Prepared by MERRILL CORPORATION

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

ý        Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2001

 

or

 

o        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 incorporation or organization)

 

(I.R.S. Employer 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  ý                                   No  o

 

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

 

September 30, 2001

$.001 par value

 

6,903,458

 

 


FIBERMARK, INC.

 

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

Financial Statements:

 

 

 

Consolidated Statements of Income

Three Months Ended September 30, 2001 and 2000

 

 

 

Nine Months Ended September 30, 2001 and 2000

 

 

 

Consolidated Balance Sheets

September 30, 2001 and December 31, 2000

 

 

 

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2001 and 2000

 

 

 

Notes To Consolidated Financial Statements

 

 

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

PART II. OTHER INFORMATION

 

 

ITEM 4.

Submission of Matters to Vote of Security Holders

 

 

ITEM 5.

Other Information

 

 

ITEM 6.

Exhibits and Reports on Form 8-K

 

 

SIGNATURES

 


FIBERMARK, INC.

 

Consolidated Statements of Income

 

Three Months Ended September 30, 2001 and 2000

Unaudited

 

(In thousands, except per share amounts)

 

 

 

2001

 

2000

 

Net sales

 

$

100,858

 

$

84,458

 

 

 

 

 

 

 

Cost of sales

 

88,760

 

70,668

 

 

 

 

 

 

 

Gross profit

 

12,098

 

13,790

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

9,243

 

5,544

 

Facility closure expense

 

10,745

 

-

 

Sale of technology

 

(10,735

)

-

 

 

 

 

 

 

 

Income from operations

 

2,845

 

8,246

 

 

 

 

 

 

 

Other expense, net

 

1,686

 

462

 

 

 

 

 

 

 

Interest expense

 

8,119

 

3,228

 

 

 

 

 

 

 

Income (loss) before income taxes

 

(6,960

)

4,556

 

 

 

 

 

 

 

Income tax (benefit) expense

 

(1,128

)

1,995

 

 

 

 

 

 

 

Net income (loss)

 

$

(5,832

)

$

2,561

 

 

 

 

 

 

 

Basic earnings per share

 

 

 

 

 

Net income (loss)

 

$

(0.84

)

$

0.37

 

 

 

 

 

 

 

Diluted earnings per share

 

$

(0.84

)

$

0.37

 

 

 

 

 

 

 

Average Basic Shares Outstanding

 

6,903

 

6,830

 

Average Diluted Shares Outstanding

 

6,903

 

6,981

 

 

See accompanying notes to consolidated financial statements.


FIBERMARK, INC.

 

Consolidated Statements of Income

 

Nine Months Ended September 30, 2001 and 2000

Unaudited

 

(In thousands, except per share amounts)

 

 

 

2001

 

2000

 

Net sales

 

$

293,283

 

$

270,934

 

 

 

 

 

 

 

Cost of sales

 

250,591

 

221,594

 

 

 

 

 

 

 

Gross profit

 

42,692

 

49,340

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

21,757

 

19,018

 

Facility closure expense

 

23,614

 

-

 

Sale of technology

 

(10,563

)

-

 

 

 

 

 

 

 

Income from operations

 

7,884

 

30,322

 

 

 

 

 

 

 

Other expense, net

 

3,547

 

1,047

 

 

 

 

 

 

 

Interest expense

 

18,676

 

10,201

 

 

 

 

 

 

 

Income (loss) before income taxes and extraordinary item

 

(14,339

)

19,074

 

 

 

 

 

 

 

Income tax (benefit) expense

 

(3,684

)

8,619

 

 

 

 

 

 

 

Income (loss) before extraordinary item

 

(10,655

)

10,455

 

 

 

 

 

 

 

Extraordinary item:

 

 

 

 

 

Loss on early extinguishment of debt

 

 

 

 

 

(net of income tax benefit)

 

(696

)

-

 

 

 

 

 

 

 

Net income (loss)

 

$

(11,351

)

$

10,455

 

 

 

 

 

 

 

Basic earnings per share

 

 

 

 

 

Income (loss) before extraordinary item

 

(1.55

)

$

1.53

 

Extraordinary item

 

(0.10

)

-

 

Net income (loss)

 

$

(1.65

)

$

1.53

 

 

 

 

 

 

 

Diluted earnings per share

 

$

(1.65

)

$

1.50

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Basic Shares Outstanding

 

6,866

 

6,830

 

Average Diluted Shares Outstanding

 

6,866

 

6,986

 

 

See accompanying notes to consolidated financial statements.


 

FIBERMARK, INC.

 

Consolidated Balance Sheets

 

(In thousands, except per share amounts)

 

 

 

Unaudited

 

Audited

 

 

 

September 30,

 

December 31,

 

ASSETS

 

2001

 

2000

 

Current assets:

 

 

 

 

 

Cash

 

$

31,167

 

$

11,133

 

Accounts receivable, net of allowances

 

52,120

 

44,902

 

Inventories

 

74,357

 

72,360

 

Other

 

2,940

 

776

 

Deferred income taxes

 

4,952

 

4,950

 

 

 

 

 

 

 

Total current assets

 

165,536

 

134,121

 

 

 

 

 

 

 

Property, plant and equipment, net

 

212,080

 

194,505

 

Goodwill, net

 

146,650

 

44,948

 

Other intangible assets, net

 

15,574

 

6,778

 

Deferred income taxes

 

7,900

 

-

 

Other long-term assets

 

1,815

 

1,843

 

Other pension assets

 

4,018

 

4,018

 

 

 

 

 

 

 

Total assets

 

$

553,573

 

$

386,213

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion long-term debt

 

2,514

 

9,675

 

Accounts payable

 

29,600

 

29,786

 

Accrued liabilities

 

49,184

 

15,243

 

Accrued income taxes payable

 

-

 

3,020

 

 

 

 

 

 

 

Total current liabilities

 

81,298

 

57,724

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Revolving credit line

 

16

 

39,027

 

Long-term debt, less current portion

 

340,004

 

143,267

 

Deferred income taxes

 

18,276

 

21,439

 

Other long-term liabilities

 

22,005

 

21,808

 

 

 

 

 

 

 

Total long-term liabilities

 

380,301

 

225,541

 

 

 

 

 

 

 

Total liabilities

 

461,599

 

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.6,903,458 and 6,907,258 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

 

64,755

 

64,399

 

Retained earnings

 

31,525

 

42,876

 

Accumulated other comprehensive loss

 

(4,278

)

(4,299

)

Less treasury stock, 3,800 shares at cost in 2001 and 2000

 

(35

)

(35

)

 

 

 

 

 

 

Total stockholders' equity

 

91,974

 

102,948

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

553,573

 

$

386,213

 

 

See accompanying notes to consolidated financial statements.


 

FIBERMARK, INC.

 

Consolidated Statements of Cash Flows

 

Nine Months Ended September 30, 2001 and 2000

(In thousands)

 

Unaudited

 

 

 

2001

 

2000

 

Cash flows from operating activities:

 

 

 

 

 

Net (loss) income

 

$

(11,351

)

$

10,455

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

11,812

 

8,225

 

Loss on closure of facility

 

23,614

 

7,902

 

Gain on sale of technology

 

(61

)

-

 

Loss on early extinguishment of debt

 

696

 

-

 

Deferred taxes

 

(3,129

)

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

9,709

 

(10,415

)

Inventories

 

11,973

 

(13,956

)

Other

 

(447

)

(441

)

Accounts payable

 

(6,457

)

2,853

 

Accrued pension and other liabilities

 

13,405

 

2,981

 

Other long-term liabilities

 

83

 

581

 

Accrued income taxes payable

 

(3,335

)

6,199

 

 

 

 

 

 

 

Net cash provided by operating activities

 

46,512

 

14,384

 

 

 

 

 

 

 

Cash flows used for investing activities:

 

 

 

 

 

Additions to property, plant and equipment

 

(21,921

)

(28,935

)

Payments for acquisitions

 

(147,534

)

-

 

(Increase) decrease in other intangible assets

 

(303

)

325

 

 

 

 

 

 

 

Net cash used in investing activities

 

(169,758

)

(28,610

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of bank debt

 

231,937

 

9,826

 

Repayment of debt

 

(42,439

)

(5,782

)

Net (repayments) borrowings under revolving line of credit

 

(39,011

)

7,000

 

Net proceeds from exercise of stock options

 

356

 

-

 

Debt issuance costs

 

(8,321

)

-

 

 

 

 

 

 

 

Net cash provided by financing activities

 

142,522

 

11,044

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

758

 

(1,829

)

 

 

 

 

 

 

Net increase (decrease) in cash

 

20,034

 

(5,011

)

 

 

 

 

 

 

Cash at beginning of period

 

11,133

 

12,466

 

 

 

 

 

 

 

Cash at end of period

 

$

31,167

 

$

7,455

 

 

See accompanying notes to consolidated financial statements.

 


FIBERMARK, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2001 and 2000

(Unaudited)

 

1.     Basis of Presentation:

 

The balance sheet as of September 30, 2001 and the statements of income and cash flows for the quarters and nine months ended September 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 September 30, 2001 and December 31, 2000 consisted of the following (000's):

 

 

 

(Unaudited)

 

 

 

 

 

09/30/01

 

12/31/00

 

Raw Materials

 

$

22,087

 

$

20,377

 

Work in Progress

 

23,544

 

19,413

 

Finished Goods

 

17,138

 

21,914

 

Finished Goods on Consignment

 

6,324

 

5,437

 

Stores Inventory

 

2,812

 

2,750

 

Operating Supplies

 

2,452

 

2,469

 

 

 

 

 

 

 

Total Inventories

 

$

74,357

 

$

72,360

 

 


 

 

3.     Net Income (loss) Per Common Share:

 

The reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the company's reported net income (loss) follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

9/30/01

 

9/30/00

 

9/30/01

 

9/30/00

 

Numerator:

 

 

 

 

 

 

 

 

 

Income (loss) available to common shareholders used in basic and diluted earnings per share (000)

 

$

(5,832

)

$

2,561

 

$

(11,351

)

$

10,455

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share:

 

 

 

 

 

 

 

 

 

Weighted average shares

 

6,903,106

 

6,830,483

 

6,866,214

 

6,830,483

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Fixed stock options

 

*

 

150,138

 

*

 

155,063

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted earnings per share:

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares

 

6,903,106

 

6,980,621

 

6,866,214

 

6,985,546

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

(0.84

$

0.37

 

$

(1.65

$

1.53

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

(0.84

$

0.37

 

$

(1.65

$

1.50

 

 


*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

 

Nine Months Ended

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

9/30/01

 

9/30/00

 

9/30/01

 

9/30/00

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(5,832)

 

$

2,561

 

$

(11,351)

 

$

10,455

 

 

 

 

 

 

 

 

 

 

 

Minimum pension liability adjustment net of tax benefit

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustment

 

5,947

 

(2,565

)

21

 

(4,455

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

115

 

$

(4

)

$

(11,330

)

$

6,000

 

 


 

5.      Segment Information:

 

The following table categorizes net sales in each market segment into the appropriate operating segment:

 

 

 

(In Thousands)

Unaudited

Operating Segment

 

 

 

German Oper. & Filter Media

 

Technical
& Office
Products

 

Durable Specialties

 

Decorative Specialties

 

Other

 

Total

 

3 months ended Sept. 30, 2001

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

19,797

 

$

1,204

 

$

-

 

$

-

 

$

-

 

$

21,001

 

Technical Specialties

 

11,103

 

10,192

 

-

 

-

 

-

 

21,295

 

Durable Specialties

 

5,838

 

-

 

12,550

 

-

 

-

 

18,388

 

Office Products

 

-

 

10,239

 

-

 

-

 

-

 

10,239

 

Decorative Specialties

 

-

 

-

 

-

 

29,935

 

-

 

29,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

36,738

 

$

21,635

 

$

12,550

 

$

29,935

 

$

-

 

$

100,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 months ended Sept. 30, 2000

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

22,507

 

$

1,313

 

$

-

 

$

-

 

$

-

 

$

23,820

 

Technical Specialties

 

11,692

 

14,134

 

-

 

-

 

-

 

25,826

 

Durable Specialties

 

6,499

 

-

 

16,814

 

-

 

-

 

23,313

 

Office Products

 

-

 

11,499

 

-

 

-

 

-

 

11,499

 

Decorative Specialties

 

-

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

40,698

 

$

26,946

 

$

16,814

 

$

-

 

$

-

 

$

84,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

Unaudited

 

 

 

Operating Segment

 

 

 

German Oper. & Filter Media

 

Technical & Office
Products

 

Durable Specialties

 

Decorative
Specialties

 

Other

 

Total

 

 

 

9 months ended Sept. 30, 2001

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

66,233

 

$

3,801

 

$

-

 

$

-

 

$

-

 

$

70,034

 

Technical Specialties

 

37,083

 

33,117

 

-

 

-

 

-

 

70,200

 

Durable Specialties

 

19,246

 

-

 

44,705

 

-

 

-

 

63,951

 

Office Products

 

-

 

32,935

 

-

 

-

 

-

 

32,935

 

Decorative Specialties

 

-

 

-

 

-

 

56,163

 

-

 

56,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

122,562

 

$

69,853

 

$

44,705

 

$

56,163

 

$

-

 

$

293,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9 months ended Sept. 30, 2000

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

75,382

 

$

4,241

 

$

-

 

$

-

 

$

-

 

$

79,623

 

Technical Specialties

 

36,549

 

42,920

 

-

 

-

 

-

 

79,469

 

Durable Specialties

 

20,289

 

-

 

53,631

 

-

 

-

 

73,920

 

Office Products

 

-

 

37,922

 

-

 

-

 

-

 

37,922

 

Decorative Specialties

 

-

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

132,220

 

$

85,083

 

$

53,631

 

$

-

 

$

-

 

$

270,934

 

 


 

The following table details selected financial data by operating segment:

 

 

 

(In Thousands)

 

 

 

Unaudited

 

 

 

Operating Segment

 

3 months ended Sept. 30, 2001

 

German Oper. &
Filter Media

 

Technical
& Office

Products

 

Durable Specialties

 

Decorative
Specialties

 

Other

 

Total

 

 

 

Net sales

 

$

36,738

 

$

21,635

 

$

12,550

 

$

29,935

 

$

-

 

$

100,858

 

Inter-segment net sales

 

2

 

2,461

 

-

 

1,267

 

(3,730

)

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

36,740

 

$

24,096

 

$

12,550

 

$

31,202

 

$

(3,730

)

$

100,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

$

2,180

 

$

(7,272

)

$

1,047

 

$

5,214

 

$

(10)

(1)

$

1,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

849

 

$

1,352

 

$

672

 

$

1,717

 

$

-

 

$

4,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

134,434

 

$

134,799

 

$

33,586

 

$

67,673

 

$

183,081.

(2)

$

553,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 months ended Sept. 30, 2000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

40,698

 

$

26,946

 

$

16,814

 

$

-

 

$

-

 

$

84,458

 

Inter-segment net sales

 

89

 

1,502

 

-

 

-

 

(1,591

)

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

40,787

 

$

28,448

 

$

16,814

 

$

-

 

$

(1,591

)

$

84,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

$

3,251

 

$

1,330

 

$

3,203

 

$

-

 

$

-

 

$

7,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

878

 

$

1,257

 

$

589

 

$

-

 

$

-

 

$

2,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

137,770

 

$

138,981

 

$

34,304

 

$

-

 

$

54,454 

(2)

$

365,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

Unaudited

Operating Segment

 

9 months ended Sept. 30, 2001

 

German Oper. &
Filter Media

 

Technical
& Office

Products

 

Durable Specialties

 

Decorative
Specialties

 

Other

 

Total

 

 

 

Net sales

 

$

122,562

 

$

69,853

 

$

44,705

 

$

56,163

 

$

-

 

$

293,283

 

Inter-segment net sales

 

47

 

6,219

 

-

 

2,504

 

(8,770

)

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

122,609

 

$

76,072

 

$

44,705

 

$

58,667

 

$

(8,770

)

$

293,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

$

14,091

 

$

(13,299

)

$

6,530

 

$

10,066

 

$

(13,051)

(3)

$

4,337

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

2,676

 

$

4,064

 

$

1,984

 

$

3,088

 

$

-

 

$

11,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

134,434

 

$

134,799

 

$

33,586

 

$

67,673

 

$

183,081.

(2)

$

553,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9 months ended Sept. 30, 2000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

132,220

 

$

85,083

 

$

53,631

 

$

-

 

$

-

 

$

270,934

 

Inter-segment net sales

 

224

 

3,515

 

-

 

-

 

(3,739

)

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

132,444

 

$

88,598

 

$

53,631

 

$

-

 

$

(3,739

)

$

270,934

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

$

17,218

 

$

3,664

 

$

8,393

 

$

-

 

$

-

 

$

29,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

2,684

 

$

3,799

 

$

1,742

 

$

-

 

$

-

 

$

8,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

137,770

 

$

138,981

 

$

34,304

 

$

-

 

$

54,454.

(2)

$

365,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)  2001 Other includes

 

 

 

Facility Closure (Filter Media Segment)

 

$

10,745

 

 

 

 

 

Sale of Technology (Filter Media Segment)

 

(10,735

)

 

 

 

 

 

 

 

 

 

 

 

 

$

10

 

(2) Corporate assets not allocated to operating segments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)  2001 Other includes

 

 

 

Facility Closure (Technical & Office Products Segment)

$

19,867

 

 

 

 

 

Facility Closure Reversal (Technical & Office Products Segment)

(6,998

)

 

 

 

 

Facility Closure (Filter Media Segment)

10,745

 

 

 

 

 

Sale of Technology (Filter Media Segment)

(10,563)

 

 

 

 

 

 

$

13,051

 


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, which includes five and a half months of consolidated operations.

 

The following summarizes unaudited pro forma results of operations for the quarters and nine months ended September 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

 

Nine Months Ended

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

9/30/01

 

9/30/00

 

9/30/01

 

9/30/00

 

Net sales

 

$

100,858

 

$

122,633

 

$

330,740

 

$

343,633

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(5,832

)

1,795

 

(10,929

)

10,523

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

(0.84

)

$

0.26

 

$

(1.59

)

$

1.54

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

(0.84

)

$

0.26

 

$

(1.59

)

$

1.51

 

 

 

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.

 

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 September 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 terminate 96 salary and hourly employees.  Results of operations of the facility amounted to a loss of $0.8 million for the first nine months ended September 30, 2001.

 


Also, during the period, the company decided to cease operations at its Rochester, Michigan facility and to close the facility by December 31, 2001.  As of September 30, 2001 the company recorded facility closure charges of $10.7 million, to recognize severance and benefits for employees to be terminated ($1.5 million), to reflect the write-off of property, plant and equipment ($5.8 million), and to record the write-off of goodwill ($3.4 million).  The company expects to terminate 83 salaried and hourly employees.  Results of operations for the facility amounted to a loss of $0.2 million for the nine months ended September 30, 2001.

 

8.      Sale of Technology:

 

On August 31, 2001, the company agreed to sell the technology for the balance of its North American engine filter media volume manufactured at the Rochester, Michigan facility, together with some production equipment, to Ahlstrom Corporation.  The technology and legal title was transferred to Ahlstrom on the date of the agreement and the company recognized the revenue from the sale of technology of $11.1 million, net of legal expenses of $0.4 million.  The revenue from the sale of equipment will be recognized when the equipment has been delivered.

 


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS

 

Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000

 

Net sales for the third quarter of 2001 were $100.9 million compared with $84.5 million for the third quarter of 2000, a 19.4% increase.  Sales in our German operations and filter media operating segment decreased by 9.6% to $36.8 million compared with $40.7 million for the third quarter of 2000.  The technical and office products operating segment sales decreased by 20.0% to $21.6 million compared with $27.0 million for the same period in 2000.  Sales in the durable specialties operating segment decreased by 25.0% to $12.6 million compared with $16.8 million for the third quarter of 2000.  The recently acquired decorative specialties operating segment contributed sales of $29.9 million in the third quarter of 2001.

 

Sales in the German operations and filter media segment were down primarily in the North American filter business largely due to the sale of technology to Ahlstrom in September 2000.  The German filter media business, however, grew with continued market share gains in the automotive sector.  The decrease in the technical and office products segment was attributable to a weak economy.  Within our technical specialties product lines, sales were weak in abrasive backing materials, printing and packaging grades and electronic fabrication grades.  The decrease in durable specialties is primarily attributable to lower sales in the masking tape product line from a slowing economy and the impact of a key customer bringing some business in-house.

 

Gross margin for the quarter was 12.0% compared with 16.3% last year.  The lower gross margin was attributable to lower sales volume, higher energy costs and trial production expenses related to our consolidation program.

 

General and administrative expenses for the quarter were $9.2 million compared with 5.5 million for the same period in 2000.  The increase is primarily due to the DSI acquisition which added $3.2 million to third quarter expenses.

 

Interest expense was $8.1 million for the quarter compared with $3.2 million last year.  The increase is due to additional debt related to the DSI acquisition.

 

The effective income tax rate was 16.2% compared with 43.8% for the third quarter of 2000.  The decrease is due to reduced tax rates in Germany and the impact of a $3.5 million goodwill write-off in conjunction with the sale of the balance of our U.S. engine filter media volume.

 

The net loss for the third quarter was $5.8 million, or $0.84 per diluted share, compared with net income of $2.6 million, or $0.37 per diluted share, for the third quarter of last year.

 


Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000

 

Net sales for the first nine months of 2001 were $293.3 million compared with $270.9 million for the first nine months of 2000, an 8.3% increase.  Sales in FiberMark’s German operations and filter media operating segment decreased by 7.3% to $122.6 million compared with $132.2 million in the first nine months of 2000.  The technical and office products operating segment sales decreased by 18.0% to $69.8 million compared with $85.1 million for the same period in 2000.  Sales in the durable specialties operating segment decreased by 16.6% to $44.7 million compared with $53.6 million for the first nine months of 2000.  Our new decorative specialties operating segment contributed $56.2 million in the first nine months of 2001.

 

Sales in the German operations and filter media segment were down primarily due to weakening demand in automotive filter markets in the United States and 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 nine months of 2001 was 14.6% compared with 18.2% for the last year.  The lower gross margin was attributable to lower volume, higher energy costs, expenses associated with the startup of our new paper machine at Warren Glen, New Jersey and trial production expenses related to our consolidation program.

 

General and administrative expenses for the first nine months of 2001 were $21.8 million compared with $19.0 million for the same period in 2000.  The increase is due to the DSI acquisition and is offset in part by lower salary expenses, professional fees and additional marketing support payments received from suppliers.

 

Interest expense was $18.7 million for the first nine months compared with $10.2 million for the same period in 2000.  The increase is due to the DSI acquisition.

 

The effective income tax rate was 25.7% compared with 45.2% for the first nine months of 2000.  The decrease is due to reduced tax rates in Germany and the impact of the goodwill write-off in conjunction with the sale of the remainder of our U.S. engine filter media volume.

 

The net loss for the first nine months of 2001 was $11.4 million, or $1.65 per diluted share, compared with a net income of $10.5 million, or $1.50 per diluted share, for the first nine months of last year.  The write-off of the Fitchburg, Massachusetts facility reduced net income by $12.3 million, or $1.79 per diluted share.  The reversal of the Hughesville, New Jersey 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 on early extinguishment of debt of $0.7 or $0.10 per diluted share.

 


Liquidity and Capital Resources

 

As of September 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%, and $230.0 million of senior notes in conjunction with the DSI acquisition.  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 September 30, 2001, $0.016 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 September 30, 2001, Gessner had a $7.0 million line of credit. At that date, no advances were outstanding under this facility.  At September 30, 2001, $11.6 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, $2.6 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 nine months ended September 30, cash flows from operating activities were $46.5 million in 2001 and $14.4 million for 2000.   During these periods, additions to property, plant and equipment totaled $21.9 million in 2001 and $28.9 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

 

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

 

Not applicable.

 

ITEM 5.  OTHER INFORMATION

 

Not applicable.

 

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K:

 

Reports on Form 8-K:

 

Not applicable.


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: November 14, 2001

 

 

/s/ Bruce Moore

 

 

Bruce Moore, Vice President and
Chief Financial Officer

 

 

 

(Principal Financial and Accounting
Officer and Duly Authorized Officer)