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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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: 0000914066
FOILMARK, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 11-3101034
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 MALCOLM HOYT DRIVE
NEWBURYPORT, MA 01950
(Address of principal executive offices) (ZIP Code)
(978) 462-7300
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark 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 REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS:
Indicate by checkmark whether the Registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of October 30, 2000.
Title Outstanding
$.01 par value common stock 8,039,065
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<PAGE>
FOILMARK, INC.
INDEX TO FORM 10-Q
<TABLE><CAPTION>
PAGE
<S> <C>
INDEX 2
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 2000 (Unaudited) and June 30, 2000 3
Consolidated Statements of Earnings for the Three Months Ended
September 30, 2000 and September 30, 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 2000 and September 30, 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings 10
Item 2 - Changes in Securities 10
Item 3 - Defaults Upon Senior Security 10
Item 4 - Submission of Matters to Vote of Security Holders 10
Item 5 - Other Information 10
Item 6 - Other Proceedings 10
Item 7a - Quantitative and Qualitative Disclosures About Market Risk 10
Signatures 11
</TABLE>
2
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PART I - FINANCIAL INFORMATION
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 1,414,598 $ 1,172,651
Accounts receivable - trade (less allowance for doubtful
accounts of $851,000 and $934,000, respectively) 10,959,481 10,583,564
Inventories 16,220,676 15,718,172
Other current assets 920,859 965,180
Income taxes receivable 44,034 45,800
Deferred income taxes 1,396,932 1,396,932
------------ ------------
Total current assets 30,956,580 29,882,299
Property, plant and equipment, net 15,874,433 15,390,716
Bond and mortgage financing costs, net 267,001 284,495
Intangible assets, net 3,807,501 3,872,961
Restricted cash 2,631,387 3,062,388
Other assets 160,423 183,096
Notes receivable 1,019,930 1,032,816
------------ ------------
$ 54,717,255 $ 53,708,771
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current installments of notes payable to stockholders $ 113,661 $ 123,062
Current installments of other long-term debt 1,824,469 1,827,197
Accounts payable 4,628,510 3,809,306
Accrued expenses 3,132,162 3,248,246
Income taxes payable 79,053 --
Merger integration costs and related liabilities 902,710 985,712
Customer deposits 114,426 113,493
------------ ------------
Total current liabilities 10,794,991 10,107,016
LONG-TERM DEBT:
Notes payable to stockholders, net of current installments 340,715 348,819
Other long-term debt, net of current installments 14,037,024 14,604,349
------------ ------------
14,377,739 14,953,168
Deferred income taxes 1,786,261 1,788,908
STOCKHOLDERS' EQUITY:
Preferred stock ($.01 par value; 500,000 shares authorized;
0 shares outstanding) -- --
Common stock ($.01 par value; 15,000,000 shares authorized:
8,078,265 and 8,035,683 shares issued, respectively) 80,783 80,357
Additional paid-in capital 21,497,960 21,422,800
Retained earnings 6,429,645 5,525,864
Treasury stock, at cost (39,200 shares) (127,693) (127,693)
Accumulated other comprehensive loss (122,431) (41,649)
------------ ------------
Total stockholders' equity 27,758,264 26,859,679
------------ ------------
$ 54,717,255 $ 53,708,771
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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PART I - FINANCIAL INFORMATION
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE><CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 16,667,826 $ 16,322,965
Cost of sales 12,005,351 11,376,109
------------ ------------
Gross profit 4,662,475 4,946,856
Selling, general & administrative expenses 3,085,456 3,462,961
------------ ------------
Income from operations 1,577,019 1,483,895
Other income (expense):
Interest expense - net (173,623) (215,276)
Other income (expense) 1,385 9,196
------------ ------------
Income before taxes 1,404,781 1,277,815
Provision for income taxes (501,000) (486,000)
------------ ------------
Net income $ 903,781 $ 791,815
============ ============
Weighted average shares outstanding (basic) 8,005,402 7,905,750
Weighted average shares outstanding (diluted) 8,390,222 8,186,851
Earnings per share - basic $ 0.11 $ 0.10
Earnings per share - diluted $ 0.11 $ 0.10
</TABLE>
See accompanying notes to financial statements.
4
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PART I - FINANCIAL INFORMATION
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE><CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 903,781 $ 791,815
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 811,687 735,931
Amortization 97,050 79,907
Provision for doubtful accounts (103,547) (163,030)
Change in assets and liabilities:
Increase in accounts receivable (311,707) (347,711)
Increase in inventories (519,512) (353,100)
Decrease in income taxes receivable 1,766 --
Decrease in notes receivable and other assets 60,830 82,658
Increase (decrease) in customer deposits 933 (867)
Increase in accounts payable and accrued expenses 720,743 1,009,043
Increase in income taxes payable 81,551 171,705
Decrease in merger integration costs and related liabilities (83,002) (702,166)
----------- -----------
Net cash provided by operating activities 1,660,573 1,304,185
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,328,608) (661,238)
Decrease (increase) in restricted cash 431,001 (82,355)
----------- -----------
Net cash used in investing activities (897,607) (743,593)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable to stockholders (17,505) (16,494)
Proceeds of other long-term debt -- 5,019,725
Payments of other long-term debt (570,053) (5,450,584)
Proceeds from exercise of stock options 75,586 4,481
----------- -----------
Net cash used for financing activities (511,972) (442,872)
----------- -----------
Effect of exchange rate changes on cash (9,047) 18,155
----------- -----------
Net increase in cash 241,947 135,875
Cash - beginning of period 1,172,651 1,326,231
----------- -----------
Cash - end of period $ 1,414,598 $ 1,462,106
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest $ 283,874 $ 154,588
Income taxes $ 442,656 $ 549,845
</TABLE>
See accompanying notes to consolidated financial statements.
5
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FOILMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
1. The accompanying consolidated financial statements of Foilmark, Inc., and
subsidiaries ("Foilmark" or the "Company") for the three month periods ended
September 30, 2000 and 1999 have been prepared in accordance with generally
accepted accounting principles and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. These consolidated financial statements have
not been audited by independent public accountants but include all
adjustments (consisting of only normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the
financial condition, results of operations and cash flows for such periods.
These consolidated financial statements do not include all disclosures
associated with annual financial statements and accordingly should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K, dated September 21,
2000, as filed with the Securities and Exchange Commission, a copy of which
is available from the Company upon request. The results for the three months
ended September 30, 2000 are not necessarily indicative of the operating
results for the remainder of the year.
2. On April 23, 1999, HoloPak merged into a subsidiary of Foilmark. HoloPak
shareholders received 1.11 shares of Foilmark common stock, par value $0.01
per share, plus $1.42 in cash for each share of HoloPak common stock, or a
total of 3,715,935 shares of common stock and $4,753,718 in cash. As of
September 30, 2000, accrued merger integration costs totaled $902,710, a
decrease from $985,712 at June 30, 2000. These remaining accrued costs are
principally related to costs associated with lease terminations, expected to
be paid out during the term of the underlying lease agreements, and
personnel costs, expected to be paid out during the term of the underlying
employment agreements. The decrease is due to payments made during the
fiscal 2001 period against the accrued merger integration liability account.
3. The composition of inventories as of September 30, 2000 and June 30, 2000
was as follows:
September 30, 2000 June 30, 2000
------------ ------------
(unaudited)
Raw Materials $ 3,787,933 $ 4,825,060
Work in Process 3,571,234 2,179,317
Finished Goods 8,861,509 8,713,795
------------ ------------
Total $ 16,220,676 $ 15,718,172
============ ============
4. The following table sets forth the segment financial information for the
three months ended September 30, 2000 and 1999, respectively:
<TABLE><CAPTION>
Pad Print Corporate and
TTF Holography and Supplies Unallocated Total
--- ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Sales to External Customers 2000 8,318,981 6,692,063 1,656,782 -- 16,667,826
1999 8,668,047 6,026,482 1,628,436 -- 16,322,965
Segment Profit (Loss) 2000 217,333 1,239,187 184,693 (236,432) 1,404,781
1999 1,007,748 578,719 (88,092) (220,560) 1,277,815
</TABLE>
6
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5. Accumulated other comprehensive loss included in the accompanying
consolidated balance sheets represents the effect of the change in foreign
currency exchange rates. Comprehensive income for the three month period
ended September 30, 2000 was $822,999. Comprehensive income for the three
months ended September 30, 1999 was $809,970.
6. Basic income per share is computed by dividing net income by the weighted
average number of shares outstanding for the year. Diluted income per share
is similar except that the weighted average number of shares outstanding is
increased by shares issuable upon exercise of stock options for which market
price exceeds exercise price, less shares which could have been purchased by
the Company with the related proceeds unless the effect is antidilutive.
A reconciliation of the weighted average number of shares outstanding used
in the computation of the basic and diluted income per share for the three
months ended September 30, 2000 and 1999 is as follows:
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Weighted Average Shares--Basic 8,005,402 7,905,750
Effect of Dilutive Stock Options 384,820 281,101
------------------ ------------------
Weighted Average Shares--Diluted 8,390,222 8,186,851
================== ==================
Outstanding options to purchase shares of common stock, representing
approximately 296,000 shares of common stock on September 30, 2000, were not
included in the computations of diluted earnings per share for the three
month period ended September 30, 2000 because their effect would be
anti-dilutive.
7. The Company adopted Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities," on July
1, 2000. Since the Company does not have any derivatives and does not engage
in hedging activities, the adoption of SFAS No. 133 had no impact on the
Company's consolidated financial statements.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
--------------------------
The following discussion and analysis includes certain forward-looking
statements, which are subject to a number of risks and uncertainties as
described in Management's Discussion and Analysis in the Company's Annual Report
on Form 10-K for the year ended June 30, 2000. Such forward-looking statements
are based on current expectations, and actual results may differ materially.
NET SALES for the three months ended September 30, 2000 were $16.7 million
compared to $16.3 million for the same three month period in 1999. The increase
of 2.5% was the result of an 11% increase in the sales of the holographic
segment, offset by a decrease in the thermal transfer films (TTF) segment of 4%.
The decline in TTF sales is in line with the Company's long-term strategy to
reduce dependence on this lower margin segment while growing the higher margin
holography segment. The decrease in TTF sales was accelerated in this quarter as
a result of weak export sales due to the strong dollar in relation to the Euro
and other currencies. TTF sales decreased to 50% of total sales in the three
months ended September 30, 2000 from 53% in the corresponding three month period
of fiscal 1999.
Sales of the holographic segment accounted for 40% of total sales, up from 37%
in the first quarter of fiscal 2000. There were some capacity constraints in the
holographic segment pending the installation of new production equipment, which
is included in the Company's $5 million expansion program. This equipment is
currently scheduled to be available for the second half of the fiscal year.
GROSS PROFIT declined to 28.0% for the three months ended September 30, 2000,
compared to 30.3% for the three months ended September 30, 1999. The decrease in
gross profit was primarily due to the impact of rising oil prices affecting the
thermal transfer film raw material costs that could not be entirely passed on to
customers due to the competitive conditions currently existing in the TTF
industry. In addition, the weak Euro necessitated offering special discounts to
European customers of TTF products in order to maintain market share.
Worldwide demand of the holographic segment products remained strong through the
first quarter of fiscal 2001. Gross profit of the holographic segment increased
by 2%, compared to the first quarter of fiscal 2000. Gross profit in this
segment was also negatively impacted by limitations in equipment capabilities,
causing some production inefficiencies. The Company expects improvements in
efficiencies when the new equipment is placed in service in the second half of
fiscal 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased to 18.5% of sales for the
three months ended September 30, 2000, compared to 21.2% for the corresponding
three month period in 1999. The decrease of $0.4 million results from
streamlining operations through the elimination of duplications after the
completion of the April 1999 merger with HoloPak. Many of these expenses were
not able to be immediately reduced or eliminated due to commitments and
agreements.
INCOME FROM OPERATIONS increased to $1.6 million, up from $1.5 million, for the
three months ended September 30, 2000, compared to the corresponding three month
period in 1999. The increase in operating income resulted from lower expenses,
enabling the Company to offset the decline in gross profit.
8
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INTEREST EXPENSE decreased by $41,000 to $174,000 from $215,000 for the three
months ended September 30, 2000, compared to the three month period ending
September 30, 1999. The reduction in interest expense is due to a lower rate of
interest on $4.3 million of long-term debt (representing tax-exempt bonds at a
fixed interest rate of 5.85%) existing at September 30, 2000 net of restricted
cash compared to September 1999. Although total debt net of restricted cash for
the two periods is similar, a portion of the 1999 debt was at substantially
higher interest rates.
PROVISION FOR INCOME TAXES totaled $501,000 for the three months ended September
30, 2000, compared to $486,000 for the comparable period in 1999. The 36%
effective rate for the first quarter of fiscal 2001 is consistent with the
effective rate for the fiscal year ended June 30, 2000.
NET INCOME AND NET INCOME PER SHARE for the three months ended September 30,
2000 was $0.9 million, or $0.11 per diluted share, compared to $0.8 million, or
$0.10 per diluted share, for the three months ended September 30, 1999. The
increase in net income and income per share for the three months ended September
30, 2000 compared to 1999 is attributable to reduced selling, general,
administrative and interest expenses which offset the lower gross profit in the
TTF segment.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
In February 2000, the Company announced an investment program of approximately
$5.0 million over the following eighteen months for the purchase of
state-of-the-art equipment for holographic origination, production and
converting. The investments are being made in Foilmark's security and packaging
holographic operations. Primary funding for the expansion is through the
issuance of $4.5 million tax-exempt bonds from the New Jersey Economic
Development Authority. All of the bonds were purchased by one of Foilmark's
banks on June 1, 2000. The bonds are payable in equal principal payments over
eight years. During the three months ended September 30, 2000, the Company made
capital expenditures of $1,328,608. As of September 30, 2000, the Company had
$2,631,387 remaining in restricted cash to purchase qualified equipment using
the bond proceeds.
At September 30, 2000, the Company had working capital of $20.2 million and
tangible net worth of $23.7 million, compared to $19.8 million and $22.7
million, respectively, at June 30, 2000. Total availability under its line of
credit at September 30, 2000 was $10.5 million. The Company expects that cash
from operations and the credit facility will be sufficient to meet its operating
needs for the foreseeable future. At September 30, 2000, the Company was in
compliance with all covenants of the loan agreements.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS Not Applicable
ITEM 2 - CHANGES IN SECURITIES Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITY Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable
ITEM 5 - OTHER INFORMATION Not Applicable
ITEM 6 - OTHER PROCEEDINGS
(a) Exhibits
Schedule of Financial Data
(b) Reports on Form 8-K
None
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7a has been disclosed in Item 7a of
the Company's Annual Report on Form 10-K for the year ended June 30,
2000. There has been no material change in the disclosure regarding
market risk.
10
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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.
FOILMARK, INC.
(Registrant)
Date: November 7, 2000 /s/ Frank J. Olsen, Jr.
----------------------------
Frank J. Olsen, Jr.
President and
Chief Executive Officer
Date: November 7, 2000 /s/ Philip Leibel
----------------------------
Philip Leibel
Vice President-Finance and
Chief Financial Officer
11
