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 September 30, 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 last practicable date.
Class Outstanding
Common Stock September 30, 1998
$.001 par value 7,773,286
<PAGE>
FIBERMARK
INDEX
PART I. FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements:
Consolidated Balance Sheets 3
September 30, 1998 and December 31, 1997
Consolidated Statements of Income 4
Three Months Ended and Nine Months Ended
September 30, 1998 and 1997
Consolidated Statements of Cash Flows 5
Nine Months Ended
September 30, 1998 and 1997
Notes To Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of Financial 9-12
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About 12
Market Risk
PART II. OTHER INFORMATION
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT 11 Statement Regarding Computations of Net Earnings 15
Per Share
Page 2 of 15
<PAGE>
FIBERMARK
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
Unaudited
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 28,101 $ 37,275
Accounts Receivable 36,378 23,278
Inventories 45,480 37,486
Other 991 210
Deferred Income Taxes 3,769 3,769
--------- ---------
TOTAL CURRENT ASSETS 114,719 102,018
PROPERTY, PLANT AND EQUIPMENT, NET 131,638 90,243
GOODWILL, NET 51,470 45,179
OTHER INTANGIBLE ASSETS, NET 8,472 8,146
PREPAID EXPENSE 1,303 1,073
OTHER LONG TERM ASSETS 2,789 1,342
TOTAL ASSETS $ 310,391 $ 248,001
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 13,369 $ 18,822
Accrued Liabilities 25,135 21,213
--------- ---------
TOTAL CURRENT LIABILITIES 38,504 40,035
LONG TERM LIABILITIES:
Long Term Debt 137,170 100,000
--------- ---------
TOTAL LONG TERM DEBT 137,170 100,000
Deferred Gain 9,596 10,885
Deferred Income Tax 9,308 9,308
Other Long Term Liabilities 17,491 5,002
--------- ---------
TOTAL LONG TERM LIABILITIES 173,565 125,195
STOCKHOLDERS' EQUITY:
Common Stock 8 8
Additional Paid in Capital 76,254 73,709
Accumulated Earnings 20,945 9,525
Accumulated Other Comprehensive Gain (Loss) 1,115 (471)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 98,322 82,771
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 310,391 $ 248,001
========= =========
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
Page 3 of 15
<PAGE>
FIBERMARK
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER SEPTEMBER
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 73,150 $ 57,802 $231,692 $176,659
Cost of Sales 59,767 46,285 187,866 142,559
-------- -------- -------- --------
Gross Profit 13,383 11,517 43,826 34,100
General and Administrative Expenses 5,369 3,790 16,553 12,234
-------- -------- -------- --------
Income from Operations 8,014 7,727 27,273 21,866
Other (Income) Expenses, Net 68 245 183 218
Interest Expense 2,682 2,281 7,818 6,900
-------- -------- -------- --------
Income Before Income Taxes 5,264 5,201 19,272 14,748
Provision for Income Taxes 1,946 2,002 7,852 5,762
-------- -------- -------- --------
Net Income Applicable to Common Shares $ 3,318 $ 3,199 $ 11,420 $ 8,986
======== ======== ======== ========
Income Per Common Share
Basic Earnings Per Share $ 0.43 $ 0.53 $ 1.48 $ 1.48
======== ======== ======== ========
Diluted Earnings Per Share $ 0.41 $ 0.50 $ 1.41 $ 1.40
======== ======== ======== ========
Average Basic Shares Outstanding 7,773 6,076 7,742 6,069
Average Diluted Shares Outstanding 7,996 6,460 8,079 6,417
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
Page 4 of 15
<PAGE>
FIBERMARK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
09/30/98 09/30/97
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 11,420 $ 8,986
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 6,531 5,592
Amortization of Deferred Gain (1,289) (1,289)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable (3,428) (3,798)
Inventories 1,052 (5,065)
Other 562 (1,169)
Accounts Payable (8,288) 1,230
Accrued Liabilities 3,653 (1,201)
Long Term Liabilities (2,003) --
-------- --------
Net Cash Provided By Operating Activities 8,210 3,286
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Cogeneration Proceeds -- 1,785
Additions to Property, Plant and Equipment (10,190) (9,716)
Payment for Business Acquired (net of cash acquired) (43,275) --
Acquisition Costs (176) --
Other Deferred Charge (69) --
-------- --------
Net Cash Used In Investing Activities (53,710) (7,931)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Bank Debt 29,552 --
Proceeds from Issuance of Gessner Note 4,378 --
Debt Issue Costs (525) --
Proceeds from Issuance of Common Stock 2,628 --
Cost of Stock Offering (511) --
Proceeds from Exercise of Stock Options 428 71
Deferred Expenses -- (693)
-------- --------
Net Cash Provided By (Used In) Financing Activities 35,950 (622)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 376 --
NET DECREASE IN CASH (9,174) (5,267)
CASH AT BEGINNING OF PERIOD 37,275 14,342
-------- --------
CASH AT END OF PERIOD $ 28,101 $ 9,075
======== ========
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
Page 5 of 15
<PAGE>
FIBERMARK
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
1. Basis of Presentation:
The balance sheet as of September 30, 1998 and the statements of income
and cash flows for the periods ended September 30, 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 September 30, 1998 and December 31, 1997 consisted of the
following (000's):
<TABLE>
<CAPTION>
(Unaudited)
09/30/98 12/31/97
<S> <C> <C>
Raw Material 15,039 13,707
Work in Progress 12,457 10,365
Finished Goods 14,530 10,990
Stores Inventory 2,299 1,415
Operating Supplies 1,155 1,009
Total Inventories 45,480 37,486
</TABLE>
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
Page 6 of 15
<PAGE>
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
nine-month period ended September 30, 1997 assume the Gessner acquisition
occurred as of the beginning of the period (January 1, 1997):
<TABLE>
<S> <C>
Net Sales (000's) $237,690
Net Income (000's) 12,264
Basic Earnings Per Share ($) 1.59
Diluted Earnings Per Share ($) 1.52
</TABLE>
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. Earnings Per Share:
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. Information related to the calculation of earnings per
share follows:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
---------------------- -----------------------
9/30/98 9/30/97 9/30/98 9/30/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Income available to common shareholders used
in basic and diluted earnings per share ($000) $ 3,318 $ 3,199 $ 11,420 $ 8,986
---------- ---------- ---------- ----------
Denominator:
Denominator for basic earnings per share:
Weighted average shares 7,772,895 6,076,181 7,742,493 6,068,526
Effect of dilutive securities:
Fixed stock options 222,956 383,543 336,995 348,349
---------- ---------- ---------- ----------
Denominator for diluted earnings per share:
Adjusted weighted average shares 7,995,851 6,459,724 8,079,488 6,416,875
Basic earnings per share $ 0.43 $ 0.53 $ 1.48 $ 1.48
Diluted earnings per share $ 0.41 $ 0.50 $ 1.41 $ 1.40
</TABLE>
Page 7 of 15
<PAGE>
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 of ($471,000) at
September 30, 1998 and December 31, 1997 and a foreign currency
translation adjustment of $1,586,000 at September 30, 1998.
The table below sets forth the "comprehensive income" as defined by SFAS
No. 130 for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
9/30/98 9/30/97
------- -------
<S> <C> <C>
Net income $ 3,318 $ 3,199
Other comprehensive income 1,435 0
------- -------
Total comprehensive income $ 4,753 $ 3,199
Nine Months Ended
<CAPTION>
-------------------------
9/30/98 9/30/97
------- -------
<S> <C> <C>
Net income $11,420 $ 8,986
Other comprehensive income 1,586 0
------- -------
Total comprehensive income $13,006 $ 8,986
</TABLE>
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 1998 or financial position at September 30, 1998.
Page 8 of 15
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997:
Net sales for the third quarter of 1998 were $73.2 million compared with $57.8
million for the third quarter of 1997, a 26.6% increase. The Gessner acquisition
accounted for $19.5 million of this increase. Third quarter 1998 sales,
excluding Gessner, totaled $53.6 million compared with $57.8 million in the
comparable quarter of 1997, a decrease of 7.3%. Sales in the filter products
market increased by 118.7% to $23.4 million compared with $10.7 million in the
third quarter of 1997, with $13.0 million of this increase related to the
Gessner acquisition. Technical specialties sales increased 3.3% to $19.5 million
compared with $18.9 million for the same period of 1997. Sales in this market
were up $1.9 million due to the Gessner acquisition. Sales in the durable
specialties market increased 17.0% to $17.2 million compared with $14.7 million
in the third quarter of 1997, with $5.4 million due to the Gessner acquisition.
Sales in the office products market decreased by 3.7% to $13.0 million compared
with $13.5 million for the third quarter of 1997.
The overall increase in sales reflects the revenue gained from the Gessner
acquisition, which experienced seasonally typical sales. In businesses
established prior to the Gessner acquisition, the sales picture was mixed.
Filter products sales were steady, except for the shortfall caused by the six
week General Motors/Delphi strike. Technical specialties were somewhat soft, but
experienced an increase in orders late in the quarter, particularly in printed
circuit board base business. Durable Specialties sales were down due to
inventory reductions by a key customer, and were significantly impacted by
further softening in sales into Asia. Office products, which had been somewhat
soft during the first half of the year, saw a significant strengthening
throughout the quarter, but finished slightly below 1997 third quarter levels.
Gross margin for the third quarter of 1998 was 18.3% versus 19.9% in the
comparable 1997 quarter. This decrease was primarily related to lower sales
volume across most of our markets, but particularly in our durable specialties
division. In addition, heavy trial activity, geared toward possible transfers
across facilities and related to product development efforts, hurt productivity
at some facilities.
General and administrative expenses increased $1.6 million in the third quarter
of 1998 to $5.4 million versus $3.8 million in the comparable 1997 quarter,
primarily due to the Gessner acquisition.
Net interest expense increased by $.4 million to $2.7 million in the third
quarter of 1998 compared with $2.3 million in the same quarter in 1997. The
increase reflects the net effect of additional interest expense on $35.0 million
of incremental debt to fund the Gessner acquisition and interest income on
approximately $20.1 million of cash reserves.
Income tax expense was essentially flat, running $1.9 million in the third
quarter of 1998 compared with $2.0 million in the same quarter of 1997. Income
tax rates were 37.0% in the third quarter of 1998 compared with 38.5% for the
same quarter in 1997. This reduction is related to an adjustment in the
company's tax accrual that is primarily due to projected reductions in state
income taxes due to legal restructuring of the company and also to the effects
of the recently completed tax audits at both the federal and state level.
Page 9 of 15
<PAGE>
Net income for the quarter was $3.3 million, or $.41 per share, compared with
$3.2 million, or $.50 per share, for the comparable 1997 quarter.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997:
Net sales for the first nine months of 1998 increased $55.0 million to $231.7
million from $176.7 million for the comparable period in 1997. The Gessner
acquisition accounted for $62.1 million of this increase. Overall, first
nine-month sales for the business excluding the Gessner acquisition declined 4%
to $169.6 million from $176.7 million, due primarily to soft business conditions
in the office products market through July, softness in Asian markets and the
effects of the GM/Delphi strikes. Sales in filter products increased 130% to
$75.2 million compared with $32.7 million for the comparable 1997 period, with
Gessner accounting for $41.1 million in sales. Sales in technical specialties
increased 4.8% in the first nine months of 1998 to $61.0 from $58.2 million for
the comparable period in 1997, with Gessner contributing $5.5 million in
revenue. Sales in durable specialties increased 29.5% to $57.1 from $44.1 in the
comparable nine-month period. Office products sales declined 7.7% to $38.4
compared with $41.6 in the previous year nine month period.
Gross margin for the nine-month period was 18.9% compared with 19.3% in the
first nine months of 1997. This decrease is primarily related to weaker revenue
in the third quarter and short-term productivity issues in our technical
specialties division.
General and administrative expenses increased by $4.4 million in the first nine
months of 1998 to $16.6 million versus $12.2 million for the comparable
nine-month period, primarily due to the impact of the Gessner acquisition.
Interest expense increased $.9 million to $7.9 million in the first nine months
of 1998 compared with $6.9 million in the same period in 1997, due to the
increased debt undertaken to finance the Gessner acquisition.
Income taxes increased by $2.1 million to $7.9 million from $5.8 million in the
comparable nine-month period in 1997, again due to the impact on the added
sales revenue from Gessner and the higher German tax rate.
Net income for the first nine months of 1998 increased $2.4 million to $11.4
million or $1.41 per share compared with last year's level of $9.0 million or
$1.40 per share.
Liquidity and Capital Resources
As of September 30, 1998, the company's outstanding debt balance was $137.2
million. This consisted of $100 million of pre-existing notes and $37.2 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.
Page 10 of 15
<PAGE>
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 September 30, 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 $8.2 million and $3.3 million for the nine months
ended September 30, 1998 and September 30, 1997, respectively. During these
periods, additions to property, plant and equipment totaled $10.2 million and
$9.7 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 Pronouncement
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
Readiness
The company has implemented or is in the process of implementing new integrated
information systems that are already Year 2000 compliant. A significant portion
of the software implementation is complete. The final portions will be
implemented over the next 8 months, are expected to be fully implemented by
mid-1999. Management believes the company's German operation, FiberMark Gessner,
is already fully Year 2000 compliant. In terms of hardware, management believes
the company's inventory of equipment is also compliant.
The company has communicated with its principal customers and suppliers
regarding Year 2000 compliance. Although we have been given assurances by our
customers and suppliers that they will be compliant, no assurances can be given
that they will be ready, or that the company would not suffer any material
adverse effects to its business, operations or financial condition should they
fail to be compliant.
Page 11 of 15
<PAGE>
Costs
The costs of achieving Year 2000 compliance are not expected to have a material
impact on the company's business, operations, or financial condition, as system
upgrades were planned for strategic reasons. The costs are almost exclusively
the cost of installing the company's integrated information systems. FiberMark
Gessner had completed its system upgrades prior to the 1998 purchase.
Risks
The company has assessed the risks of Year 2000 problems, and concluded that in
the unlikely event that a small portion of its software might not be in place by
the year 2000, it would need to rely on manual systems.
The company has contacted both our key suppliers and customers to ascertain
their Year 2000 readiness, and have received assurances that they will be ready.
However, the company cannot control supplier or customer Year 2000 readiness, or
even completely assess the risk the company might face should they fail to be
ready. However, our assessments suggest that in the case of customers, potential
problems might include greater difficulties in managing inventories and
forecasting demand, and in placing or receiving orders that could impact
FiberMark. In the case of suppliers, risks seem to relate more to billing and
ordering rather than more significant items that might impact productivity and
profitability.
Contingency Plans
The company is analyzing its contingency planning needs, but at this stage has
chosen not to develop a comprehensive plan, as it is confident that Year 2000
compliance timetables will be met.
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, 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 12 of 15
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
On November 4, 1998, FiberMark announced plans to cease operations at its Beaver
Falls, NY facility during the first quarter of 1999. The closure of this
facility will result in a one-time after-tax charge of approximately $5.0
million during the fourth quarter of 1998. The closure is expected to generate
annual after-tax savings of approximately $1.0 million, or $.12 per share. These
savings are expected to materialize late in the second quarter of 1999, and
should reach full scale by the third quarter.
The Beaver Falls facility faced lower demand for its latex-content materials due
to industry consolidation, including the recent purchase of its largest customer
by a competitor in the book cover market. Consequently, absorbing these product
lines into other facilities became the economical alternative. The company is
currently working with its customers, to qualify materials now made in Beaver
Falls at other FiberMark operations, particularly at our Fitchburg, Mass.
facility, where equipment upgrades were recently completed. The timing of the
closure of the Beaver Falls facility will depend on completing approvals for
transferred products into other FiberMark facilities, ensuring that customers'
needs are met during and after the transition. Consolidating operations to
achieve the most cost effective mix of facilities remains a necessary component
of the company's operating strategy.
The Beaver Falls facility employed 99 employees.
Page
Item 6. Exhibits and Reports on Form 8-K:
Exhibit 11 Statement Regarding Computation of Net Earnings Per Share 15
Reports on Form 8-K:
On January 12, 1998, the Registrant filed a Form 8-K containing certain
financial statements required to be filed with respect to the Gessner
acquisition.
Page 13 of 15
<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
Date: November 13, 1998
/s/ Bruce Moore
-------------------------------
Bruce Moore, Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
Page 14 of 15
EXHIBIT 11
FIBERMARK
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 nine-month period ended September 30, 1998 and
1997.
<TABLE>
<CAPTION>
------------- -------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
BASIC SHARES
Weighted average number of
shares issued and outstanding 7,742,493 6,068,526
DILUTIVE SHARES
Average Fixed Stock Options 336,995 348,349
------------- -------------
Adjusted weighted average shares 8,079,488 6,416,875
</TABLE>
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 28,101
<SECURITIES> 0
<RECEIVABLES> 36,378
<ALLOWANCES> 0
<INVENTORY> 45,480
<CURRENT-ASSETS> 114,719
<PP&E> 131,638
<DEPRECIATION> 0
<TOTAL-ASSETS> 310,391
<CURRENT-LIABILITIES> 38,504
<BONDS> 137,170
0
0
<COMMON> 8
<OTHER-SE> 98,314
<TOTAL-LIABILITY-AND-EQUITY> 310,391
<SALES> 231,692
<TOTAL-REVENUES> 231,692
<CGS> 187,866
<TOTAL-COSTS> 204,419
<OTHER-EXPENSES> 183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,818
<INCOME-PRETAX> 19,272
<INCOME-TAX> 7,852
<INCOME-CONTINUING> 11,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,420
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.41
</TABLE>
