capital
spending in the information technology and telecommunications industries had led
fabricators of printed circuit boards to reduce production, thus negatively
impacting our sales to these customers. The decrease in sales of insulation and
construction products was due to a decrease in demand for these products. The
increase in sales of composite fabrics was primarily the result of an increase
in the aerospace markets and the increase in sales of filtration fabrics was due
to an increase in demand for replacement filtration bags.
13
Gross Profit Margins. Gross profit margins increased to 13.6% in the three
months ended March 31, 2003 from 1.4% in the three months ended March 31, 2002,
due primarily to successful cost reductions, a higher capacity utilization
allowing for a better absorption of fixed costs as well as a one time positive
inventory valuation difference of $0.5 million due to the implementation of new
direct cost standards during the quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.8 million to $2.1 million in the three
months ended March 31, 2003 from $1.3 million in the three months ended March
31, 2002. This was primarily due to an increase in legal, professional and
consulting fees associated with restructuring operations, and an increase in
management bonuses.
Operating Income (Loss). As a result of the aforementioned factors, operating
income (loss) increased $3.3 million to $2.5 million, or 7.4% of net sales, in
the three months ended March 31, 2003, from $(0.8) million, or (2.3)% of net
sales, in the three months ended March 31, 2002.
Interest Expense. Interest expense increased $0.4 million to $3.7 million, or
10.9% of net sales, in the three months ended March 31, 2003 from $3.3 million,
or 9.2% of net sales, in the three months ended March 31, 2002, due to an
increase in deferred financing fees charged to interest expense, partially
offset by a decrease in outstanding borrowings.
Income Tax Benefit. The effective tax rates in the three months ended March 31,
2003 and 2002 were 0.0% and 38.9%, respectively. Due to the fact that we have a
full valuation allowance against our deferred tax assets, we did not realize a
tax benefit for the three months ended March 31, 2003.
Net Loss. As a result of the aforementioned factors, our net loss decreased $1.3
million to a net loss of $1.2 million in the three months ended March 31, 2003,
from a net loss of $2.5 million in the three months ended March 31, 2002.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and borrowings
under our financing arrangements. Our future need for liquidity will arise
primarily from interest payments on our 10 1/4% Series B Senior Subordinated
Notes due 2009, principal and interest payments on other financing arrangements,
and the funding of our capital expenditures and working capital requirements.
There are no mandatory payments of principal on our notes scheduled prior to
their maturity.
We experienced a rapid deterioration in liquidity and financial condition
beginning in the second quarter of 2002, as a result of worsening industry and
economic conditions that have materially adversely affected our ability to
generate revenue and sufficient liquidity to fund our operations. We incurred
net losses for the year ended December 31, 2002 of approximately $140.6 million
and had an $82.7 million working capital deficiency and a $46.1 million
stockholder's deficit as of December 31, 2002. We incurred net losses of $1.2
million for the three months ended March 31, 2003 and had a $72.6 million
working capital deficiency and a $37.1 million stockholder's deficit as of March
31, 2003.
On February 14, 2003, we entered into a new financing arrangement with CIT
Business Credit (the "CIT Facility"). This allowed us to reimburse all senior
lenders under the Senior Credit Facility prior to the expiration of the
forbearance agreement executed on August 13, 2002 with the lenders under the
Senior Credit Facility. Also on February 14, 2003, we were able to make the
interest payment originally due on January 15, 2003 on the Senior Subordinated
Notes within the 30 day grace period. The CIT Facility was scheduled to expire
on June 30, 2003 and provided for the following: (1) a borrowing base with
advance rates on eligible accounts receivable and eligible finished goods
inventories of 85% and 15%, respectively with a $10.0 million maximum borrowing
cap; (2) a $0.3 million weekly reduction of the uncapped collateral; (3)
borrowing rates of LIBOR + 325 basis points or Chase Bank rate + 150 basis
points; and (4) certain financial covenants including a minimum fixed charge
coverage ratio and a cap on capital expenditures. Deferred financing fees
associated with the CIT Facility were $1.2 million. In March 2003, we paid the
full amount of our borrowing under the CIT Facility and in April 2003, we
terminated our arrangement with CIT. In connection with the termination, we paid
an early termination fee to CIT of $0.1 million.
On May 14, 2003, we received a commitment letter from Foothill Capital
Corporation ("FCC") for a five year financing arrangement (the "FCC Loan"),
subject to certain conditions precedent to closing. The FCC Loan is for a
maximum revolver credit line of $40.0 million with an L/C sub-line of $4.0
million, an inventory sub-line of $15.0 million and a term loan sub-line of $6.0
million of which the principal would be amortized over 60 months. FCC would have
a first priority, perfected security interest in all assets. The FCC Loan would
provide for the following: (1) a borrowing base with advance rates on eligible
accounts receivable and eligible finished goods and raw materials inventory of
85%, 45% and 35%, respectively, with inventory to be capped at the lesser of the
eligible inventory calculation, $15.0 million, or 80% of the net orderly
liquidation value; (2) borrowing rates of LIBOR + 3.25% or the Wells Fargo Prime
Rate (RR) + 1.00% for the revolver with a 50 basis points increase if
outstanding advances exceed $7.0 million and of LIBOR + 3.5% or RR + 1.00% for
the term loan with, at all times, a minimum
14
rate of 5% for both facilities; (3) certain financial covenants including (i) a
minimum closing availability of $12.0 million including unrestricted cash on
hand, (ii) a minimum excess availability at all times, (iii)a minimum monthly
EBITDA level in 2003 building to a trailing 12 month calculation in 2004 and
(iv) a cap on yearly capital expenditures of $2.0 million and; (4) an early
termination fee of 5% in year one decreasing by 1% each year thereafter. If
committed, the Company expects to use the FCC proceeds to (1) finance our
ongoing working capital, capital expenditures, and general corporate needs, (2)
retire other outstanding debt and; (3) fund certain fees and expenses associated
with the loan transaction. The FCC Loan would be guaranteed by our parent, Glass
Holdings. Although BGF expects to consummate the FCC financing during the second
quarter of 2003, there can be no assurance that such financing will be obtained
or that it will be obtained on the terms discussed above. Furthermore, there can
be no assurance that we will be successful in our efforts to obtain other
financing in order to sustain our business operations.
The Senior Subordinated Notes have also been classified as a current liability
due to the fact that payment of interest due in 2003 is contingent upon our
ability to improve our liquidity in 2003. The fair value of the Senior
Subordinated Notes as of May 12, 2003 and March 31, 2003 was approximately $47.0
million and $42.0 million, respectively. We are aware that our Senior
Subordinated Notes are currently trading at substantial discounts to their face
amount. In order to reduce future cash interest payments, as well as future
amounts due to maturity or upon redemption, we or our affiliates may, from time
to time, purchase such securities for cash in open market purchases, privately
negotiated transactions or otherwise. We will evaluate any such transactions in
light of then existing market conditions, taking into account our liquidity
requirements, contractual restrictions and other factors. The amounts involved
in any such transactions, individually or in the aggregate, may be material.
One of our affiliates, Advanced Glassfiber Yarns LLC ("AGY"), is also a major
supplier. AGY filed for protection under Chapter 11 of the US Bankruptcy Code on
December 10, 2002 and is now operating with Debtor In Possession ("DIP")
financing. However, there can be no assurance that AGY's liquidity will remain
adequate in the long run, which may negatively impact AGY's ability to operate
and to deliver products to us.
During the first quarter of 2003, our parent, Glass Holdings, received a tax
refund related to the filing of the 2002 consolidated tax return. In March 2003,
$15.6 million of this tax refund was remitted to us, $9.6 million of which was
applied to the loan receivable from Glass Holdings. The remaining balance of
$6.0 million reduced our income tax receivable. An additional $0.5 million was
received from Glass Holdings that was also applied to the loan receivable from
Glass Holdings.
Net Cash Provided by Operating Activities. Net cash provided by operating
activities for the three months ended March 31, 2003 was $2.1 million, compared
with $0.2 million in the three months ended March 31, 2002, and was primarily
the result of improvements in operating results due to a lower cost structure
from reduced operating capacity during the three months ended 2003 compared to
the same period in 2002 as well as receipt of a tax refund of approximately $6.0
million in 2003, offset by fluctuations in working capital balances.
Net Cash Used in Investing Activities. Net cash used in investing activities was
$0.2 million for the three months ended March 31, 2003 and was the result of
purchases of property, plant and equipment. We currently expect our capital
expenditures during 2003 to be approximately $2.0 million.
Net Cash Provided by Financing Activities. Net cash provided by financing
activities was $2.5 million for the three months ended March 31, 2003 and was
primarily the result of proceeds from the CIT Facility of $10.0 million, and
payments on the Senior Credit Facility and CIT Facility of $17.6 million and
receipt of $10.1 million on the loan to our parent.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51." The primary
objective of the Interpretation is to provide guidance on the identification of
entities for which control is achieved through means other than voting rights
and how to determine when and which business enterprise should consolidate the
variable interest entity. We do not believe this Interpretation will have a
material impact on us.
Disclosure Regarding Forward-Looking Statements
Some of the information in this Quarterly Report may contain forward-looking
statements. These statements include, in particular, statements about our plans,
strategies and prospects within the meaning of Section 27A of the Securities
Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You
can identify forward-looking statements by our use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. Such statements are based on our current plans
and expectations and are subject to risks and uncertainties that exist in our
operations and our business environment that could
15
render actual outcomes and results materially different from those predicted.
When considering such forward-looking statements, you should keep in mind the
following important factors that could cause our actual results to differ
materially from those contained in any forward-looking statements:
. whether or not we are able to consummate the FCC financing or
otherwise obtain long-term financing;
. whether or not we are able to make the next interest payment on our
Senior Subordinated Notes;
. whether or not our cash flows from operations are sufficient to meet
ongoing operations;
. the impact of AGY's unpredictable bankruptcy proceeding on the ongoing
operations and the resultant risk that obtaining raw materials from
sources other than AGY would be more costly;
. our significant level of indebtedness and limitations on our ability
to incur additional debt;
. our dependence upon some of our suppliers to provide us with materials
and services;
. downturns in the electronics industry and the movement of electronics
industry production outside of North America;
. the effect of highly competitive markets and recent competition from
Asia for heavyweight glass fiber fabrics;
. our concentrated customer base and the competitive nature of our
markets;
. a disruption of production at one of our facilities;
. an easing of import restrictions and duties with respect to glass
fiber fabrics;
. whether or not we are able to comply with environmental and safety and
health laws and requirements;
. whether or not we are able to address technological advances in the
markets we serve;
. changes in economic conditions generally; and
. whether or not we are able to satisfy any covenants and other
provisions under financial instruments.
This list of risks and uncertainties, however, is not intended to be exhaustive.
You should also review the other cautionary statements we make in this Quarterly
Report and other reports and registration statements we file with the SEC. All
forward-looking statements attributable to us or persons acting for us are
expressly qualified in their entirety by our cautionary statements.
We do not have, and expressly disclaim, any obligation to release publicly any
updates or changes in our expectations or any changes in events, conditions or
circumstances on which any forward-looking statement is based.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The effects of potential changes in interest rates are discussed below. Our
market risk discussion includes "forward-looking statements" and represents an
estimate of possible changes in fair value that would occur assuming
hypothetical future movements in interest rates. These disclosures are not
precise indicators of expected future losses, but only indicators of reasonably
possible losses. As a result, actual future results may differ materially from
those presented. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Disclosure Regarding Forward-Looking
Statements."
Our financing arrangements are subject to market risks, including interest rate
risk. Our financial instruments are not currently subject to commodity price
risk. Our risk management strategy is to use derivative financial instruments,
such as swaps, to hedge interest rate exposures. However, we currently do not
have any outstanding interest rate hedge contracts. We do not enter into
derivatives for trading or speculative purposes.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our annual and periodic reports filed
with the SEC is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. These disclosure controls and
procedures are further designed to ensure that such information is accumulated
and communicated to our management, including our chief executive officer and
chief financial officer, to allow timely decisions regarding required
disclosure.
Based on the most recent evaluation, which was completed within 90 days of the
filing of this report, our president and chief financial officer believe that
our disclosure controls are effective. There have been no significant changes in
our internal controls or in any other factors that could significantly affect
the internal controls subsequent to the date we completed our evaluation.
16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Statement of Chief Executive Officer of BGF Industries, Inc.
99.2 Statement of Chief Financial Officer of BGF Industries, Inc.
(b) Reports on Form 8-K
None
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BGF INDUSTRIES, INC.
/s/ Philippe R. Dorier
--------------------------------------------
Philippe R. Dorier
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ James R. Henderson
--------------------------------------------
James R. Henderson
President
Date: May 14, 2003
CERTIFICATIONS
Form of Certification of Sarbanes-Oxley Section 302(a) Certification
I, James R. Henderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BGF Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c.) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a.) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
18
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
May 14, 2003
/s/ James R. Henderson
-----------------------------
James R. Henderson
President
Form of Certification of Sarbanes-Oxley Section 302(a) Certification
I, Philippe R. Dorier, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BGF Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c.) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a.) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
19
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
May 14, 2003
/s/ Philippe R. Dorier
-----------------------------
Philippe R. Dorier
Chief Financial Officer
20