UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transitions period from _____ to _____
Commission File Number 333-8925
NATIONAL FIBERSTOK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 23-2574778
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
5775 Peachtree Dunwoody Road 30342
Suite C-150 (Zip code)
Atlanta, GA
(Address of principal
executive offices)
Registrant's telephone number, including area code: (404) 256-1123
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
<PAGE>
common stock, as of the latest practicable date.
Outstanding as of
Class May 9, 1997
Common Stock, $.01 par value 283,807 shares
<PAGE>
NATIONAL FIBERSTOK CORPORATION
FORM 10 - Q
QUARTERLY PERIOD ENDED MARCH 31, 1997
<TABLE>
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page Numbers
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 1997 and
December 31, 1996 2
Condensed Statements of Operations for the three
months ended March 31, 1997 and 1996 3
Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 4
Notes to Condensed Financial Statements
as of March 31, 1997 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8 - K 10
SIGNATURES 11
</TABLE>
* A summary of the Registrant's significant accounting policies is contained
in the Registrant's Form 10-K for the year ended December 31, 1996, which
has been previously filed with the Commission.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NATIONAL FIBERSTOK CORPORATION
CONDENSED BALANCE SHEET
(in thousands, except share data)
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $2,341 $1,979
Accounts receivable, net 19,121 17,384
Income tax receivable 1,282 548
Inventories 11,939 11,261
Deferred income taxes 439 305
Other 1,885 1,836
Total Current Assets 37,007 33,313
Property, plant and equipment, at cost 58,745 56,858
Less: Accumulated depreciation (11,184) (9,491)
Property, plant and equipment, net 47,561 47,367
Other Assets
Goodwill, net of accumulated
amortization 31,280 25,079
Patents, net of accumulated amortization 17,885 18,405
Deferred financing costs, net of
accumulated amortization 5,021 5,260
Due from parent 876 876
Other 4,224 3,074
59,286 52,694
$143,854 $133,374
Liabilities and Stockholder's Equity
Current Liabilities
Current portion of long-term debt $463 $446
Revolving line of credit 9,300 0
Bank overdraft 677 1,506
Accounts payable 5,228 4,337
Accrued expenses and other 10,576 8,184
26,244 14,473
Noncurrent Liabilities 4,553 4,427
Long-term debt 102,283 102,353
Stockholder's equity
Common stock, $.01 par value 3 3
Addition paid-in capital 22,296 22,296
Accumulated deficit (11,525) (10,178)
10,774 12,121
$143,854 $133,374
Common Shares Outstanding 283,807 283,807
See notes to condensed financial statements
</TABLE>
<PAGE>
NATIONAL FIBERSTOK CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
<S> <C> <C>
Net Sales $38,858 $17,097
Operating costs and expenses
Cost of sales 27,592 13,479
Selling and administrative 9,832 3,298
Total operating costs and expenses
37,424 16,777
Operating income 1,434 320
Other expense (income)
Interest, net 3,329 750
Loss before income taxes (1,895) (430)
Income tax benefit (548) (168)
Net loss $(1,347) $(262)
Per Share of Common Stock:
Net loss $(4.75) $(.92)
Dividends declared $0 $0
Average number of shares outstanding 283,807 283,807
OTHER DATA:
Consistent with the Form S-4 filed with the Securities and Exchange Commission on October 17, 1996, the following
financial data has been disclosed.
EBITDA is provided because it is a measure of an issuer's ability to service its indebtedness commonly used by certain
investors. EBITDA is not a measure of financial performance under generally accepted accounting principles and should
not be considered an alternative to net income as a measure of performance or to cash flow as a measure of liquidity.
EBITDA is defined as operating income, plus depreciation and amortization and reflects the elimination of non-cash
charges related to pension and deferred financing costs and the elimination of gain on disposal of equipment.
$4,118 $1,256
EBITDA
</TABLE>
See notes to condensed financial statements
<PAGE>
NATIONAL FIBERSTOK CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,347) $(262)
Adjustments to reconcile net loss to net cash
provided
by operating activities
Depreciation and amortization 2,703 911
Loss on disposal 194 0
Imputed interest 0 34
Deferred income tax benefit (548) (168)
Amortization of prepaid pension asset 56 75
Change in assets, liabilities 1,208 304
Net cash provided by operating activities 2,266 894
Cash flows from investing activities
Cash paid for Label America, Inc., net of cash (9,402) 0
acquired
Proceeds from sale of assets 90 0
Purchases of property and equipment (943) (292)
Net cash used in investing activities (10,255) (292)
Cash flows from financing activities
Net borrowings on revolving line of credit 9,300 150
Payments on long term debt 0 (800)
Decrease in bank overdraft, net (829) 0
Payments on capital leases (120) (12)
Net cash provided by (used in) financing activities 8,351 (662)
Net increase (decrease) in cash 362 (60)
Cash, beginning of period 1,979 444
Cash, end of period $2,341 $384
See notes to condensed financial statements
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
Operating results for National Fiberstok Corporation (the "Company") for the
three month periods ended March 31, 1996 and 1997, are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997.
NOTE 2: INVENTORIES
<TABLE>
The major classes of inventories were as follows (in thousands):
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Raw materials $5,882 $5,838
Work-in-process 1,516 1,289
Finished goods and customized stock 4,541 4,134
$11,939 $11,261
</TABLE>
NOTE 3: ACQUISITION
Purchase of Transkrit Corporation
On June 28, 1996, the Company acquired all of the issued and outstanding
capital stock of Transkrit Corporation and subsidiaries ("Transkrit") for
approximately $86.5 million plus transaction costs. The acquisition has been
accounted for using the purchase method of accounting and accordingly, the
results of operations of Transkrit have been included in the statements of
operations of the Company since June 29, 1996. The excess of the
consideration paid over the estimated fair value of net assets acquired of
approximately $17,393,000 has been recorded as goodwill and is being amortized
on the straight-line basis over 40 years. Subsequent to the acquisition,
Transkrit and all of its subsidiaries were merged into the Company.
Concurrently with the consummation of the acquisition, the Company issued
$100,000,000 aggregate principal amount of unsecured 11 5/8% Senior Notes due
June 15, 2002 (the "Senior Notes"). Interest is payable semiannually
commencing December 15, 1996. The Senior Notes are senior obligations of the
Company and are pari passu in right of payment to all future senior
indebtedness. The indenture relating to the senior notes limits the
incurrence of additional indebtedness by the Company, does not allow the
Company to pay any common stock dividends and limits the Company's ability to
redeem any capital stock and to sell its assets, all as further described in
such indenture. The Company may incur additional indebtedness as long as its
fixed charged coverage ratio is greater than certain specified minimum levels,
in each case as specified in the indenture. In addition, DEC International,
Inc. ("DEC"), the Company's parent, made a capital contribution to the Company
of $7,800,000.
The Company used the proceeds from the Senior Notes and DEC's capital
<PAGE>
contribution to acquire the outstanding capital stock of Transkrit and to
repay $23,200,000 of existing long-term debt.
Purchase of Label America, Inc.
On February 21, 1997, the Company acquired all of the issued and outstanding
capital stock of Label America, Inc. ("LAI") for $8,500,000, less outstanding
indebtedness and the amount of certain capitalized leases as of the close of
business on February 21, 1997, plus transaction costs, which was funded
through borrowings on its revolving loan facility. Additional consideration
of $700,000 was paid to the principal stockholder for a noncompete agreement
which amount was also funded through borrowings on the Company's revolving
loan facility. The excess of the consideration paid over the estimated fair
value of net assets acquired of approximately $6,402,000 has been recorded as
goodwill and is being amortized on a straight-line basis over 40 years. Upon
consummation of the acquisition, LAI was merged into NFC.
NOTE 4: SUBSEQUENT EVENTS
AmeriComm Direct Marketing, Inc.
On April 24, 1997, pursuant to a stock purchase agreement, the Company
acquired all of the issued and outstanding capital stock of AmeriComm Direct
Marketing, Inc. ("ADMI") for $24,622,000 plus transaction costs. Additional
consideration of $1,000,000 was paid to the principal stockholder for a
noncompete agreement.
Concurrently with the consummation of the ADMI acquisition, DEC issued $25.0
million aggregate principle amount of notes (the "DEC Notes") pursuant to a
securities purchase agreement, a portion of which was contributed by DEC to
NFC in order to fund the acquisition of ADMI. As part of the financing for
the acquisition, former holders of DEC's cumulative redeemable preferred stock
with a $10.0 million liquidation preference exchanged such shares of preferred
stock for a like amount of the newly issued DEC Notes. Interest payments on
the DEC Notes are expected to be made from the operations of the Company. The
DEC Notes mature on April 24, 2003 and bear interest at a rate of 121/2% per
annum payable quarterly commencing on June 30, 1997. Under limited
circumstances, interest on the DEC Notes may be paid in the form of additional
DEC Notes ("PIK Notes") for up to six interest payment periods during the
first two years after initial issuance. In the event that all or a portion of
any installment of interest on the DEC Notes due in the second year after
initial issuance is paid by issuing PIK Notes, the interest used to calculate
the amount of such installment shall be 13.0%. All outstanding PIK Notes must
be redeemed on or prior to the second anniversary of the initial issuance of
the DEC Notes. In addition to other covenants, the DEC Notes restrict the
ability of the Company to incur additional indebtedness and make additional
acquisitions and require the Company to maintain a minimum fixed charge
coverage ratio, all as more particularly specified in the securities purchase
agreement relating to the DEC Notes.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
On June 28, 1996, the Company acquired all of the issued and outstanding
capital stock of Transkrit Corporation and subsidiaries ("Transkrit") for
approximately $86.5 million plus transaction costs. The acquisition has been
accounted for using the purchase method of accounting and accordingly, the
results of operations of Transkrit have been included in the statements of
operations of the Company since June 29, 1996.
On February 21, 1997, the Company acquired all of the issued and outstanding
capital stock of Label America, Inc. ("LAI") for approximately $8.5 million,
<PAGE>
less outstanding indebtedness, plus transaction costs. Additional
consideration of $700,000 was paid to the principal stockholder for a
noncompete agreement. The acquisition has been accounted for using the
purchase method of accounting and accordingly, the results of operations of
LAI have been included in the statements of operations of the Company since
February 22, 1997.
The Company has four principal product lines: Mailer systems, direct mail
products, custom pressure sensitive labels and custom envelopes. The
following table summarizes the net sales by product line.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
(in thousands)
<S> <C> <C>
Mailer systems $9,978 $0
Direct mail products 5,790 2,583
Custom pressure sensitive labels 10,861 880
Custom envelopes 12,229 13,634
$38,858 $17,097
</TABLE>
FIRST QUARTER OF 1997 COMPARED WITH THE FIRST QUARTER OF 1996:
Net sales for the three month period ended March 31, 1997 increased $21.8
million to $38.9 million, or 127.3%, from the comparable 1996 period. The
overall increase in sales was due to the acquisition of Transkrit, and to a
lesser extent, the acquisition of Label America. Specifically, the increase
in net sales for mailer systems, direct mail products and custom pressure
sensitive labels was due to the above mentioned acquisitions. Net sales for
custom envelopes decreased $1.4 million to $12.2 million or 10.3% from the
comparable 1996 period. The decrease in net sales for custom envelopes has
been impacted by a reduction in the average unit sales price. The average
unit sales price decreased 10.9% to $19.96/cwt for the three month period
ended March 31, 1997 from $22.39/cwt for the comparable 1996 period. This
reduction in the average sales price is mainly due to lower average paper
prices passed on to customers in the form of reduced unit pricing. However,
custom envelope units shipped increased 0.7% to 612.9 million units for the
three month period ended March 31, 1997 from 608.9 million units for the
comparable 1996 period.
Gross profit, as a percentage of net sales, increased to 29.0% for the three
month period ended March 31, 1997 from 21.2% for the comparable 1996 period.
This increase is attributable to the Company's focus on value-added,
customized products, reduction of production costs and the Transkrit
acquisition which added product lines with historically higher gross margins.
Selling and administrative expenses for the three month period ended March 31,
1997 increased $6.5 million to $9.8 million, or 198.1%, from the comparable
1996 period. Selling and administrative expenses, as a percentage of net
sales, increased to 25.3% for the three month period ended March 31, 1997 from
19.3% for the comparable 1996 period. The increase in these costs is
attributable to the amortization of certain intangible assets recorded in
conjunction with the acquisition of Transkrit.
Operating income for the three month period ended March 31, 1997 was $1.4
million or 3.7% of net sales as compared to $.3 million or 1.9% for the
comparable 1996 period. The increase in operating income is mostly due to the
acquisition of Transkrit.
Interest expense for the three month period ended March 31, 1997 was $3.3
million or 8.6% of net sales as compared to $.8 million or 4.4% of net sales
for the comparable 1996 period. The increase in interest expense is due to
<PAGE>
the issuance of the Senior Notes to fund the acquisition of Transkrit. The
weighted average interest rate for the three months ended March 31, 1997 was
13.02% as compared to 13.06% for the comparable 1996 period.
Income tax benefit for the three month period ended March 31, 1997 was $.5
million as compared to $.2 million for the comparable 1996 period, resulting
in an effective tax rate of 29% and 39%, respectively.
EBITDA for the three month period ended March 31, 1997 was $4.1 million or
10.6% of net sales as compared to $1.3 million or 7.3% of net sales for the
comparable 1996 period. The increase in EBITDA is mostly attributable to the
increase in operating income mostly due to the acquisition of Transkrit.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.3 million and $.9 million for
the three month periods ended March 31, 1997 and 1996, respectively. The
increase in cash provided by operating activities is due to the increase in
EBITDA.
Net cash used in investing activities was $10.3 million and $.3 million for
the three month periods ended March 31, 1997 and 1996, respectively. The
increase in cash used in investing activities is primarily the result of the
acquisition of LAI.
Capital expenditures, excluding acquisitions (but including payments under
capital leases), were $1.1 million and $.3 million for the three months ended
March 31, 1997 and 1996, respectively.
Net cash provided by (used in) financing activities was $8.4 million and $(.7)
million for the three months ended March 31, 1997 and 1996, respectively.
Cash provided by financing activities for the three month period ended March
31, 1997 is primarily attributable to the $9.3 million borrowed on the
Company's revolving credit facility used to acquire LAI.
The Company has up to $20 million of available borrowings from its senior
secured revolving credit facility (the "Revolving Credit"). Borrowings on the
Revolving Credit are limited to certain levels of receivables and inventories.
As of March 31, 1997, the outstanding balance on the Revolving Credit was $9.3
million.
Management believes, based on current financial performance of the Company and
anticipated growth, that the cash flow from operations together with the
available sources of funds, including borrowings under the Revolving Credit
will provide sufficient funds to fund anticipated capital expenditures and
working capital requirements and to enable the Company to comply with the
terms of its debt agreements. Actual capital requirements may change,
particularly as a result of acquisitions the Company may make. The Company
anticipates that it will be required to refinance the Senior Notes at
maturity. No assurance can be given that the Company will be able to
refinance the Senior Notes on terms acceptable to it, if at all. The ability
of the Company to meet its debt service obligations and reduce its total debt
will be dependent, however, upon the future performance of the Company which,
in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond the Company's control.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No reportable developments occurred in Legal Proceedings during the quarter
ended March 31, 1997.
Item 2. Changes in Securities - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of matters to a vote of Security Holders - Not
applicable.
Item 5. Other Information -
The Board of Directors of Company have replaced director Stewart E. Elliott,
Jr. of TCW/Crescent Mezzanine, L.L.C. Mr. Elliott's position as a director
has been filled by John C. Rocchio, senior vice-president with TCW/Crescent
Mezzanine, L.L.C. In addition, Timothy Beffa and Martin R. Lewis have been
appointed as directors of the Company.
Item 6. Exhibits and Reports on Form 8-K -
a) Exhibits
27 - Financial Data Schedule
b) Form 8-K Reports
The report dated May 2, 1997 and filed May 5, 1997 announcing
Registrant's purchase of the outstanding capital stock of AmeriComm
Direct Marketing, Inc. on April 24, 1997.
<PAGE>
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.
NATIONAL FIBERSTOK CORPORATION
Date: May 9, 1997 /s/ Robert M. Miklas
-------------------------------------
Robert M. Miklas
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 1997 /s/ Robert B. Webster
-------------------------------------
Robert B. Webster
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,340,653
<SECURITIES> 0
<RECEIVABLES> 19,816,562
<ALLOWANCES> (695,132)
<INVENTORY> 11,938,757
<CURRENT-ASSETS> 37,007,118
<PP&E> 58,745,610
<DEPRECIATION> (11,184,424)
<TOTAL-ASSETS> 143,854,261
<CURRENT-LIABILITIES> 26,243,451
<BONDS> 102,283,096
0
0
<COMMON> 2,838
<OTHER-SE> 10,771,732
<TOTAL-LIABILITY-AND-EQUITY> 143,854,261
<SALES> 38,857,828
<TOTAL-REVENUES> 38,857,828
<CGS> 27,592,310
<TOTAL-COSTS> 27,592,310
<OTHER-EXPENSES> 9,832,011
<LOSS-PROVISION> 95,449
<INTEREST-EXPENSE> 3,328,501
<INCOME-PRETAX> (1,894,994)
<INCOME-TAX> (547,812)
<INCOME-CONTINUING> (1,347,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,347,182)
<EPS-PRIMARY> (4.75)
<EPS-DILUTED> (4.75)
</TABLE>
