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 MARCH 31, 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 March 31, 2001
$.001 par value 6,848,652
FIBERMARK, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
ITEM 1. Financial Statements:
Consolidated Statements of Income
Three Months Ended March 31, 2001 and 2000 3
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000 5
Notes To Consolidated Financial Statements 6-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2001 and 2000
(In thousands, except per share amounts)
2001 2000
----------------- -----------------
Net sales $90,344 $95,088
Cost of sales 76,604 76,990
----------------- -----------------
Gross profit 13,740 18,098
Selling, general and administrative expenses 5,393 6,818
----------------- -----------------
Income from operations 8,347 11,280
Other (income) expense, net 396 423
Interest expense 3,225 3,377
----------------- -----------------
Income before income taxes 4,726 7,480
Income tax expense 1,868 3,432
----------------- -----------------
Net income $2,858 $4,048
================= =================
Basic earnings per share $0.42 $0.59
================= =================
Diluted earnings per share $0.41 $0.58
================= =================
Average Basic Shares Outstanding 6,834 6,830
Average Diluted Shares Outstanding 6,944 6,984
3
FIBERMARK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
Unaudited Audited
March 31, December 31,
ASSETS 2001 2000
------------ ------------
Current assets:
Cash $ 4,614 $ 11,133
Accounts receivable, net of allowances 43,570 44,902
Inventories 73,194 72,360
Other 1,306 776
Deferred income taxes 4,955 4,950
------------ ------------
Total current assets 127,639 134,121
Property, plant and equipment, net 196,390 194,505
Goodwill, net 44,181 44,948
Other intangible assets, net 7,666 6,778
Other long-term assets 1,761 1,843
Other pension assets 4,018 4,018
------------ ------------
Total assets $ 381,655 $ 386,213
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt 11,175 9,675
Accounts payable 26,961 29,786
Accrued liabilities 17,548 15,243
Accrued income taxes payable 3,343 3,020
------------ ------------
Total current liabilities 59,027 57,724
------------ ------------
Long-term liabilities:
Revolving credit line 39,572 39,027
Long-term debt, less current portion 138,456 143,267
Deferred income taxes 20,765 21,439
Other long-term liabilities 20,876 21,808
------------ ------------
Total long-term liabilities 219,669 225,541
------------ ------------
Total liabilities 278,696 283,265
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
6,852,452 and 6,848,652 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 64,492 64,399
Retained earnings 45,734 42,876
Accumulated other comprehensive loss (7,239) (4,299)
Less treasury stock, 3,800 shares at cost in 2001 and 2000 (35) (35)
------------ ------------
Total stockholders' equity 102,959 102,948
------------ ------------
Total liabilities and stockholders' equity $ 381,655 $ 386,213
============ ============
4
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2001 and 2000
(In thousands)
Unaudited
2001 2000
---------- ----------
Cash flows from operating activities:
Net income $ 2,858 $ 4,048
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,981 2,756
Changes in operating assets and liabilities:
Accounts receivable (91) (5,318)
Inventories (2,384) (953)
Other (541) (337)
Accounts payable (2,007) (40)
Accrued pension and other liabilities 2,641 2,360
Other long-term liabilities 188 200
Accrued income taxes payable 545 3,418
---------- ----------
Net cash provided by operating activities 4,190 6,134
---------- ----------
Cash flows used for investing activities:
Additions to property, plant and equipment (8,787) (6,850)
(Increase) Decrease in other intangible assets (1,181) 60
---------- ----------
Net cash used in investing activities (9,968) (6,790)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of bank debt 3,662 -
Net proceeds from exercise of stock options 93 -
Net borrowings under revolving credit line 545 77
Repayment of debt (4,299) (2,017)
---------- ----------
Net cash provided by (used in) financing activities 1 (1,940)
---------- ----------
Effect of exchange rate changes on cash (742) (961)
Net decrease in cash (6,519) (3,557)
Cash at beginning of year 11,133 12,466
---------- ----------
Cash at end of year $ 4,614 $ 8,909
========== ==========
5
FIBERMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
(UNAUDITED)
1. BASIS OF PRESENTATION:
The balance sheet as of March 31, 2001, and the statements of income and
cash flows for the quarters ended March 31, 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 March 31, 2001, and December 31, 2000, consisted of the
following (000's):
(Unaudited)
03/31/01 12/31/00
----------------- --------------
Raw Material $ 21,150 $ 20,377
Work in Progress 18,461 19,413
Finished Goods 21,734 21,914
Finished Goods on Consignment 6,510 5,437
Stores Inventory 2,794 2,750
Operating Supplies 2,545 2,469
----------------- --------------
Total Inventories $ 73,194 $ 72,360
================= ==============
3. NET INCOME PER COMMON SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted income per common share computations for the company's reported net
income follows:
6
THREE MONTHS ENDED
UNAUDITED
---------------------------------
3/31/01 3/31/00
-------------- ---------------
Numerator:
Income available to common shareholders used
in basic and diluted earnings per share ($000) $ 2,858 $ 4,048
-------------- ---------------
Denominator:
Denominator for basic earnings per share:
Weighted average shares 6,834,362 6,830,483
Effect of dilutive securities:
Fixed stock options 109,812 153,068
-------------- ---------------
Denominator for diluted earnings per share:
Adjusted weighted average shares 6,944,174 6,983,551
Basic earnings per share $ 0.42 $ 0.59
Diluted earnings per share $ 0.41 $ 0.58
4. COMPREHENSIVE INCOME (LOSS) ($000):
THREE MONTHS ENDED
UNAUDITED
-------------------------------------
3/31/01 3/31/00
----------------- ----------------
Net income $ 2,858 $ 4,048
Minimum pension liability adjustment,
net of tax benefit - -
Currency translation adjustment (2,940) (1,784)
----------------- ----------------
Comprehensive income (loss) $ (82) $ 2,264
================= ================
7
5. Segment Information:
The following table categorizes net sales in each market segment into the
appropriate operating segment:
(In Thousands)
Operating Segment
-----------------------------------------------------------------
Technical
3 months ended March 31, 2001 German Oper. & Office Durable
Net sales & Filter Media Products Specialties Other Total
-------------- --------- ----------- ------- --------
Market Segment
--------------
Filter Media $ 25,265 $ 1,331 $ - $ - $ 26,596
Technical Specialties 13,888 13,401 - - 27,289
Durable Specialties 7,268 - 17,155 - 24,423
Office Products - 12,036 - - 12,036
-------------- --------- ----------- ------- --------
Total $ 46,421 $ 26,768 $ 17,155 $ - $ 90,344
============== ========= =========== ======= ========
3 months ended March 31, 2000
Net sales
Market Segment
--------------
Filter Media $ 27,380 $ 1,451 $ - $ - $ 28,831
Technical Specialties 12,326 14,867 - - 27,193
Durable Specialties 7,074 - 17,942 - 25,016
Office Products - 14,048 - - 14,048
-------------- --------- ----------- ------- --------
Total $ 46,780 $ 30,366 $ 17,942 $ - $ 95,088
============== ========= =========== ======= ========
The following table details selected financial data by operating segment:
(In Thousands)
Operating Segment
-----------------------------------------------------------------
Technical
German Oper. & Office Durable
3 months ended March 31, 2001 & Filter Media Products Specialties Other Total
-------------- --------- ----------- ------- --------
Net sales $ 46,421 $ 26,768 $ 17,155 $ - $ 90,344
Inter-segment net sales 38 1,940 - (1,978) -
-------------- --------- ----------- ------- --------
Total net sales $ 46,459 $ 28,708 $ 17,155 $(1,978) $ 90,344
============== ========= =========== ======= ========
EBIT $ 6,056 $ (622) $ 2,517 $ - $ 7,951
============== ========= =========== ======= ========
Depreciation & Amortization $ 993 $ 1,356 $ 632 $ - $ 2,981
Total Assets $ 141,423 $154,685 $ 33,799 $51,748 (1) $381,655
3 months ended March 31, 2000
Net sales $ 46,780 $ 30,366 $ 17,942 $ - $ 95,088
Inter-segment net sales 44 506 - (550) -
-------------- --------- ----------- ------- --------
Total net sales $ 46,824 $ 30,872 $ 17,942 $ (550) $ 95,088
============== ========= =========== ======= ========
EBIT $ 7,307 $ 1,049 $ 2,501 $ - $ 10,857
============== ========= =========== ======= ========
Depreciation and Amortization $ 912 $ 1,268 $ 576 $ - $ 2,756
(Excl Def Gain)
Total Assets $ 141,898 $122,929 $ 322,202 $51,495 (1) $348,524
(1) Corporate assets not allocated to operating segments. 8
6. SUBSEQUENT EVENT:
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, estimated
capital expenditures and estimated financing and acquisition fees. 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. The 2001 consolidated
results will not include DSI's results of operations until the six month
period ending June 30, 2001, which will include two and a half months.
The following summarizes unaudited pro forma results of operations for the
periods ended March 31, 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
UNAUDITED
---------------------------
3/31/01 3/31/00
---------- ----------
Net Sales $ 121,235 $ 129,612
Net Income $ 1,177 $ 3,959
Basic earnings per share $ 0.17 $ 0.58
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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001, COMPARED WITH THREE MONTHS ENDED MARCH 31,
2000
Net sales for the first quarter of 2001 were $90.3 million compared with $95.1
million for the first quarter of 2000, a 5.1% decrease. Sales in our German
operations and filter media operating segment decreased by 0.9% to $46.4 million
compared with $46.8 million in the first quarter of 2000. The technical and
office products operating segment sales decreased by 11.8% to $26.8 million
compared with $30.4 million for the same period in 2000. Sales in the durable
specialties operating segment decreased by 4.5% to $17.1 million compared with
$17.9 million for the first quarter of 2000.
Sales in the German operations and filter media segment were down slightly due
to weakening demand in the automotive and vacuum bag filter business in Europe
and the United States offset by strong demand in abrasive base materials. The
decrease in the technical and office products segment was primarily due to
weaker sales in office products. A general softening in the U.S. economy and
significant consolidation in office products super stores have resulted in the
decline in sales. The decrease in durable specialties reflects a slowing economy
with particular softness in binding tapes used in office filing supplies.
Gross margin for the quarter was 15.2% compared with 19.0% 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 in
Warren Glen, New Jersey.
General and administrative expenses for the quarter were $5.4 million compared
with $6.8 million for the same period in 2000. The decrease is due primarily to
lower salary and professional fees expenses.
Interest expense was $3.2 million for the quarter compared with $3.4 million
last year.
The effective income tax rate was 39.5% compared with 45.9% for the first
quarter of 2000. The decrease is primarily due to reduced tax rates in Germany.
Net income for the first quarter of this year was $2.9 million, or $.41 per
share, compared with $4.0 million, or $.58 per share, for the first quarter of
last year.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations and acquisitions through cash flow from operations
and a number of different types of debt financing.
For the three months ended March 31, cash flows from operating activities were
$4.2 million in 2001 and $6.1 million in 2000. During these periods, net cash
used in investing activities was $10.0 million in 2001 compared with $6.8
million in 2000. The increase was primarily attributable to acquisition costs
and capital expenditures related to the installation of a new paper machine at
the Warren Glen, New Jersey, facility, which we believe will provide quality
improvements, cost reductions, product performance enhancements and the ability
to produce a broader range of products. There was no cash provided by financing
activities in 2001 and $1.9 million was used in
10
financing activities in the same period in 2000. The increase was primarily
attributable to borrowing under the credit facility with Jules & Associates,
offset by repayments, to partially fund the Warren Glen paper machine.
As of March 31, 2001, we had outstanding $100.0 million of senior notes. The
notes have a ten-year term beginning October 16, 1996, are non-amortizing and
carry a fixed interest rate of 9.375%. Additionally, we have available to us a
$50.0 million revolving credit facility. As of March 31, 2001, $39.6 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 April 18, 2001, $35.0 million in proceeds from the issuance
of $230.0 million of senior notes in conjunction with the DSI acquisition was
used to reduce the outstanding balance under this credit facility. These notes
have a ten-year term beginning April 18, 2001, were issued at a discounted price
of $228.275 million and carry a fixed rate of 10.75%. As of March 31, 2001, our
German subsidiaries had loans outstanding of $34.3 million. Proceeds from the
$230.0 million of senior notes were used to pay these loans in full on April 18,
2001. On March 31, 2001, Gessner also had a $6.7 million line of credit. At that
date, no advances were outstanding under this facility. At March 31, 2001, $12.5
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, $2.8 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.
We believe that cash reserves on hand, cash flow from operations, plus amounts
available under credit facilities, will be sufficient to fund our capital
requirements, debt service and working capital requirements for the foreseeable
future.
INFLATION
We attempt 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 our results of
operations. We purchase raw materials that are subject to cyclical changes in
costs that may not reflect the rate of general inflation.
SEASONALITY
Our business is mildly seasonal, with the second half of each year typically
having a lower level of net sales and operating income. This seasonality is the
result of summer manufacturing shutdowns and the impact of year-end holidays.
NEW ACCOUNTING PRONOUNCEMENTS
There are no new accounting pronouncements applicable to the company.
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 or the possibility that customers could
choose to bring previously outsourced business in house); the price and
availability of raw materials and of
11
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; or the failure to identify or carry
out suitable strategic acquisitions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe we have minimal exposure to financial market risks. The majority of
our debt is at a fixed rate. Most of our sales transactions have been conducted
in the currency where the shipment originated, limiting our exposure to changes
in currency exchange rates. We do not use derivative financial instruments.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Reports on Form 8-K:
Not applicable.
12
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: May 15, 2001
/s/ Bruce Moore
--------------------------------------
Bruce Moore, Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
13