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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

 

 

ý

Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

 

 

For the quarterly period ended September 30, 2002

 

or

 

o

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
incorporation or organization)

 

(I.R.S. Employer
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 ý                        No o

 

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, 2002

 

$.001 par value

 

7,066,226

 

 

 



 

FIBERMARK, INC.

INDEX

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

Financial Statements:

 

 

 

Consolidated Statements of Income
Three Months Ended September 30, 2002, and 2001

 

Nine Months Ended September 30, 2002, and 2001

 

 

 

Consolidated Balance Sheets
September 30, 2002, and December 31, 2001

 

 

 

Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002, and 2001

 

 

 

Notes To Consolidated Financial Statements

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

ITEM 4.

Controls and Procedures

 

 

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

Legal Proceedings

 

 

ITEM 2.

Changes in Securities and Use Of Proceeds

 

 

ITEM 3.

Defaults Upon Senior Securities

 

 

ITEM 4.

Submission of Matters to Vote of Security Holders

 

 

ITEM 5.

Other Information

 

 

ITEM 6.

Exhibits and Reports on Form 8-K

 

 

SIGNATURES

 

 

2



 

FIBERMARK, INC.

Consolidated Statements of Income

Three Months Ended September  30, 2002 and 2001

 

(In thousands, except per share amounts)

Unaudited

 

 

 

2002

 

2001

 

 

 

 

 

 

 

Net sales

 

$

97,594

 

$

100,858

 

 

 

 

 

 

 

Cost of sales

 

77,550

 

88,760

 

 

 

 

 

 

 

Gross profit

 

20,044

 

12,098

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

8,745

 

9,243

 

Facility closure expense

 

 

10,745

 

Sale of technology

 

 

(10,735

)

 

 

 

 

 

 

Income from operations

 

11,299

 

2,845

 

 

 

 

 

 

 

Other expense, net

 

322

 

1,686

 

 

 

 

 

 

 

Interest expense

 

8,470

 

8,119

 

 

 

 

 

 

 

Income (loss) before income taxes

 

2,507

 

(6,960

)

 

 

 

 

 

 

Income tax expense (benefit)

 

1,364

 

(1,128

)

 

 

 

 

 

 

Net income (loss)

 

$

1,143

 

$

(5,832

)

 

 

 

 

 

 

Basic earnings per share

 

 

 

 

 

Net income (loss)

 

$

0.16

 

$

(0.84

)

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

0.16

 

$

(0.84

)

 

 

 

 

 

 

Average Basic Shares Outstanding

 

7,066

 

6,903

 

Average Diluted Shares Outstanding

 

7,093

 

6,903

 

 

See accompanying notes to consolidated financial statements.

 

3



 

FIBERMARK, INC.

Consolidated Statements of Income

Nine Months Ended September 30, 2002 and 2001

 

(In thousands, except per share amounts)

Unaudited

 

 

 

2002

 

2001

 

 

 

 

 

 

 

Net sales

 

$

299,876

 

$

293,283

 

 

 

 

 

 

 

Cost of sales

 

237,419

 

250,591

 

 

 

 

 

 

 

Gross profit

 

62,457

 

42,692

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

27,540

 

21,757

 

Facility closure expense

 

 

23,614

 

Sale of technology

 

 

(10,563

)

 

 

 

 

 

 

Income from operations

 

34,917

 

7,884

 

 

 

 

 

 

 

Other expense, net

 

1,065

 

3,547

 

 

 

 

 

 

 

Interest expense

 

25,985

 

18,676

 

 

 

 

 

 

 

Income (loss) before income taxes and extraordinary item

 

7,867

 

(14,339

)

 

 

 

 

 

 

Income tax expense (benefit)

 

3,774

 

(3,684

)

 

 

 

 

 

 

Income (loss) before extraordinary item

 

4,093

 

(10,655

)

 

 

 

 

 

 

Extraordinary item:

 

 

 

 

 

Loss on early extinguishment of debt (net of income tax benefit)

 

 

(696

)

 

 

 

 

 

 

Net income (loss)

 

$

4,093

 

$

(11,351

)

 

 

 

 

 

 

Basic earnings per share

 

 

 

 

 

Income (loss) before extraordinary item

 

$

0.58

 

$

(1.56

)

Extraordinary item

 

 

(0.10

)

Net income (loss)

 

$

0.58

 

$

(1.65

)

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

0.58

 

$

(1.65

)

 

 

 

 

 

 

Average Basic Shares Outstanding

 

7,008

 

6,866

 

Average Diluted Shares Outstanding

 

7,046

 

6,866

 

 

See accompanying notes to consolidated financial statements.

 

4



 

FIBERMARK, INC.

Consolidated Balance Sheets

 

(In thousands, except per share amounts)

 

 

 

Unaudited

 

Audited

 

 

 

September 30,
2002

 

December 31,
2001

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

41,966

 

$

23,266

 

Accounts receivable, net of allowances

 

49,817

 

46,137

 

Inventories

 

65,855

 

64,463

 

Other

 

1,778

 

1,535

 

Deferred income taxes

 

1,977

 

2,056

 

 

 

 

 

 

 

Total current assets

 

161,393

 

137,457

 

 

 

 

 

 

 

Property, plant and equipment, net

 

218,783

 

211,384

 

Goodwill, net

 

145,546

 

145,252

 

Other intangible assets, net

 

10,769

 

11,753

 

Deferred income taxes

 

513

 

1,621

 

Other long-term assets

 

4,877

 

1,633

 

Other pension assets

 

7,839

 

7,839

 

 

 

 

 

 

 

Total assets

 

$

549,720

 

$

516,939

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion long-term debt

 

2,549

 

2,590

 

Accounts payable

 

25,297

 

27,067

 

Accrued liabilities

 

47,135

 

40,526

 

Accrued income taxes payable

 

2,806

 

369

 

 

 

 

 

 

 

Total current liabilities

 

77,787

 

70,552

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Revolving credit line

 

1

 

94

 

Long-term debt, less current portion

 

339,928

 

339,183

 

Deferred income tax

 

8,326

 

 

Other long-term liabilities

 

28,777

 

26,573

 

 

 

 

 

 

 

Total long-term liabilities

 

377,032

 

365,850

 

 

 

 

 

 

 

Total liabilities

 

454,819

 

436,402

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, par value $.001 per share;
2,000,000 shares authorized, and none issued

 

 

 

Series A Junior participating preferred stock, par value $0.001,
7,066 shares authorized, none issued or outstanding

 

 

 

Common stock, par value $.001 per share;
20,000,000 shares authorized, 7,070,026 shares issued
and 7,066,226 shares outstanding in 2002 and 2001

 

7

 

7

 

Additional paid-in capital

 

65,496

 

64,954

 

Retained earnings

 

28,156

 

24,063

 

Accumulated other comprehensive income (loss)

 

1,277

 

(8,452

)

Less treasury stock, 3,800 shares at cost

 

(35

)

(35

)

 

 

 

 

 

 

Total stockholders’ equity

 

94,901

 

80,537

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

549,720

 

$

516,939

 

 

See accompanying notes to consolidated financial statements.

 

5



 

FIBERMARK, INC.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2002 and 2001

(In thousands)

Unaudited

 

 

 

2002

 

2001

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

4,093

 

$

(11,351

)

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

10,782

 

11,812

 

Loss on closure of facility

 

 

23,614

 

Gain on sale of technology

 

 

(61

)

Loss on early extinguishment of debt

 

 

696

 

Deferred taxes

 

8,326

 

(3,129

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,336

)

9,709

 

Inventories

 

288

 

11,973

 

Other

 

(227

)

(447

)

Accounts payable

 

(2,757

)

(6,457

)

Accrued pension and other liabilities

 

6,119

 

13,405

 

Other long-term liabilities

 

390

 

83

 

Accrued income taxes payable

 

1,745

 

(3,335

)

 

 

 

 

 

 

Net cash provided by operating activities

 

27,423

 

46,512

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant and equipment

 

(10,000

)

(21,921

)

Payments for acquisitions

 

 

(147,534

)

Increase in other long-term assets

 

(3,143

)

(303

)

 

 

 

 

 

 

Net cash used in investing activities

 

(13,143

)

(169,758

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of bank debt

 

1,938

 

231,937

 

Net proceeds from exercise of stock options

 

542

 

356

 

Net payments under revolving credit line

 

(93

)

(39,011

)

Repayment of debt

 

(1,234

)

(42,439

)

Debt issuance costs

 

 

(8,321

)

 

 

 

 

 

 

Net cash provided by financing activities

 

1,153

 

142,522

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

3,267

 

758

 

 

 

 

 

 

 

Net increase in cash

 

18,700

 

20,034

 

 

 

 

 

 

 

Cash at beginning of  period

 

23,266

 

11,133

 

 

 

 

 

 

 

Cash at end of period

 

$

41,966

 

$

31,167

 

 

See accompanying notes to consolidated financial statements.

 

6



 

FIBERMARK, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2002, and 2001

(Unaudited)

 

1.               Basis of Presentation:

 

The balance sheet as of September 30, 2002, and the statements of income and cash flows for the periods ended September 30, 2002, and 2001 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, 2001, included in the company’s Annual Report on Form 10-K.

 

2.               Inventories:

 

Inventories at September 30, 2002, and December 31, 2001, consisted of the following (in thousands):

 

 

 

(Unaudited)

 

 

 

 

 

9/30/02

 

12/31/01

 

Raw Material

 

$

19,889

 

$

20,579

 

Work in Progress

 

21,778

 

19,109

 

Finished Goods

 

14,320

 

14,962

 

Finished Goods on Consignment

 

3,045

 

4,800

 

Stores Inventory

 

3,596

 

3,250

 

Operating Supplies

 

3,227

 

1,763

 

 

 

 

 

 

 

Total Inventories

 

$

65,855

 

$

64,463

 

 

3.               Net Income (Loss) Per Common Share (in thousands):

 

The reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the company’s reported net income (loss) follows:

 

7



 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

9/30/02

 

9/30/01

 

9/30/02

 

9/30/01

 

 

 

 

 

 

 

Numerator (in thousands):

 

 

 

 

 

 

 

 

 

Income (loss) available to common shareholders used in basic and diluted earnings (loss) per share

 

$

1,143

 

$

(5,832

)

$

4,093

 

$

(11,351

)

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Weighted average shares

 

7,066,226

 

6,903,106

 

7,007,796

 

6,866,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Fixed stock options

 

26,826

 

*

 

38,231

 

*

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares

 

7,093,052

 

6,903,106

 

7,046,027

 

6,866,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.16

 

$

(0.84

)

$

0.58

 

$

(1.65

)

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

0.16

 

$

(0.84

)

$

0.58

 

$

(1.65

)

 


*Due to a loss for the period, zero incremental shares are included because the effect would be antidilutive.

 

4.               Comprehensive Income (loss) (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

9/30/02

 

9/30/01

 

9/30/02

 

9/30/01

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

1,143

 

$

(5,832

)

$

4,093

 

$

(11,351

)

 

 

 

 

 

 

 

 

 

 

Currency translation adjustment

 

138

 

5,947

 

9,729

 

21

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

1,281

 

$

115

 

$

13,822

 

$

(11,330

)

 

8



 

5.               Change in Accounting Principles and Recently Issued Standards:

 

Effective January 1, 2002, the company adopted the Financial Accounting Standards Board, SFAS No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

 

SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 did not address the accounting for a segment of a business accounted for as a discontinued operation, which resulted in two accounting models for long-lived assets to be disposed of. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and requires that those long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Adoption of SFAS No. 144 did not have an effect on the company’s financial statements.

 

In April 2002 the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.  The pronouncement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishments of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.  The pronouncement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers and amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions.  The company plans to adopt SFAS No. 145 on January 1, 2003.  The company has evaluated this statement and determined that the impact will be to reclass the loss on early extinguishment of debt from an extraordinary item to other expense.

 

In July 2002 the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  The standard requires companies to recognize costs associated with exit (including restructuring) or disposal activities at fair value when the related liability is incurred rather than at the date of a commitment to an exit or disposal plan under current practice. Costs covered by the standard include certain contract termination costs, certain employee termination benefits and other costs to consolidate or close facilities and relocate employees that are associated with an exit activity or disposal of long-lived assets. The new requirements are effective prospectively for exit or disposal activities initiated after December 31, 2002, and will be adopted by the Company effective January 1, 2003.

 

The company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe any such pronouncements will have a material impact on its financial statements.

 

6.               Goodwill and Other Intangibles:

 

In accordance with SFAS 142, the company discontinued goodwill amortization and tested goodwill of $145.3 million for impairment as of January 1, 2002 and has determined that there was no indication of impairment.  The company will continue to test goodwill for impairment at least annually.  Changes in goodwill are due to changes in foreign currency translations and an adjustment during the third quarter of 2002 of $0.3 million due to the DSI acquisition liabilities.

 

9



 

A reconciliation of previously reported net earnings (loss) and basic and diluted earnings (loss) per share to the amounts adjusted for the exclusion of amortization related to goodwill, net of related tax effect, for the three and nine months ended September 30, 2002, and 2001 is as follows (in thousands, except per share amounts):

 

 

 

Unaudited

 

Unaudited

 

 

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

 

 

2002

 

2001

 

2002

 

2001

 

Net income (loss):

 

 

 

 

 

 

 

 

 

Reported

 

$

1,143

 

$

(5,832

)

$

4,093

 

$

(11,351

)

Goodwill amortization, net of income taxes

 

 

1,003

 

 

2,223

 

Adjusted

 

$

1,143

 

$

(4,829

)

$

4,093

 

$

(9,128

)

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Reported

 

$

0.16

 

$

(0.84

)

$

0.58

 

$

(1.65

)

Goodwill amortization, net of income taxes

 

 

0.14

 

 

0.32

 

Adjusted

 

$

0.16

 

$

(0.70

)

$

0.58

 

$

(1.33

)

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Reported

 

$

0.16

 

$

(0.84

)

$

0.58

 

$

(1.65

)

Goodwill amortization, net of income taxes

 

 

0.14

 

 

0.32

 

Adjusted

 

$

0.16

 

$

(0.70

)

$

0.58

 

$

(1.33

)

 

The following table provides the gross carrying value and accumulated amortization for each major class of other intangible assets as of September 30, 2002 and December 31, 2001 (in thousands):

 

 

 

Gross Carrying Value

 

Accumulated
Amortization

 

 

 

9/30/02*

 

12/31/01

 

9/30/02*

 

12/31/01

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

Debt issue costs

 

$

14,458

 

$

14,741

 

$

4,466

 

$

3,793

 

Other

 

1,107

 

997

 

330

 

192

 

 

 

 

 

 

 

 

 

 

 

Total amortizable intangible assets

 

$

15,565

 

$

15,738

 

$

4,796

 

$

3,985

 

 


*Unaudited

 

The total intangible amortization expense for three months ended September 30, 2002 and 2001 was $433,000 and $402,000 and for the nine months ended September 30, 2002, and 2001 was $1,273,000 and $956,000, respectively. The estimated amortization expense for each of the next five years ending December 31, is as follows (in thousands):

 

2002

 

$

1,714

 

2003

 

$

1,674

 

2004

 

$

1,674

 

2005

 

$

1,638

 

2006

 

$

1,440

 

 

10



 

 

7.               Other Events:

 

In May 2002 the company announced that its Board of Directors adopted a stockholder rights plan. In connection with the adoption of the rights plan, the Board has declared a dividend of one right for each outstanding share of the company’s common stock to stockholders of record at the close of business on May 23, 2002. Each right entitles the holder to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock. The rights will continue to be represented by, and trade with, the company’s common stock certificates, unless the rights become exercisable. The rights become exercisable (with certain exceptions) only in the event that any person or group acquires beneficial ownership of, or announces a tender or exchange offer for, 15 percent or more of the outstanding shares of the company’s common stock. The rights will expire on May 8, 2012, unless earlier redeemed or exchanged or terminated in accordance with the rights plan.

 

11



 

8. Segment Information:

 

On July 25, 2002, the company announced the consolidation of its primarily U.S.- based divisions into a single division.  Therefore, the results of Technical and Office Products, Durable Specialties, and Decorative Specialties, which includes the U.K. based subsidiary for FiberMark RedBridge International Ltd., have been included in the North American Operations operating segment.  Beginning January 1, 2002, due to the sales of our North American engine filter media business, the industrial filtration business previously included in the German Operations and Filter Media Segment was moved to the North American Operations segment.  FiberMark Gessner and FiberMark Lahnstein are included in the German Operations operating segment.

 

The following table categorizes net sales in each market segment into the appropriate operating segment.

 

 

 

Y E A R  2 0 0 2
(unaudited)
(In Thousands)

 

Y E A R  2 0 0 1
(unaudited)
(In Thousands)

 

 

 

Operating Segments

 

Operating Segments

 

 

 

German
Operations

 

North American
Operations

 

Total

 

German
Operations

 

North American
Operations

 

Total

 

3 months ended March 31

 

 

 

 

 

Net sales

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

16,704

 

$

2,218

 

$

18,922

 

$

15,598

 

$

10,998

 

$

26,596

 

Technical Specialties

 

12,811

 

9,146

 

21,957

 

13,888

 

13,401

 

27,289

 

Durable Specialties

 

6,997

 

11,460

 

18,457

 

7,268

 

17,155

 

24,423

 

Office Products

 

 

10,503

 

10,503

 

 

12,036

 

12,036

 

Decorative Specialties

 

 

27,319

 

27,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

36,512

 

$

60,646

 

$

97,158

 

$

36,754

 

$

53,590

 

$

90,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

16,959

 

$

1,979

 

$

18,938

 

$

15,264

 

$

7,173

 

$

22,437

 

Technical Specialties

 

13,834

 

9,518

 

23,352

 

12,092

 

9,524

 

21,616

 

Durable Specialties

 

7,356

 

12,138

 

19,494

 

6,140

 

15,000

 

21,140

 

Office Products

 

 

11,060

 

11,060

 

 

10,660

 

10,660

 

Decorative Specialties

 

 

32,280

 

32,280

 

 

26,228

 

26,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

38,149

 

$

66,975

 

$

105,124

 

$

33,496

 

$

68,585

 

$

102,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

33,663

 

$

4,197

 

$

37,860

 

$

30,862

 

$

18,171

 

$

49,033

 

Technical Specialties

 

26,645

 

18,664

 

45,309

 

25,980

 

22,925

 

48,905

 

Durable Specialties

 

14,353

 

23,598

 

37,951

 

13,408

 

32,155

 

45,563

 

Office Products

 

 

21,563

 

21,563

 

 

22,696

 

22,696

 

Decorative Specialties

 

 

59,599

 

59,599

 

 

26,228

 

26,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

74,661

 

$

127,621

 

$

202,282

 

$

70,250

 

$

122,175

 

$

192,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 months ended Sept. 30

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

16,482

 

$

1,663

 

$

18,145

 

$

14,203

 

$

6,798

 

$

21,001

 

Technical Specialties

 

13,802

 

9,768

 

23,570

 

11,103

 

10,192

 

21,295

 

Durable Specialties

 

7,388

 

11,332

 

18,720

 

5,838

 

12,550

 

18,388

 

Office Products

 

 

10,614

 

10,614

 

 

10,239

 

10,239

 

Decorative Specialties

 

 

26,545

 

26,545

 

 

29,935

 

29,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

37,672

 

$

59,922

 

$

97,594

 

$

31,144

 

$

69,714

 

$

100,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9 months ended Sept. 30

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Filter Media

 

$

50,145

 

$

5,860

 

$

56,005

 

$

45,065

 

$

24,969

 

$

70,034

 

Technical Specialties

 

40,447

 

28,432

 

68,879

 

37,083

 

33,117

 

70,200

 

Durable Specialties

 

21,741

 

34,930

 

56,671

 

19,246

 

44,705

 

63,951

 

Office Products

 

 

32,177

 

32,177

 

 

32,935

 

32,935

 

Decorative Specialties

 

 

86,144

 

86,144

 

 

56,163

 

56,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

112,333

 

$

187,543

 

$

299,876

 

$

101,394

 

$

191,889

 

$

293,283

 

 

12



 

The following table details selected financial data by operating segment.

 

 

 

Y E A R  2 0 0 2
(unaudited)
(In Thousands)

 

Y E A R  2 0 0 1
(unaudited)
(In Thousands)

 

 

 

Operating Segments

 

Operating Segments

 

 

 

German
Operations

 

North American
Operations

 

Other

 

Total

 

German
Operations

 

North American
Operations

 

Other(1)

 

Total

 

3 months ended March 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

36,512

 

$

60,646

 

$

 

$

97,158

 

$

36,754

 

$

53,590

 

$

 

$

90,344

 

Inter-segment net sales

 

 

6,165

 

(6,165

)

 

 

1,978

 

(1,978

)

 

Total net sales

 

$

36,512

 

$

66,811

 

$

(6,165

)

$

97,158

 

$

36,754

 

$

55,568

 

$

(1,978

)

$

90,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

$

7,122

 

$

2,156

 

$

 

$

9,278

 

$

5,478

 

$

2,473

 

$

 

$

7,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

$

794

 

$

2,647

 

$

 

$

3,441

 

$

662

 

$

2,319

 

$

 

$

2,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

118,850

 

$

401,944

 

$

 

$

520,794

 

$

112,278

 

$

269,377

 

$

 

$

381,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

38,149

 

$

66,975

 

$

 

$

105,124

 

$

33,496

 

$

68,585

 

$

 

$

102,081

 

Inter-segment net sales

 

 

9,052

 

(9,052

)

 

 

3,062

 

(3,062

)

 

Total net sales

 

$

38,149

 

$

76,027

 

$

(9,052

)

$

105,124

 

$

33,496

 

$

71,647

 

$

(3,062

)

$

102,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

$

6,504

 

$

7,093

 

$

 

$

13,597

 

$

4,520

 

$

3,748

 

$

(13,041

)

$

(4,773

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

$

867

 

$

2,832

 

$

 

$

3,699

 

$

625

 

$

3,616

 

$

 

$

4,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

136,926

 

$

408,758

 

$

 

$

545,684

 

$

111,995

 

$

437,538

 

$

 

$

549,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 months ended June 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

74,661

 

$

127,621

 

$

 

$

202,282

 

$

70,250

 

$

122,175

 

$

 

$

192,425

 

Inter-segment net sales

 

 

15,217

 

(15,217

)

 

 

5,040

 

(5,040

)

 

Total net sales

 

$

74,661

 

$

142,838

 

$

(15,217

)

$

202,282

 

$

70,250

 

$

127,215

 

$

(5,040

)

$

192,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

$

13,626

 

$

9,249

 

$

 

$

22,875

 

$

9,998

 

$

6,221

 

$

(13,041

)

$

3,178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

$

1,661

 

$

5,479

 

$

 

$

7,140

 

$

1,287

 

$

5,935

 

$

 

$

7,222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

136,926

 

$

408,758

 

$

 

$

545,684

 

$

111,995

 

$

437,538

 

$

 

$

549,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 months ended Sept. 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

37,672

 

$

59,922

 

$

 

$

97,594

 

$

31,144

 

$

69,714

 

$

 

$

100,858

 

Inter-segment net sales

 

 

9,866

 

(9,866

)

 

 

3,730

 

(3,730

)

 

Total net sales

 

$

37,672

 

$

69,788

 

$

(9,866

)

$

97,594

 

$

31,144

 

$

73,444

 

$

(3,730

)

$

100,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

$

5,468

 

$

5,509

 

$

 

$

10,977

 

$

3,310

 

$

(2,141

)

$

(10

)

$

1,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

$

928

 

$

2,714

 

$

 

$

3,642

 

$

639

 

$

3,951

 

$

 

$

4,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

137,668

 

$

412,052

 

$

 

$

549,720

 

$

124,792

 

$

428,781

 

$

 

$

553,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9 months ended Sept. 30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

112,333

 

$

187,543

 

$

 

$

299,876

 

$

101,394

 

$

191,889

 

$

 

$

293,283

 

Inter-segment net sales

 

 

25,083

 

(25,083

)

 

 

8,770

 

(8,770

)

 

Total net sales

 

$

112,333

 

$

212,626

 

$

(25,083

)

$

299,876

 

$

101,394

 

$

200,659

 

$

(8,770

)

$

293,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

$

19,094

 

$

14,758

 

$

 

$

33,852

 

$

13,308

 

$

4,080

 

$

(13,051

)

$

4,337

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

$

2,589

 

$

8,193

 

$

 

$

10,782

 

$

1,926

 

$

9,886

 

$

 

$

11,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

137,668

 

$

412,052

 

$

 

$

549,720

 

$

124,792

 

$

428,781

 

$

 

$

553,573

 

 


Note:  Earnings before interest and taxes (EBIT) is not a measure in accordance with
generally accepted accounting principles and is provided for additional information.

(1)

 

2Q 2001 Includes:

 

 

 

 

 

 

Facility closure

 

$

(12,869

)

 

 

 

Sale of technology

 

(172

)

 

 

 

 

 

$

(13,041

)

 

 

 

 

 

 

 

 

 

 

3Q 2001  Includes:

 

 

 

 

 

 

Facility closure

 

$

(10,745

)

 

 

 

Sale of Technology

 

10,735

 

 

 

 

 

 

$

(10

)

 

13



 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS

 

Three Months Ended September 30, 2002, Compared with Three Months Ended September 30, 2001

 

Net sales for the third quarter of 2002 were $97.6 million compared with $100.9 million for the third quarter of 2001, a decrease of 3.3%.  Sales in the German operations operating segment increased to $37.7 million compared with $31.1 million for the third quarter of 2001.  Sales in the North American operations segment decreased to $59.9 million compared with $69.7 million for the third quarter of 2001.

 

Sales in the German operations segment increased primarily due to growth in market size and share, benefiting from our technical innovations in the filter media and wall covering product lines.  Sales in the North American operations segment have decreased due to the sale of the North American engine filtration business to Ahlstrom in September 2001 and overall general economic weakness.

 

Gross margin for the quarter was 20.5% compared with 12.0% last year, due to improved production rates on our new paper machine in Warren Glen, reduced trial expenses and reduced fixed costs related to facility consolidations.

 

General and administrative expenses for the quarter were $8.7 million compared with $9.2 million for the same period in 2001.  The decrease was primarily due to lower workers compensation insurance expenses that were negotiated upon renewal of contracts.

 

Interest expense was $8.5 million for the quarter compared with $8.1 million last year.  The increase is due to a slightly increased average revolver balance.

 

The effective income tax rate was 54.4% compared with 16.2% for the third quarter of 2001.  The increase is primarily due to increased profitability due to the DSI acquisition, improved German operations, and a third quarter 2002 adjustment to bring the overall rate for the year in line with current projections. Without the adjustment, the third quarter rate would have been 48.0%.

 

During the third quarter, the company experienced net income of $1.1 million, or $0.16 per diluted share, compared with a net loss for the comparable 2001 quarter of $5.8 million, or $0.84 per diluted share.  No goodwill amortization was reflected in the third quarter of 2002 results; however, the impact for the third quarter of 2001 was $0.14 per diluted share. Results for the 2001 period included $1.0 million related to the sale of technology and facility closure expense of the Rochester, Michigan, facility, or $0.19 per share.

 

Nine Months Ended September 30, 2002, Compared with Nine Months Ended September 30, 2001

 

Net sales for the first nine months of 2002 were $299.9 million compared with $293.3 million for the first nine months of 2001, an increase of 2.3%.  Sales in the German operations operating segment increased 10.7% to $112.3 million compared with $101.4 million in the first nine months of 2001.  Sales in the North American operations operating segment decreased 2.3% to $187.5 million compared with $191.9 million for the same period in 2001.

 

14



 

Sales in the German operations segment increased primarily due to sales in our German filter growth in market size and share and strong industry conditions in Europe.  North American operations sales were impacted favorably by the acquisition of DSI in April 2001.  However, sales were lower primarily due to the sale of our North American filtration business to Ahlstrom in September 2001, the impact of one large customer taking business in-house, and general overall economic weakness.

 

Gross margin for the first nine months of 2002 was 20.8% compared with 14.6% last year due to lower pulp and energy prices, improved production rates on our new paper machine in Warren Glen, reduced trial expenses and reduced fixed costs related to facility consolidations.

 

General and administrative expenses for the first nine months of 2002 were $27.5 million compared with $21.8 million for the same period in 2001.  The increase is due primarily to expenses related to the DSI acquisition.

 

Interest expense was $26.0 million for the first nine months of 2002 compared with $18.7 million for the same period in 2001.  The increase is primarily due to additional debt related to the DSI acquisition.

 

The effective income tax rate for the first nine months of 2002 was 48.0% compared with 25.7% for the nine months of 2001.  The increase is primarily due to increased profitability due to the DSI acquisition, and improved German operations.

 

Net income for the first nine months of 2002 was $4.1 million, or $0.58 per diluted share, compared with a net loss of $11.4 million, or $1.65 per diluted share, for the same period last year.  In 2001 the write-off of the Fitchburg facility in the second quarter reduced net income by $12.3 million or, $1.79 per diluted share.  The 2001 period was impacted by the following nonrecurring items, as shown on a tax affected basis. The reversal of the Hughesville, New Jersey, facility closure charge added $4.3 million to income, or $0.63 per diluted share.  In addition, net income was reduced by an adjustment to the sale of a portion of the technology for the filter media business by $0.1 million, or $0.01 per diluted share and the loss on early extinguishment of debt of $0.7 or $0.10 per diluted share.  No goodwill amortization was reflected in 2002 results; however, the impact for the first nine months of 2001 was $0.32 per diluted share.

 

Liquidity and Capital Resources

 

As of September 30, 2002, we had outstanding $100.0 million of senior notes, which have a ten-year term beginning October 16, 1996, are non-amortizing and carry a fixed interest rate of 9.375%. Also outstanding are $230.0 million of senior notes issued in conjunction with the DSI acquisition. These notes have a ten-year term beginning April 19, 2001, were issued at a discounted price of $228.3 million and carry a fixed interest rate of 10.75%. On January 31, 2002, the company amended the revolving credit facility with CIT to increase the facility to $60.0 million and extend the term until September 30, 2005. The amended credit agreement with CIT contains certain covenants, which require the maintenance of financial ratios. Testing of these covenants has been waived until December 31, 2002. During this grace period there will be an availability block on the $60.0 million revolving credit facility, which limits the company’s borrowing capacity to approximately $28.8 million. As of September 30, 2002, the balance under this credit facility was $1,000. On September 30, 2002, $11.8 million was outstanding on a term loan with Jules and Associates secured by the paper machine at the Warren Glen, New Jersey, facility. The interest rates on this loan range from 8.0% to 8.47% with the balance amortizing over seven years. As of the same date, $2.2 million was outstanding on a term loan with CIT secured by machinery at the Quakertown, Pennsylvania,

 

15



 

facility. The interest rate on this loan is LIBOR + 2% with the balance amortizing through November 2007.

 

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 $27.4 million in 2002 and $46.5 million for 2001. During these periods, additions to property, plant and equipment totaled $10.0 million in 2002 and $21.9 million in 2001.

 

As of September 30, 2002, there were no material changes in the contractual obligations or long-term debt from that disclosed in the Annual Report on Form 10-K for the year ended December 31, 2001 other than an additional $1.9 million funded by Jules and Associates secured by our paper machine at the Warren Glen, New Jersey facility. See Item 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES in the Annual Report on Form 10-K for the year ended December 31, 2001.

 

The company believes that cash flow from operations, plus existing cash balances and amounts available under credit facilities will be sufficient to fund its capital requirements, debt service and working capital needs through 2003.

 

Inflation

 

We attempt 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 our results of operations. We purchase raw materials that are subject to cyclical changes in costs that may not reflect the rate of general inflation.

 

Critical Accounting Policies

 

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Differences from those estimates are recorded in the reporting period during which the difference becomes known. On an on-going basis, the company evaluates its estimates including those related to facility closures, acquisitions, deferred tax assets, actuarial assumptions for employee benefit plans, excess and obsolete inventory, allowances for doubtful accounts and long-lived assets. The company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.  Those estimates which require management’s most difficult, subjective or complex judgments are defined as critical and their accounting policies are described in further detail as follows:

 

Among those factors affecting the accruals for facility closures are estimates of the number and types of employees that will be affected, the benefit costs related to those employees and the length of time until the operations can be consolidated within other facilities. Generally, the company bases its estimates on historical patterns of past facility closures, influenced by judgments about current market conditions.

 

The company accounts for acquisitions under the purchase method which requires the purchase price to be allocated to the assets acquired and liabilities assumed based upon their respective fair values.

 

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For the most significant assets acquired, generally property, plant and equipment, third-party appraisals are obtained to determine the fair value of those assets.

 

The company is required to estimate income taxes in each of its operational jurisdictions. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as property, plant and equipment, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, for which the company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent that recovery is not likely, a valuation allowance must be established. Significant management judgment is required in determining the provision (benefit) for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. The company has determined that a valuation allowance is not required based upon its estimate of taxable income by operational jurisdiction and the period over which deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the estimates are adjusted in future periods, a valuation allowance may be required which could materially impact financial position and results of operations.

 

The company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

 

The company assesses the impairment of identifiable intangibles, long-lived assets and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following:

 

                  significant underperformance relative to expected historical or projected future operating results;

                  significant changes in the manner of our use of the acquired assets or the strategy for the overall business;

                  significant negative industry or economic trends; and

                  significant decline in the company’s stock price for a sustained period; and our market capitalization relative to net book value.

 

When the company determines that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the following impairment measures are used.  Impairment, other than goodwill, is measured based on projected net cash flows expected to result from that asset, including eventual disposition.  Goodwill is measured based on a comparison of the fair value to the cost.

 

New Accounting Pronouncements

 

In April 2002 the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.  The pronouncement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishments of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.  The pronouncement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers and amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to

 

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sale-leaseback transactions.  The company plans to adopt SFAS No. 145 on January 1, 2003.  The company has evaluated this statement and determined that the impact will be to reclass the loss on early extinguishment of debt from an extraordinary item to other expense.

 

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  The standard requires companies to recognize costs associated with exit (including restructuring) or disposal activities at fair value when the related liability is incurred rather than at the date of a commitment to an exit or disposal plan under current practice. Costs covered by the standard include certain contract termination costs, certain employee termination benefits and other costs to consolidate or close facilities and relocate employees that are associated with an exit activity or disposal of long-lived assets. The new requirements are effective prospectively for exit or disposal activities initiated after December 31, 2002, and will be adopted by the company effective January 1, 2003.

 

Seasonality

 

Our business is mildly seasonal, with the second half of each year typically having a lower level of net sales and operating income. This seasonality is the result of summer manufacturing shutdowns and the impact of year-end holidays.

 

Forward-Looking Statements

 

This report contains forward-looking statements that involve substantial risks and uncertainties. Any statements that are not historical, which may include forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words, fall within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, based on assumptions believed to be valid at the time, discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information. The following items, “Factors Affecting Future Results”, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake to update any forward-looking statement made in this report or that may, from time to time, be made by or on behalf of the company.

 

Factors Affecting Future Results

 

Our future results of operations and our financial position may be affected by a number of factors and risks, including, but not limited to, the following:

 

Fluctuations in the costs and availability of raw materials.

 

Our principal raw materials, hardwood and softwood pulp and secondary fiber, are cyclical in both price and supply. The cyclical nature of pulp pricing presents a potential risk to our gross profit margins because we may not be able to pass along price increases to our customers. We may also be unable to purchase pulp in sufficient quantities, or at acceptable prices, to meet our production requirements during times of tight supply. DuPont is the sole source of Tyvek, a critical component in our binding tapes. A significant price increase or any material limitation or interruption in our supply of Tyvek, could harm our financial condition, results of operations and competitive position.

 

 

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Fluctuations in economic activity and demand.

 

The markets for our products are variable and are influenced to a significant degree by the global economic activity and fluctuations in our customers’ demand and inventory levels. Downturns in global economic conditions and decreased demand for specialty fiber-based materials could have a material adverse effect on our financial condition and results of operations.

 

Competition in the specialty paper and materials markets.

 

We face intense competition, which could harm our financial condition and results of operations. Our principal competitors include a small number of paper and specialty paper manufacturers. Additionally, we compete with producers of vinyl, plastic or other materials. Some of these producers have substantially greater resources than we do. In addition, some of our customers have the internal ability to process some or all of the materials they buy from us, and have in the past elected to do so. To the extent our customers elect to do so in the future, our business could suffer.

 

Environmental and other governmental regulations.

 

Our operations and properties are subject to a wide variety of foreign, federal, state and local laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of various materials, substances and wastes; the remediation of contaminated soil and groundwater and the health and safety of employees. Such regulations can restrict our operations, and expose us to claims and other liabilities with respect to environmental protection, remediation and health and safety matters. We could incur material costs or other liabilities in connection with such regulations or claims. In addition, future events, such as new information, changes in environmental or health and safety laws or regulations or their interpretation, and more vigorous enforcement policies of regulatory agencies, may result in significant additional expenditures, liabilities or restrictions that could harm our financial condition, results of operations and competitive position.

 

Our substantial level of indebtedness could adversely affect our financial condition.

 

We have substantial indebtedness. As of September 30, 2002, we had approximately $342,578 million of indebtedness. In addition, subject to restrictions in the indenture for our outstanding 10.75% Senior Subordinated Notes Due 2011 (2001 notes), our revolving credit facility and the indenture for our outstanding 9.375% Series B Senior Notes due 2006 (1996 notes), we may incur additional indebtedness. Our high level of indebtedness could have important consequences to you, which might include the following: impair our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes; reduce the funds available to us for other purposes such as capital expenditures; create a competitive disadvantage, to the extent that our indebtedness exceeds the level of some competitors, and reduce our flexibility in planning for, or responding to, changing conditions in our industry, including increased competition; increase our vulnerability to economic downturns and adverse developments in our business; incur restrictions that limit our ability and the ability of our subsidiaries, among other things, to incur additional indebtedness or liens; pay dividends or make other distributions; repurchase our stock; make investments; sell assets; enter into agreements restricting our subsidiaries’ ability to pay dividends; enter into transactions with affiliates; and consolidate, merge or sell all or substantially all of our assets.

 

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Disruptions caused by labor disputes or organized labor activities.

 

A large proportion of our workforce is represented by labor unions. In addition, we may from time to time experience union organizing activities in currently non-union facilities. Disputes with the current labor organizations with which we work or new union organizing activities may result in work slowdowns or stoppages or higher labor costs. A work slowdown or stoppage in any one of our facilities could slow or halt production from that facility and from any other facility which depends on that facility for its material. As a result, meeting scheduled delivery times for our customers could be difficult or impossible, which could result in loss of business.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We believe we have minimal exposure to financial market risks. The majority of our debt is at a fixed rate. Most of our sales transactions have been conducted in the currency where the shipment originated, limiting our exposure to changes in currency exchange rates. We do not use derivative financial instruments.

 

ITEM 4.  CONTROLS AND PROCEDURES.

 

1.       Evaluation of disclosure controls and procedures.  Based on their evaluation of the company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the company’s chief executive officer and chief financial officer have concluded that the company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are operating in an effective manner.

 

2.       Changes in internal controls.  There were no significant changes in the company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

 

 

 

PART II. OTHER INFORMATION.

 

ITEM 1.  LEGAL PROCEEDINGS.

 

Not applicable

 

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

 

Not applicable

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable

 

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

 

Not applicable.

 

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ITEM 5.  OTHER INFORMATION

 

Not applicable.

 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K:

 

Reports on Form 8-K:

Not applicable.

 

Exhibits:

 

99.1 Certification of Chief Executive Officer and Chief Financial Officer

 

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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.

 

 

 

FiberMark, Inc.

 

 

Date: November 14, 2002

 

 

 

 

/s/ Bruce Moore

 

Bruce Moore, Vice President and
Chief Financial Officer

 

 

 

(Principal Financial and Accounting
Officer and Duly Authorized Officer)

 

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CERTIFICATIONS

I, Alex Kwader, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of FiberMark, Inc.;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)              designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)             evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)              presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

a)              all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

Dated:   November 14, 2002

/s/ Alex Kwader                                               

 

Alex Kwader

 

Chief Executive Officer  (Principal Executive Officer)

 

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I, Bruce Moore, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of FiberMark, Inc.;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)              designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)             evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)              presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

a)              all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

Dated:   November 14, 2002

/s/ Bruce Moore                                                       

 

Bruce Moore

 

Chief Financial Officer

 

(Principal Financial Officer)

 

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