<PAGE>
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, 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
incorporation or organization) Identification No.)
161 WELLINGTON ROAD
P.O. BOX 498
BRATTLEBORO, VERMONT 05302
(802) 257-0365
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class Outstanding
Common Stock September 30, 1999
$.001 par value 7,745,083
<PAGE>
FIBERMARK, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements:
Consolidated Statements of Income 3
Three Months and Nine Months Ended
September 30, 1999 and 1998
Consolidated Balance Sheets 4
September 30, 1999 and December 31, 1998
Consolidated Statements of Cash Flows 5
Nine Months Ended
September 30, 1999 and 1998
Notes To Financial Statements 6-9
ITEM 2. Management's Discussion and Analysis of Financial 10-14
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
Page 2 of 15
<PAGE>
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months and Nine Months Ended September 30, 1999 and 1998
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 81,866 $ 73,150 $ 233,754 $ 231,692
Cost of sales 68,035 59,767 189,048 187,866
---------- ---------- ---------- ----------
Gross profit 13,831 13,383 44,706 43,826
Selling, general and administrative expenses 6,498 5,369 17,958 16,553
Facility closure expense 7,230 -- 7,230 --
---------- ---------- ---------- ----------
Income from operations 103 8,014 19,518 27,273
Other (income) expense, net (3) 68 179 183
Interest expense 2,502 2,682 7,731 7,818
---------- ---------- ---------- ----------
Income (loss) before income taxes (2,396) 5,264 11,608 19,272
Income tax expense (benefit) (863) 1,946 4,877 7,852
---------- ---------- ---------- ----------
Net income (loss) $ (1,533) $ 3,318 $ 6,731 $ 11,420
========== ========== ========== ==========
Basic earnings (loss) per share $ (0.20) $ 0.43 $ 0.87 $ 1.48
========== ========== ========== ==========
Diluted earnings (loss) per share $ (0.19) $ 0.41 $ 0.85 $ 1.41
========== ========== ========== ==========
Average basic shares outstanding 7,720 7,773 7,746 7,742
Average diluted shares outstanding 7,910 7,996 7,934 8,079
</TABLE>
(The accompanying notes are an integral part of the
consolidated financial statements.)
Page 3 of 15
<PAGE>
FIBERMARK, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
Unaudited Audited
September 30, December 31,
1999 1998
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,809 $ 33,804
Accounts receivable 44,208 31,518
Inventories 51,281 48,517
Other 1,209 700
Prepaid expense -- 204
Deferred income taxes 4,511 4,612
------------- -------------
Total current assets 110,018 119,355
Property, plant and equipment, net 166,831 128,375
Goodwill, net 54,784 49,692
Other intangible assets, net 7,820 8,383
Prepaid expense -- 1,176
Other long-term assets 1,320 1,433
Other pension assets 3,193 2,817
------------- -------------
TOTAL ASSETS $ 343,966 $ 311,231
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt $ 7,108 $ 3,598
Accounts payable 18,876 16,484
Accrued liabilities 25,820 18,682
------------- -------------
Total current liabilities 51,804 38,764
Long term liabilities:
Long term debt, less current portion 155,715 133,583
Deferred gain -- 9,166
Deferred income taxes 9,552 12,655
Other long-term liabilities 24,894 19,500
------------- -------------
Total long-term liabilities 190,161 174,904
------------- -------------
Total liabilities 241,965 213,668
Stockholders' Equity
Common stock 8 8
Additional paid-in capital 75,945 76,554
Retained earnings 27,765 21,034
Accumulated other comprehensive income (loss) (1,717) (33)
------------- -------------
Total stockholders' equity 102,001 97,563
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 343,966 $ 311,231
============= =============
</TABLE>
(The accompanying notes are an integral part of the
consolidated financial statements.)
Page 4 of 15
<PAGE>
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income 6,731 11,420
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,630 6,531
Amortization of deferred gain (1,289) (1,289)
Loss on closure of facility 7,230 --
Changes in operating assets and liabilities:
Accounts receivable (12,147) (3,428)
Inventories 612 1,052
Other 609 562
Accounts payable 1,872 (8,288)
Accrued pension and other liabilities 3,859 3,653
Other long-term liabilities (2,607) (2,003)
------------- -------------
Net cash provided by operating activities 11,500 8,210
Cash flows used for investing activities:
Additions to property, plant and equipment (41,295) (10,190)
Payments for businesses acquired (net of cash amount) (22,147) (43,275)
Acquisition costs (193) (176)
Deferred charge costs -- (69)
(Increase) decrease in other intangible assets 61 --
------------- -------------
Net cash used in investing activities (63,574) (53,710)
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
Proceeds from exercise of stock options 404 428
Cost of stock offering -- (511)
Stock buyback (1,013) --
Increase in revolving credit line 30,881 --
Payments on revolving credit line (17,000) --
Borrowing of senior term debt 16,194 --
Repayment of senior term debt (1,098) --
------------- -------------
Net cash provided by financing activities 28,368 35,950
Effect of exchange rate changes on cash (1,289) 376
Net decrease in cash (24,995) (9,174)
Cash at beginning of period 33,804 37,275
------------- -------------
Cash at end of period $ 8,809 $ 28,101
============= =============
</TABLE>
(The accompanying notes are an integral part of the
consolidated financial statements.)
Page 5 of 15
<PAGE>
FIBERMARK, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION:
The balance sheet as of September 30, 1999 and the statements of income and
cash flows for the periods ended September 30, 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 September 30, 1999 and December 31, 1998 consisted of the
following (000's):
(Unaudited)
9/30/99 12/31/98
Raw Material 15,747 16,328
Work in Progress 15,375 11,928
Finished Goods 16,904 16,681
Stores Inventory 2,096 1,671
Operating Supplies 1,159 1,909
----------------- --------------
TOTAL INVENTORIES 51,281 48,517
================= ==============
3. ACQUISITION:
Effective August 1, 1999, the company acquired Papierfabrik Lahnstein GmbH
for a purchase price of $22.1 million. FiberMark Lahnstein manufactures
specialty papers and nonwoven materials. The operation's coating substrates
are used for wallcoverings, security papers, self-adhesive labels and
flooring overlay; printing substrates for graphic arts applications,
specialty tags and labels; and disposable nonwovens for medical products
and tablecloths. This acquisition was financed with $6.9 million of cash
reserves along with borrowings under a DM28.5 ($15.2) million bank facility
with Bayerische Vereinsbank. The acquisition is accounted for as a purchase
and results in approximately 7.0 million in goodwill. Goodwill is being
amortized on a straight-line basis over thirty years.
Page 6 of 15
<PAGE>
4. DEFERRED GAIN AND SALE LEASEBACK:
On September 30, 1999, the company terminated the sale/leaseback facility
with The CIT Group, and repurchased the assets at its Brattleboro mill.
Concurrently, the company expanded its revolving credit facility with CIT
from $20.0 million to $50.0 million. On an annualized basis, this
transaction will reduce lease expense by $4.5 million and increase
depreciation expense by $1.2 million. Due to this cost structure reduction,
inventory valuation was reduced by $.8 million.
5. FACILITY CLOSURE:
On August 31, 1999, the company initiated a project to install a new paper
machine at its Warren Glen, New Jersey facility and to consolidate
operations from the neighboring Hughesville, New Jersey mill. The company
plans to cease operations at Hughesville by December 31, 2000, and the book
value of the mill has been written down accordingly. The company recorded a
$7.2 million pre-tax charge related to the closure of this facility in the
third quarter of 1999.
6. NET INCOME (LOSS) PER COMMON SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted income per common share computations for the company's reported net
income follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
9/30/99 9/30/98 9/30/99 9/30/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) available to common shareholders used in
basic and diluted earnings per share ($000) $ (1,533) $ 3,318 $ 6,731 $ 11,420
----------- ----------- ----------- -----------
Denominator:
Denominator for basic earnings (loss) per share:
Weighted average shares 7,719,654 7,772,895 7,745,640 7,742,493
Effect of dilutive securities:
Fixed stock options 190,079 222,956 188,176 336,995
----------- ----------- ----------- -----------
Denominator for diluted earnings (loss) per share:
Adjusted weighted average shares 7,909,733 7,995,851 7,933,816 8,079,488
=========== =========== =========== ===========
Basic earnings (loss) per share $ (0.20) $ 0.43 $ 0.87 $ 1.48
Diluted earnings (loss) per share $ (0.19) $ 0.41 $ 0.85 $ 1.41
</TABLE>
7. COMPREHENSIVE INCOME (LOSS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
9/30/99 9/30/98 9/30/99 9/30/98
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (loss) $ (1,533) $ 3,318 $ 6,731 $ 11,420
Minimum pension liability adjustment
net of tax benefit 54 0 82 0
Currency translation adjustment 924 1,435 (1,766) 1,586
----------- ----------- ----------- -----------
Total comprehensive income (loss) $ (555) $ 4,753 $ 5,047 $ 13,006
=========== =========== =========== ===========
</TABLE>
Page 7 of 15
<PAGE>
8. SEGMENT INFORMATION:
The following table categorizes net sales in each market segment into the
appropriate operating segment:
<TABLE>
<CAPTION>
(In Thousands)
Operating Segment
------------------------------------------------------------------------
Technical
3 months ended September 30, 1999 German Oper. & Office Durable
Net sales & Filter Media Products Specialties Other Total
-------------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
MARKET SEGMENT
Filter Media 22,437 1,360 23,797
Technical Specialties 8,207 14,338 22,545
Durable Specialties 5,674 16,505 22,179
Office Products 13,345 13,345
----------- ----------- ----------- ----------- -----------
Total $ 36,318 $ 29,043 $ 16,505 $ -- $ 81,866
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
3 months ended September 30, 1998
Net sales
<S> <C> <C> <C> <C> <C>
MARKET SEGMENT
Filter Media 21,939 1,493 23,432
Technical Specialties 2,309 17,198 19,507
Durable Specialties 4,636 12,583 17,219
Office Products 12,992 12,992
----------- ----------- ----------- ----------- -----------
Total $ 28,884 $ 31,683 $ 12,583 $ - $ 73,150
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
Operating Segment
------------------------------------------------------------------------
Technical
9 months ended September 30, 1999 German Oper. & Office Durable
Net sales & Filter Media Products Specialties Other Total
-------------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
MARKET SEGMENT
Filter Media 70,541 4,003 74,544
Technical Specialties 11,054 43,908 54,962
Durable Specialties 17,637 47,269 64,906
Office Products 39,342 39,342
----------- ----------- ----------- ----------- -----------
Total $ 99,232 $ 87,253 $ 47,269 $ - $ 233,754
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
9 months ended September 30, 1998
Net sales
<S> <C> <C> <C> <C> <C>
MARKET SEGMENT
Filter Media 71,324 3,877 75,201
Technical Specialties 6,512 54,510 61,022
Durable Specialties 15,477 41,607 57,084
Office Products 38,385 38,385
----------- ----------- ----------- ----------- -----------
Total $ 93,313 $ 96,772 $ 41,607 $ - $ 231,692
=========== =========== =========== =========== ===========
</TABLE>
Page 8 of 15
<PAGE>
8. SEGMENT INFORMATION (CONTINUED)
The following table details selected financial data by operating segment:
<TABLE>
<CAPTION>
(In Thousands)
Operating Segment
------------------------------------------------------------- -----------
Technical
German Oper. & Office Durable
3 MONTHS ENDED SEPTEMBER 30, 1999 & Filter Media Products Specialties Other Total
- --------------------------------- -------------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 36,318 $ 29,043 $ 16,505 $ 81,866
Inter-segment net sales 810 (810) --
----------- ----------- ----------- ----------- -----------
Total net sales $ 36,318 $ 29,853 $ 16,505 $ (810) $ 81,866
=========== =========== =========== =========== ===========
EBIT $ 2,852 $ 3,048 $ 2,453 $ (8,247)(1) $ 106
=========== =========== =========== =========== ===========
Depreciation and amortization $ 830 $ 478 $ 569 $ 1,877
Total assets $ 141,864 $ 118,903 $ 57,537 $25,662 (2) $ 343,966
3 MONTHS ENDED SEPTEMBER 30, 1998
Net sales $ 28,884 $ 31,683 $ 12,583 $ 73,150
Inter-segment net sales 49 174 51 (274) --
----------- ----------- ----------- ----------- -----------
Total net sales $ 28,933 $ 31,857 $ 12,634 $ (274) $ 73,150
=========== =========== =========== =========== ===========
EBIT $ 2,929 $ 3,451 $ 1,566 $ 7,946
=========== =========== =========== =========== ===========
Depreciation and amortization $ 674 $ 529 $ 629 $ 1,832
Total assets $ 109,312 $ 97,952 $ 57,735 $ 45,932 (2) $ 310,931
</TABLE>
<TABLE>
<CAPTION>
(In Thousands)
Operating Segment
------------------------------------------------------------- -----------
Technical
German Oper. & Office Durable
9 MONTHS ENDED SEPTEMBER 30, 1999 & Filter Media Products Specialties Other Total
- --------------------------------- -------------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 99,232 $ 87,253 $ 47,269 $ 233,754
Inter-segment net sales 24 3,012 123 (3,159) --
----------- ----------- ----------- ----------- -----------
Total net sales $ 99,256 $ 90,265 $ 47,392 $ (3,159) $ 233,754
=========== =========== =========== =========== ===========
EBIT $ 11,821 $ 9,095 $ 6,670 $ (8,247)(1) $ 19,339
=========== =========== =========== =========== ===========
Depreciation and amortization $ 2,182 $ 1,380 $ 1,779 $ 5,341
Total assets $ 141,864 $ 118,903 $ 57,537 $ 25,662 (2) $ 343,966
9 MONTHS ENDED SEPTEMBER 30, 1998
Net sales $ 93,313 $ 96,772 $ 41,607 $ 231,692
Inter-segment net sales 49 499 201 (749) --
----------- ----------- ----------- ----------- -----------
Total net sales $ 93,362 $ 97,271 $ 41,808 $ (749) $ 231,692
=========== =========== =========== =========== ===========
EBIT $ 11,839 $ 9,447 $ 5,804 $ 27,090
=========== =========== =========== =========== ===========
Depreciation and amortization $ 1,915 $ 1,546 $ 1,860 $ 5,321
Total assets $ 109,312 $ 97,952 $ 57,735 $ 45,932 (2) $ 310,931
1999 Other Includes: Technical & Office Products: Facility closure $ (7,230)
Sale/leaseback termination $ (1,017)
</TABLE>
(2) Corporate assets not allocated to operating segments.
Page 9 of 15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales for the third quarter of 1999 were $81.9 million compared with $73.2
million for the third quarter of 1998, a 11.9% increase. The Lahnstein
acquisition accounted for $6.3 million of this increase. Sales in FiberMark's
German operations and filter media operating segment increased by 25.6% to $36.3
million compared with $28.9 million in the third quarter of 1998, with $6.3
million of this increase related to the Lahnstein acquisition. The technical and
office products operating segment sales decreased by 8.5% to $29.0 million
compared with $31.7 million for the same period in 1998. Sales in the durable
specialties operating segment increased by 31.0% to $16.5 million compared with
$12.6 million for the third quarter of 1998.
Sales in the German operations and filter media segment were up slightly due to
strong demand in the automotive and vacuum bag filter business in Europe, and
steady demand in the U.S. Production interruptions at a European filter
competitor have resulted in short-term gains as their customers have placed
orders with us. The decrease in the technical and office products segment was
primarily due to reduced book cover volume after a customer brought
manufacturing in-house, as previously disclosed. The reduction in book cover
volume was partially offset by an increase in office products sales from
continued penetration into lighter-weight markets with filing and presentation
cover materials. The increase in durable specialties reflects strong demand
worldwide for masking tape driven by new housing construction and renovation
projects.
Gross margin for the third quarter was 16.9% compared with 18.3% last year. The
lower gross margin was attributable to rising pulp and energy costs, downward
pricing pressure, and to a higher proportion of business in Germany where third
quarter margins are seasonally lower. Additionally, there was a $.8 million
inventory valuation reduction as a result of the termination of the
sale/leaseback facility with the CIT Group in the third quarter of 1999.
General and administrative expenses for the third quarter of 1999 were $6.5
million compared to $5.4 million for the same period in 1998. The increase is
primarily due to the Lahnstein acquisition and the termination of the
sale/leaseback facility.
Interest expense at $2.5 million for the quarter was comparable with last year's
level of $2.7 million. The debt incurred to fund the Lahnstein acquisition was
placed on September 17, therefore had little impact on quarterly interest
expense.
The effective income tax rate was 36.0% compared with 37.0% for the third
quarter of 1998.
On a recurring basis, during the third quarter, the company experienced a net
loss of $1.5 million, or $.19 per share, compared with net income for the
comparable 1998 quarter of $3.3 million, or $.41 per share. The write down of
the Hughesville facility negatively impacted net income in the quarter by $4.4
million or $.56 per share and the termination of the sale/leaseback facility
reduced net income by $.6 million or $.08 per share. Excluding the tax adjusted
impact of the write down for the Hughesville facility and the termination of the
sale/leaseback facility, net income would have been $3.5 million or $.45 per
share.
Page 10 of 15
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales for the first nine months of 1999 were $233.8 million compared with
$231.7 million for the first nine months of 1998, a .9% increase. Sales in
FiberMark's German operations and filter media operating segment increased by
6.3% to $99.2 million compared with $93.3 million in the first nine months of
1998. The Lahnstein acquisition accounted for $6.3 million. The technical and
office products operating segment sales decreased by 9.8% to $87.3 million
compared with $96.8 million for the same period in 1998. Sales in the durable
specialties operating segment increased by 13.7% to $47.3 million compared with
$41.6 million for the first nine months of 1998.
Sales in the German operations and filter media segment were down slightly from
the first nine months of 1998 due to market softness in filter media in the U.S,
and abrasive materials in Europe, partially offset by higher volume for filter
media and tape base materials in Europe. The decrease in the technical and
office products segment were primarily due to reduced book cover volume after a
customer brought manufacturing in-house, as previously disclosed. The company
also experienced some pockets of softness, particularly in our abrasive and
printing grade product lines, offset somewhat by incremental business gains in
office products. The increase in durable specialties reflects market strength, a
mild resurgence in sales in the Far East and successful business development
efforts in masking tape base.
Gross margin for the first nine months of 1999 was 19.1% compared with 18.9% for
last year. This increase is primarily due to lower fiber prices which were
partially offset by a .3% negative impact from the inventory valuation reduction
associated with the termination of the sale/leaseback facility.
General and administrative expenses increased by $1.4 million in the first nine
months of 1999 to $18.0 million versus $16.6 million for the comparable
nine-month period, primarily due to the impact of the Lahnstein acquisition.
Interest expense at $7.7 million for the first nine months of 1999 was
comparable with last year's level of $7.8 million.
The effective income tax rate for the first nine months of 1999 was 42.0%
compared with 40.7% for the first nine months of 1998.
Net income for the first nine months of 1999 was $6.7 million or $.85 per share,
compared with last year's level of $11.4 million, or $1.41 per share. The write
down of the Hughesville facility in the third quarter reduced net income by $4.4
million or $.56 per share. In addition, the termination of the sale/leaseback
facility lowered net income by $.6 million or $.08 per share.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 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 $50.0
million revolving credit facility as of September 30, 1999. As of such date,
$13.9 million was 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 September 30, 1999, Gessner had a
secured term loan of $27.4 million with Bayerische Vereinsbank. 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
Page 11 of 15
<PAGE>
has a fixed interest rate of 5%. As of September 30, 1999, Gessner had a $8.2
million line of credit with Bayerische Vereinsbank. As of such date no advances
were outstanding under the line of credit. As of September 30, 1999, Gessner
also had a capital spending facility with Bayerische Vereinsbank. Under this
facility $2.7 million had been advanced, with a remaining balance of $5.5
million.
Effective August 1, 1999 the company acquired Papierfabrik Lahnstein GmbH. A
portion of the purchase price was funded through term loans. As of September 30,
1999 Lahnstein had a secured term loan of $15.6 million with Bayerische
Vereinsbank. The remaining loan balance amortizes over six years with an average
interest rate of 6.5%.
The company's historical requirements for capital have been primarily for
servicing debt, capital expenditures and working capital. For the nine months
ended September 30, cash flows from operating activities were $11.5 million in
1999 and $8.2 million for 1998. During these periods, additions to property,
plant and equipment totaled $41.3 million and $10.2 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 represented 13% of the shares outstanding at that time.
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 September 30, 1999, share
repurchases totaled 85,400. As of September 30, the company had a total of
7,745,083 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.
Page 12 of 15
<PAGE>
YEAR 2000
READINESS
The company expects to complete Year 2000 compliance early in the fourth quarter
of 1999. The majority of our systems are 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. Internal process systems
are largely compliant, and should be fully compliant by early in the fourth
quarter.
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, as had FiberMark Lahnstein.
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
Page 13 of 15
<PAGE>
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.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Reports on Form 8-K:
Not applicable.
Page 14 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, Inc.
Date: November 12, 1999
/s/ Bruce Moore
---------------------------------
Bruce Moore, Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
Page 15 of 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE 9 MONTHS ENDED SEPT. 30, 1998
FIBERMARK, INC. 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,809
<SECURITIES> 0
<RECEIVABLES> 44,208
<ALLOWANCES> 0
<INVENTORY> 51,281
<CURRENT-ASSETS> 110,018
<PP&E> 166,831
<DEPRECIATION> 4,816
<TOTAL-ASSETS> 343,966
<CURRENT-LIABILITIES> 51,804
<BONDS> 155,715
0
0
<COMMON> 8
<OTHER-SE> 101,993
<TOTAL-LIABILITY-AND-EQUITY> 343,966
<SALES> 233,754
<TOTAL-REVENUES> 233,754
<CGS> 189,048
<TOTAL-COSTS> 214,236
<OTHER-EXPENSES> 179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,731
<INCOME-PRETAX> 11,608
<INCOME-TAX> 4,877
<INCOME-CONTINUING> 6,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,731
<EPS-BASIC> 0.87
<EPS-DILUTED> 0.85
</TABLE>
