SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report pursuant to Section 13 or 15 (d)
of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001 or
-----------------
|_| Transition report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission file number 0-20231
-----------
FIBERMARK, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 82-0429330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
161 WELLINGTON ROAD
P.O. BOX 498
BRATTLEBORO, VERMONT 05302
(802) 257-0365
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class Outstanding
Common Stock June 30, 2001
$.001 par value 6,901,658
Page 1 of 15
FIBERMARK, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements:
Consolidated Statements of Income 3
Three Months and Six Months Ended
June 30, 2001 and 2000
Consolidated Balance Sheets 4
June 30, 2001 and December 31, 2000
Consolidated Statements of Cash Flows 5
Six Months Ended
June 30, 2001 and 2000
Notes To Financial Statements 6-10
ITEM 2. Management's Discussion and Analysis of Financial 11-14
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of Security Holders 14
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Page 2 of 15
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Unaudited Unaudited
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
--------- ------- --------- --------
Net sales $ 102,081 $91,388 $ 192,425 $186,476
Cost of sales 85,227 73,936 161,831 150,926
--------- ------- --------- --------
Gross profit 16,854 17,452 30,594 35,550
Selling, general and administrative expenses 7,121 6,656 12,514 13,474
Facility closure expense 12,869 -- 12,869 --
Sale of technology 172 -- 172 --
--------- ------- --------- --------
Income (loss) from operations (3,308) 10,796 5,039 22,076
Other expense, net 1,465 162 1,861 585
Interest expense 7,332 3,596 10,557 6,973
--------- ------- --------- --------
Income (loss) before income taxes
and extraordinary item (12,105) 7,038 (7,379) 14,518
Income tax (benefit) expense (4,424) 3,192 (2,556) 6,624
--------- ------- --------- --------
Income (loss) before extraordinary item (7,681) 3,846 (4,823) 7,894
Extraordinary item:
Loss on early extinguishment of debt
(net of income tax benefit) (696) -- (696) --
--------- ------- --------- --------
Net income (loss) $ (8,377) $ 3,846 $ (5,519) $ 7,894
========= ======= ========= ========
Basic earnings per share
Income (loss) before extraordinary item $ (1.12) $ 0.56 $ (0.71) $ 1.16
Extraordinary item (0.10) -- (0.10) --
--------- ------- --------- --------
Net income (loss) $ (1.22) $ 0.56 $ (0.81) $ 1.16
Diluted earnings per share $ (1.22) $ 0.55 $ (0.81) $ 1.13
========= ======= ========= ========
Average Basic Shares Outstanding 6,860 6,830 6,847 6,830
Average Diluted Shares Outstanding 6,860 6,992 6,847 6,988
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3 of 15
FIBERMARK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Unaudited Audited
June 30, December 31,
ASSETS 2001 2000
--------- ---------
Current assets:
Cash $ 11,056 $ 11,133
Accounts receivable, net of allowances 58,957 44,902
Inventories 81,371 72,360
Other 1,838 776
Deferred income taxes 4,959 4,950
--------- ---------
Total current assets 158,181 134,121
Property, plant and equipment, net 211,724 194,505
Goodwill, net 151,057 44,948
Other intangible assets, net 14,918 6,778
Deferred income taxes 7,900 --
Other long-term assets 1,735 1,843
Other pension assets 4,018 4,018
--------- ---------
Total assets $ 549,533 $ 386,213
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt 2,500 9,675
Accounts payable 27,576 29,786
Accrued liabilities 39,134 15,243
Accrued income taxes payable 2,159 3,020
--------- ---------
Total current liabilities 71,369 57,724
--------- ---------
Long-term liabilities:
Revolving credit line 8,908 39,027
Long-term debt, less current portion 340,582 143,267
Deferred income taxes 16,169 21,439
Other long-term liabilities 20,655 21,808
--------- ---------
Total long-term liabilities 386,314 225,541
--------- ---------
Total liabilities 457,683 283,265
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.001 per share; -- --
2,000,000 shares authorized, and none issued
Common stock, par value $.001 per share;
20,000,000 shares authorized
6,905,458 and 6,901,658 shares issued and outstanding in 2001 and
6,830,483 and 6,826,683 shares issued and outstanding in 2000 7 7
Additional paid-in capital 64,746 64,399
Retained earnings 37,357 42,876
Accumulated other comprehensive loss (10,225) (4,299)
Less treasury stock, 3,800 shares at cost in 2001 and 2000 (35) (35)
--------- ---------
Total stockholders' equity 91,850 102,948
--------- ---------
Total liabilities and stockholders' equity $ 549,533 $ 386,213
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4 of 15
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2001 and 2000
(In thousands)
Unaudited
2001 2000
--------- --------
Cash flows from operating activities:
Net (loss) income $ (5,519) $ 7,894
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 7,222 5,499
Loss on closure of facility 12,869 --
Loss on sale of technology 172 --
Loss on early extinguishment of debt 696 --
Deferred taxes (5,243) --
Changes in operating assets and liabilities:
Accounts receivable 2,872 (5,066)
Inventories 4,959 (7,595)
Other (84) (21)
Accounts payable (8,481) (183)
Accrued pension and other liabilities 4,632 (556)
Other long-term liabilities (1,267) 395
Accrued income taxes payable (357) 5,437
--------- --------
Net cash provided by operating activities 12,471 5,804
--------- --------
Cash flows used for investing activities:
Additions to property, plant and equipment (16,644) (15,613)
Payments for acquisitions (147,534) --
(Increase) decrease in other intangible assets (176) 256
--------- --------
Net cash used in investing activities (164,354) (15,357)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of bank debt 231,972 --
Repayment of debt (41,832) (2,944)
Net (repayments) borrowings under revolving line of credit (30,119) 9,836
Net proceeds from exercise of stock options 347 --
Debt issuance costs (8,321) --
--------- --------
Net cash provided by financing activities 152,047 6,892
--------- --------
Effect of exchange rate changes on cash (241) (1,060)
Net decrease in cash (77) (3,721)
Cash at beginning of period 11,133 12,466
--------- --------
Cash at end of period $ 11,056 $ 8,745
========= ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 5 of 15
FIBERMARK, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(UNAUDITED)
1. BASIS OF PRESENTATION:
The balance sheet as of June 30, 2001 and the statements of income and
cash flows for the quarters, and six months ended June 30, 2001 and 2000
are unaudited and, in the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been recorded.
Such adjustments consist only of normal recurring items.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The year-end balance
sheet was derived from audited financial statements, but does not include
disclosures required by generally accepted accounting principles. It is
suggested that these interim financial statements be read in conjunction
with the audited financial statements for the year ended December 31, 2000
included in the company's Annual Report on Form 10-K.
2. INVENTORIES:
Inventories at June 30, 2001 and December 31, 2000 consisted of the
following (000's):
(Unaudited)
06/30/01 12/31/00
----------- --------
Raw Material $22,359 $20,377
Work in Progress 25,232 19,413
Finished Goods 21,899 21,914
Finished Goods on Consignment 6,678 5,437
Stores Inventory 2,688 2,750
Operating Supplies 2,515 2,469
------- -------
TOTAL INVENTORIES $81,371 $72,360
======= =======
3. NET INCOME (LOSS) PER COMMON SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted earnings per
Page 6 of 15
common share computations for the company's reported net income (loss)
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
(UNAUDITED) (UNAUDITED)
6/30/01 6/30/00 6/30/01 6/30/00
------- ------- ------- -------
Numerator:
Income (loss) available to common
shareholders used in basic and diluted
earnings per share ($000) $ (8,377) $ 3,846 $ (5,519) $ 7,894
----------- ---------- ----------- ----------
Denominator:
Denominator for basic earnings per share:
Weighted average shares 6,860,415 6,830,483 6,847,461 6,830,483
Effect of dilutive securities:
Fixed stock options * 161,639 * 157,615
----------- ---------- ----------- ----------
Denominator for diluted earnings per share:
Adjusted weighted average shares 6,860,415 6,992,122 6,847,461 6,988,098
=========== ========== =========== ==========
Basic earnings per share $ (1.22) $ 0.56 $ (0.81) $ 1.16
Diluted earnings per share $ (1.22) $ 0.55 $ (0.81) $ 1.13
* Due to a loss for the period, zero incremental shares are included because the
effect would be antidilutive.
4. COMPREHENSIVE INCOME (LOSS) (000'S):
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
(UNAUDITED) (UNAUDITED)
6/30/01 6/30/00 6/30/01 6/30/00
------- ------- ------- -------
Net Income (loss) $ (8,377) $ 3,846 $ (5,519) $ 7,894
Minimum pension liability adjustment
net of tax benefit -- -- -- --
Currency translation adjustment (2,986) (106) (5,926) (1,890)
------------------------------------------
Comprehensive income (loss) $(11,363) $ 3,740 $(11,445) $ 6,004
==========================================
Page 7 of 15
5. SEGMENT INFORMATION:
The following table categorizes net sales in each market segment into the
appropriate operating segment:
(In Thousands)
Unaudited
Operating Segment
---------------------------------------------------------------------------------------------
Technical
German Oper. & Office Durable Decorative
& Filter Media Products Specialties Specialties Other Total
-------------- ------------- ------------- ------------- ------------- -------------
3 months ended June 30, 2001
Net sales
MARKET SEGMENT
Filter Media $21,171 $ 1,266 $ -- $ -- $ -- $ 22,437
Technical Specialties 12,092 9,524 -- -- -- 21,616
Durable Specialties 6,140 -- 15,000 -- -- 21,140
Office Products -- 10,660 -- -- -- 10,660
Decorative Specialties -- -- -- 26,228 -- 26,228
------- ------- ------- ------- ---- --------
Total $39,403 $21,450 $15,000 $26,228 $ -- $102,081
======= ======= ======= ======= ==== ========
3 months ended June 30, 2000
Net sales
MARKET SEGMENT
Filter Media $25,495 $ 1,477 $ -- $ -- $ -- $ 26,972
Technical Specialties 12,531 13,919 -- -- -- 26,450
Durable Specialties 6,716 -- 18,875 -- -- 25,591
Office Products -- 12,375 -- -- -- 12,375
Decorative Specialties -- -- -- -- -- --
------- ------- ------- ------- ---- ---------
Total $44,742 $27,771 $18,875 $ -- $ -- $ 91,388
======= ======= ======= ======= ==== ========
(In Thousands)
Unaudited
Operating Segment
---------------------------------------------------------------------------------------------
Technical
German Oper. & Office Durable Decorative
& Filter Media Products Specialties Specialties Other Total
-------------- ------------- ------------- ------------- ------------- -------------
6 months ended June 30, 2001
Net sales
MARKET SEGMENT
Filter Media $46,436 $ 2,597 $ -- $ -- $ -- $ 49,033
Technical Specialties 25,980 22,925 -- -- -- 48,905
Durable Specialties 13,408 -- 32,155 -- -- 45,563
Office Products -- 22,696 -- -- -- 22,696
Decorative Specialties -- -- -- 26,228 -- 26,228
------- ------- ------- ------- ---- --------
Total $85,824 $48,218 $32,155 $26,228 $ -- $192,425
======= ======= ======= ======= ==== ========
6 months ended June 30, 2000
Net sales
MARKET SEGMENT
Filter Media $52,875 $ 2,928 $ -- $ -- $ -- $ 55,803
Technical Specialties 24,857 28,786 -- -- -- 53,643
Durable Specialties 13,790 -- 36,817 -- -- 50,607
Office Products -- 26,423 -- -- -- 26,423
Decorative Specialties -- -- -- -- -- --
------- ------- ------- ------- ---- --------
Total $91,522 $58,137 $36,817 $ -- $ -- $186,476
======= ======= ======= ======= ==== ========
Page 8 of 15
5. SEGMENT INFORMATION: (CONTINUED)
The following table details selected financial data by operating segment:
(In Thousands)
Unaudited
Operating Segment
-----------------------------------------------------------------------------------------
Technical
German Oper. & Office Durable Decorative
3 months ended June 30, 2001 & Filter Media Products Specialties Specialties Other Total
-------------- ---------- ----------- ----------- --------- ---------
Net sales $ 39,403 $ 21,450 $ 15,000 $26,228 $ -- $ 102,081
Inter-segment net sales 7 1,818 -- 1,237 (3,062) --
-------- --------- -------- ------- --------- ---------
Total net sales $ 39,410 $ 23,268 $ 15,000 $27,465 $ (3,062) $ 102,081
======== ========= ======== ======= ========= =========
Earnings before interest and taxes $ 5,855 $ (5,405) $ 2,966 $ 4,852 $ (13,041)(1) $ (4,773)
======== ========= ======== ======= ========= =========
Depreciation & Amortization $ 834 $ 1,356 $ 680 $ 1,371 $ -- $ 4,241
Total Assets $137,203 $ 136,965 $ 35,736 $71,719 $ 167,910(2) $ 549,533
3 months ended June 30, 2000
Net sales $ 44,742 $ 27,771 $ 18,875 $ -- $ -- $ 91,388
Inter-segment net sales 91 1,507 -- -- (1,598) --
-------- --------- -------- ------- --------- ---------
Total net sales $ 44,833 $ 29,278 $ 18,875 $ -- $ (1,598) $ 91,388
======== ========= ======== ======= ========= =========
Earnings before interest and taxes $ 6,660 $ 1,285 $ 2,689 $ -- $ -- $ 10,634
======== ========= ======== ======= ========= =========
Depreciation and Amortization $ 893 $ 1,273 $ 577 $ -- $ -- $ 2,743
Total Assets $147,132 $ 129,981 $ 33,059 $ -- $ 49,788(2) $ 359,960
(In Thousands)
Unaudited
Operating Segment
-----------------------------------------------------------------------------------------
Technical
German Oper. & Office Durable Decorative
6 months ended June 30, 2001 & Filter Media Products Specialties Specialties Other Total
-------------- ---------- ----------- ----------- --------- ---------
Net sales $ 85,824 $ 48,218 $32,155 $26,228 $ -- $192,425
Inter-segment net sales 45 3,758 -- 1,237 (5,040) --
-------- --------- ------- ------- --------- --------
Total net sales $ 85,869 $ 51,976 $32,155 $27,465 $ (5,040) $192,425
======== ========= ======= ======= ========= ========
Earnings before interest and taxes $ 11,911 $ (6,027) $ 5,483 $ 4,852 $ (13,041)(1) $ 3,178
======== ========= ======= ======= ========= ========
Depreciation & Amortization $ 1,827 $ 2,712 $ 1,312 $ 1,371 $ -- $ 7,222
Total Assets $137,203 $ 136,965 $35,736 $71,719 $ 167,910(2) $549,533
6 months ended June 30, 2000
Net sales $ 91,522 $ 58,137 $36,817 $ -- $ -- $186,476
Inter-segment net sales 135 2,013 -- -- (2,148) --
-------- --------- ------- ------- --------- --------
Total net sales $ 91,657 $ 60,150 $36,817 $ -- $ (2,148) $186,476
======== ========= ======= ======= ========= ========
Earnings before interest and taxes $ 13,967 $ 2,334 $ 5,190 $ -- $ -- $ 21,491
======== ========= ======= ======= ========= ========
Depreciation and Amortization $ 1,805 $ 2,541 $ 1,153 $ -- $ -- $ 5,499
Total Assets $147,132 $ 129,981 $33,059 $ -- $ 49,788(2) $359,960
(1) 2001 Other Includes Facility Closure (Technical & Office Products Segment) $ 19,867
Facility Closure Reversal (Technical & Office Products Segment) (6,998)
Sale of technology (Filter Media Segment) 172
--------
$ 13,041
(2) Corporate assets not allocated
to operating segments.
Page 9 of 15
6. ACQUISITION:
Effective April 18, 2001, the company acquired Rexam Decorative Specialties
International (DSI) for a purchase price of $140 million. DSI is a leading
global manufacturer of specialty decorative covering materials serving the
publishing, stationery and premium packaging markets, with a particular focus on
latex-saturated paper products. This acquisition was financed with the issuance
of $230 million of 10.75% Senior Notes due 2011. The balance of the Senior Notes
was used to repay existing indebtedness, including German bank debt, and for
financing and acquisition fees. The retirement of German bank debt resulted in
an after tax prepayment fee of $0.7 million. The acquisition was accounted for
using the purchase method. Accordingly, the full purchase price was allocated to
the assets acquired and liabilities assumed based upon their respective fair
values. This resulted in approximately $108.2 million of cost in excess of net
assets acquired or goodwill which is being amortized on a straight line basis
over thirty years. The 2001 consolidated results include DSI's results of
operations beginning with the period ending June 30, 2001, which includes two
and a half months of consolidated operations.
The following summarizes unaudited pro forma results of operations for the
quarters and six months ended June 30, 2001 and 2000, assumes the DSI
acquisition occurred as of the beginning of the periods presented (in thousands,
except for share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
(UNAUDITED) (UNAUDITED)
6/30/01 6/30/00 6/30/01 6/30/00
------- ------- ------- -------
Net Sales $108,647 $129,563 $229,882 $259,175
Net Income (loss) (7,896) 4,769 (6,718) 8,728
Basic earnings per share $ (1.15) $ 0.70 $ (0.98) $ 1.28
Diluted earnings per share $ (1.15) $ 0.68 $ (0.98) $ 1.25
The unaudited pro forma results are not necessarily indicative of actual results
of operations that would have occurred had the acquisitions been consummated as
of the above dates, nor are they necessarily indicative of future operating
results.
7. FACILITY CLOSURE:
During the period, the company reached a decision to continue to operate its
Hughesville, New Jersey, facility, previously slated for closure as of June 30,
2001. The company reversed a facility closure charge of $7.0 million to
recognize severance and benefits for the employees to be terminated ($0.4
million) and ($6.6 million) to reflect property, plant, and equipment that had
been written down.
Also during the period, the company reached a decision to cease operations at
its Fitchburg, Massachusetts facility and to relocate its production to its
Warren Glen and Hughesville, New Jersey facilities. As of June 30, 2001, the
company recorded facility closure charges of $19.9 million, to reflect the
write-off of property, plant and equipment ($18.2 million) and to recognize
severance and benefits for employees to be terminated ($1.7 million). The
company expects to
Page 10 of 15
terminate 96 salary and hourly employees. Results of operations of the facility
amounted to income of $0.2 million for the six months ended June 30, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Net sales for the second quarter of 2001 were $102.1 million compared with $91.4
million for the second quarter of 2000, an 11.7% increase. Sales in our German
operations and filter media operating segment decreased by 11.9% to $39.4
million compared with $44.7 million for the second quarter of 2000. The
technical and office products operating segment sales decreased by 22.7% to
$21.5 million compared with $27.8 million for the same period in 2000. Sales in
the durable specialties operating segment decreased by 20.6% to $15.0 million
compared with $18.9 million for the second quarter of 2000. The newly acquired
decorative specialties operating segment contributed sales of $26.2 million in
the second quarter of 2001.
Sales in the German operations and filter media segment were down primarily in
the North American filter business due to the sale of technology to Ahlstrom in
September 2000 and weakening demand in the automotive sector. German filter
media business, however, remained steady. The decrease in the technical and
office products segment was primarily due to weak sales across most of our
markets due to a weak economy. Our technical specialties product lines, notably
art and archival materials, coating base and printing and packaging materials,
were particularly weak. The decrease in durable specialties reflects a continual
slowing economy with particular softness in our masking tape product line and
the initial impact of a key customer bringing some business in house.
Gross margin for the quarter was 16.5% compared with 19.1% last year. The lower
gross margin was attributable to lower volume, higher raw material and energy
costs and expenses associated with the startup of our new paper machine at
Warren Glen, New Jersey.
General and administrative expenses for the quarter were $7.1 million compared
with $6.7 million for the same period in 2000. Excluding the DSI acquisition,
which added $2.3 million to second quarter expenses, general and administrative
expenses were down $1.9 million. The decrease is due primarily to lower salary
expenses and $1.0 million in marketing support payments received from suppliers.
Interest expense was $7.3 million for the quarter compared with $3.6 million
last year. The increase is due to the DSI acquisition.
The effective income tax rate was 36.5% compared with 45.4% for the second
quarter of 2000. The decrease is primarily due to reduced tax rates in Germany.
During the second quarter, the company experienced a net loss of $8.4 million,
or $1.22 per diluted share, compared with net income for the comparable 2000
quarter of $3.8 million, or $.55 per diluted share. The write-off of the
Fitchburg facility negatively impacted
Page 11 of 15
net income in the quarter by $12.3 million, or $1.79 per diluted share. The
reversal of the facility closure charge for the Hughesville facility added $4.3
million, to net income or $0.63 per diluted share. An adjustment to the sale of
a portion of the technology for the filter media business produced in Richmond
reduced net income by $0.1 million, or $0.01 per diluted share. The loss on the
early extinguishment of debt was $0.7 million, or $0.10 per diluted share.
Excluding the tax adjusted impact of these nonrecurring items, net income would
have been $0.4 million or $0.05 per diluted share.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Net sales for the first half of 2001 were $192.4 million compared with $186.5
million for the first half of 2000, a 3.2% increase. Sales in FiberMark's German
operations and filter media operating segment decreased by 6.2% to $85.8 million
compared with $91.5 million in the first half of 2000. The technical and office
products operating segment sales decreased by 17.2% to $48.2 million compared
with $58.2 million for the same period in 2000. Sales in the durable specialties
operating segment decreased by 12.5% to $32.2 million compared with $36.8
million for the first half of 2000. Our new decorative specialties operating
segment contributed $26.2 million in the first half of 2001.
Sales in the German operations and filter media segment were down due to
weakening demand in automotive and vacuum bag filter markets in the United
States and, to a lesser extent, in Europe, as well as the sale of technology
to Ahlstrom in September 2000. The decrease in the technical and office products
segment is attributable to a general softening in the U.S. economy,
consolidation in the office products industry, weaker demand for matboard and
archival materials and reduced levels of electronic fabrication due to slumping
high tech sales worldwide. The decrease in durable specialties reflects a
slowing economy with softness in both masking and binding tape markets and the
initial impact of a key customer bringing manufacturing in house.
Gross margin for the first half of 2001 was 15.9% compared with 19.1% last year.
The lower gross margin was attributable to lower volume, higher raw material and
energy costs and expenses associated with the startup of our new paper machine
at Warren Glen, New Jersey.
General and administrative expenses for the first half of 2001 were $12.5
million compared with $13.5 million for the same period in 2000. Excluding $2.3
million added with the DSI acquisition, expenses were down $3.3 million. The
decrease is due primarily to lower salary expenses, professional fees and $1.0
million in marketing support payments received from suppliers.
Interest expense was $10.6 million for the first half of 2001 compared with $7.0
million for the same period in 2000. The increase is due to the DSI acquisition.
The effective income tax rate for the first half of 2001 was 34.6% compared with
45.6% for the first half of 2000. The decrease is primarily due to reduced tax
rates in Germany.
The net loss for the first half of 2001 was $5.5 million, or $0.81 per diluted
share, compared with a net income of $7.9 million, or $1.13 per diluted share,
for the first half of last year. The write-off of the Fitchburg facility in the
second quarter reduced net income by $12.3 million or, $1.79 per diluted share.
The reversal of the facility closure charge added $4.3 million, to income or
$0.63 per diluted share. In addition, net income was reduced by an adjustment to
the sale of a portion of the technology for the filter media business by $0.1
million, or $0.01 per diluted share and the loss
Page 12 of 15
on early extinguishment of debt of $0.7 or $0.10 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, we had outstanding $100.0 million of senior notes, which
have a ten-year term beginning October 16, 1996, are non-amortizing and carry a
fixed interest rate of 9.375%. On April 18, 2001, $230.0 million of senior notes
in conjunction with the DSI acquisition were issued. These notes have a ten-year
term beginning April 19, 2001, were issued at a discounted price of $228.3
million and carry a fixed rate of 10.75%. Additionally, we have available to us
a $50.0 million revolving credit facility. As of June 30, 2001, $8.9 million was
outstanding under this credit facility. A portion of the balance was at an
interest rate of LIBOR plus 2% and the remainder was at an interest rate of
prime plus .5%. On June 30, 2001, Gessner had a $6.5 million line of credit. At
that date, no advances were outstanding under this facility. At June 30, 2001,
$12.1 million was outstanding on a term loan with Jules and Associates secured
by the paper machine at the Warren Glen, New Jersey, facility. The interest rate
on this loan is 8.47% with the balance amortizing over seven years. As of the
same date, $2.7 million was outstanding on a term loan with CIT secured by
machinery at the Quakertown, Pennsylvania, facility. The interest rate on this
loan is LIBOR + 2% with the balance amortizing through November 2007.
The company's historical requirements for capital have been primarily for
servicing debt, capital expenditures and working capital. For the six months
ended June 30, cash flows from operating activities were $12.5 million in 2001
and $5.8 million for 2000. During these periods, additions to property, plant
and equipment totaled $16.6 million in 2001 and $15.6 million in 2000. The
company is currently in the process of installing a new paper machine at its
Warren Glen, New Jersey, facility, which the company believes will provide
quality improvements, cost reductions, product performance enhancements and the
ability to produce a broader range of products. This project is expected to cost
$31.0 million in total. The company believes that cash flow from operations,
plus amounts available under credit facilities will be sufficient to fund its
capital requirements, debt service and working capital requirements for the
foreseeable future.
INFLATION
The company attempts to minimize the effect of inflation on earnings by
controlling operating expenses. During the past several years, the rate of
general inflation has been relatively low and has not had a significant impact
on the company's results of operations. The company purchases raw materials that
are subject to cyclical changes in costs that may not reflect the rate of
general inflation.
SEASONALITY
The company's business is mildly seasonal, with the third quarter of each year
typically having the lowest level of net sales and operating income. Lower
December revenues tend to reduce fourth quarter revenues relative to the first
two quarters. This seasonality is the result of a lower level of purchasing
activity, since many of our U.S. customers shut down their manufacturing
operations during portions of July and many European manufacturers shut down
during portions of August and December.
NEW ACCOUNTING PRONOUNCEMENTS
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The Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" in June
2001. These statements address how intangible assets that are acquired
individually, with a group of other assets or in connection with a business
combination should be accounted for in financial statements upon and subsequent
to their acquisition. The new statements require that all business combinations
initiated after June 30, 2001 be accounted for using the purchase method and
establish specific criteria for the recognition of intangible assets separately
from goodwill.
We adopted SFAS No. 141 on July 1, 2001, as required by the new statement. The
adoption of SFAS No. 141 does not have a material impact on our financial
position or results of operations.
We will adopt SFAS No. 142 on January 1, 2002, as required by the new statement.
Upon adoption of SFAS No. 142, we will no longer amortize goodwill and other
indefinite lived intangible assets. We will be required to test our goodwill and
intangible assets that are deemed to have an indefinite life for impairment at
least annually. Other than in those periods in which we may report an asset
impairment, we expect that the adoption of SFAS No. 142 will result in increased
income as a result of reduced amortization expense. We are currently evaluating
the impact adoption of SFAS No. 142 will have on our financial position and
results of operations.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical are forward-looking statements
subject to risk and uncertainties that could cause actual results to differ
materially. Such risk and uncertainties include fluctuations in economies
worldwide, fluctuations in our customers' demand and inventory levels (including
the loss of certain major customers), the price and availability of raw
materials and of competitive materials, which may preclude passing increases on
or maintaining prices with customers; changes in environmental and other
governmental regulations, changes in terms from lenders, ability to retain key
management and to reach agreement on labor issues, failure to identify or carry
out suitable strategic acquisitions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company believes it has minimal exposure to financial market risks. All debt
is at a fixed rate. Most of the company's sales transactions have been conducted
in the currency where the shipment originated, limiting our exposure to changes
in currency exchange rates. The company does not use derivative financial
instruments.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 15, 2001, where the following
actions were taken.
Shareholders of record of the Company's common stock at the close of business on
March 30, 2001, were entitled to vote at the annual meeting. Votes were cast as
follows:
a) All of management's nominees for members of the Board of Directors were
elected with votes
Page 14 of 15
cast as follows:
NAME FOR WITHHELD
Alex Kwader 5,469,831 91,407
K. Peter Norrie 5,542,436 18,802
Brian C. Kerester 5,542,436 18,802
Marion A. Keyes, IV 5,540,936 20,302
Glenn S. McKenzie 5,542,936 18,802
Jon H. Miller 5,540,936 20,302
Elmar B. Schulte 5,542,136 19,102
Edward P. Swain, Jr. 5,540,936 20,302
b) The selection of KPMG as the independent public auditors for the company for
its fiscal year ended December 31, 2001 was ratified.
FOR AGAINST ABSTAIN
5,526,216 32,303 2,716
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Reports on Form 8-K:
Not applicable.
Page 15 of 15
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.
FiberMark, Inc.
Date: August 14, 2001
/s/ Bruce Moore
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Bruce Moore, Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)