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, 1998 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
(Address of principal executive offices)
(802) 257-0365
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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 latest practicable date.
Class Outstanding
Common Stock March 31, 1998
$.001 par value 7,733,781
<PAGE>
FIBERMARK, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements:
Consolidated Balance Sheets 3
March 31, 1998 and December 31, 1997
Consolidated Statements of Income 4
Three Months Ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows 5
Three Months Ended
March 31, 1998 and 1997
Notes To Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of Financial 9-11
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About 11
Market Risk
PART II. OTHER INFORMATION
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT 11 Statement Regarding Computations of Net Earnings 14
Per Share
<PAGE>
FIBERMARK, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Unaudited Audited
March 31, December 31,
1998 1997
--------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 25,295 $ 37,275
Accounts Receivable 36,277 23,278
Inventories 45,365 37,486
Other 522 210
Deferred Income Taxes 3,769 3,769
--------------- ---------------
TOTAL CURRENT ASSETS 111,228 102,018
PROPERTY, PLANT AND EQUIPMENT, NET 124,754 90,243
GOODWILL, NET 50,611 45,179
OTHER INTANGIBLE ASSETS, NET 8,350 8,146
PREPAID EXPENSE 1,073 1,073
OTHER LONG TERM ASSETS 3,022 1,342
TOTAL ASSETS $ 299,038 $ 248,001
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 14,921 $ 18,822
Accrued Liabilities 26,027 21,213
--------------- ---------------
TOTAL CURRENT LIABILITIES 40,948 40,035
LONG TERM LIABILITIES:
Long Term Debt 133,568 100,000
--------------- ---------------
TOTAL LONG TERM DEBT 133,568 100,000
Deferred Gain 10,455 10,885
Deferred Income Tax 9,308 9,308
Other Long Term Liabilities 15,478 5,002
--------------- ---------------
TOTAL LONG TERM LIABILITIES 168,809 125,195
STOCKHOLDERS' EQUITY:
Common Stock 8 8
Additional Paid in Capital 76,046 73,709
Accumulated Earnings 13,876 9,525
Accumulated Other Comprehensive Loss (649) (471)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 89,281 82,771
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 299,038 $ 248,001
=============== ===============
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
<PAGE>
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
Net Sales $ 79,951 $ 59,442
Cost of Sales 64,275 48,177
--------------- ----------------
Gross Profit 15,676 11,265
General and Administrative Expenses 5,519 4,416
Income from Operations 10,157 6,849
Other (Income) Expenses, Net 62 72
Interest Expense 2,554 2,258
--------------- ----------------
Income Before Income Taxes 7,541 4,519
Provision for Income Taxes 3,190 1,786
--------------- ----------------
Net Income Applicable to Common Shares $ 4,351 $ 2,733
=============== ================
Income Per Common Share
Basic Earnings Per Share $ 0.56 $ 0.45
=============== ================
Diluted Earnings Per Share $ 0.54 $ 0.43
=============== ================
Average Basic Shares Outstanding 7,703 6,063
Average Diluted Shares Outstanding 8,124 6,371
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
<PAGE>
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
03/31/98 03/31/97
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,351 $ 2,733
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 2,193 1,807
Amortization of Deferred Gain (429) (429)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable (4,259) (3,388)
Inventories 274 (1,844)
Other (114) (186)
Accounts Payable (6,701) 2,750
Accrued Liabilities 2,670 3,051
Long Term Liabilities 66 -
---------------- ----------------
Net Cash Provided By (Used In) Operating Activities (1,949) 4,494
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment (3,663) (3,274)
Payment for Business Acquired (net of cash acquired) (42,240) (4,417)
Debt Issue Costs (494) -
Acquisition Costs (279) -
Other Deferred Charge (8) -
---------------- ----------------
Net Cash Used In Investing Activities (46,684) (7,691)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Bank Debt 29,552 -
Proceeds from Issuance of Steinbeis Note 4,378 -
Proceeds from Issuance of Common Stock 2,628 -
Proceeds from Exercise of Stock Options 132 20
Deferred Expenses - (514)
---------------- ----------------
Net Cash Provided By (Used In) Financing Activities 36,690 (494)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (37) -
NET DECREASE IN CASH (11,980) (3,691)
CASH AT BEGINNING OF PERIOD 37,275 14,342
---------------- ----------------
CASH AT END OF PERIOD $ 25,295 $ 10,651
================ ================
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
<PAGE>
FIBERMARK, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. Basis of Presentation:
The balance sheet as of March 31, 1998 and the statements of income and
cash flows for the quarters ended March 31, 1998 and 1997 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, 1997 included in the
company's Annual Report on Form 10-K.
2. Inventories:
Inventories at March 31, 1998 and December 31, 1997 consisted of the
following (000's):
(Unaudited)
03/31/98 12/31/97
Raw Material 15,299 13,707
Work in Progress 11,484 10,365
Finished Goods 15,373 10,990
Stores Inventory 2,110 1,415
Operating Supplies 1,099 1,009
Total Inventories 45,365 37,486
3. Acquisition:
Effective January 1, 1998 the company purchased all of the outstanding
shares of Steinbeis Gessner GmbH ("Gessner") for $43.3 million in cash.
Gessner manufactures crepe masking and specialty tape materials, wet and
dry abrasive papers, filter media for automotive air, oil and gasoline and
filter media for automotive cabins and vacuum cleaner bags. This
acquisition was financed with a portion of the proceeds of the sale of
1,500,000 shares of the company's common stock for $28.7 million, along
with borrowings under a DM54.0 ($29.5) million bank facility provided by
Bayerische Vereinsbank AG and an unsecured note issued by Gessner and
guaranteed by the company to the seller in the amount of DM8.0 ($4.4)
million. The acquisition is accounted for as a purchase and results in
approximately $5.8 million in goodwill.
Goodwill is being amortized on a straight-line basis over thirty years. The
1998 consolidated results include Gessner's results of operations from the
date of the acquisition (January 1, 1998) through the end of the period.
The following summarized unaudited pro forma results of operations for the
three-month period ended March 31, 1997, assumes the Gessner acquisition
occurred as of the beginning of the period (January 1, 1997):
Net Sales (000's) $20,491
Net Income (000's) 1,675
Basic Earnings Per Share ($) .22
Diluted Earnings Per Share ($) .21
4. Income Taxes:
In April 1994, the company concluded a $25,000,000 Sale/Leaseback
transaction with the CIT Group that resulted in a deferred book gain of
$17,200,000. This gain is being recognized over the 10-year life of the
lease. Existing NOLs were utilized to offset the taxability of that gain.
At the time of the transaction, there was some uncertainty as to whether
the tax benefits generated in this transaction would ultimately be
realized. The company therefore chose not to reflect future tax benefits at
that time. The company has continued to review the tax impact and
determination arising from this transaction, and has concluded that it is
appropriate to recognize all deferred tax assets arising from it.
5. Net Income Per Common Share:
Net Income Per Common Share is computed by dividing net income by the
weighted average number of common shares outstanding after giving effect to
dilutive stock options. Weighted average common stock and equivalents
outstanding and the net income per common share have been restated to give
effect to a 3-for-2 stock split effective May 13, 1997 and to reflect
common stock equivalents that were excluded in previous presentations due
to their immateriality.
<TABLE>
<CAPTION>
-------------- ---------------
1 Qtr. 1998 1 Qtr. 1997
-------------- ---------------
<S> <C> <C>
Numerator:
Income available to common shareholders used
in basic and diluted earnings per share ($000) $ 4,351 $ 2,733
-------------- ---------------
Denominator:
Denominator for basic earnings per share:
Weighted average shares 7,702,906 6,062,538
Effect of dilutive securities:
Fixed stock options 420,752 308,672
-------------- ---------------
Denominator for diluted earnings per share:
Adjusted weighted average shares 8,123,658 6,371,210
Basic earnings per share $ 0.56 $ 0.45
Diluted earnings per share $ 0.54 $ 0.43
</TABLE>
6. New Accounting Standards:
Effective January 1, 1998, the company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". Statement
No. 130 establishes standards for reporting and displaying comprehensive
earnings and its components in financial statements; however, the adoption
of Statement No. 130 had no impact on the company's net earnings or
shareholders' equity. Statement No. 130 requires minimum pension liability
adjustments, unrealized gains or losses on the company's available-for-sale
securities and foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, to be included
in other comprehensive earnings. Prior year financial statements have been
reclassified to conform to the requirements of Statement No. 130.
Accumulated other comprehensive earnings consist of minimum pension
liability adjustments ($471 million) at March 31, 1998 and December 31,
1997 and a foreign currency translation adjustment ($178 million) at March
31, 1998.
The table below sets forth the "comprehensive loss" as defined by SFAS No.
130 for the three months ended March 31:
1998 1997
---------- -----------
Net Income $4,351 $2,733
Other comprehensive loss (178) 0
---------- -----------
Total comprehensive income $4,173 $2,733
========== ===========
Effective January 1, 1998, the company adopted American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1) which establishes guidelines for the accounting for the costs of all
computer software developed or obtained for internal use. SOP 98-1 must be
applied on a prospective basis as of the adoption date. The adoption of SOP
98-1 did not have a material impact on the company's results of operations
in the first quarter of 1998 or on the company's financial position at
March 31, 1998.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Net sales for the first quarter of 1998 were $80.0 million as compared to $59.4
million for the first quarter of 1997. $21.4 Million of this increase was
attributable to the acquisition of Gessner. First quarter 1998 sales, excluding
Gessner, totaled $58.5 million compared to $59.4 million in the comparable
quarter of 1997, a decrease of 1.5%. Sales in the filter products market
increased by 140% to $26.6 million compared to $11.1 million in the first
quarter of 1997. $14.2 Million of this increase relates to the Gessner
acquisition. Technical specialty sales increased by 7.6% to $21.2 million
compared to $19.7 million for the comparable period of 1997. Sales in this
market were up $1.8 million due to the Gessner acquisition. Sales in the durable
specialties market increased by 32.6% to $19.1 million as compared to $14.4
million in the first quarter of 1997. Sales in the market were up by $5.4
million due to the Gessner acquisition. Sales in the office products market
decreased by 9.1% to $13.0 million compared to $14.3 million for the first
quarter of 1997.
The increased sales in three of our market segments reflect steady business
conditions in the business established prior to the Gessner acquisition and the
additional revenue gained from the Gessner acquisition. The decrease in office
products largely reflects somewhat softer business conditions, particularly in
comparison to the exceptionally strong first quarter in 1997.
Gross margin increased to 19.6% as compared to 19.0% last year. This increase is
primarily related to the strong business conditions at Gessner, offset in part
by slower conditions in the U.S. office products market.
General and administrative expenses increased by $1.1 million in the first
quarter of 1998 to $5.5 million compared to $4.4 million in the comparable
quarter in 1997, primarily due to the Gessner acquisition. Expenses for 1997
included the impact of switching from Nasdaq to the New York Stock Exchange and
the company's name change.
Other expenses fell to $.06 million in the first quarter of 1998 from $.07
million in the comparable quarter in 1997.
Net interest expense increased by $.3 million to $2.6 million in the first
quarter of 1998 compared to $2.3 million in the comparable quarter in 1997. This
increase stemmed from the increased debt undertaken to finance the Gessner
acquisition.
Income taxes increased by $1.4 million to $3.2 million in the first quarter of
1998 from $1.8 million in the comparable 1997 quarter. This increase reflects
income taxes on increased income due to the Gessner acquisition, as well as the
higher German tax rate. The effective tax rate for the quarter was 42.3%, based
on a U.S. rate of 38.5% and a German rate of 47.0%
Net income for the quarter increased to a record level of $4.4 million or $.54
per share as compared to $2.7 million or $.43 per share for the comparable 1997
quarter.
Liquidity and Capital Resources
As of March 31, 1998, the company's outstanding debt balance was $133.6 million.
This consisted of $100 million of pre-existing notes and $33.6 million of
incremental debt related to the Gessner acquisition. On January 12, 1998, the
company closed on a DM54.0 (approximately $29.5) million term loan with
Bayerische Vereinsbank AG in Munich, Germany and an unsecured note issued by
Gessner and guaranteed by the company to the seller in the amount of DM8.0
(approximately $4.4) million to fund a portion of the purchase price for the
Gessner acquisition. The German bank loan amortizes over seven years and has a
fixed interest rate of 6.8%. The seller note carries an interest rate of 5% and
amortizes over three years. On this same date, the company also closed on an
$8.2 million revolving credit facility and on an $8.2 million capital spending
facility with Bayerische Vereinsbank AG. Dollar equivalents are based on a rate
of 1.8273 DM per dollar, which was the rate used by Bayerische Vereinsbank AG at
the time the loans were closed.
The pre-existing notes carry a ten-year term, are non-amortizing and carry a
fixed interest rate of 9.375%. Additionally, the company has a $20.0 million
revolving credit facility with no advances outstanding as of March 31, 1998.
The company's historical requirements for capital have been primarily for
servicing debt, capital expenditures and working capital. Cash flows from
operating activities were ($1.9) million and $4.5 million for the three months
ended March 31, 1998 and March 31, 1997, respectively. During these periods,
additions to property, plant and equipment totaled $3.7 million and $3.3
million, respectively. 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. This
seasonality is the result of a lower level of purchasing activity in the third
quarter, since many of the company's U.S. customers shut down their
manufacturing operations during portions of July, and many European
manufacturers shut down during portions of August.
New Accounting Pronouncements
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities".
This SOP provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. This SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The company has yet to
analyze in detail the potential impact on its financial statements upon adoption
of this pronouncement.
Year 2000
The company has implemented or is in the process of implementing new integrated
information systems that are already Year 2000 compliant. The company expects
full system implementation well before the year 2000. The company has
communicated with its principal customers to ensure that Year 2000 issues will
not have an adverse impact on the company. The costs of achieving Year 2000
compliance are not expected to have a material impact on the company's business,
operations or its financial condition.
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 the company's 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 to 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, or other risk factors identified in the
company's 1997 10-K or in this report.
ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not Applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
The company is currently engaged in labor contract negotiations at its Fitchburg
facility. The contract originally expired on April 30, 1998. Although the union
authorized its leadership to call a strike, the company and the union have
agreed to extend the labor agreement in its entirety through June 7, 1998 to
allow negotiations to continue. While the company believes that it has generally
good relations with its employees, no assurances can be given that a new
contract can be negotiated or that there will not be a labor disruption at the
Fitchburg facility. No assurance can be given that, if a work stoppage were to
occur at the Fitchburg facility, the operations of such facility would not be
materially disrupted or, that, if created, such disruption would not materially
adversely impact the company's results of operations.
Page
Item 6. Exhibits and Reports on Form 8-K:
Exhibit 11 Statement Regarding Computation of Net Earnings Per Share 14
Reports on Form 8-K:
On January 12, 1998, the company filed a Form 8-K containing certain financial
statements required to be filed with respect to the Gessner acquisition.
<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.
FiberMark, Inc.
Date: May 15, 1998
By /s/ BRUCE MOORE
-------------------------------------
Bruce Moore, Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
EXHIBIT 11
FIBERMARK, INC.
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS PER SHARE
Unaudited
Statement regarding computation of per share earnings attached to and made part
of Part II of Form 10-Q for the three-month period ended March 31, 1998 and
1997.
------------- -------------
Mar. 31, 1998 Mar. 31, 1997
------------- -------------
BASIC SHARES
Weighted average number of
shares issued and outstanding 7,702,906 6,062,538
DILUTIVE SHARES
Average Fixed Stock Options 420,752 308,672
------------- -------------
Adjusted weighted average shares 8,123,658 6,371,210
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE 3 MONTHS ENDED MAR 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 25,295
<SECURITIES> 0
<RECEIVABLES> 36,277
<ALLOWANCES> 0
<INVENTORY> 45,365
<CURRENT-ASSETS> 111,228
<PP&E> 124,754
<DEPRECIATION> 0
<TOTAL-ASSETS> 299,038
<CURRENT-LIABILITIES> 40,948
<BONDS> 133,568
0
0
<COMMON> 8
<OTHER-SE> 89,273
<TOTAL-LIABILITY-AND-EQUITY> 299,038
<SALES> 79,951
<TOTAL-REVENUES> 79,951
<CGS> 64,275
<TOTAL-COSTS> 69,794
<OTHER-EXPENSES> 62
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,554
<INCOME-PRETAX> 7,541
<INCOME-TAX> 3,190
<INCOME-CONTINUING> 4,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,351
<EPS-PRIMARY> .56
<EPS-DILUTED> .54
</TABLE>
