10-Q 1 form10q_10667.txt QUARTERLY REPORT FOR PERIOD ENDED 3/31/2001 ================================================================================ 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 March 31, 2001 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. (Exact name of Registrant as specified in its charter) Delaware 11-3101034 (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 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 April 30, 2001. Title Outstanding $.01 par value common stock 8,065,478 ================================================================================ FOILMARK, INC. INDEX TO FORM 10-Q INDEX PART I - FINANCIAL INFORMATION: Item 1 - Financial Statements Consolidated Balance Sheets - March 31, 2001 (Unaudited) and June 30, 2000 3 Consolidated Statements of Earnings for the Three and Nine Months Ended March 31, 2001 and March 31, 2000 (Unaudited) 4 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2001 and March 31, 2000 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9-10 PART II - OTHER INFORMATION: Item 1 - Legal Proceedings 11 Item 2 - Changes in Securities 11 Item 3 - Defaults Upon Senior Security 11 Item 4 - Submission of Matters to Vote of Security Holders 11 Item 5 - Other Information 11 Item 6 - Other Proceedings 11 Item 7a - Quantitative and Qualitative Disclosures About Market Risk 11 Signatures 12 -2- PART I - FINANCIAL INFORMATION FOILMARK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

~~December~~MARCH 31, ~~2000~~2001 ~~June~~JUNE 30, 2000 --------------~~---~~ ------------- (~~Unaudited~~UNAUDITED) ASSETS ------ CURRENT ASSETS: Cash $ ~~128~~1,~~410~~387,568 $ 1,172,651 Accounts receivable - trade (less allowance for doubtful accounts of $~~808~~655,000 and $934,000, respectively) 9,~~723~~212,~~131~~509 10,583,564 Inventories 1719,~~328~~234,~~418~~203 15,718,172 Other current assets 1,~~198~~438,~~329~~259 965,180 Income taxes receivable ~~44,015~~-- 45,800 Deferred income taxes 1,396,932 1,396,932 -------------- ------------- Total current assets 2932,~~819~~669,~~235~~471 29,882,299 Property, plant and equipment, net 1617,~~256~~391,~~806~~818 15,390,716 Bond and mortgage financing costs, net ~~258~~245,~~453~~632 284,495 Intangible assets, net 3,~~742~~676,~~191~~580 3,872,961 Restricted cash 21,~~330~~016,~~744~~753 3,062,388 Other assets ~~150~~134,355 183,096 Notes receivable ~~965~~940,~~963~~819 1,032,816 -------------- ------------- $ 5356,~~523~~075,~~747~~428 $ 53,708,771 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current installments of notes payable to stockholders $ ~~105~~96,~~915~~229 $ 123,062 Current installments of other long-term debt 1,~~823~~687,~~402~~043 1,827,197 Accounts payable 35,~~785~~551,~~395~~164 3,809,306 Accrued expenses 23,~~635~~052,~~986~~813 3,248,246 Income taxes payable 9144,~~893~~998 -- Merger integration costs and related liabilities ~~810~~737,~~347~~080 985,712 Customer deposits 5447,~~426~~904 113,493 -------------- ------------- Total current liabilities 911,~~307~~217,~~364~~231 10,107,016 LONG-TERM DEBT: Notes payable to stockholders, net of current installments ~~301~~293,~~535~~186 348,819 Other long-term debt, net of current installments 14,~~106~~421,~~545~~582 14,604,349 -------------- ------------- 14,~~408~~714,~~080~~768 14,953,168 Deferred income taxes 1,~~786~~779,~~232~~747 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,~~088~~092,~~013~~572 and 8,035,683 shares issued, respectively) 80,~~880~~926 80,357 Additional paid-in capital 21,~~518~~543,~~568~~745 21,422,800 Retained earnings 67,~~668~~188,~~301~~559 5,525,864 Treasury stock, at cost (39,200 shares) (127,693) (127,693) Accumulated other comprehensive loss (~~117~~321,~~985~~855) (41,649) -------------- ------------- Total stockholders' equity 28,~~022~~363,~~071~~682 26,859,679 -------------- ------------- $ 5356,~~523~~075,~~747~~428 $ 53,708,771 ============== =============

See accompanying notes to consolidated financial statements. -3- PART I - FINANCIAL INFORMATION FOILMARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)

THREE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, 2001 2000 ~~1999~~2001 2000 ~~1999~~ ------------- ------------- ------------- ------------- Net sales $ 1516,~~261~~640,~~106~~678 $ 16,~~048~~915,~~647~~235 $ 3148,~~928~~569,~~932~~610 $ 3249,~~371~~286,~~612~~847 Cost of sales 1112,~~174~~171,~~840~~905 11,~~022~~357,~~554~~179 2335,~~180~~352,~~191~~096 2233,~~398~~755,~~663~~842 ------------- ------------- ------------- ------------- Gross profit 4,~~086~~468,~~266~~773 5,~~026~~558,~~093~~056 813,~~748~~217,~~741~~514 915,~~972~~531,~~949~~005 Selling, general & administrative expenses 3,~~517~~461,~~679~~395 3,~~560~~752,~~585~~213 610,~~603~~064,~~134~~529 710,~~023~~775,~~546~~759 ------------- ------------- ------------- ------------- Income from operations ~~568~~1,~~587~~007,378 1,~~465~~805,~~508~~843 23,~~145~~152,~~607~~985 24,~~949~~755,~~403~~246 Other income (expense): Interest expense - net (~~208~~190,~~043~~977) (~~218~~204,~~017~~822) (~~381~~572,~~666~~643) (~~433~~638,~~293~~115) Other income ~~(expense)~~857 112,~~112~~654 ~~(20~~3,~~838)~~353 21,~~496~~012 ~~(11,642)~~ ------------- ------------- ------------- ------------- Income before taxes ~~361~~817,~~656~~258 1,~~226~~613,~~653~~675 12,~~766~~583,~~437~~695 24,~~504~~118,~~468~~143 Provision for income taxes (~~123~~297,000) (~~466~~612,~~000~~895) (~~624~~921,000) (~~952~~1,~~000~~564,895) ------------- ------------- ------------- ------------- Net income $ ~~238~~520,~~656~~258 $ ~~760~~1,~~653~~000,780 $ 1,~~142~~662,~~437~~695 $ 12,~~552~~553,~~468~~248 ============= ============= ============= ============= Weighted average shares outstanding (basic) 8,~~044~~054,~~026~~272 7,~~914~~944,~~275~~025 8,~~024~~034,~~714~~423 7,~~909~~920,~~548~~957 Weighted average shares outstanding (diluted) 8,~~421~~375,~~457~~046 8,~~180~~297,~~622~~449 8,~~405~~396,~~839~~055 8,~~183~~231,~~834~~569 Earnings per share - basic $ 0.0306 $ 0.1013 $ 0.1421 $ 0.2032 Earnings per share - diluted $ 0.0306 $ 0.0912 $ 0.1420 $ 0.1931

See accompanying notes to financial statements. -4- PART I - FINANCIAL INFORMATION FOILMARK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)

~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ------------------------------- 2001 2000 ~~1999~~ ------------ ------------ ~~CASH~~Cash ~~FLOWS~~flows ~~FROM~~from ~~OPERATING~~operating ~~ACTIVITIES~~activities: Net income $ 1,~~142~~662,~~437~~695 $ 12,~~552~~553,~~468~~248 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 12,~~660~~509,~~396~~892 12,~~480~~182,~~900~~165 Amortization ~~184~~275,~~155~~533 ~~169~~255,~~894~~191 Provision for doubtful accounts (~~125~~278,~~522~~936) 39,932 Deferred taxes -- (53,791) Change in assets and liabilities: Decrease (increase) in accounts receivable ~~944~~1,~~735~~532,621 ~~443~~(256,~~041~~801) Increase in inventories (13,~~628~~566,~~309~~978) (~~851~~2,~~156~~616,619) Decrease in income taxes receivable 145,~~785~~800 -- Increase in notes receivable and other assets (~~165~~388,~~695~~330) (~~441~~376,~~216~~774) (Decrease) increase in customer deposits (5965,~~067~~589) ~~(590)~~20,123 ~~Decrease~~Increase in accounts payable and accrued expenses ~~(617~~1,~~915)~~610,054 ~~(81~~646,~~875)~~658 Increase ~~(decrease)~~ in income taxes payable 9451,~~428~~073 ~~(97~~385,~~081)~~469 Decrease in merger integration costs and related liabilities (~~175~~248,~~365~~632) (45511,~~442~~494) ------------ ------------ Net cash provided by operating activities 13,~~256~~139,~~063~~203 2,~~168~~267,~~875~~307 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (24,~~562~~633,~~983~~708) (12,~~249~~562,~~858~~855) Decrease (increase) in restricted cash ~~731~~2,~~644~~045,635 (~~200~~300,000) ------------ ------------ Net cash used in investing activities (12,~~831~~588,~~339~~073) (12,~~449~~862,~~858~~855) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments of notes payable to stockholders (6482,~~431~~466) (6077,~~699~~692) Proceeds of other long-term debt --690,000 5,~~019~~769,725 Payments of other long-term debt (~~501~~1,~~599~~012,921) (6,~~572~~011,~~481~~684) Treasury stock purchase -- (5976,~~088~~589) Proceeds from exercise of stock options 96121,~~291~~514 34113,~~948~~751 ------------ ------------ Net cash used in financing activities (~~469~~283,~~739~~873) (1282,~~637,595~~489) ------------ ------------ Effect of exchange rate changes on cash ~~774~~(52,340) 514,~~784~~582 ------------ ------------ Net increase (decrease) in cash (1214,~~044,241)~~917 (~~866~~873,~~794~~455) Cash - beginning of period 1,172,651 1,326,231 ------------ ------------ Cash - end of period $ ~~128~~1,~~410~~387,568 $ ~~459~~452,~~437~~776 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR: Interest $ ~~532~~781,~~206~~824 $ ~~326~~542,~~250~~303 Income taxes $ ~~572~~862,~~589~~727 $ 1,~~366~~486,~~523~~713

See accompanying notes to consolidated financial statements. -5- FOILMARK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) 1. The accompanying consolidated financial statements of Foilmark, Inc., and subsidiaries ("Foilmark" or the "Company") for the three and nine month periods ended March 31, 2001 and 2000 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 and nine months ended March 31, 2001 are not necessarily indicative of the operating results for the remainder of the year. 2. On April 23, 1999, HoloPak Technologies, Inc., 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 March 31, 2001, accrued merger integration costs totaled $737,080, a decrease of $248,632 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 March 31, 2001 and June 30, 2000 was as follows: March 31, 2001 June 30, 2000 -------------- ------------- (unaudited) Raw Materials $ 5,000,892 $ 4,825,060 Work in Process 3,846,841 2,179,317 Finished Goods 10,386,470 8,713,795 -------------- ------------- Total $ 19,234,203 $ 15,718,172 ============== ============= 4. The following table sets forth the segment financial information for the three months ended March 31, 2001 and 2000, respectively:

Pad Print Corporate and TTF Holography and Supplies Unallocated Total --------- ---------- ------------ ----------- ---------- Sales to External Customers ~~2000~~2001 78,~~693~~419,~~455~~368 6,~~287~~757,~~310~~300 1,~~280~~464,~~341~~010 -- 1516,~~261~~640,~~106~~678 ~~1999~~2000 8,~~636~~779,~~824~~243 56,~~673~~416,~~075~~074 1,~~738~~719,~~748~~918 -- 16,~~048~~915,~~647~~235 Segment Profit (Loss) ~~2000~~2001 ~~(69~~40,~~625)~~643 ~~713~~928,~~538~~657 (1381,~~627~~647) (~~268~~70,~~630~~395) ~~361~~817,~~656~~258 ~~1999~~2000 ~~109~~418,~~347~~673 1,~~337~~342,~~439~~296 83111,~~946~~622 (~~304~~258,~~079~~916) 1,~~226~~613,~~653~~675

-6- The following table sets forth the segment financial information for the nine months ended March 31, 2001 and 2000, respectively:

Pad Print Corporate and TTF Holography and Supplies Unallocated Total --------- ---------- ------------ ----------- ---------- Sales to External Customers ~~2000~~2001 1624,~~012~~431,~~436~~804 1219,~~979~~736,~~373~~673 24,~~937~~401,~~123~~133 -- 3148,~~928~~569,~~932~~610 ~~1999~~2000 1726,~~304~~084,~~871~~114 1118,~~699~~115,~~557~~631 35,~~367~~087,~~184~~102 -- 3249,~~371~~286,~~612~~847 Segment Profit (Loss) ~~2000~~2001 ~~147~~188,~~708~~351 12,~~952~~881,~~725~~382 ~~171~~89,~~066~~419 (~~505~~575,~~062~~457) 12,~~766~~583,~~437~~695 ~~1999~~2000 1,~~117~~535,~~095~~768 13,~~916~~258,~~158~~454 (4107,~~146)~~476 (~~524~~783,~~639~~555) 24,~~504~~118,~~468~~143

5. Accumulated other comprehensive income (loss) included in the accompanying consolidated balance sheets represents the effect of the change in foreign currency exchange rates. Comprehensive income for the three and nine month periods ended March 31, 2001 was $316,388 and $1,382,489, respectively. Comprehensive income for the three and nine months ended March 31, 2000 was $963,661 and $2,649,117, respectively. 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 and nine months ended March 31, 2001 and 2000 is as follows:

3 Mos. Ended 3 Mos. Ended 69 Mos. Ended 69 Mos. Ended 123/31/0001 123/31/9900 123/31/0001 123/31/9900 ---------- ---------- ---------- ---------- Weighted Average Shares--Basic 8,~~044~~054,~~026~~272 7,~~914~~944,~~275~~025 8,~~024~~034,~~714~~423 7,~~909~~920,~~548~~957 Effect of Dilutive Stock Options ~~377~~320,~~431~~774 ~~266~~353,~~347~~424 ~~381~~361,~~125~~632 ~~274~~310,~~286~~612 ---------- ---------- ---------- ---------- Weighted Average Shares--Diluted 8,~~421~~375,~~457~~046 8,~~180~~297,~~622~~449 8,~~405~~396,~~839~~055 8,~~183~~231,~~834~~569 ========== ========== ========== ==========

Weighted average outstanding options to purchase shares of common stock of approximately 482,000 shares and 430,000 shares for the three and nine months ended March 31, 2001, respectively, were not included in the computations of diluted earnings per share 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- 8. On April 10, 2001, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Illinois Tool Works Inc. ("ITW") and Dudley Acquisition Inc. ("Purchaser"), pursuant to which ITW and Purchaser agreed to acquire all of the issued and outstanding shares of common stock, par value $.01 per share, of the Company at a price of $6.36 per share. On April 20, 2001, Purchaser and ITW commenced a tender offer to purchase all such shares. The initial tender period will expire on May 17, 2001 at midnight. Upon successful completion of the tender offer, it is contemplated that the Company will merge with and into Purchaser and operate as a wholly owned subsidiary of ITW. -8- 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 March 31, 2001 were $16.6 million, a decrease of 1.6%, or $0.3 million, compared to the same three month period in 2000. Sales for the nine months ended March 31, 2001 were $48.6 million, compared to $49.3 for the same nine month period in 2000. Net sales for the nine month period ended March 31, 2001, compared to the same nine month period in 2000, declined by 1.5%. The decrease in net sales for both the three and nine month periods ended March 31, 2001 was directly attributable to the economic slowdown, which began to affect customers' purchases beginning in November 2000 and continuing through the third quarter of fiscal 2001. The thermal transfer film (TTF) segment and the pad print segment were particularly affected by the general business slowdown. Sales in the TTF segment declined by 4.1% and in the pad print segment by 14.9%, from sales in the same three month period ended March 31, 2000. Sales in the holographic segment, which consist of the security and packaging product lines, increased by 5.3%, from sales in the third quarter of fiscal 2000. The decline in net sales for the nine month period ended March 31, 2001, compared to the same nine month period in fiscal 2000, was also the result of softness in both the TTF and pad print segments. Sales declined in both segments by 6.3% and 13.5%, respectively, in the nine month period ended March 31, 2001 from the nine months ended March 31, 2000. Holographic sales increased by 9.0% in the nine month period ended March 31, 2001 from the comparable nine month period in fiscal 2000. GROSS PROFIT declined to 26.9% for the three months ended March 31, 2001 from 32.9% for the three months ended March 31, 2000. The decrease in gross profit was primarily due to the impact of rising oil prices affecting the TTF segment and other raw material costs that could not be passed on to customers due to the weak demand for TTF products that existed during this three month period. Gross profit for the nine months ended March 31, 2001 was 27.2%, compared to 31.5% for the comparable nine month period in fiscal 2000. The decrease in gross profit was the result of higher manufacturing costs in the TTF segment and limitations in equipment availability in the holography segment causing some production inefficiencies. The Company expects improvements in efficiencies when the new equipment is placed in service beginning in the fourth quarter of fiscal 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES declined to $3.5 million and $10.0 million, respectively, for the three and nine months ended March 31, 2001 from $3.8 million and $10.8 million, respectively, for the corresponding three and nine month periods in fiscal 2000. The decrease was due to a reduction in sales commissions and expenses commensurate with lower sales activity in the TTF and pad print segments, lower workers' compensation insurance rates as a result of improved experience, and a decline from the unusually high legal fees incurred in the three and nine month periods ending March 31, 2000, as a result of the defense of three lawsuits that were all settled during fiscal 2000. -9- INCOME FROM OPERATIONS declined to $1.0 million from $1.8 million for the three months ended March 31, 2001, compared to the corresponding three month period in 2000. The decline in income from operations was a result of the 1.6% decrease in net sales, along with the reduction in gross profit from 32.9% in the third quarter of fiscal 2000, compared to 26.9% in the current quarter. For the nine months ended March 31, 2001, income from operations declined to $3.2 million from $4.8 million for the nine months ended March 31, 2000. The decrease in income from operations was directly due to the decline in gross profit. INTEREST EXPENSE net of interest income decreased to $191,000 for the three months ended March 31, 2001, compared to $205,000 for the three months ended March 31, 2000. The reduction in interest expense is the result of the lower prevailing interest rates at March 31, 2001, compared to March 31, 2000. Additionally, interest income was earned on restricted cash, which offset the interest expense on the long-term debt. Interest expense declined to $573,000 for the nine months ended March 31, 2001 from $638,000 for the nine months ended March 31, 2000, as a result of lower prevailing interest rates in 2001, compared to 2000. PROVISION FOR INCOME TAXES totaled $297,000 for the three months ended March 31, 2001, compared to $613,000 for the comparable period in fiscal 2000. The effective rate used was 36.3% for the third quarter of fiscal 2001 and 35.6% for the nine months ended March 31, 2001, compared to 38% for the three and nine month periods ended March 31, 2000. The decrease in the effective rate used for fiscal 2001 is in line with the actual effective rate for the fiscal year ended June 30, 2000. NET INCOME AND NET INCOME PER SHARE for the three months ended March 31, 2001 was $0.5 million, or $0.06 per diluted share, compared to $1.0 million, or $0.12 per diluted share, for the three months ended March 31, 2000. For the nine months ended March 31, 2001, net income was $1.7 million, or $0.20 per diluted share, compared to $2.6 million, or $0.31 per diluted share, for the nine months ended March 31, 2000. The decline in net income and net income per share was attributable to lower gross profit and lower revenues. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- At March 31, 2001, the Company had working capital of $21.5 million and tangible net worth of $24.4 million, compared to $19.8 million and $22.7 million, respectively, at June 30, 2000. Total availability under the Company's line of credit at March 31, 2001 was $9.5 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 March 31, 2001, the Company was in compliance with all covenants of the loan agreements. The increase in inventory is the result of anticipated sales for the fiscal year 2001 third quarter that did not materialize due to weakness primarily in the thermal transfer film segment. It is expected that the inventory will be substantially reduced by June 30, 2001. SUBSEQUENT EVENTS ----------------- On April 10, 2001, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Illinois Tool Works Inc. ("ITW") and Dudley Acquisition Inc. ("Purchaser"), pursuant to which ITW and Purchaser agreed to acquire all of the issued and outstanding shares of common stock, par value $.01 per share, of the Company at a price of $6.36 per share. On April 20, 2001, Purchaser and ITW commenced a tender offer to purchase all such shares. The initial tender period will expire on May 17, 2001 at midnight. Upon successful completion of the tender offer, it is contemplated that the Company will merge with and into Purchaser and operate as a wholly owned subsidiary of ITW. -10- 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) 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. -11- 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: April , 2001 /s/ Frank J. Olsen, Jr. --------------------------------------- Frank J. Olsen, Jr. President and Chief Executive Officer Date: April , 2001 /s/ Philip Leibel --------------------------------------- Philip Leibel Vice President-Finance and Chief Financial Officer -12-

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