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, 1999 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
Identification No.) incorporation or organization)
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, 1999
$.001 par value 7,798,822
<PAGE>
FIBERMARK, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements:
Consolidated Statements of Income 3
Three Months Ended
March 31, 1999 and 1998
Consolidated Balance Sheets 4
March 31, 1999 and December 31, 1998
Consolidated Statements of Cash Flows 5
Three Months Ended
March 31, 1999 and 1998
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 Market
Risk 12
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 Statements of Income
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1999 1998
------- -------
<S> <C> <C>
Net sales $75,906 $79,951
Cost of sales 60,630 64,275
------- -------
Gross profit 15,276 15,676
Selling, general and administrative expenses 5,764 5,519
------- -------
Income from operations 9,512 10,157
Other (income) expense, net 102 62
Interest Expense 2,506 2,554
------- -------
Income before income taxes 6,904 7,541
Income tax expense 2,850 3,190
------- -------
Net income $ 4,054 $ 4,351
======= =======
Basic earnings per share $ 0.52 $ 0.56
======= =======
Diluted earnings per share $ 0.51 $ 0.54
======= =======
Average Basic Shares Outstanding 7,791 7,703
Average Diluted Shares Outstanding 7,965 8,124
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
<PAGE>
FIBERMARK, INC.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
Unaudited Audited
March 31, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 26,294 $ 33,804
Accounts receivable 39,572 31,518
Inventories 49,441 48,517
Other 801 700
Prepaid expense 281 204
Deferred income taxes 4,523 4,612
--------- ---------
Total current assets 120,912 119,355
Property, plant and equipment, net 125,562 128,375
Goodwill, net 48,729 49,692
Other intangible assets, net 8,150 8,383
Prepaid expense 1,176 1,176
Other long-term assets 1,322 1,433
Other pension assets 2,817 2,817
Total assets $ 308,668 $ 311,231
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt $ 3,598 $ 3,598
Accounts payable 14,925 16,484
Accrued liabilities 19,606 15,670
Accrued income taxes payable 1,805 1,440
Accrued pension liabilities 1,565 1,572
--------- ---------
Total current liabilities 41,499 38,764
Long term liabilities:
Long term debt, less current portion 127,375 133,583
Deferred gain 8,736 9,166
Deferred income taxes 12,374 12,655
Other long-term liabilities 18,587 19,500
--------- ---------
Total long-term liabilities 167,072 174,904
--------- ---------
Total liabilities 208,571 213,668
Stockholders' equity
Common stock 8 8
Additional paid-in capital 76,691 76,554
Retained earnings 25,088 21,034
Accumulated other comprehensive income (1,690) (33)
--------- ---------
Total stockholders' equity 100,097 97,563
--------- ---------
Total liabilities and stockholders' equity $ 308,668 $ 311,231
========= =========
</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 MARCH 31
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,054 $ 4,351
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,175 2,193
Amortization of deferred gain (430) (429)
Changes in operating assets and liabilities:
Accounts receivable (9,007) (4,259)
Inventories (1,763) 274
Other (175) (114)
Accounts payable (1,119) (6,701)
Accrued pension and other liabilities 4,076 2,670
Prepaid expense
Other long-term liabilities 61 66
Accrued income taxes payable 365
-------- --------
Net cash provided by operating activities (1,763) (1,949)
Cash flows used for investing activities:
Additions to property, plant and equipment (1,827) (3,663)
Payments for businesses acquired (net of cash amount) (42,240)
Debt issue costs (494)
Acquisition costs (279)
Deferred charge costs (17) (8)
(Increase) decrease in other intangible assets 22
-------- --------
Net cash used in investing activities (1,822) (46,684)
Cash flows from financing activities:
Proceeds from issuance of bank debt 29,552
Proceeds from issuance of Gessner note 4,378
Proceeds from issuance of common stock 2,628
Proceeds from exercise of stock options 137 132
Increase in revolving credit line 29 --
Payments on revolving credit line (29) --
Repayment of senior term debt (3,284) --
-------- --------
Net cash provided by financing activities (3,147) 36,690
Effect of exchange rate changes on cash (778) (37)
Net decrease in cash (7,510) (11,980)
Cash at beginning of period 33,804 37,275
-------- --------
Cash at end of period $ 26,294 $ 25,295
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
<PAGE>
FIBERMARK, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. Basis of Presentation:
The balance sheet as of March 31, 1999 and the statements of income and
cash flows for the quarters ended March 31, 1999 and 1998 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, 1998
included in the company's Annual Report on Form 10-K.
2. Inventories:
Inventories at March 31, 1999 and December 31, 1998 consisted of the
following (000's):
<TABLE>
<CAPTION>
(Unaudited)
03/31/99 12/31/98
<S> <C> <C>
Raw Material 18,586 16,328
Work in Progress 12,879 11,928
Finished Goods 14,463 16,681
Stores Inventory 1,810 1,671
Operating Supplies 1,703 1,909
Total Inventories 49,441 48,517
</TABLE>
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 is as follows:
<PAGE>
<TABLE>
<CAPTION>
---------- ----------
1 Qtr. 1 Qtr.
1999 1998
========== ==========
<S> <C> <C>
Numerator:
Income available to common shareholders used
in basic and diluted earnings per share ($000) $ 4,054 $ 4,351
---------- ----------
Denominator:
Denominator for basic earnings per share:
Weighted average shares 7,790,933 7,702,906
Effect of dilutive securities:
Fixed stock options 174,425 420,752
---------- ----------
Denominator for diluted earnings per share:
Adjusted weighted average shares 7,965,358 8,123,658
Basic earnings per share $ 0.52 $ 0.56
Diluted earnings per share $ 0.51 $ 0.54
</TABLE>
4. Comprehensive Income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
03/31/99 03/31/98
-------- --------
<S> <C> <C>
Net Income $ 4,054 $ 4,351
Minimum pension liability adjustment
net of tax benefit of $876 in 1999
and $295 in 1998 (1,545) (471)
Currency translation adjustment (145) (178)
-------- --------
Total comprehensive income $ 2,364 $ 3,702
</TABLE>
<PAGE>
5. Segment Information
The following table categorizes each market segment into the appropriate
operating segment.
<TABLE>
<CAPTION>
(In Thousands)
Operating Segment
-------------------------------------------------------------------------------
FiberMark Technical
Gessner and and Office Durable
Filter Media Products Specialties Other Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
First Quarter 1999 net sales
Market Segment
Filter Media 24,987 24,987
Technical Specialties 1,272 16,670 17,942
Durable Specialties 5,715 14,054 19,769
Office Products 13,208 13,208
-------------------------------------------------------------------------------
Total $ 31,974 $ 29,878 $ 14,054 $ -- $ 75,906
======== ======== ======== ======== ========
First Quarter 1998 net sales
Market Segment
Filter Media 25,544 25,544
Technical Specialties 1,759 20,345 22,104
Durable Specialties 5,435 13,699 19,134
Office Products 13,169 13,169
-------------------------------------------------------------------------------
Total $ 32,738 $ 33,514 $ 13,699 $ -- $ 79,951
======== ======== ======== ======== ========
</TABLE>
The following table details sales and selected financial data by operating
segment.
<TABLE>
<CAPTION>
(In Thousands)
FiberMark Technical
Gessner and and Office Durable
Filter Media Products Specialties Other Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
First Quarter 1999
Net sales $ 31,974 $ 29,878 $ 14,054 $ -- $ 75,906
Intersegment net sales 1,118 (1,118) --
-------- -------- -------- -------- --------
Total net sales $ 31,974 $ 30,996 $ 14,054 $ (1,118) $ 75,906
======== ======== ======== ======== ========
EBIT $ 4,818 $ 3,105 $ 1,487 $ 9,410
======== ======== ======== ======== ========
Depreciation & Amortization $ 683 $ 448 $ 614 $ -- $ 1,745
Total Assets $100,590 $ 95,291 $ 60,146 $ 52,641 $308,668
First Quarter 1998
Net sales $ 32,738 $ 33,514 $ 13,699 $ -- $ 79,951
Intersegment net sales 118 47 (165) --
-------- -------- -------- -------- --------
Total net sales $ 32,738 $ 33,632 $ 13,746 $ (165) $ 79,951
======== ======== ======== ======== ========
EBIT $ 5,098 $ 3,298 $ 1,699 $ 10,095
======== ======== ======== ======== ========
Depreciation & Amortization $ 625 $ 511 $ 628 $ -- $ 1,764
Total Assets $ 92,146 $ 97,498 $ 57,841 $ 51,553 $299,038
</TABLE>
(1) Corporate assets not allocated to operating segments.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998:
Net sales for the first quarter of 1999 were $75.9 million compared with $80.0
million for the first quarter of 1998, a 5.1% decrease. Sales in the FiberMark
Gessner and filter media operating segment decreased by 2.4% to $32.0 million
compared with $32.8 million in the first quarter of 1998. The technical and
office products segment sales decreased by 11.0% to $29.8 million compared with
$33.5 million for the same period in 1998. Sales in the durable specialties
operating segment increased 2.9% to $14.1 million compared with $13.7 million
for the first quarter of 1998.
Sales in the FiberMark Gessner and filter media segment were down from the first
quarter of 1998 due to market softness in U.S. filter and European abrasives,
partially offset by higher volume for filter media and tape base materials in
Europe. The decrease in the technical and office products segment reflects
pockets of short-term market softness and lower book cover sales due to a
customer bringing manufacturing in-house.
Gross margin for the quarter was 20.1% compared with 19.6% for last year. This
improvement was achieved in spite of a lower sales volume and a higher level of
production trial expenses related to product transfers. It was fueled primarily
by lower fiber prices, good manufacturing efficiencies and lower fixed costs
related to the closure of our Beaver Falls, NY facility.
General and administrative expenses at $5.8 million for the quarter were up
slightly from last year's level of $5.5 million.
Interest expense at $2.5 million for the quarter was comparable with last year's
level of $2.6 million.
The effective income tax rate was 41.3% compared with 42.3% for the first
quarter of 1998.
Net income for the first quarter of this year was $4.1 million, or $.51 per
share, compared with last year's level of $4.4 million, or $.54 per share.
Liquidity and Capital Resources
As of March 31, 1999, the company had outstanding $100.0 million of senior
notes. The notes have a ten-year term, are non-amortizing and carry a fixed
interest rate of 9.375%. Additionally, the company had available to it a $20.0
million revolving credit facility as of March 31, 1999. As of such date, no
advances were outstanding under such credit facility. Effective January 1, 1998
the company acquired Steinbeis Gessner GmbH. A portion of the purchase price was
funded through term loans. As of March 31, 1999, Gessner had a secured term loan
of $27.7 million with Bayerische Bank. The remaining loan balance amortizes over
six years with interest rates ranging from 6.1% to 7.0%. As of this same date,
Gessner had an unsecured term loan of $3.3 million with the previous owner. The
remaining loan balance amortizes over two years and has a fixed interest rate of
5%. As of March 31, 1999, Gessner also has a $8.3 million line of credit and a
$8.3 million
<PAGE>
capital spending facility with Bayerische Vereinsbank. As of such date no
advances were outstanding under these facilities.
The company's historical requirements for capital have been primarily for
servicing debt, capital expenditures and working capital. For the three months
ended March 31, cash flows from operating activities were ($1.8) million in 1999
and ($1.9) million for 1998. During these periods, additions to property, plant
and equipment totaled $1.8 million and $3.7 million in 1998 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.
On March 31, 1999 the company agreed to repurchase up to 1 million shares of its
common stock, which represents 13% of the shares outstanding. Stock repurchases
may be made periodically in both open market or private transactions. The extent
and timing of these transactions will depend on market conditions and other
corporate considerations. As of March 31, the company had a total of 7,798,822
shares of common stock outstanding.
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 our 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 impact on the company
was immaterial.
Year 2000
Readiness
The company expects to complete Year 2000 compliance by the third quarter of
1999. A significant portion of our systems is already compliant due to
implementation of new integrated information systems. In terms of hardware,
management believes the company's inventory of equipment is also compliant.
<PAGE>
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.
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. Anticipated costs are almost
exclusively the cost of installing the company's integrated information systems.
FiberMark Gessner had completed a substantial portion of 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.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company believes it has minimal exposure to financial market risks. All debt
is at a fixed rate. Most of the company's sales transactions have been conducted
in the currency where the shipment originated, limiting our exposure to changes
in currency exchange rates. The company does not use derivative financial
instruments.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Not applicable.
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:
Not applicable.
<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 14, 1999 /s/ Bruce Moore
---------------------------
Bruce Moore, Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
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 three-month period ended March 31, 1999 and 1998
of Form 10-Q for the three-month period ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
--------- ---------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
BASIC SHARES
Weighted average number of
shares issued and outstanding 7,790,933 7,702,906
DILUTIVE SHARES
Average Fixed Stock Options 174,425 420,752
--------- ---------
Adjusted weighted average shares 7,965,358 8,123,658
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE 3 MONTHS ENDED MAR 31,1999 FIBERMARK,
INC. 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-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 26,294
<SECURITIES> 0
<RECEIVABLES> 39,572
<ALLOWANCES> 0
<INVENTORY> 49,441
<CURRENT-ASSETS> 120,912
<PP&E> 125,562
<DEPRECIATION> 1,552
<TOTAL-ASSETS> 308,668
<CURRENT-LIABILITIES> 41,499
<BONDS> 127,375
0
0
<COMMON> 8
<OTHER-SE> 100,089
<TOTAL-LIABILITY-AND-EQUITY> 308,668
<SALES> 75,906
<TOTAL-REVENUES> 75,906
<CGS> 60,630
<TOTAL-COSTS> 66,394
<OTHER-EXPENSES> 102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,506
<INCOME-PRETAX> 6,904
<INCOME-TAX> 2,850
<INCOME-CONTINUING> 4,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,054
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.51
</TABLE>
