FIBERMARK INC - 10-K Annual Report

On December 13, 1996, the Board of Directors also approved severance agreements for the Named Executive Officers. The severance agreements entitle the Named Executive Officers to a continuation of their base salary for 12 months, with the exception of Alex Kwader, who is entitled to continuation of his base salary for 24 months. Each severance agreement states that if the Named Executive Officer is terminated without cause and is receiving compensation under the severance agreement, he shall not (i) intentionally divulge, reveal, furnish or make available confidential information that could materially affect our operations, profitability or reputation, (ii) participate in a business which provides for the sale of specialty paper products to individuals or corporations, without our prior written consent, or (iii) solicit any employee to terminate his or her employment with us.


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Item 12. Security Ownership of Certain Beneficial Owners and Related Stockholder Matters

The following table sets forth certain information regarding the ownership of our common stock as of January 31, 2004, by: (i) all those known by us to be beneficial owners of more than 5% of our common stock (ii) each director; (iii) each of the executive officers named in the Summary Compensation Table employed by us in that capacity on December 31, 2003; and (iv) all FiberMark executive officers and directors as a group.

	Beneficial Ownership⁽¹⁾

	Number of		Percent of
Beneficial Owner⁽²⁾	Shares		Total⁽³⁾

5% Stockholders
Benson Associates L.L.C.⁽⁴⁾ 111 S.W. Fifth Avenue, Suite 2130 Portland, OR 97204		532,300		7.5	%
EBF & Associates, LP⁽⁴⁾ 601 Carlson Park Minnetonka, MN 55305		525,000		7.4	%
Dimensional Fund Advisors⁽⁴⁾ 1299 Ocean Avenue Santa Monica, CA 90401		455,000		6.4	%
Directors and Executive Officers
Alex Kwader, Chairman of the Board and Chief Executive Officer⁽⁵⁾		260,117		3.4	%
A. Duncan Middleton, President and Director⁽⁶⁾		45,000		*
Brian C. Kerester, Director⁽⁷⁾		34,253		*
Marion A. Keyes IV, Director⁽⁸⁾		30,000		*
Glenn S. McKenzie, Director⁽⁹⁾		26,500		*
K. Peter Norrie, Director⁽¹⁰⁾		54,537		*
Elmar B. Schulte, Director⁽¹¹⁾		17,500		*
Edward P. Swain, Jr., Director⁽¹²⁾		30,100		*
Walter M. Haegler, Senior Vice President & Managing Director, German Operations⁽¹³⁾		42,200		*
David R. Kruft, Senior Vice President of Sales & Marketing, North American Operations⁽¹⁴⁾		53,651		*
Robert O. Stein, Senior Vice President of Operations, North American Operations⁽¹⁵⁾		25,700		*
Bruce Moore, Vice President of Financial and Strategic Planning ⁽¹⁶⁾		81,750		1.1	%
Directors, executive officers and general managers as a group (12 persons)⁽¹⁷⁾		701,308		9.2	%

________________

* Represents holdings of less than 1%.


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1. This table is based upon information supplied by executive officers, directors, principal shareholders and Schedules 13D and 13G, if any, filed with the Commission and our stock surveillance company. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

2. Unless otherwise noted, the address of each beneficial owner is c/o FiberMark, P.O. Box 498, Brattleboro, VT 05302

3. Applicable percentages of ownership are based on 7,599,877 outstanding shares of our common stock on January 31, 2004, adjusted as required by rules promulgated by the Commission.

4. Based on the number of shares owned by each entity as of January 31, 2004.

5. Includes 169,350 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

6. Includes 30,000 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

7. Includes 30,000 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

8. Includes 30,000 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004. Mr. Keyes resigned as a director effective March 2004.

9. Includes 4,500 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

10. Includes 30,000 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004. Mr. Norrie resigned as director effective March 2004.

11. Includes 7,500 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

12. Includes 30,000 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

13. Includes 42,200 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

14. Includes 53,651 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

15. Includes 24,700 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

16. Includes 81,750 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.

17 Includes 533,651 shares subject to options that are currently exercisable or will become exercisable within 60 days of January 31, 2004.


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The following table provides information about the securities authorized for issuance under the company’s equity compensation plans as of December 31, 2003. All such plans have been approved by vote of the company’s stockholders.

Equity Compensation Plan Information

Plan Category	(a)		(b)		(c)

1994 Stock Option Plan		175,551	$	10.46		78,215
1997 Stock Option Plan		539,500		11.41		60,500
1998 Amended and Restated Non-employee Directors Stock Option Plan		252,000		17.31		77,750

Equity Compensation Plans Approved by Security Holders		967,051	$	12.78		216,465

(a) Number of securities to be issued upon exercise of outstanding options

(b) Weighted-average exercise price of outstanding options

(c) Number of securities remaining for future issuance under equity compensation plans (excluding securities reflected in column (a))

Item 13. Certain Relationships and Related Transactions

We have entered into indemnity agreements with certain executive officers and directors which provide, among other things, that we will indemnify such executive officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines, and settlements he may be required to pay in actions or proceedings which he is or may be made a party by reason of his position as a director, executive officer, or other agent of the company, and otherwise to the full extent permitted under Delaware law and our bylaws.

Item 14. Principal Accounting Fees and Services

The following table summarizes the fees of KPMG LLP, our independent auditor, billed to us for each of the last two fiscal years for audit services and billed to us in each of the last two fiscal years for other services (in thousands):

Fee Category	2003		2002

Audit Fees⁽¹⁾	$	813	$	957
Audit-Related Fees⁽²⁾		307		4
Tax Fees⁽³⁾		142		254
All Other Fees⁽⁴⁾		8		19

Total Fees	$	1,270	$	1,234

(1) Audit Fees consist of fees for the audit of our consolidated financial statements, the review of the interim condensed consolidated financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements.

(2) Audit-Related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit and the review of our consolidated financial statements and which are not reported under “Audit Fees”. These services relate to restructuring and consultations concerning financial accounting and reporting standards.

(3) Tax Fees consist of fees for tax compliance, tax advice and tax planning services. Tax compliance services, which relate to preparation of original and amended tax returns, claims for refunds and tax payment-planning services, accounted for $114,000 of the total tax fees paid for 2003 and $230,000 of the total tax fees paid for 2002.


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(4) All Other Fees for 2003 consist of training. All Other Fees for 2002 consist of royalty analysis and training.

Pre-Approval Policy and Procedures

The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by the company’s independent auditor. This policy provides that the company will not engage its independent auditor to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.

From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to the company by its independent auditor during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.


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PART IV

Item 15. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K.

(a)(1) Index to Consolidated Financial Statements

The consolidated financial statements required by this term are submitted beginning on page 52 of this Form 10-K.

		Page


	Independent Auditors’ Report	52

	Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001	53

	Consolidated Balance Sheets as of December 31, 2003 and 2002	54

	Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001	55

	Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Loss for the years ended December 31, 2003, 2002, and 2001	56

	Notes to Consolidated Financial Statements	57

(a)(2)	Financial Statement Schedule:

	Schedule II—Valuation and Qualifying Accounts and Reserves	98

(a)(3)	Index to Exhibits, beginning on	99

(b)	Reports on Form 8-K

	Filed On December 15, 2003, FiberMark, Inc., filed a report on Form 8-K, dated December 12, 2003, announcing the appointment of John E. Hanley as vice president and chief financial officer and the resignation of Allan M. Kline.

	Furnished On November 14, 2003, FiberMark, Inc., furnished a report on Form 8-K dated November 12, 2003, announcing third quarter 2003 results.

	On March 30, 2004, FiberMark, Inc., issued a press release announcing fourth-quarter and year-end 2003 results and its voluntary chapter 11 filing, which we will furnish on Form 8-K.

(c)	Exhibits

	The exhibits required by this item are listed under Item 15(a)(3)103


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Independent Auditor’s Report

The Board of Directors and Stockholders of FiberMark, Inc.

We have audited the accompanying consolidated balance sheets of FiberMark, Inc. (the "company") as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2003. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the Index at Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FiberMark, Inc. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that FiberMark, Inc. will continue as a going concern. As more fully described in note 22 to the consolidated financial statements, on March 30, 2004, FiberMark, Inc. and its U.S. operations (the ”Debtors”) filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code, just prior to the filing of their Form 10-K. The uncertainties inherent in the bankruptcy process, the company's recurring losses from operations and accumulated indebtedness raise substantial doubt about the company's ability to continue as a going concern. The Debtors are proposing to operate their business as a Debtor-in-Possession under the jurisdiction of the Bankruptcy Court, and continuation of the company as a going concern is contingent upon,&n bsp;among other things, the successful confirmation and implementation of a Plan of Reorganization, the company's ability to generate sufficient cash flow from operations and obtain financing sources to meet its future obligations. If no reorganization plan is approved, it is possible that the company's assets may be liquidated. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of these uncertainties.

As discussed in note 1 to the consolidated financial statements, effective January 1, 2003, the company adopted Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections and Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

/s/ KPMG LLP

Boston, Massachusetts

March 30, 2004


52

FIBERMARK, INC.
Consolidated Statements of Operations
Years Ended December 31, 2003, 2002 and 2001

(In thousands, except per share amounts)


	2003			2002			2001

Net sales	$	397,411		$	397,199		$	394,321

Cost of sales (note 5)		336,665			324,692			342,888


Gross profit		60,746			72,507			51,433

Selling, general and administrative expenses (note 1)		43,947			37,204			31,275

Restructuring and facility closure expense (reversal) (note 12)		882			(70	)		25,993
Sale of technology (note 1)		-			(2,997	)		(12,336	)
Asset impairment charges (notes 2 and 5)		93,647			42,878			-


Income (loss) from operations		(77,730	)		(4,508	)		6,501

Foreign exchange transaction gain (note 1)		(3,990	)		-			-
Other expense, net (note 3)		2,109			1,464			6,629
Interest expense		35,375			35,317			27,551
Interest income		(229	)		(727	)		(425	)


Loss before income taxes		(110,995	)		(40,562	)		(27,254	)

Income tax expense (benefit) (note 9)		8,185			13,432			(8,441	)


Net loss	$	(119,180	)	$	(53,994	)	$	(18,813	)


Basic loss per share	$	(16.87	)	$	(7.69	)	$	(2.74	)

Diluted loss per share	$	(16.87	)	$	(7.69	)	$	(2.74	)


Average Basic Shares Outstanding		7,066			7,023			6,876
Average Diluted Shares Outstanding		7,066			7,023			6,876

See accompanying notes to consolidated financial statements.


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FIBERMARK, INC.
Consolidated Balance Sheets
December 31, 2003 and 2002

(In thousands, except share and per share amounts)

ASSETS (note 6)	2003			2002

Current assets:
Cash	$	6,111		$	35,567
Accounts receivable, net of allowances of
$2,952 in 2003 and $1,776 in 2002		53,752			50,386
Inventories (note 4)		63,443			64,569
Prepaid expenses		1,671			1,591


Total current assets		124,977			152,113

Property, plant and equipment, net (notes 5 and 6)		248,194			225,506
Goodwill, net (notes 2 and 11)		8,602			98,460
Other intangible assets, net (note 2)		12,745			11,478
Other long-term assets		1,601			1,347
Other pension assets (note 13)		3,588			5,011


Total assets	$	399,707		$	493,915


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Revolving credit line (note 6)	$	5,906		$	-
Current portion of long-term debt (notes 6 and 10)		3,955			3,188
Accounts payable		23,168			27,344
Accrued liabilities (notes 11, 12 and 15)		22,013			22,461
Accrued income taxes payable		9,930			4,330
Deferred income taxes (note 9)		656			538


Total current liabilities		65,628			57,861


Long-term liabilities:
Long-term debt, less current portion (notes 6 and 10)		338,749			341,073
Deferred income taxes (note 9)		15,528			14,952
Other long-term liabilities (notes 13 and 14)		48,654			43,800


Total long-term liabilities		402,931			399,825


Total liabilities		468,559			457,686

Commitments and contingencies (notes 1, 7 and 22)

Stockholders' equity (deficit) (notes 8 and 18):
Preferred stock, par value $.001 per share;
2,000,000 shares authorized, and none issued		-			-
Series A Junior participatory preferred stock, par value $.001;
7,066 shares authorized, and none issued		-			-
Common stock, par value $.001 per share;
20,000,000 shares authorized
7,070,026 shares issued and 7,066,226 shares outstanding
in 2003 and 2002, respectively		7			7
Additional paid-in capital		65,496			65,496
Accumulated deficit		(149,111	)		(29,931	)
Accumulated other comprehensive income		14,791			692
Less treasury stock, 3,800 shares at cost in 2003 and 2002		(35	)		(35	)

Total stockholders' equity (deficit)		(68,852	)		36,229

Total liabilities and stockholders' equity (deficit)	$	399,707		$	493,915

See accompanying notes to consolidated financial statements.


54

FIBERMARK, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001

	(In thousands)

	2003			2002			2001

Cash flows from operating activities:
Net loss	$	(119,180	)	$	(53,994	)	$	(18,813	)

Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization		17,003			15,835			17,102
Amortization of bond discount		173			173			121
Amortization of deferred gain		(222	)		-			-
(Gain) loss on closure of facilities		-			(705	)		27,217
(Gain) loss on sale of technology		-			(2,997	)		471
(Gain) loss on sale of property, plant and equipment		-			936			(12	)
Asset impairment charges		93,647			42,878			-
Deferred taxes		(2,151	)		15,307			(12,543	)
Changes in operating assets and liabilities:
Accounts receivable		1,213			976			14,058
Inventories		5,083			2,051			20,851
Prepaid expense		(32	)		224			482
Other long-term assets		(16	)		271			(463	)
Accounts payable		(6,548	)		(1,430	)		(8,405	)
Accrued other current liabilities		(1,564	)		(6,520	)		5,220
Other long-term liabilities		1,649			985			1,100
Accrued income taxes payable		4,066			3,015			(1,244	)


Net cash provided by (used in) operating activities		(6,879	)		17,005			45,142


Cash flows used for investing activities:
Additions to property, plant and equipment		(23,830	)		(16,036	)		(27,743	)
Net proceeds from sale of technology		-			3,396			-
Net proceeds from sale of property, plant and equipment		-			597			1,545
Payments for businesses acquired		-			-			(147,842	)
Increase in other intangible assets		(229	)		(210	)		(2,182	)


Net cash used in investing activities		(24,059	)		(12,253	)		(176,222	)


Cash flows from financing activities:
Proceeds from issuance of debt		5,595			1,938			231,937
Net proceeds from exercise of stock options		-			542			555
Net (repayments) borrowings under revolving credit line		5,558			2,365			(38,933	)
Repayment of debt		(7,325	)		(2,082	)		(41,212	)
Debt issuance costs		(2,861	)		(227	)		(8,921	)


Net cash provided by financing activities		967			2,536			143,426


Effect of exchange rate changes on cash		515			5,013			(213	)

Net increase (decrease) in cash		(29,456	)		12,301			12,133

Cash at beginning of year		35,567			23,266			11,133


Cash at end of year	$	6,111		$	35,567		$	23,266

See accompanying notes to consolidated financial statements.


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FIBERMARK, INC.
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Loss
Years Ended December 31, 2003, 2002 and 2001

			(In thousands)

							Retained			Accumulated
	Outstanding				Additional		Earnings			Other						Total
	Common		Stock		Paid-In		(Accumulated			Comprehensive			Treasury			Stockholders'
	Shares		Amount		Capital		Deficit)			Income (loss)			Stock			Equity (deficit)


Balance at December 31, 2000		6,826,683	$	7	$	64,399	$	42,876		$	(4,299	)	$	(35	)	$	102,948

Exercise of stock options		76,775		-		395		-			-			-			395
Tax benefit of option exercise		-		-		160		-			-			-			160
Comprehensive loss:
Net loss		-		-		-		(18,813	)		-			-			(18,813	)
Minimum pension liability adjustment, net of tax benefit of $1,514		-		-		-		-			(2,374	)		-			(2,374	)
Currency translation adjustment		-		-		-		-			(1,779	)		-			(1,779	)

Total comprehensive loss																	(22,966	)

Balance at December 31, 2001		6,903,458	$	7	$	64,954	$	24,063		$	(8,452	)	$	(35	)	$	80,537

Exercise of stock options		162,768		-		542		-			-			-			542
Comprehensive income (loss):
Net loss		-		-		-		(53,994	)		-			-			(53,994	)
Minimum pension liability adjustment, net of tax benefit of $188		-		-		-		-			(7,096	)		-			(7,096	)
Currency translation adjustment		-		-		-		-			16,240			-			16,240

Total comprehensive loss																	(44,850	)

Balance at December 31, 2002		7,066,226	$	7	$	65,496	$	(29,931	)	$	692		$	(35	)	$	36,229

Exercise of stock options		-		-		-		-			-			-			-
Comprehensive income (loss):
Net loss		-		-		-		(119,180	)		-			-			(119,180	)
Minimum pension liability adjustment, net of tax benefit of $354		-		-		-		-			(861	)		-			(861	)
Currency translation adjustment											18,950						18,950
less: reclassification adjustment for foreign currency transaction gains included in net loss		-		-		-		-			(3,990	)		-			(3,990	)

Total comprehensive loss																	(105,081	)

Balance at December 31, 2003		7,066,226	$	7	$	65,496	$	(149,111	)	$	14,791		$	(35	)	$	(68,852	)

See accompanying notes to consolidated financial statements.


56

FIBERMARK, INC.

Notes to Consolidated Financial Statements

December 31, 2003, 2002 and 2001

(1) Description of Business and Summary of Significant Accounting Policies

FiberMark produces specialty fiber-based materials in two operating segments: German operations and North American operations. FiberMark is headquartered in Brattleboro, Vermont, and operates seven production facilities sites located in the eastern region of the United States, three in Germany, and one in the U.K.

Principles of Consolidation

The consolidated financial statements include FiberMark, Inc., and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

Financial statements prepared in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions 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. Actual results could differ from these estimates.

Cash Equivalents

For purposes of the statement of cash flows, the company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. There were no cash equivalents on hand at December 31, 2003, 2002 and 2001.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the moving weighted average and first-in, first-out (FIFO) cost methods for raw materials, and the FIFO method for work in process and finished goods.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is provided using the straight-line method based upon the useful lives of the assets. Depreciation on assets under capital lease is included in depreciation expense. Buildings and improvements and machinery and equipment are depreciated over periods not exceeding forty (40) and twenty (20) years, respectively. When assets are sold or retired, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Improvements are capitalized and included in property, plant and equipment while expenditures for maintenance and repairs are charged to expense. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term.

Research and Development, Advertising

Research and development costs are expensed as incurred and are reflected in cost of sales. The costs amounted to $3.5 million, $3.4 million, and $3.6 million for the years ended December 31, 2003, 2002, and 2001, respectively. Advertising costs are expensed as incurred and are reflected in selling, general and administrative expenses. Total advertising expense was $679,000, $616,000, and $570,000 in 2003, 2002, and 2001, respectively.


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Foreign Currency

The functional currency of all operations outside the U.S. is the respective local currency. The assets and liabilities of these operations are translated at the exchange rates in effect at the balance sheet date and income and expense accounts at average exchange rates during the year. Resulting translation adjustments are recorded directly to a separate component of stockholders’ equity (deficit), accumulated other comprehensive income (loss).

Changes in exchange rates for intercompany foreign currency transactions that are of a long-term investment nature are recorded in other comprehensive income. Changes in exchange rates for all other foreign currency transactions result in foreign exchange transaction gains or losses that are recorded in earnings during the period of the change. In the quarter ended December 31, 2003, we recorded a $4.0 million foreign exchange transaction gain related to the settlement of intercompany indebtedness between FiberMark, Inc. and our German operations.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, amends Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income (loss) of an entity’s accounting policy decisions with respect to stock-based employee compensation. The company has chosen to continue to account for stock-based compensa tion using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.

No compensation cost has been recognized for stock options granted under the plans during 2003, 2002, and 2001 as the options were all granted at exercise prices that equaled the market value at the date of the grant. Had compensation cost for the company’s stock option plans been determined based on the fair value at the grant date for awards granted after 1994 consistent with the provisions of SFAS 123, the company’s net loss would have been changed to the pro forma amounts indicated below (in thousands, except per share amounts):


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	2003			2002			2001


Net loss, as reported	$	(119,180	)	$	(53,994	)	$	(18,813	)
Total stock-based employee compensation
Expense determined under fair value method	$	(634	)	$	(1,266	)	$	(1,703	)

Net loss, pro forma	$	(119,814	)	$	(55,260	)	$	(20,516	)

Basic loss per share, as reported	$	(16.87	)	$	(7.69	)	$	(2.74	)
Basic loss per share, pro forma	$	(16.96	)	$	(7.87	)	$	(2.98	)

Diluted loss per share, as reported	$	(16.87	)	$	(7.69	)	$	(2.74	)
Diluted loss per share, pro forma	$	(16.96	)	$	(7.87	)	$	(2.98	)

Pro forma amounts reflect only options granted after 1994. Therefore, the full impact of calculating compensation cost for stock options under SFAS 123 is not reflected in the pro forma amounts presented above because compensation cost is reflected over the options’ vesting periods and compensation cost for options granted prior to January 1, 1995, is not considered.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2003, 2002 and 2001, respectively: risk-free interest rate of 4.0%, 4.4% and 6.0%; dividend yield of $0; expected volatility of 48%, 45% and 65%; and expected lives per the plan agreements.

Earnings Per Share

Basic loss per share excludes any dilutive effects of options, warrants and convertible securities. The following table sets forth the computation of basic and diluted loss per share:

	2003			2002			2001

Numerator:
Loss available to common shareholders used in basic and diluted loss per share (in thousands)	$	(119,180	)	$	(53,994	)	$	(18,813	)

Denominator:
Denominator for basic loss per share:
Weighted average shares		7,066,226			7,022,524			6,875,601
Effect of dilutive securities:
Fixed stock options		*			*			*

Denominator for diluted loss per share:
Adjusted weighted average shares		7,066,226			7,022,524			6,875,601


Basic loss per share	$	(16.87	)	$	(7.69	)	$	(2.74	)
Diluted loss per share	$	(16.87	)	$	(7.69	)	$	(2.74	)

* Due to a loss for the period, zero incremental shares are included because the effect would be anti-dilutive. Had there been income for the periods, 1,683, 32,368 and 99,412 incremental shares would have been included for the years 2003, 2002 and 2001, respectively.


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Stock options that could potentially dilute earnings per share in the future of 959,188, 856,384 and 709,626 in 2003, 2002 and 2001, respectively, were not included in the computation of diluted loss per share because to do so would have been anti-dilutive for the periods presented.

Long-Lived Assets

The company accounts for long-lived assets in accordance with the Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS 144). In accordance with the Statement, long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceed s the fair value of the asset. Assets to be disposed of, if any, would be separately presented in the consolidated balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheets.

Comprehensive Income (loss)

Comprehensive income (loss) consists of net income (loss), minimum pension liability adjustments, and foreign currency translation adjustments and is presented in the Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss).

The components of accumulated other comprehensive income (loss) as of December 31, 2003 and 2002 are as follows (in thousands):

	Gross			Tax Effect		Net

2003:
Minimum pension liability adjustment	$	(12,386	)	$	2,055	$	(10,331	)
Foreign currency translation adjustment		25,122			-		25,122

Total	$	12,736		$	2,055	$	14,791

2002:
Minimum pension liability adjustment	$	(11,171	)	$	1,701	$	(9,470	)
Foreign currency translation adjustment		10,162			-		10,162

Total	$	(1,009	)	$	1,701	$	692

Commitments and Contingencies

Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties that are probable of realization, if any, are separately recorded, and are not offset against the related environmental liability, in accordance with Financial Accounting Standards Board Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.


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Environmental Matters

We and our predecessors have invested substantially in pollution control facilities to comply with environmental laws and regulations. We spent $6.8 million in 2003, $5.6 million in 2002, and $6.2 million in 2001 for environmental purposes. While we believe our capital expenditures will be sufficient to maintain substantial compliance with existing environmental laws, any failure to comply with present or future environmental laws could subject us to liability or require us to suspend or reduce operations. In the future, the duty to comply with environmental laws could restrict our ability to expand our facilities, obligate us to acquire and operate costly equipment or otherwise force us to incur significant expenses.

We understand the United States Environmental Protection Agency (“EPA”) has named the previous owners of CPG Investors, Inc. (“CPG”) as potentially responsible parties (“PRP”) for costs to investigate and clean up various third-party sites. We acquired CPG by merger in 1996. We have no information suggesting that the EPA or any other agency or party plans to assert that FiberMark is a PRP. While we do not believe we have liability in connection with the investigation or clean up of those sites, there can be no assurance that our predecessors will satisfy their responsibilities in connection with such sites and, if they do not, whether the company will be targeted as a PRP.

CPG’s liabilities at those sites arose under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), which imposes liability on broad categories of PRPs. Courts have interpreted CERCLA to impose retroactive, strict and under certain circumstances, joint and several, liability on PRPs for costs associated with investigating and cleaning up facilities. Typically, current owners and operators of a facility, those who owned or operated a facility at the time of disposal of the hazardous substances, as well as those that generated or transported the hazardous substances may be liable as PRPs. In addition, CERCLA imposes liability for the costs of evaluating and addressing damage to natural resources.

The State of New Jersey required extensive environmental investigation regarding the release of hazardous substances, materials and/or wastes at two sites the company acquired from CPG in 1996. Based on the results of those investigations, remediation may be necessary to address that contamination. The former owners of CPG agreed to indemnify us, with some limitations, for various environmental liabilities arising from the historical use of the sites and from CPG's conduct before we acquired CPG. We cannot predict whether that limited indemnity will be sufficient to cover all material environmental liabilities associated with those sites.

In December 2002 a subsidiary of the company, then known as FiberMark DSI, Inc., (“DSI”) voluntarily disclosed to the EPA that DSI may have violated certain federal air pollution control laws. DSI disclosed the possible violations after auditing its compliance with those legal requirements at the DSI facilities in Lowville, New York and Johnston, Rhode Island. The EPA has not informed us as to whether it plans to seek penalties for the possible violations. If the EPA decides to seek penalties based on the facts we disclosed, we do not believe the amount of the penalties would have a material adverse effect on our financial position or results of operations.

In December 2002 DSI also voluntarily disclosed to the New York State Department of Environmental Conservation (“NYSDEC”) of its possible violations of state air pollution control law based on what it found during the voluntary audit conducted at the Lowville facility. Based on the facts disclosed, the NYSDEC issued a notice of violation (“NOV”) to DSI on December 18, 2002. DSI is negotiating with the NYSDEC to resolve the allegations made in the NOV. We cannot predict whether the NYSDEC will seek a penalty, but we do not believe any such penalty would have a material adverse effect on our financial position or results of operations.


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We have demanded that the former owner of the Lowville and Johnston facilities indemnify us under the terms of the purchase agreement for the losses the company has incurred and may incur as a result of the disclosures to the EPA and the NYSDEC. The former owner has denied our claim, and we cannot predict whether our indemnification demand will succeed.

In 2002 the City of Fitchburg, Massachusetts demanded that the company pay its share of costs associated with upgrading a portion of Fitchburg’s wastewater treatment system. Fitchburg based its claim on a 1973 agreement between Fitchburg and a predecessor to the company. The company withdrew from the 1973 agreement before Fitchburg built that upgrade. We have rejected Fitchburg’s demand, but cannot predict how this claim will be resolved.

In April 2001 the company acquired paper mill and converting facilities in Johnston, Rhode Island, West Springfield, Massachusetts and Brownville, New York. As long as we provided notice within a certain time period, the former owner agreed to indemnify us for environmental investigation and remediation obligations for contamination known to exist prior to closing and unknown contamination existing prior to closing. To date, the company has advanced several demands, and the former owner has met its indemnity obligations. Under relevant state and federal environmental laws, we may be a PRP and consequently could be required to perform remedial actions to address contamination, if the former owner defaults on this obligation. We believe that the potential for such default is remote. Even if such a default were to occur, we do not believe that any resulting obligation would have a material adverse effect on our financial position or results of operations.

The NYSDEC has listed a portion of our Lowville facility on its Hazardous Substance Waste Disposal Site Inventory. The listing is based on potential impacts associated with activities that occurred at this site before we acquired the facility. In 1997 testing on the listed portion revealed concentrations below applicable cleanup objectives, but also revealed the presence of contamination elsewhere at the facility above applicable cleanup objectives. In 1998 cleanup activities at the facility were completed to remediate likely sources of that contamination. The NYSDEC was informed that chemicals were present in groundwater in excess of applicable cleanup objectives and that the source of the contamination may originate offsite at a location other than the facility. The NYSDEC has not asked the company to perform additional cleanup activities. We cannot predict whethe r the NYSDEC will require us to take additional steps in the future, but we do not believe costs to perform such activities would have a material adverse effect on our financial position or results of operations.

During 2003 several class action lawsuits regarding asbestos were initiated in Mississippi, and have named us, both individually and as successor in interest to Latex Fiber Industries, Inc., as a plaintiff. At this time, the list of plaintiffs is very extensive and we do not believe there will be any liability in connection with these lawsuits. However, in accordance with the purchase and sale agreement, the former owner has agreed to indemnify us for any asbestos-related claims.

Based upon our experience, we expect that the future cost of complying with existing environmental laws, and our liability for known environmental claims under those laws, will not have a material adverse effect on our financial condition and results of operation. However, new information, changes in environmental laws or how they are interpreted, or more vigorous enforcement by regulatory authorities, may give rise to additional expenditures or liabilities that could be material to our financial condition and results of operations.

Other Matters

On March 30, 2004, FiberMark’s North American companies filed voluntary petitions for reorganization under chapter 11 of the United States Bankruptcy Code.


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We are also involved in legal proceedings arising in the ordinary course of business, none of which are expected to have a material adverse affect on our operations or financial condition.

Revenue Recognition

Net Sales

The company recognizes revenue on sales when products are shipped and the customer takes ownership and assumes risk of loss, specifically when pervasive evidence of a sales arrangement exists, the price to the buyer is fixed and determinable, and the collectability of the sales price is reasonably assured. Freight costs of $7.4 million, $6.2 million, and $5.9 million for the years 2003, 2002 and 2001, respectively, were included as a reduction of sales. Certain other frieght costs associated with customer shipments of $1.7 million, $1.6 million and $1.1 million for the years 2003, 2002 and 2001, respectively, were included in selling, general and adminstrative expenses.

Sales of Technology

On December 31, 2002, the company agreed to sell most of our North American industrial filter media business as well as our German disposable nonwoven tablecloth business and certain equipment at our Reading, Pennsylvania, facility, to Ahlstrom Corp. We also purchased selected vacuum bag filter technology and certain equipment from Ahlstrom Corp. The gain from these transactions was $3.0 million, net of expenses.

During the year ended December 31, 2001, the company agreed to sell the balance of its U.S. engine filter media business and certain equipment at its Rochester, Michigan, facility, to Ahlstrom Corp. Proceeds recognized from this sale were $12.5 million, net of expenses.

On September 1, 2000, the company agreed to sell the technology for a portion of the filter media business manufactured at the leased Richmond, Virginia, facility, together with some production equipment to Ahlstrom Corp. The technology and legal title was transferred to Ahlstrom Corp. on the date of the agreement and the company recognized $8.9 million from the sale of technology, before legal costs of $0.5 million. In 2001 the company reduced the sales price by $0.2 million in accordance with the final settlement agreement.

Concentration risk

In the U.S. and the U.K., approximately 76% of our hourly employees are union members. In Germany, all hourly and approximately 70% of the salaried employees are union eligible. The company’s union employees are covered under various collective bargaining agreements expiring through 2005. As union membership is voluntary and does not need to be disclosed per German law, the percentage of employees covered by the agreement that expires on March 31, 2004, at the three German facilities cannot be determined. Agreements at Bolton, England, Bavaria, Germany, Lahnstein, Germany, Hughesville, New Jersey, Warren Glen, New Jersey and Lowville, New York expire in 2004 representing approximately 50% of all hourly employees in the company (excluding Germany).

We have a long-standing relationship with DuPont, our supplier of Tyvek® and have never experienced a disruption in supply. Although we are an approved DuPont converter and believe that we have a good relationship with DuPont, there can be no assurance that we will be able to continually purchase adequate supplies of Tyvek®. We also purchase a significant quantity of polyester, the majority of which is Dacron®, purchased from DuPontSA. Any material interruption in our supply of Tyvek® or Dacron® could have a material adverse effect on the results of operations and our financial condition.


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Reclassification

The company adopted SFAS 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections on January 1, 2003. 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 adoption resulted in a reclassification of the loss on early extinguishment of debt of $696,000 (net of taxes of $504,000) in 2001 from an extraordinary item to other expense. In 2002 we reclassified $885,000 of restructuring e xpenses from selling, general and administrative expenses to restructuring and facility closure expense.

Restructuring and Facility Closures

The company adopted SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities on January 1, 2003. The pronouncement 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 as under prior 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 adoption of SFAS 146 changed the timing of recognition of costs associated with restructuring and facility closures. There was no significan t impact to the consolidated financial statements with the adoption of this SFAS.

New Accounting Pronouncements

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe any such pronouncements will have a material impact on our consolidated financial statements.

(2) Other Intangible Assets and Goodwill

Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under SFAS 142, we no longer amortize goodwill and intangibles that have indefinite lives. Prior to 2002, intangible assets were stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets. SFAS 142 also requires that we assess goodwill and intangibles with indefinite lives for impairment at least annually, based on the fair value of the related reporting unit or intangible asset. On an on-going basis, we expect to perform our annual impairment assessment based on information as of September 30.

In our transitional goodwill assessment at January 1, 2002, our review indicated that no impairment was necessary. However, as we progressed through the year, results in our North American operations were weaker than expected due to economic conditions in our markets and delays in implementation of our facility consolidations and the realization of related efficiencies. Consequently, we initiated a third-party business appraisal of our North American operations in the fourth quarter 2002, using a September 30, 2002, measurement date to determine the carrying value of our goodwill and whether any impairment was indicated. Based on a fair market value determination reflecting the present value of our projected future cash flows and the value of our property, plant and equipment and intellectual property, including proprietary technology, we wrote down the goodwill in our North American operations segment by $42.9 million, in the fourth quarter of 2002.

In the quarter ended September 30, 2003, based on an updated fair market value determination reflecting current assumptions regarding future cash flows and the carrying value of our property, plant and equipment and intellectual property, including proprietary technology, we wrote down the goodwill in our North American operations segment by $92.3 million.


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In 2002 as a result of completing the analysis for allocating the purchase price, goodwill was also adjusted to reflect requirements under purchase accounting in relation to our DSI acquisition in 2001.

In the fourth quarter of 2003, the company recorded amortization expense of $284,000 related to debt issuance costs, due to the exit of a former credit facility.

A reconciliation of previously reported net loss and basic and diluted loss per share to the amounts adjusted for the exclusion of amortization related to goodwill, net of related tax effect, for the years ended December 31, 2003, 2002 and 2001 is as follows (in thousands, except per share amounts):

	2003			2002			2001

Net loss:
Reported	$	(119,180	)	$	(53,994	)	$	(18,813	)
Goodwill amortization, net of income taxes		-			-			3,270

Adjusted	$	(119,180	)	$	(53,994	)	$	(15,566	)

Basic loss per share:
Reported	$	(16.87	)	$	(7.69	)	$	(2.74	)
Goodwill amortization, net of income taxes		-			-			0.48

Adjusted	$	(16.87	)	$	(7.69	)	$	(2.26	)

Diluted loss per share:
Reported	$	(16.87	)	$	(7.69	)	$	(2.74	)
Goodwill amortization, net of income taxes		-			-			0.48

Adjusted	$	(16.87	)	$	(7.69	)	$	(2.26	)

The following table reconciles our goodwill from the beginning of the year to the end of the year (in thousands):

	2003			2002

Balance at beginning of year	$	98,460		$	145,252

Adjust accrual for severance and benefits		(7	)		(2,483	)
Adjust inventory		-			(345	)
Adjust property, plant and equipment values		1,101			(3,688	)
Adjust income taxes		-			1,657
Goodwill impairment charges		(92,261	)		(42,878	)
Effect of exchange rates		1,309			945


Balance at end of year	$	8,602		$	98,460


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The following table provides the gross carrying value and accumulated amortization for each major class of other intangible assets as of December 21, 2003 and 2002 (in thousands):

	Gross Carrying Value				Accumulated Amortization
	2003		2002		2003		2002

Amortizable intangible assets:
Debt issue costs	$	16,734	$	14,467	$	6,070	$	4,875
Acquired technology		846		846		42		-
Other		1,645		1,409		368		369

Total intangible assets	$	19,225	$	16,722	$	6,480	$	5,244

The total intangible amortization expense for the periods ended December 31, 2003, 2002, and 2001 was $2,055,000, $1,714,000 and $1,612,000, respectively. The estimated amortization expense for each of the next five years ending December 31, is as follows (in thousands):

2004	$	2,811
2005	$	2,763
2006	$	1,999
2007	$	1,617
2008	$	1,617

(3) Other Expense, Net

Other expense, net consists of the following for the years ended December 31, 2003, 2002 and 2001 (in thousands):

	2003			2002			2001

Amortization		2,055			1,714			5,940
Early extinguishment of debt		615			-			1,200
Other		(561	)		(250	)		(511	)

	$	2,109		$	1,464		$	6,629

(4) Inventories

Inventories consist of the following at December 31, 2003 and 2002 (in thousands):

	2003		2002

Raw materials	$	19,244	$	20,671
Work in process		18,233		19,548
Finished goods		16,844		14,975
Finished goods on consignment		3,432		4,090
Stores inventory		4,067		3,562
Operating supplies		1,623		1,723

Total inventories	$	63,443	$	64,569


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(5) Property, Plant and Equipment

Property, plant and equipment consists of the following at December 31, 2003 and 2002 (in thousands):

	2003			2002

Land	$	15,727		$	13,767
Buildings and improvements		51,786			37,747
Machinery and equipment		245,156			209,077
Construction in progress		2,881			12,052

Gross property, plant and equipment		315,550			272,643
Less accumulated depreciation and amortization		(67,356	)		(47,137	)


Net property, plant and equipment	$	248,194		$	225,506

Depreciation expense was $14,948,000, $14,121,000 and $11,283,000 for the years ended December 31, 2003, 2002, and 2001, respectively. Interest expense capitalized to property, plant and equipment for the years ended December 31, 2003, 2002 and 2001 was $575,000, $560,000 and $2,435,000, respectively.

In 2002 the company decided to reduce its previously estimated useful lives on certain of its asset categories and depreciation estimates were revised to reflect the use of the assets over their shortened useful lives. The change in estimate resulted in additional depreciation of $1,203,000, which was included in depreciation expense in the fourth quarter of 2002.

In the fourth quarter of 2003, the North American segment recorded a charge of $1,386,000 to recognize the impairment, under the requirements of SFAS 144, of idle equipment.

(6) Debt

The company’s long-term debt is summarized as follows at December 31, 2003 and 2002 (in thousands):

	2003		2002

Senior notes (1996 notes) – interest at 9.375%, interest payable semi-annually in arrears on April 15 and October 15, unsecured, due October 15, 2006	$	100,000	$	100,000

Senior notes (2001 notes) – face value $230.0 million, net of unamortized discount of $1.3 million and $1.4 million as of December 31, 2003 and 2002, respectively, interest at 10.75%, payable semi-annually in arrears on each April 15 and October 15, unsecured, due April 15, 2011		228,741		228,568

Term loan – interest rate at 8.47%, secured by machinery at the Warren Glen, NJ, facility, interest and principal payable in monthly installments through the year 2007.		8,980		11,134

Term loan – interest rate at LIBOR + 2%, secured by machinery at Quakertown, PA, facility, interest and principal payable in monthly installments through the year 2007		1,643		2,071


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CIT Subfacility – interest rate at prime + 2% or LIBOR + 3.5%, capital spending loan secured by accounts receivable, inventory and various machinery located at the Lowville, NY and Quakertown, Pennsylvania facilities. Balance paid off and refinanced in conjunction with issuance of the new GE Commercial Finance Credit facility.		-			2,488

Capital lease – interest rate at 4.6%, secured by the building at the Lowville, NY, facility, with a net book value of $5,374,000 at December 31, 2003, 24 monthly payments of $100,000 principal plus interest with a balloon payment of $2,040,000 due at maturity on January 31, 2005 (see note 7).		3,340			-


Total Debt		342,704			344,261
Less Current Portion		(3,955	)		(3,188	)

Long-term Portion	$	338,749		$	341,073

The senior notes (1996 notes) are redeemable at the company’s option in whole or in part, at redemption prices ranging from 100% to 103.125% of face value.

The senior notes (2001 notes) are also redeemable at the company’s option in whole or in part, on or after April 15, 2006, at redemption prices ranging from 100% to 105.375% of face value.

Approximately $35,745,000, $35,925,000 and $24,727,000 of interest was paid during the years ended December 31, 2003, 2002 and 2001, respectively.

The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2003 and thereafter are as follows (in thousands):

2004	$	3,955
2005		5,100
2006		103,183
2007		1,725
2008		-
Thereafter		228,741

Total	$	342,704

A 30 month, $85.0 million credit facility was signed on November 12, 2003, which provides for cash availability for capital expenditures, working capital and general corporate purposes. The former credit facility was paid off on November 12, 2003, and replaced with the new credit facility.

The credit facility led by GE Commercial Finance is secured by substantially all of FiberMark’s U.S. assets, excluding various equipment at our Quakertown, Pennsylvania and Warren Glen, New Jersey facilities that secure two existing term loans, and is also secured by specific foreign assets. The new facility also provides borrowing capacity based on the level of profitability as defined by earnings before interest, taxes, depreciation and amortization (EBITDA) of FiberMark’s German businesses. To secure these European borrowings, the company has pledged various percentages of the ownership shares of the German operations that effectively prevent FiberMark from disposing of or materially changing the assets of those businesses without consent from the new facility lender. As of December 31, 2003, the unused borrowing capacity was $42.2 million. The weighted average interest rate on the outstanding borrowings at December 31, 2003 was 5.24%.


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Advances under the credit facility are repayable daily. The borrowing rate is determined based on the terms of the new credit facility. On December 31, 2003, we had a total of $14.5 million outstanding under the facility, which includes $8.6 million of outstanding letters of credits.

The GE Commercial Finance facility requires certain covenants be maintained which include; minimum EBITDA levels both consolidated and for Germany only, fixed charge coverage, debt to EBITDA leverage, capital expenditure levels and letter of credit levels. As of December 31, 2003, we were in compliance with all covenants. Annual fees associated with this facility include:

Type	Denomination	Annual Amount

Agency Fee	U.S. Dollar	$75,000 flat fee
Unused Line Fee	U.S. Dollar	.50% of unused U.S. Revolving Loan
Unused Line Fee	Euro	.70% of unused European Revolving Loan

The term loan agreement secured by machinery at the Warren Glen, New Jersey, facility requires the company to maintain a specified level of tangible net worth. At December 31, 2003, the company was in violation of this covenant but has obtained a complete waiver of default from the lender.

The foreign subsidiaries do not guarantee any of the senior notes (see note 21).

(7) Leases

DEFERRED GAIN AND SALE-LEASEBACK

In 2002 the company entered into a sale-leaseback agreement with Coated Paper LLC, an affiliate of VIP Structures, Inc. FiberMark sold Coated Paper assets representing the Lowville, New York facility building and land for $598,000 resulting in a deferred gain of $222,000 and at the same time contracted with them to construct a new 88,000 square foot building expansion. Under the sale-leaseback agreement, FiberMark paid $1,105,000 representing 20% of the project cost in 2003, and is obligated to make 24 monthly payments of $100,000 plus interest on the outstanding principal, followed by a balloon payment of approximately $2,040,000 in January 2005, when FiberMark will resume ownership of the entire site.

OTHER LEASES

The company assumed obligations under operating leases for certain machinery, equipment and facilities with the acquisitions of Rexam DSI in April 2001, Steinbeis Gessner GmbH in January 1998, Papierfabrik Lahnstein GmbH in August 1999, and facilities purchased from Custom Papers Group (CPG) in October 1996.

Rental expense was $4,212,000, $2,655,000 and $1,929,000 for the years ended December 31, 2003, 2002, and 2001, respectively.


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As of December 31, 2003, obligations to make future minimum lease payments under these leases were as follows (in thousands):

Payments to be made in the years ending December 31:

2004	$	3,276
2005		2,322
2006		1,267
2007		365
2008		12

	$	7,242

(8) Stockholders Equity (Deficit)

At December 31, 2003 and 2002, the company has 2,000,000 shares of preferred stock authorized with none issued.

In May 2002 the Board of Directors adopted a stockholder rights plan. In connection with the adoption of the rights plan, the Board 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.

(9) Income Taxes

Loss before income taxes and item classified by source of income (loss) was as follows (in thousands):

	2003			2002			2001

U.S.	$	(139,800	)	$	(63,936	)	$	(42,514	)
Foreign		28,805			23,374			15,260

Loss before income taxes	$	(110,995	)	$	(40,562	)	$	(27,254	)

The components of the provision (benefit) for income taxes for the years ended December 31, 2003, 2002 and 2001 are as follows (in thousands):

	2003			2002			2001

Current
Federal	$	-		$	(9,689	)	$	(1,873	)
State		100			256			222
Foreign		9,175			7,067			5,166

		9,275			(2,366	)		3,515
Deferred
Federal and State		-			12,864			(13,111	)
Foreign		(1,090	)		2,934			1,155

		(1,090	)		15,798			(11,956	)


Income tax expense (benefit)	$	8,185		$	13,432		$	(8,441	)


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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2003 and 2002 are presented below (in thousands):

December 31, 2003	Deferred Tax Assets			Deferred Tax Liabilities

Accounts receivable	$	646		$	-
Inventory		767			-
Property, plant and equipment		-			43,750
Payroll related accruals		11,933			-
Intangible assets		5,290			-
Miscellaneous reserves		273			-
Facility closure		295			-
Net operating losses		48,407			-
Tax credits		3,129			-
Charitable contributions		622			-
Unremitted foreign earnings		-			(1,330	)

Gross deferred taxes		71,362			45,080
Valuation allowance		(42,466	)		-


Net deferred taxes	$	28,896		$	45,080

December 31, 2002	Deferred Tax Assets			Deferred Tax Liabilities

Accounts receivable	$	293		$	-
Inventory		674			-
Property, plant and equipment		-			35,602
Payroll related accruals		12,580			-
Intangible assets		1,199			-
Miscellaneous reserves		133			-
Facility closure		335			-
Net operating losses		19,712			-
State tax credits		2,968			-
Charitable contributions		605			-

Gross deferred taxes		38,499			35,602
Valuation allowance		(18,387	)		-

Net deferred taxes	$	20,112		$	35,602

SFAS 109, Accounting for Income Taxes (SFAS 109), requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Temporary differences relating to certain assets and liabilities are expected to reverse in the allowable carryforward period for net operating losses. Based upon evidence currently available including recent losses in certain jurisdictions, the company has recorded a valuation allowance of $42,466,000 as of December 31, 2003. The valuation allowance relating to a deferred tax asset of $1,127,000 for amounts charged to other comprehensive income a s of December 31, 2001 was established through the income tax provision for the year ended December 31, 2002, the first year the company recorded a valuation allowance. Furthermore, the company filed for chapter 11 on March 30, 2004, decreasing even further any likelihood that any of its U.S. operations deferred tax assets will be realized. As discussed in note 22, upon consummation of the Reorganization Plan, the company may recognize a substantial amount of cancellation of indebtedness income. Accordingly, a substantial portion of the company’s net operating loss carryforwards potentially could be eliminated. Other tax attributes, including property bases, could also be reduced. Any surviving capital loss or net operating loss carryforwards may be subject to limitations imposed under the ownership change rules in the Internal Revenue Code.


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The company provides income tax on unremitted earnings of foreign subsidiaries other than those that are permanently reinvested. Income taxes have not been provided on unremitted foreign earnings of approximately $1,495,000, which are considered to be permanently reinvested. The income taxes that would be payable if such amounts were remitted would be immaterial.

A reconciliation of income taxes from continuing operations at the U. S. statutory rate to the effective rate for the years ended December 31, 2003, 2002 and 2001 are as follows:

	2003			2002			2001

U.S. federal rate		(35.0)	%		(35.0)	%		(35.0)	%
State taxes net of federal benefit		0.1	%		(2.4)	%		(2.6)	%
Foreign rate difference		0.9	%		4.5	%		3.9	%
Effect of German tax reform		1.0	%		-			-
Effect of German restructuring		(3.7)	%		-			-
Goodwill		23.8	%		34.3	%		-
Valuation allowance		19.3	%		28.8	%		-
Other		1.0	%		2.9	%		2.7	%

Effective tax rate		7.4	%		33.1	%		(31.0)	%

Income taxes paid during 2003, 2002, and 2001 were $9,159,000, $4,759,000 and $3,374,000, respectively. Income tax refunds received during 2003, 2002, and 2001 were $3,842,000, $8,528,000 and $954,000, respectively.

German tax reform was enacted in October 2000 which reduces the corporate tax rate from 40% in the case of retained profits and 30% in the case of distributed profits to 25% uniformly from January 1, 2001 forward. The effect of this tax law change was required to be reported in the fourth quarter of 2000, even though the change was not effective until January 1, 2001. Deferred tax assets and liabilities at December 31, 2000, were calculated based upon these future lower tax rates, resulting in a $1,106,000 benefit.

German tax reform was enacted in December 2003 which would impose German income taxes on a small portion of any earnings that are repatriated from the company’s German subsidiaries. The effect of this change was to increase deferred foreign tax expense by $1,163,000 for 2003. In the fourth quarter of 2003 the company changed the legal entity structure of certain of its German subsidiaries. The effect of this change was to decrease deferred foreign tax expense by $4,145,000.

In 2003 the net deferred tax expense differs from the change in the net deferred tax assets or liabilities as a result of the tax effect of the German minimum pension liability of $354,000, less amounts relating to foreign currency translations of $2,138,000. In 2002 the net deferred tax expense differs from the change in the net deferred tax assets or liabilities as a result of the purchase price adjustments to goodwill of $1,657,000 and amounts relating to foreign currency translations of $1,780,000, less the tax effect of the German minimum pension liability of $188,000.

For U.S. federal income tax purposes, $108,518,000 and $39,853,000 of net operating loss carryforwards may be available to offset future U.S. federal taxable income at December 31, 2003 and December 31, 2002, respectively. Due to a change in tax law in 2002 net operating losses incurred for years ended in 2002 and 2001 were eligible to be carried back five years in 2003 and 2002. As a result net operating losses from December 31, 2001 of $27,385,000 were carried back in 2002 and net operating losses from December 31, 2002 of $7,613,000 were carried back in 2003. For state income tax purposes, $9,009,000 and $5,763,000 of net operating loss carryforwards may be available to offset future state taxable income at December 31, 2003 and 2002, respectively. The Federal and state net operating loss carryforwards begin to expire in 2021 through 2023 and 2006 through 2023, respectively.


72

(10) Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, Disclosures About the Fair Value of Financial Instruments, requires disclosure of information about the fair value of certain financial instruments for which it is practicable to estimate that value. For purposes of the following disclosure the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation. The fair value of long-term debt is based upon the quoted market price of the senior notes and the carrying value for other long-term debt. This amounts to $243,725,000 (carrying value of $342,704,000) at December 31, 2003 and $338,271,000 (carrying value of $344,261,000) at December 31, 2002. Management ha s determined that the carrying values of its other financial assets and liabilities approximated fair value at December 31, 2003 and 2002.

(11) Acquisitions

2002 Acquisition

On December 31, 2002, the company acquired selected vacuum bag filter technology and working capital from Ahlstrom Corp for a purchase price of $1.2 million. This transaction was consummated at the same time as the sale of technology discussed in note 1.

2001 Acquisition

Effective April 18, 2001, the company acquired Rexam Decorative Specialties International (DSI) for a purchase price of $140.0 million. DSI is a leading global manufacturer of specialty decorative covering materials serving the publishing, stationery and premium packaging markets, with a particular focus on latex-saturated paper products. This acquisition was financed with the issuance in 2001 of $230.0 million of 10.75% Senior Notes due 2011. The balance of the Senior Notes (2001 notes) was used to repay existing indebtedness, including German bank debt, and for financing and acquisition fees. The retirement of German bank debt resulted in an after tax prepayment fee of $0.7 million. The acquisition was accounted for using the purchase method. Accordingly, the full purchase price was allocated to the assets acquired and liabilities assumed based upon their respecti ve fair values. This resulted in approximately $109.8 million of cost in excess of net assets acquired, or goodwill. In connection with the acquisition of DSI, there is a plan for the consolidation of some of DSI’s papermaking and converting capacity with existing facilities, enabling the closure of certain acquired facilities. The acquired facilities to be closed are expected to be shut down by the second quarter of 2004. A liability of $5.7 million was established at acquisition to accrue severance and benefits for employees expected to be terminated. The balance remaining at December 31, 2003 was $0.4 million. The 2001 consolidated results include DSI’s results of operations, from the date of acquisition.

(12) Facility Closures

We have recorded restructuring accruals in 2003 and 2002 in our North American operations segment in relation to plant consolidations and workforce reductions. For these workforce reductions, the termination date was within 60 days of the announcement of the restructuring plan.


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Additionally, we have closed several facilities in our North American operations segment between 2001 and 2003, as part of our DSI consolidation plan, for which we have recorded asset impairment charges, severance accruals and accruals for other contractual obligations.

The following table reconciles our restructuring and facility closure accruals from the beginning of the year to the end of the year (in thousands):

	Balance at beginning of year		Expense (Reversal)			Deductions			Balance at end of year

Year ended December 31, 2003	$	1,725	$	882		$	(1,132	)	$	1,475

Year ended December 31, 2002	$	3,925	$	(19	)	$	(2,181	)	$	1,725

Year ended December 31, 2001	$	1,674	$	3,640		$	(1,389	)	$	3,925

The expense (reversal) includes an expense for contract terminations of $750,000 in 2001. The remaining expense (reversal) related to severance and benefits for terminated employees. Adjustments to the initial accruals have been recorded primarily to recognize voluntary terminations. In addition, in 2001 the company reached a decision to retain operations at the Hughesville, New Jersey, facility and reversed previously recorded facility closure expenses.

Asset impairment charges (reversals) related to the facilities for the years ended December 31, 2002 and 2001 were $(51) and $18,898, respectively. Additionally, a goodwill impairment charge of $3,455 in 2001 was recorded upon the sale of technology to Ahlstrom. These asset impairment charges were included in restructuring and facility closure expense (reversal).

The Richmond, Virginia facility was closed in 2001, resulting in the termination of 96 salary and hourly employees.

The Fitchburg, Massachusetts facility was closed in 2001, resulting in the termination of 80 salary and hourly employees.

The Rochester, Michigan facility was closed in 2002, resulting in the termination of 83 salary and hourly employees.

The North American restructuring in 2003 resulted in the termination of 100 salary and hourly employees.

(13) Retirement and Deferred Compensation Plans

The company has several defined contribution plans (salaried and hourly) and defined benefit retirement plans (hourly).

Multi-employer Plan

The hourly employees at the Lowville, New York, facility, which was part of the 2001 DSI acquisition, are covered by a multi-employer defined benefit plan. The company’s expense under this plan was $110,000, $60,000 and $44,000 for the years ended December 31, 2003, 2002 and 2001, respectively.


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Defined Contribution Plans

There is a defined contribution plan which is a 401(k) ERISA and IRS-qualified plan in the U.S. covering substantially all employees that permits employee salary deferrals up to 16% of salary with the company matching 50% of the first 6%. Certain foreign subsidiary employees are eligible to participate in similar plans in those countries. Defined contribution plan expense for the company was $733,000, $1,013,000 and $640,000 for the years ended December 31, 2003, 2002, and 2001, respectively.

Defined Benefit Plans for Hourly Employees

The defined benefit plan covering certain U.S. employees is an ERISA and IRS-qualified plan. Plan assets are invested principally in equity securities, government and corporate debt securities and other fixed income obligations. The company annually contributes at least the minimum amount as required by ERISA. The defined benefit plans covering all hourly employees in Germany were established by the company to provide a monthly pension upon retirement. There is no legal or governmental obligation to fund these plans.


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The following table sets forth the accumulated pension benefit obligation (APBO) (in thousands):

	2003			2002

APBO at January 1	$	38,442		$	32,783
Service cost		1,089			841
Interest cost		2,555			2,267
Actuarial loss		3,689			1,523
Benefits paid		(2,250	)		(1,803	)
Plan amendments		-			220
Curtailments		-			(325	)
Foreign currency impact		3,885			2,936

APBO at December 31	$	47,410		$	38,442

The funded status at December 31 is (in thousands):

	2003			2002

Projected benefit obligation	$	(47,410	)	$	(38,442	)
Fair value of plan assets		14,811			12,002

Funded status		(32,599	)		(26,440	)
Unrecognized net transition obligation		1			4
Unrecognized prior service cost		931			1,030
Unrecognized net loss		9,592			8,134

Accrued pension cost before adjustment for minimum liability		(22,075	)		(17,272	)
Adjustment to recognize minimum liability		(10,525	)		(9,599	)

Accrued pension cost included in other long-term liabilities	$	(32,600	)	$	(26,871	)

Net periodic pension expense included the following components (in thousands):

	2003			2002			2001

Service cost	$	1,040		$	783		$	842
Interest cost		2,422			2,135			2,062
Return on assets		(968	)		(1,105	)		(1,280	)
Net amortization and deferral
Unrecognized net transition obligation		3			3			3
Unrecognized prior service cost		100			83			127
Net asset gain deferred		430			497			169
Recognized net loss		207			-			-

Net periodic pension expense	$	3,234		$	2,396		$	1,923

The following table reconciles plan assets (in thousands):

	2003			2002

Fair value of plan assets at beginning of year	$	12,002		$	13,501
Return on plan assets		2,725			(2,246	)
Employer contributions		2,334			2,550
Benefits paid		(2,250	)		(1,803	)

Fair value of plan assets at end of year	$	14,811		$	12,002


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The intangible asset relating to the U.S. defined benefit plan for hourly employees was $932,000 at December 31, 2003 and $1,034,000 at December 31, 2002.

The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 2003 and 2002 was 6.0% and 6.5%, respectively. The expected long-term rate of return on plan assets was 8.0% in 2003 and 2002.

The investment policy for assets of the plan is based on ERISA standards for prudent investing. We seek to maximize return while limiting risk. This is achieved through a balanced portfolio of equity, fixed income investments and cash equivalents. Within each class, a diversified mix of individual securities and bonds is selected. Equity allocations are targeted between 50% and 75% of the portfolio, with the remainder in fixed income investments and cash equivalents. Asset manager performance is reviewed at least every quarter and benchmarked against the appropriate blended index. Our target allocation for 2004 and actual plan asset allocation at December 31, 2003 and 2002 are as follows:

Category	First Quarter 2004 Target	December 31, 2003	December 31, 2002

Equities	74.0%	72.5%	57.5%
Fixed Income	20.0%	21.5%	28.9%
Cash	6.0%	6.0%	13.6%

We have examined the historic benchmarks for returns in each asset class in our portfolio, and based on the target asset mix we have developed a weighted average expected return for the portfolio as a whole, taking into consideration forecasts of long-term expected inflation rates.

The estimated employer contributions during fiscal year 2004 are $2,310,000.

Non-Qualified Plans

In addition to the benefits provided under the qualified pension plans, retirement and deferred compensation benefits associated with wages in excess of the IRS allowable wages are provided to certain employees under non-qualified plans.

The company established a trust pursuant to two executive deferral plans for the benefit of a select group of management, highly compensated employees and/or directors who contribute materially to the continued growth, development and business success of the company. The plans established under the trust agreement are set forth as follows:

Supplemental Executive Retirement Plan (SERP)

The plan is a defined benefit plan and shall be unfunded for tax purposes and for purposes of Title I of ERISA. Pension benefits are based upon final average compensation and years of service. Benefits earned are subject to cliff vesting after fifteen (15) years or more of service. To assist in the funding of the plan, the company purchased corporate-owned life insurance contracts. Proceeds from the insurance policies are payable to the company upon the death of the participant.


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The following table sets forth the accumulated pension benefit obligation (APBO) (in thousands):

		2003			2002

APBO at January 1	$	5,245		$	4,208
Service cost		36			101
Interest cost		360			338
Actuarial loss		655			27
Benefits paid		(152	)		(80	)
Plan amendments		-			651

APBO at December 31	$	6,144		$	5,245

The funded status at December 31 is (in thousands):

		2003			2002

Projected benefit obligation	$	(6,144	)	$	(5,245	)
Fair value of plan assets		3,667			2,075

Funded status		(2,477	)		(3,170	)
Unrecognized prior service cost		1,796			2,108
Unrecognized net loss		2,982			2,873

Prepaid pension cost before adjustment for minimum liability		2,301			1,811
Adjustment to recognize minimum liability		(4,588	)		(4,715	)

Accrued pension cost included in other long-term liabilities	$	(2,287	)	$	(2,904	)

Net periodic pension expense included the following components (in thousands):

		2003			2002			2001

Service cost	$	36		$	101		$	118
Interest cost		360			338			288
Return on assets		(381	)		1,142			1,566
Net amortization and deferral:
Unrecognized prior service cost		312			312			250
Unrecognized gain		310			98			-
Net asset gain (loss) deferred		236			(1,143	)		(1,676	)

Net periodic pension expense	$	873		$	848		$	546

The following table reconciles plan assets (in thousands):

		2003			2002

Fair value of plan assets at beginning of year	$	2,075		$	17
Return on plan assets		381			(1,142	)
Employer contributions		1,363			3,280
Benefits paid		(152	)		(80	)

Fair value of plan assets at end of year	$	3,667		$	2,075

The intangible asset relating to the Supplemental Executive Retirement Plan (SERP) was $1,796,000 at December 31, 2003 and $2,108,000 at December 31, 2002.


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The estimated employer contributions during fiscal year 2004 is approximately $200,000.

Deferred Compensation Plan

The company has a deferred compensation plan that permits eligible participants to defer a specified portion of their compensation. The deferred compensation, together with certain company contributions, earns a guaranteed rate of return. As of December 31, 2003 and 2002, the company has accrued $860,000 and $1,869,000, respectively, for its obligation under the plan included in other long-term liabilities. The company’s expense, which includes company contributions and interest expense, amounted to $1,000, $4,000 and $13,000, for the years ended December 31, 2003, 2002, and 2001, respectively. During 2002 the deferred compensation plan was amended to allow withdrawals regardless of termination and not requiring board approval. Payments from the plan were $1,211,000, $3,201,000 and $244,000 in the years 2003, 2002, and 2001, respectively.

To assist in the funding of the plan, the company purchased corporate-owned life insurance contracts. Proceeds from the insurance policies are payable to the company upon the death of the participant. The cash surrender value of the policies, included in other long-term assets, was $860,000 and $1,869,000 as of December 31, 2003 and 2002, respectively.

(14) Post-retirement Benefits Other Than Pensions

The company provides certain health care and life insurance benefits upon retirement to a specific group of employees who formerly worked for CPG, which was acquired by the company in 1996. The salaried group of employees generally become eligible for retiree medical benefits after reaching age 62 and with 15 years of service or after reaching age 65. The medical plan for salaried employees provides for an allowance, which must be used towards the purchase of a Medicare supplemental insurance policy, based on a retiree’s length of service. The allowance may be adjusted to reflect annual changes in the Consumer Price Index (“CPI”); however, once the initial allowance has doubled, there will be no further increases. Salaried employees hired after January 1, 1993, are not eligible to participate in this retiree medical plan. Upon satisfying certain eligi bility requirements, approximately 45% of the hourly employees are eligible upon retirement to receive a medical benefit, which is an allowance to be used toward the purchase of a Medicare supplemental insurance policy and cannot exceed a specified annual amount. The post-retirement benefit obligations related to employees who retired prior to the acquisition were not assumed by the company and remain the responsibility of the prior owners.

The company provides certain health care and life insurance benefits upon retirement to a specific group of employees who formerly worked for DSI, which was acquired by the company in 2001. The salaried group of employees generally become eligible for retiree medical benefits after reaching age 62 and with 15 years of service or after reaching age 65. Salaried employees hired after January 1, 1993, are not eligible for coverage. Upon satisfying certain eligibility requirements approximately 40% of the hourly employees are eligible upon retirement to receive a medical benefit. One group of hourly employees continue their active coverage upon retirement with a required monthly contribution. They become eligible at age 55 with no service requirement. The other group of hourly employees generally become eligible for medical benefits after reaching age 60 with 10 years o f service or age 65 with 5 years of service. The plan provides a subsidy for increased cost of living to a maximum cap times years of service.


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The following table sets forth the accumulated post-retirement benefit obligation (APBO) (in thousands):

		2003			2002


APBO at January 1	$	11,159		$	8,018
Service cost		332			201
Interest cost		759			628
Plan amendment		36			-
Actuarial loss		1,265			3,306
Benefits paid		(479	)		(403	)
Curtailment gain		-			(591	)

APBO at December 31	$	13,072		$	11,159

The funded status at December 31 is (in thousands):

		2003			2002


Funded status at December 31	$	(13,072	)	$	(11,159	)
Unamortized prior cost		43			13
Unrecognized net actuarial loss (gain)		3,609			2,464

Accrued post-retirement benefit cost included in other long-term liabilities	$	(9,420	)	$	(8,682	)

Net periodic post-retirement benefits cost included the following components (in thousands):

		2003		2002			2001


Service cost	$	332	$	201		$	156
Interest cost on APBO		759		628			460
Prior service cost		6		3			3
Actuarial gain (loss)		120		10			(28	)
Curtailment gain		-		(621	)		-

	$	1,217	$	221		$	591

The assumed health care cost trend rate used in measuring future benefit costs was 11%, gradually declining to 5% by 2010 and remaining at that level thereafter. A 1% increase in this annual trend rate would result in an accumulated post-retirement benefit obligation of $14,858,000 and the aggregate of service and interest cost components of net periodic post-retirement benefit expense for the year ended December 31, 2003 of $1,391,000. Conversely, a 1% decrease in the annual trend rate would result in an accumulated post-retirement benefit obligation of $11,544,000 and the aggregate of service and interest cost components of net periodic post-retirement benefit expense of $1,072,000 for the year ended December 31, 2003. The assumed discount rate used in determining the accumulated post-retirement benefit obligation was 6.0% and 6.5% as of December 31, 2003 and 2002 , respectively. Due to facility closures at several locations a curtailment gain of $621,000 was recorded in 2002.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Act”) was signed into law. The Act expands Medicare primarily by adding a prescription drug benefit for Medicare-eligible individuals beginning in 2006. Pursuant to guidance provided in FASB Staff Position SFAS No. 106-1, the company has chosen to defer recognition of the Act, and, accordingly, the post-retirement benefit obligations and net periodic post-retirement benefit cost do not reflect any potential impact of the legislation. The company has not yet determined what the impact of the legislation will be, if any, on the results of operations or financial position of the company.


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(15) Accrued Liabilities

Accrued liabilities consist of (in thousands):

		2003		2002

Salaries and related benefits	$	12,754	$	12,297
Interest		7,126		7,169
Facility closure costs		740		1,016
Other		1,393		1,979

	$	22,013	$	22,461

(16) Supplemental Cash Flow Information

Non-cash disclosure related to the DSI acquisition in 2001:

Assets acquired	$	172,912
Liabilities assumed		(25,026	)

Cash paid		147,886
Less cash acquired		(44	)

Payment for business acquired	$	147,842

Non-cash investing and financing activities:

During 2003 the company decreased its intangible asset related to the hourly benefit pension plan in the amount of $103,000 and increased the related long-term liability of $926,000. The company decreased its intangible asset related to the SERP in the amount of $312,000 and decreased the related long-term liability in the amount of $127,000. The offset resulted in a minimum pension liability adjustment to equity of $861,000, net of tax benefit.

On December 31, 2002, the company sold certain assets including accounts receivable, inventory and equipment, having a net book value of $2,881,000 to Ahlstrom Corp. In addition, the company acquired certain other assets from Ahlstrom Corp. for $1,152,000 (see notes 1 and 11). Net proceeds of $3,396,000 were received during 2002 and an additional $1,330,000 has been received in 2003. The company recorded a gain of $2,997,000, net of expenses, in 2002 in connection with these transactions.

During 2002 the company decreased its intangible asset related to the hourly defined benefit pension plan in the amount of $362,000 and increased the related long-term liability of $6,002,000. The company increased its intangible asset related to the SERP in the amount of $339,000 and increased the related long-term liability in the amount of $1,259,000. The offset resulted in a minimum pension liability adjustment to equity of $7,096,000, net of tax benefit.

During 2001 the company increased its intangible asset related to the hourly defined benefit pension plan in the amount of $1,396,000 and the related long-term liability of $4,320,000. The company also increased its intangible asset related to the SERP in the amount of $498,000 and increased the related long-term liability in the amount of $1,462,000. The offset resulted in a minimum pension liability adjustment to equity of $2,374,000, net of tax benefit.


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(17) Significant Business Concentrations

	2003		2002		2001

Customer Concentration
Total % sales from top 5 customers	18	%	16	%	16	%

Foreign sales as % of total sales^(a)	52	%	45	%	35	%
Europe	40	%	34	%	29	%
Asia Pacific	11	%	9	%	4	%
Other (including Latin America)	2	%	2	%	2	%

(a) Excluding Canada

(18) Stock Option and Bonus Plans

The 1994 Stock Option Plan (“1994 Plan”) authorizes the grant of 300,000 shares of common stock to selected officers and employees of the company. Options granted under the Plan vest at a rate of 20% per year commencing on the one year anniversary of the grant date and 1.66% at the end of each month thereafter. The options are exercisable for a period of ten years from the grant date.

The 1997 Stock Option Plan (“1997 Plan”) authorizes the grant of up to 600,000 incentive stock options to selected officers and employees of the company. Options granted under the 1997 Plan vest at a rate of 20% per year and are exercisable for a period of ten years from the grant date.

The 1998 Amended and Restated Non-employees Directors Stock Option Plan (“Directors’ Plan”) authorizes the grant of up to 425,000 shares of common stock to directors who are not otherwise full-time employees of the company. The options are exercisable for a period of ten years from the date of grant. The amended plan contains two types of option grants: (1) a base grant of an option for 7,500 shares which vests at a rate of 20% for each year of board service and (2) a performance grant of an option for 15,000 shares which has accelerated vesting if the stock of the company reaches certain price levels for 20 consecutive trading days and ultimately vests after eight years of service on the Board of Directors.

The following table sets forth the stock option transactions for the three years ended December 31, 2003:

		Number of Shares			Weighted Average Exercise Price

Outstanding, December 31, 2000		1,157,795		$	12.60
2001:	Granted	59,500			9.99
	Exercised	(76,775	)		5.15
	Forfeited	(56,000	)		15.17

Outstanding, December 31, 2001		1,084,520			12.85
2002:	Granted	75,000			6.10
	Exercised	(162,768	)		3.33
	Forfeited	(57,151	)		15.70

Outstanding, December 31, 2002		939,601			13.78
2003:	Granted	100,000			3.42
	Exercised	-			-
	Forfeited	(72,550	)		12.91

Outstanding, December 31, 2003		967,051			12.78


82

At December 31, 2003 and 2002, the number of options exercisable was 644,851 and 623,001, respectively, and the weighted average exercise price of those options was $14.06 and $14.14, respectively.

The following table summarizes information about stock options outstanding at December 31, 2003:

	Options Outstanding					Options Exercisable

Range of Exercise Prices		Number Outstanding at 12/31/03	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at 12/31/03		Weighted Average Exercise Price

$1.33 to7.83		236,000	6.9	$	5.21		76,000	$	6.86
9.00 to10.88		170,150	4.6		9.63		125,950		9.45
13.38 to13.75		305,901	4.7		13.58		277,901		13.56
19.44 to25.63		255,000	4.1		20.92		165,000		21.72

		967,051					644,851

The Executive Bonus Plan provides for bonus payments of a percentage of base salary based upon the company’s achievement of certain levels of earnings per share. The Executive Bonus Plan utilizes a sliding scale so that the percentage of base salary paid as bonus compensation increases as the company’s earnings per share increase. The Executive Bonus Plan is designed to directly align the interests of the executive officers and the stockholders. The Executive Bonus Plan is subject to annual review by the Compensation Committee of the Board of Directors. No expense was recorded under the plan in 2003, 2002 or 2001.

(19) Unaudited Quarterly Summary Information

The following is a summary of unaudited quarterly summary information for the years ended December 31, 2003, 2002, and 2001 (in thousands, except per share data).

2003		March 31			June 30			Sept 30⁽³⁾			Dec 31⁽³⁾

Net sales	$	104,666		$	104,176		$	93,651		$	94,918
Gross profit		20,201			14,753			12,331			13,461
Net loss		(5,403	)		(8,516	)		(102,937	)		(2,324	)
Basic loss per share		(0.76	)		(1.21	)		(14.57	)		(0.33	)
Diluted loss per share		(0.76	)		(1.21	)		(14.57	)		(0.33	)

2002		March 31			June 30			Sept 30			Dec 31⁽²⁾

Net sales	$	97,158		$	105,124		$	97,594		$	97,323
Gross profit		18,606			23,807			20,044			10,050
Net income (loss)		394			2,556			1,143			(58,087	)
Basic earnings (loss) per share		0.06			0.36			0.16			(8.22	)
Diluted earnings (loss) per share		0.06			0.36			0.16			(8.22	)

2001^(a)		March 31			June 30⁽¹⁾			Sept 30			Dec 31

Net sales	$	90,344		$	102,081		$	100,858		$	101,038
Gross profit		13,740			16,854			12,098			8,741
Net income (loss)		2,858			(8,377	)		(5,832	)		(7,462	)
Basic earnings (loss) per share		0.42			(1.22	)		(0.84	)		(1.08	)
Diluted earnings (loss) per share		0.41			(1.22	)		(0.84	)		(1.08	)


		83

(a) On April 18, 2001, we acquired Rexam DSI for a purchase price of $140.0 million (see note 11).

(1) During the second quarter of 2001, the company ceased operations at our Fitchburg, Massachusetts, facility and recorded facility closure expenses of $20.7 million.

During 2001, we ceased operations at our Rochester, Michigan, facility. Closure costs of $12.6 million were offset by $12.5 million in proceeds from the sale of technology.

(2) During the fourth quarter of 2002, we recorded a goodwill impairment charge of $42.9 million, before taxes.

(3) During the third quarter of 2003, we recorded a goodwill impairment charge of $92.3 million, and in the fourth quarter of 2003 we recorded a fixed asset impairment charge of $1.4 million before taxes. Also in the fourth quarter of 2003, we recorded a $4.0 million foreign exchange transaction gain related to the settlement of intercompany indebtedness between FiberMark,Inc. and our German operations.

Note: Equivalent shares of common stock have not been included in quarters with net losses as their effect would be anti-dilutive.

(20) Segment Information

Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131) established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas.

The company's reportable operating segments include: German operations and North American operations. Each operating segment consists of facilities with common management, with significant marketing and manufacturing overlap. Each produce specialty papers, nonwoven materials and composite materials.

German operations produce and market technical specialties, which include filter media and base materials such as wallcovering and coated abrasives (sandpaper). This segment encompasses FiberMark Gessner and FiberMark Lahnstein.

North American operations produce and market materials in three product families: publishing and packaging (decorative covering materials, primarily latex-saturated, for publishing, specialty packaging and related niche applications); technical specialties (a wide variety of high performance materials including masking tape base); and office products (cover materials and binding tapes). This segment encompasses the U.S. facilities and the U.K. facility. The U.K. operation is managed as a stand alone business which supports the North American operations through specialty converting and service of niche markets.

In the third quarter of 2002, the company announced the consolidation of its primarily U.S.-based facilities into a single segment. Therefore, in 2003, the results of former product families, Technical and Office Products, Durable Specialties, and Decorative Specialties, which includes the U.K. based subsidiary of FiberMark Red Bridge International Ltd., have been consolidated into the North American Operations operating segment. In addition, due to the sale 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. Prior periods have been restated into the current segment presentation.


84

(20) Segment Information, (continued):

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

	(In Thousands)
	Operating Segment

12 months ended December 31, 2003		German		North American
Net sales		Operations		Operations		Total

Product Family
Office Products	$	-	$	75,540	$	75,540
Publishing and Packaging		-		88,847		88,847
Technical Specialties		183,177		49,847		233,024


	$	183,177	$	214,234	$	397,411



12 months ended December 31, 2002		German		North American
Net sales		Operations		Operations		Total

Product Family
Office Products	$	-	$	81,853	$	81,853
Publishing and Packaging		-		98,850		98,850
Technical Specialties		153,098		63,398		216,496


	$	153,098	$	244,101	$	397,199



12 months ended December 31, 2001		German		North American
Net sales		Operations		Operations		Total

Product Family
Office Products	$	-	$	84,319	$	84,319
Publishing and Packaging		-		73,269		73,269
Technical Specialties		135,799		100,934		236,733


	$	135,799	$	258,522	$	394,321


		85

(20) Segment Information, (continued):

The following table details selected financial data by operating segment.

	(In Thousands)
	Operating Segments

		North American			German
		Operations			Operations		Total

12 months ended December 31, 2003

Net sales	$	214,234		$	183,177	$	397,411

Income (loss) from operations	$	(105,050	)	$	27,320	$	(77,730	)

Depreciation and amortization	$	12,605		$	4,398	$	17,003

Total assets	$	215,175		$	184,532	$	399,707


12 months ended December 31, 2002

Net sales	$	244,101		$	153,098	$	397,199

Income (loss) from operations	$	(28,798	)	$	24,290	$	(4,508	)

Depreciation and amortization	$	12,272		$	3,563	$	15,835

Total assets	$	344,273		$	149,642	$	493,915


12 months ended December 31, 2001

Net sales	$	258,522		$	135,799	$	394,321

Income (loss) from operations	$	(11,799	)	$	18,300	$	6,501

Depreciation and amortization	$	13,608		$	3,494	$	17,102

Total assets	$	401,629		$	115,310	$	516,939


86

(20) Segment Information, (continued):

Information concerning principal geographic areas is as follows (in thousands):

Net sales(a)		2003		2002		2001


North America	$	188,578	$	217,345	$	256,309
Europe		160,012		135,181		114,353
Pacific Rim		42,093		36,263		15,773
Other		6,728		8,410		7,886


Total	$	397,411	$	397,199	$	394,321

(a) Revenues are attributed to regions based on product shipment destination.

Property, plant and equipment, net		2003		2002		2001


North American operations	$	147,916	$	149,814	$	147,830
German operations		100,278		75,692		63,554


Total	$	248,194	$	225,506	$	211,384

Net assets (liabilities)		2003			2002			2001


North American operations	$	(181,239	)	$	(38,249	)	$	29,651
German operations		112,387			74,478			50,886


Total	$	(68,852	)	$	36,229		$	80,537


		87

(21) Consolidating Financial Statements

Below are consolidating statements of operations and statements of cash flows for FiberMark, Inc. for the three years ended December 31, 2003, 2002 and 2001, and consolidating balance sheets as of December 31, 2003 and 2002 (in thousands).

CONSOLIDATING BALANCE SHEETS	December 31, 2003

											Consolidated
ASSETS		Guarantor			Non-Guarantor			Eliminations			FiberMark, Inc.

Current assets:
Cash	$	(986	)	$	7,097		$	-		$	6,111
Accounts receivable, net of allowances		21,553			32,200			(1	)		53,752
Inventories		39,066			24,377			-			63,443
Prepaid expenses		1,497			174			-			1,671


Total current assets		61,130			63,848			(1	)		124,977

Property, plant and equipment, net		147,916			100,278			-			248,194
Goodwill, net		2,454			6,148			-			8,602
Intercompany note receivable		-			11,209			(11,209	)		-
Investment in subsidiaries		109,779			20			(109,799	)		-
Other intangible assets, net		11,317			1,428			-			12,745
Other long-term assets		-			1,601			-			1,601
Other pension assets		3,588			-			-			3,588


Total assets	$	336,184		$	184,532		$	(121,009	)	$	399,707


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Revolving credit line	$	2,753		$	3,153		$	-		$	5,906
Current portion of long-term debt		3,955			-			-			3,955
Accounts payable		10,551			12,620			(3	)		23,168
Accrued liabilities		14,747			7,266			-			22,013
Accrued income taxes payable		932			8,998			-			9,930
Deferred income taxes		-			656			-			656


Total current liabilities		32,938			32,693			(3	)		65,628


Long-term liabilities:
Long-term debt, less current portion		338,749			-			-			338,749
Intercompany notes payable		10,361			(1,742	)		(8,619	)		-
Deferred income taxes		83			15,445			-			15,528
Other long-term liabilities		22,905			25,749			-			48,654


Total long-term liabilities		372,098			39,452			(8,619	)		402,931


Total liabilities		405,036			72,145			(8,622	)		468,559


Stockholders' equity (deficit):
Preferred stock		-			-			-			-
Common stock		7			33			(33	)		7
Additional paid-in capital		65,496			35,026			(35,026	)		65,496
Retained earnings (Accumulated deficit)		(149,111	)		62,219			(62,219	)		(149,111	)
Accumulated other comprehensive income		14,791			15,109			(15,109	)		14,791
Less treasury stock		(35	)		-			-			(35	)


Total stockholders' equity (deficit)		(68,852	)		112,387			(112,387	)		(68,852	)


Total liabilities and stockholders' equity (deficit)	$	336,184		$	184,532		$	(121,009	)	$	399,707


88

CONSOLIDATING STATEMENTS OF OPERATIONS	Year ended December 31, 2003

											Consolidated
		Guarantor			Non-Guarantor			Eliminations			FiberMark, Inc.

Net sales	$	214,234		$	183,177		$	-		$	397,411

Cost of sales		192,206			144,459			-			336,665


Gross profit		22,028			38,718			-			60,746

Selling, general and administrative expenses		32,549			11,398						43,947
Restructuring and facility closure expense		882			-			-			882
Asset impairment charges		93,647			-			-			93,647


Income (loss) from operations		(105,050	)		27,320			-			(77,730	)

Foreign exchange transaction gain		(3,990	)		-			-			(3,990	)
Other (income) expense, net		2,681			(572	)		-			2,109
Equity in subsidiary income		(20,055	)					20,055			-
Interest expense		35,375			364			(364	)		35,375
Interest income		(364	)		(229	)		364			(229	)


Income (loss) before income taxes		(118,697	)		27,757			(20,055	)		(110,995	)

Income tax expense		483			7,702			-			8,185


Net income (loss)	$	(119,180	)	$	20,055		$	(20,055	)	$	(119,180	)


		89

CONSOLIDATING STATEMENTS OF CASH FLOWS	Year ended December 31, 2003

											Consolidated
		Guarantor			Non-Guarantor			Eliminations			FiberMark, Inc.

Cash flows from operating activities:
Net income (loss)	$	(119,180	)	$	20,055		$	(20,055	)	$	(119,180	)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		12,605			4,398			-			17,003
Amortization of bond discount		173			-			-			173
Amortization of deferred gain		(222	)		-			-			(222	)
Equity in subsidiary income		(20,055	)		-			20,055			-
Asset impairment charges		93,647			-			-			93,647
Foreign exchange transaction gain		3,990			-			(3,990	)		-
Deferred taxes		27			(2,178	)		-			(2,151	)
Changes in operating assets and liabilities:
Accounts receivable		4,152			(2,939	)		-			1,213
Inventories		7,164			(2,081	)		-			5,083
Prepaid expenses		(314	)		282			-			(32	)
Other long-term assets		-			(16	)		-			(16	)
Accounts payable		(5,562	)		(986	)		-			(6,548	)
Accrued other current liabilities		(3,163	)		1,599			-			(1,564	)
Intercompany accounts, net		13,676			4			(13,680	)		-
Other long-term liabilities		747			902			-			1,649
Accrued income taxes payable		4,430			(364	)		-			4,066


Net cash provided by (used in) operating activities		(7,885	)		18,676			(17,670	)		(6,879	)


Cash flows from investing activities:
Additions to property, plant and equipment		(11,210	)		(12,620	)		-			(23,830	)
Increase in other intangible assets		-			(229	)		-			(229	)


Net cash used in investing activities		(11,210	)		(12,849	)		-			(24,059	)


Cash flows from financing activities:
Proceeds from issuance of bank debt		5,595			-			-			5,595
Net borrowings under revolving credit line		2,753			2,805			-			5,558
Repayment of debt		(7,325	)		-			-			(7,325	)
Net borrowings (repayments) under intercompany notes		10,361			(27,783	)		17,422			-
Capital reserve		-			(66	)		66			-
Debt issuance costs		(2,861	)		-			-			(2,861	)


Net cash provided by (used in) financing activities		8,523			(25,044	)		17,488			967


Effect of exchange rate changes on cash		(2,949	)		3,282			182			515

Net decrease in cash		(13,521	)		(15,935	)		-			(29,456	)

Cash at beginning of year		12,535			23,032			-			35,567


Cash at end of year	$	(986	)	$	7,097		$	-		$	6,111


90

CONSOLIDATING BALANCE SHEETS	December 31, 2002

										Consolidated
ASSETS		Guarantor			Non-Guarantor		Eliminations			FiberMark, Inc.

Current assets:
Cash	$	12,535		$	23,032	$	-		$	35,567
Accounts receivable, net of allowances		26,062			24,681		(357	)		50,386
Inventories		46,230			18,339		-			64,569
Prepaid expenses		1,183			408		-			1,591


Total current assets		86,010			66,460		(357	)		152,113

Property, plant and equipment, net		149,814			75,692		-			225,506
Goodwill, net		93,344			5,116		-			98,460
Intercompany note receivable		13,676			-		(13,676	)		-
Investment in subsidiaries		76,487			-		(76,487	)		-
Other intangible assets, net		10,438			1,040		-			11,478
Other long-term assets		13			1,334		-			1,347
Other pension assets		5,011			-		-			5,011


Total assets	$	434,793		$	149,642	$	(90,520	)	$	493,915


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion long-term debt	$	3,188		$	-	$	-		$	3,188
Accounts payable		16,113			11,427		(196	)		27,344
Accrued liabilities		17,910			4,551		-			22,461
Accrued income taxes payable		(3,498	)		7,828		-			4,330
Deferred income taxes		-			538		-			538


Total current liabilities		33,713			24,344		(196	)		57,861


Long-term liabilities:
Long-term debt, less current portion		341,073			-		-			341,073
Intercompany notes payable		-			15,846		(15,846	)		-
Deferred income taxes		56			14,896		-			14,952
Other long-term liabilities		23,722			20,078		-			43,800


Total long-term liabilities		364,851			50,820		(15,846	)		399,825


Total liabilities		398,564			75,164		(16,042	)		457,686


Stockholders' equity:
Preferred stock		-			-		-			-
Common stock		7			27		(27	)		7
Additional paid-in capital		65,496			29,210		(29,210	)		65,496
Retained earnings (Accumulated deficit)		(29,931	)		42,164		(42,164	)		(29,931	)
Accumulated other comprehensive income		692			3,077		(3,077	)		692
Less treasury stock		(35	)		-		-			(35	)


Total stockholders' equity		36,229			74,478		(74,478	)		36,229


Total liabilities and stockholders' equity	$	434,793		$	149,642	$	(90,520	)	$	493,915


		91

CONSOLIDATING STATEMENTS OF OPERATIONS	Year ended December 31, 2002

											Consolidated
		Guarantor			Non-Guarantor			Eliminations			FiberMark, Inc.

Net sales	$	244,101		$	153,098		$	-		$	397,199

Cost of sales		203,743			120,949			-			324,692


Gross profit		40,358			32,149			-			72,507

Selling, general and administrative expenses		28,847			8,357			-			37,204
Restructuring and facility closure reversal		(70	)		-			-			(70	)
Sale of technology		(2,499	)		(498	)		-			(2,997	)
Asset impairment charges		42,878			-			-			42,878


Income (loss) from operations		(28,798	)		24,290			-			(4,508	)


Other (income) expense, net		1,547			(83	)		-			1,464
Equity in subsidiary income		(13,067	)		-			13,067			-
Interest expense		35,317			2,166			(2,166	)		35,317
Interest income		(2,187	)		(706	)		2,166			(727	)


Income (loss) before income taxes		(50,408	)		22,913			(13,067	)		(40,562	)

Income tax expense		3,586			9,846			-			13,432


Net income (loss)		($53,994	)	$	13,067			($13,067	)		($53,994	)


92

CONSOLIDATING STATEMENTS OF CASH FLOWS	Year ended December 31, 2002

											Consolidated
		Guarantor			Non-Guarantor			Eliminations			FiberMark, Inc.

Cash flows from operating activities:
Net income (loss)	$	(53,994	)	$	13,067		$	(13,067	)	$	(53,994	)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		12,272			3,563			-			15,835
Amortization of bond discount		173			-			-			173
Equity in subsidiary income		(13,067	)		-			13,067			-
(Gain) loss on closure of facilities		(705	)		-			-			(705	)
(Gain) loss on sale of technology		(2,997	)		-			-			(2,997	)
(Gain) loss on sale of property, plant and equipment		936			-			-			936
Goodwill impairment charges		42,878			-			-			42,878
Deferred taxes		12,887			2,420			-			15,307
Changes in operating assets and liabilities:
Accounts receivable		1,826			(850	)		-			976
Inventories		882			1,169			-			2,051
Prepaid expenses		224			-			-			224
Other long-term assets		501			(230	)		-			271
Accounts payable		(1,367	)		(63	)		-			(1,430	)
Accrued other current liabilities		(6,492	)		(28	)		-			(6,520	)
Intercompany accounts, net		20,805			(563	)		(20,242	)		-
Other long-term liabilities		300			685			-			985
Accrued income taxes payable		(1,249	)		4,264			-			3,015


Net cash provided by (used in) operating activities		13,813			23,434			(20,242	)		17,005


Cash flows from investing activities:
Additions to property, plant and equipment		(11,921	)		(4,115	)		-			(16,036	)
Investment in subsidiary		-			(12	)		12			-
Net proceeds from sale of technology		3,396			-			-			3,396
Net proceeds from sale of property, plant and equipment		597			-			-			597
Increase in other intangible assets		-			(210	)		-			(210	)


Net cash provided by (used in) investing activities		(7,928	)		(4,337	)		12			(12,253	)


Cash flows from financing activities:
Proceeds from issuance of bank debt		1,938			-			-			1,938
Net proceeds from exercise of stock options		542			-			-			542
Net borrowings under revolving credit line		2,365			-			-			2,365
Repayment of debt		(2,082	)		-			-			(2,082	)
Net repayments under intercompany notes		-			(19,589	)		19,589			-
Capital reserve		-			(25	)		25			-
Debt issuance costs		(227	)		-			-			(227	)


Net cash provided by (used in) financing activities		2,536			(19,614	)		19,614			2,536


Effect of exchange rate changes on cash		762			3,635			616			5,013

Net increase in cash		9,183			3,118			-			12,301

Cash at beginning of year		3,352			19,914			-			23,266


Cash at end of year	$	12,535		$	23,032		$	-		$	35,567


		93

CONSOLIDATING STATEMENTS OF OPERATIONS

	Year ended December 31, 2001

											Consolidated
		Guarantor			Non-Guarantor			Eliminations			FiberMark, Inc.

Net sales	$	258,522		$	135,799		$	-		$	394,321

Cost of sales		233,623			109,265			-			342,888


Gross profit		24,899			26,534			-			51,433

Selling, general and administrative expenses		23,041			8,234			-			31,275
Restructuring and facility closure expense		25,993			-			-			25,993
Sale of technology		(12,336	)		-			-			(12,336	)


Income (loss) from operations		(11,799	)		18,300			-			6,501


Other expense, net		5,386			1,243			-			6,629
Equity in subsidiary income		(8,419	)		-			8,419			-
Interest expense		26,855			2,742			(2,046	)		27,551
Interest income		(2,046	)		(425	)		2,046			(425	)


Income (loss) before income taxes		(33,575	)		14,740			(8,419	)		(27,254	)

Income tax (benefit) expense		(14,762	)		6,321			-			(8,441	)


Net income (loss)		(18,813	)		8,419			(8,419	)		(18,813	)


94

CONSOLIDATING STATEMENTS OF CASH FLOWS	Year ended December 31, 2001

											Consolidated
		Guarantor			Non-Guarantor			Eliminations			FiberMark, Inc.

Cash flows from operating activities:
Net income (loss)	$	(18,813	)	$	8,419		$	(8,419	)	$	(18,813	)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		13,608			3,494			-			17,102
Amortization of bond discount		121			-			-			121
Equity in subsidiary income		(8,419	)		-			8,419			-
Loss on closure of facilities		27,217			-			-			27,217
Sale of technology		471			-			-			471
Gain on sale of property, plant and equipment		(12	)		-			-			(12	)
Deferred taxes		(14,237	)		1,694			-			(12,543	)
Changes in operating assets and liabilities:
Accounts receivable		17,889			(3,831	)		-			14,058
Inventories		16,791			4,060			-			20,851
Prepaid expenses		443			39			-			482
Other long-term assets		(463	)		-			-			(463	)
Accounts payable		(8,006	)		(399	)		-			(8,405	)
Accrued other current liabilities		5,535			(315	)		-			5,220
Intercompany accounts, net		(38,548	)		17			38,531			-
Other long-term liabilities		317			783			-			1,100
Accrued income taxes payable		(1,367	)		123			-			(1,244	)


Net cash provided by (used in) operating activities		(7,473	)		14,084			38,531			45,142



Cash flows from investing activities:
Additions to property, plant and equipment		(22,994	)		(4,749	)		-			(27,743	)
Investment in subsidiary		-			(11	)		11			-
Net proceeds from sale of property, plant and equipment		1,545			-			-			1,545
Payments for businesses acquired		(147,842	)		-			-			(147,842	)
Increase in other intangible assets		(2,100	)		(82	)		-			(2,182	)


Net cash provided by (used in) investing activities		(171,391	)		(4,842	)		11			(176,222	)


Cash flows from financing activities:
Proceeds from issuance of bank debt		231,937			-			-			231,937
Net borrowings under revolving credit line		(38,933	)		-			-			(38,933	)
Stock repurchase		555			-			-			555
Repayment of debt		(2,519	)		(38,693	)		-			(41,212	)
Net borrowings under intercompany notes		-			16,798			(16,798	)		-
Capital reserve		-			22,129			(22,129	)		-
Debt issuance costs		(8,921	)		-			-			(8,921	)

Net cash provided by (used in) financing activities		182,119			234			(38,927	)		143,426

Effect of exchange rate changes on cash		97			(695	)		385			(213	)

Net increase in cash		3,352			8,781			-			12,133

Cash at beginning of year		-			11,133			-			11,133


Cash at end of year	$	3,352		$	19,914		$	-		$	23,266


		95

(22) Voluntary Reorganization Under Chapter 11

Voluntary Bankruptcy Filing

On March 30, 2004, FiberMark, Inc., and its U.S. operations including FiberMark North America, Inc., and FiberMark International Holdings LLC, (collectively, with FiberMark, Inc., the ”Debtors”), filed voluntary petitions for relief under chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Vermont (the "Bankruptcy Court"). The Debtors expect to continue to manage their properties and operate their businesses in the ordinary course of business as "debtors-in- possession" pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. In general, as debtors-in-possession, the Debtors are authorized under chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Under Section 362 of the Bankruptcy Code, the filing of bankruptcy petitions automatically stayed most actions against the Debtors, including most actions to collect pre-petition indebtedness or to exercise control of the property of the Debtors’ estates. Absent other order of the Bankruptcy Court, substantially all pre-petition liabilities will be subject to settlement under a plan of reorganization.

Under Section 365 of the Bankruptcy Code, the Debtors may assume or reject certain executory contracts and unexpired leases, including leases of real property, subject to the approval of the Bankruptcy Court and certain other conditions. Obligations under assumed contracts and leases must be satisfied in full, while pre-petition obligations and rejection damage claims associated with rejected contracts and leases will be treated as pre-petition unsecured claims. The rights and claims of various creditors and security holders will be determined by a plan of reorganization that is confirmed by the Bankruptcy Court. Under the priority rules established by the Bankruptcy Code, post-petition liabilities and certain pre-petition liabilities are given priority in payment, and generally all pre-petition unsecured claims must be satisfied before stockholders are entitled to any distribution. < /FONT>

Reorganization Plan

In order to exit chapter 11 successfully, the Debtors will need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of reorganization (the "Reorganization Plan") that satisfies the requirements of the Bankruptcy Code. As provided by the Bankruptcy Code, the Debtors have the exclusive right to solicit a plan of reorganization for 120 days from the date of filing the petition for relief, which period may be extended by the Bankruptcy Court. No Reorganization Plan has as yet been submitted to the Bankruptcy Court. The chapter 11 case was commenced in order to implement a comprehensive financial restructuring of the company’s U.S. operations, including current liabilities, the senior notes, and common equity securities. At this time, it is not possible to predict accurately the outcome of the chapter 11 reorganization process or its effects on the Debtors’ bus iness, creditors or stockholders or whether or when we may subsequently emerge from chapter 11. The company's future results depend on the timely and successful confirmation and implementation of a Reorganization Plan.


96

Accounting Impact

The company will be required to follow the provisions of Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). Pursuant to SOP 90-7, the Debtors’ pre-petition liabilities that are subject to compromise will be reported separately on the consolidated balance sheet as an estimate of the amount that will ultimately be allowed by the Bankruptcy Court. SOP 90-7 also requires separate reporting of certain expenses, realized gains and losses and provisions for losses related to the bankruptcy filing as reorganization items. At December 31, 2003, no adjustments have been made in the consolidated financial statements to reflect the provisions of SOP 90-7.

Going Concern

The consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. However, as a result of the company's recurring operating losses and accumulated indebtedness, such realization of assets and satisfaction of liabilities are subject to uncertainty, which raises substantial doubt about the company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


		97

FiberMark, Inc.

Schedule II – Valuation and Qualifying Accounts and Reserves

(in thousands)

Description	Balance at Beginning of Period		Charged to Costs and Expense		Deductions		Balance at End of Period


Year Ended December 31, 2003 Allowances for possible losses on accounts receivable	$	1,776	$	1,519	$	343	$	2,952

Year Ended December 31, 2002 Allowances for possible losses on accounts receivable	$	1,423	$	566	$	213	$	1,776

Year Ended December 31, 2001 Allowances for possible losses on accounts receivable	$	1,220	$	1,025	$	882	$	1,423

See accompanying independent auditor’s report.


98

Item 15 (a) (3) Exhibits

	Number		Description

	2.1(10)		Share Purchase Agreement dated as of November 26, 1997, among Steinbeis Holding GmbH (“Steinbeis”), Zetaphoenicis Beteiligungs GmbH and Thetaphoenicis Beteiligungs GmbH
	2.2(10)		Acquisition Agreement dated September 15, 1999, by and between SIHL Beteiligungsgesellschaft GmbH and FiberMark GmbH and FiberMark Beteiligungs GmbH
	2.3(14)		Purchase Agreement, dated March 6, 2001, by and among FiberMark, Inc., Rexam PLC, Mitek R-1 Holding Company and Rexam CFP Limited
	3.1(1)		Restated Certificate of Incorporation of the company as amended through March 25, 1997
	3.2(10)		Certificate of Ownership and Merger of FiberMark, Inc. with and into Specialty Paperboard, Inc. filed with the Secretary of State of Delaware on March 26, 1997
	3.3(1)		Restated By-laws
	4.1(1)		Reference is made to Exhibits 3.1, 3.2 and 3.3
	4.2(1)		Specimen stock certificate
	4.3(9)		Indenture dated as of October 15, 1996 (the “ 1996 Indenture”) among the company, CPG Co., Specialty Paperboard/Endura, Inc. (“Endura”) and the Wilmington Trust Company (“Wilmington”)
	4.4(9)		Specimen Certificate of 9³/₈% Series B Senior Note due 2006 (included in Exhibit 4.3 hereof)
	4.5(9)		Form of Guarantee of Senior Notes issued pursuant to the Indenture (included in Exhibit 4.3 hereof)
	4.6(15)		First Supplemental Indenture to 1996 Indenture dated April 18, 2001, among FiberMark, the Guarantors and Wilmington Trust Company
	4.7(15)		Indenture dated as of April 18, 2001, (the “2001 Indenture”) among FiberMark, the Guarantors and Wilmington Trust Company.
	4.8(15)		Specimen Certificate of 10 ¾% Series A Senior Note due 2011 (included in Exhibit 4.7 hereof).
	4.9(15)		Specimen Certificate of 10 ¾% Series B Senior Note due 2011 (included in Exhibit 4.7 hereof).
	4.10(15)		Form of Guarantee of Senior Notes issues pursuant to the 2001 Indenture (included in Exhibit 4.7 hereof).
	4.11(15)		Registration Rights Agreement dated as of April 18, 2001, among FiberMark, the Guarantors, UBS Warburg and RBD Dominion Securities.
	4.12(17)		Rights agreement between FiberMark, Inc. and American Transfer & Trust Company, as Right Agent, dated May 9, 2002, which includes as Exhibit A Form of Certificate of Designation of the Series A Junior Participating Preferred Stock, s Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock.
	10.1(5)		Lease Agreement dated April 29, 1994, between CIT Group/Equipment Financing Inc. (“CIT/Financing”) and the company
	10.2(5)		Grant of Security Interest in Patents, Trademarks and Leases dated April 29, 1994, between the company and CIT/Financing
	10.3(5)		Bill of Sale dated April 29, 1994, to CIT/Financing
	10.4(1)(3)		Form of Indemnity Agreement entered into between the company and its directors and executive officers
	10.5(1)(3)		The company's 1992 Amended and Restated Stock Option Plan and related form of Option Agreement


		99

	10.6(1)		Paper Procurement Agreement, between the company and Acco-U.S.A
	10.7(1)		Energy Service Agreement (Latex mill), dated as of November 19, 1992, between Kamine and the company
	10.8(2)		Amendment No. 1 to the Energy Service Agreement (Latex mill), dated as of May 7, 1993, between Kamine and the company
	10.9(1)		Energy Service Agreement (Lewis mill), dated as of November 19, 1992, between Kamine and the company
	10.10(2)		Amendment No. 1 to the Energy Service Agreement (Lewis mill), dated as of May 7, 1993, between Kamine and the company
	10.11(1)		Restated Ground Lease, dated as of November 19, 1992, between Kamine and the company
	10.12(1)		Beaver Falls Cogeneration Buyout Agreement, dated as of November 20, 1992, between Kamine, Kamine Beaver Falls Cogen. Co., Inc. and the company
	10.13(2)		Consent and Agreement (Energy Services Agreement), dated as of May 7, 1993, by the company
	10.14(2)		First Amendment of Restated Ground Lease, dated as of May 7, 1993, between Kamine and the company
	10.15(2)		Memorandum of Lease, dated as of May 7, 1993, between Kamine and the company
	10.16(7)(3)		The company's 1994 Stock Option Plan and related forms of Option Agreements
	10.17(7)(3)		The company's 1994 Directors Stock Option Plan and related form of Option Agreement
	10.18(9)(3)		Amendment to the company's 1994 Directors Stock Option Plan
	10.19(4)(3)		The company's Executive Bonus Plan
	10.20(9)		Deed of Lease between James River Paper Company, Inc. and CPG-Virginia Inc. dated as of October 31, 1993
	10.21(9)		Amended and Restated Agreement of Lease, between Arnold Barsky doing business as A&C Realty and Arcon Mills Inc., dated June 1, 1988
	10.22(9)		Lease Agreement dated November 15, 1995, between IFA Incorporated and Custom Papers Group Inc. (“Custom Papers Group”)
	10.23(9)		Master Lease Agreement dated January 1, 1994, between Meridian Leasing Corp. and Custom Papers Group
	10.24(9)		Master Equipment Lease Agreement dated February 3, 1995, between Siemens Credit Corp. and CPG Holdings Inc.
	10.25 (6)		Endura Sale Agreement, by and among W.R. Grace & Co. Conn., W.R. Grace (Hong Kong) Limited, Grace Japan Kabushiki Kaisha (collectively, the “Sellers”), the company, Specialty Paperboard (Hong Kong Limited) and Specialty Paperboard Japan Kabushiki Kaisha (collectively the “Buyers”), dated May 10, 1994
	10.26 (11)		Loan Agreement dated as of November 24, 1997, between Steinbeis and Gessner
	10.27 (11)		Expansion Land Option and Preemption Right Agreement dated as of November 13, 1997, between Steinbeis and Gessner
	10.28 (12)		Third Amended and Restated Financing Agreement & Guaranty
	10.29 (12)		Second Amended and Restated Security Agreement dated December 31, 1997, between FiberMark Office Products, LLC and CIT Group/Equipment Financing, Inc.
	10.30 (12)		Second Amended and Restated Security Agreement dated December 31, 1997, between FiberMark, Inc., FiberMark Durable Specialties, Inc., and FiberMark Filter and Technical Products


100

	10.31 (12)		Loan Agreement dated as of January 7, 1988, between Zetaphoenicis Beteiligungs GmbH and Bayerische Vereinsbank AG (“Bayerische”)
	10.32 (12)		Working Credit Facility dated as of January 13, 1998, between Gessner and Bayerische
	10.33 (12)		Capex Loan Agreement dated as of January 13, 1998, between Gessner and Bayerische
	10.34 (13)		1998 Amended and Restated Non-Employee Directors Stock Option Plan
	10.35 (13)		Loan Agreement dated September 15, 1999, between FiberMark GmbH (the “Borrower”) and Bayerische Hypo- und Vereinsbank Aktiengesellschaft (Lender)
	10.36 (13)		Loan Amendment Agreement dated September 15, 1999 between FiberMark GmbH (the “Borrower”) and Bayerische Hypo- und Vereinsbank Aktiengesellschaft (Lender)
	10.37 (13)		Share Pledge Agreement dated September 15, 1999, between FiberMark Beteiligungs GmbH and FiberMark GmbH (the “Pledgors”) and Bayerische Hypo- und Vereinsbank AG (the “Pledgee”)
	10.38 (13)		Pledge Amendment Agreement dated September 15, 1999, between FiberMark Beteiligungs GmbH and FiberMark GmbH (the “Pledgors”) and Bayerische Hypo- und Vereinsbank AG (the “Pledgee”)
	10.39 (13)		Third Amended and Restated Financing Agreement and Guaranty dated September 30, 1999, among FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc. and FiberMark Office Products, LLC (as “Borrowers and Guarantors”) and The CIT Group/Business Credit, Inc., The CIT Group/Equipment Financing, Inc. (as “Lenders”)
	10.40 (13)		Termination and Release Agreement among FiberMark Office Products, LLC; FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc., and The CIT Group/Equipment Financing, Inc.
	10.41 (16)		Asset Purchase Agreement dated August 18, 2000, between Ahlstrom Engine Filtration, LLC (the “Purchaser”), and FiberMark, Inc. (the “Seller”)
	10.42 (18)		Fourth Amended and Restated Financing Agreement and Guarantee dated January 31, 2002 among FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc.; FiberMark Office Products, LLC; and FiberMark DSI, Inc.; and the CIT Group/Business Credit, Inc., and the CIT Group/Equipment Financing, Inc.
	10.43 (18)		Revolving credit note between FiberMark Durable Specialties, Inc. and the CIT Equipment/Financing, Inc. (Identical agreements also apply between each of the following: FiberMark Filter and Technical Products, Inc.; FiberMark Office Products, LLC; and FiberMark DSI, Inc. and the CIT Equipment/Financing, Inc.)
	10.44 (18)		Revolving credit note between FiberMark Durable Specialties, Inc. and the CIT Equipment/Financing, Inc. (Identical agreements also apply between each of the following: FiberMark Filter and Technical Products, Inc.; FiberMark Office Products, LLC; and FiberMark DSI, Inc. and the CIT Group/Business Credit, Inc.)
	10.45		First Amendment to Financing Agreement dated April 8, 2002 among FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc.; FiberMark Office Products, LLC; and FiberMark DSI, Inc., and the CIT Group/Business Credit, Inc.
	10.46		Second Amendment to Financing Agreement dated October 31, 2002 among FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc.; FiberMark Office Products, LLC; and FiberMark DSI, Inc., and the CIT Group/Business Credit, Inc.


		101

	10.47		Third Amendment to Financing Agreement dated December 27, 2002 among FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc.; FiberMark Office Products, LLC; and FiberMark DSI, Inc., and the CIT Group/Business Credit, Inc.
	10.48		Lease agreement dated May 30, 2002 between Group Three Properties, Inc. and FiberMark DSI, Inc.
	10.49 (19)		Credit Agreement dated November 12, 2003 among FiberMark North America, Inc., FiberMark Lahnstein GmbH & Co. OHG, FiberMark Gessner GmbH & Co. OHG, FiberMark, Inc., and FiberMark Services GmbH & Co. KG, among GE Commercial Finance, Bayerische Hypo-Und Vereinsbank AG and BECC Capital Markets Group, Inc.
	21		List of FiberMark subsidiaries
	23.1		Consent of KPMG LLP
	31.1		Certification of Chief Executive Officer
	31.2		Certification of Chief Financial Officer
	32.1		Certification of Chief Executive Officer and Vice President and Chief Financial Officer


102

Notes to Exhibits

(1)		Incorporated by reference to exhibits filed with the company’s Registration Statement on Form S-1 (No. 33-47954), as amended, which became effective March 10, 1993.

(2)		Incorporated by reference to exhibits filed with the company’s report on Form 10-Q for the quarter ended June 30, 1993, filed August 13, 1993.

(3)		Indicates management contracts or compensatory arrangements filed pursuant to Item 601(b)(10) of Regulation S-K.

(4)		Incorporated by reference to exhibits filed with the company’s report on Form 10-K for the year ended December 31, 1993 (No. 0-20231).

(5)		Incorporated by reference to exhibits filed with the company’s report on Form 10-Q for the quarter ended March 31, 1994, filed May 14, 1994.

(6)		Incorporated by reference to exhibits filed with the company’s report on Form 8-K, filed July 14, 1994.

(7)		Incorporated by reference to exhibits filed with the company’s Registration Statement on Form S-8 filed, July 18, 1994.

(8)		Incorporated by reference to exhibits filed with the company’s report on Form 10-K for the year ended December 31, 1994 (No. 0-20231).

(9)		Incorporated by reference to exhibits filed with the company’s report on Form 10-K for the year ended December 31, 1996, filed April 1, 1997.

(10)		Previously filed.

(11)		Incorporated by reference to exhibits filed with the company’s Registration Statement on Form S-3, filed December 15, 1997.

(12)		Incorporated by reference to exhibits filed with the company’s report on Form 10-K for the year ended December 31, 1997, filed March 31, 1998.

(13)		Incorporated by reference to exhibits filed with the company’s report on Form 10-K for the year ended December 31, 1999, filed March 31, 2000.

(14)		Incorporated by reference to exhibits filed with the company’s report on Form 8-K filed March 26, 2001.

(15)		Incorporated by reference to exhibits filed with the company’s Form S-4 Registration Statement filed July 13, 2001.

(16)		Incorporated by reference to exhibits filed with the company’s report on Form 10-K for the year ended December 31, 2000, filed February 23, 2001.

(17)		Incorporated by reference with the company’s Registration Statement on Form 8-K, which became effective May 13, 2002.

(18)		Incorporated by reference to exhibits filed with the company’s report on Form 10Q for the quarter ended March 31, 2002, filed May 15, 2002.

(19)		Incorporated by reference to exhibits filed with the company’s report on Form 10Q for the quarter ended September 30, 2003, filed November 14, 2003.


		103

FiberMark, Inc.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brattleboro, County of Windham, State of Vermont, on the 30^th day of March 2004.


	FiberMark, Inc.

	By:	/s/ Alex Kwader

		Alex Kwader Chairman of the Board and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alex Kwader and John E. Hanley, or any of them, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connections therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. This Form 10-K may be executed in multiple counterparts, each of which shall be an original, but which shall together constitute but one agreement.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/S/ Alex Kwader	Chairman of the Board and Chief Executive Officer

Alex Kwader

/S/ Duncan Middleton	President and Director

Duncan Middleton

/S/ Brian C. Kerester	Director

Brian C. Kerester

/S/ Glenn S. McKenzie	Director

Glenn S. McKenzie

/S/ Elmar B. Schulte	Director

Elmar B. Schulte

/S/ Edward P. Swain, Jr.	Director

Edward P. Swain, Jr.

/S/ John E. Hanley	Vice President and

John E. Hanley	Chief Financial Officer


104

Title of each class	Name of each exchange on which registered
Common Stock, $.001 par value	American Stock Exchange

German Operations

Technical Specialties
Filter Media *Transportation Filtration* Liquid: fuel/hydraulic/lubrication Air: engine and vehicle passenger air *Home/Commercial Filtration (Air)* Vacuum bags Heating, ventilation, air-conditioning, cooling	Other Technical Specialties *Home/Commercial* Abrasive backing materials: sandpaper Nonwoven wallcovering base Flooring materials Application tape (sign industry) *Printing Substrates* Graphic arts Security
Tape Substrates (formerly within Durable Specialties)—for Masking/Pressure Sensitive Tapes General purpose/masking Automotive: painting Building construction/renovation: painting
North American Operations

Publishing and Packaging	Technical Specialties
Decorative Covering Materials *Book and Related Publishing* Heavyweight/stand-alone covers Lightweight cover/covering materials *Premium Packaging* *Latex-saturated Wallcovering Base*	*Tape Substrates—Masking/Pressure Sensitive Tapes (formerly within Durable Specialties)* Medical, electronics and photographic Automotive: painting Building construction/renovation: painting *Electrical/Electronics* Insulating base for transformers *Graphic Art/Specialty Printing* Archival materials Security papers *Commercial/Industrial High Performance* Wet strength: commercial/industrial processes Absorbent materials Photographic packaging Labels: imitation leather and synthetic *Home/Commercial* Abrasive backing materials: sandpaper Wallboard joining
Office Products
*Cover Materials for Office Products* Binding, filing, presentation and active use *Binding Tapes for Home and Office Products* *(formerly within Durable Specialties)* Edge binding and reinforcing *Cover Materials for Graphic Design Applications* Specialty packaging Advertising/promotional materials

Materials/Products	End Products/Markets	Typical Customers
Filter Media for Transportation Filtration (car, truck, heavy-duty equipment, train, jet, etc.)
Saturated and unsaturated paper that may be reinforced with cotton or synthetic fibers Synthetic/nonwoven meltblown Composite materials	Liquid filters: fuel, lube, hydraulic oil Air filters: engine and vehicle passenger cabin	Leading filter manufacturers (sold into/to OEM, OES and after-markets)
Filter Media for Home/Commercial Filtration
Paper and synthetic: nonwoven meltblown Synthetic air filter media	Vacuum cleaner bags (OEM, OES and after-market) Industrial filtration, ventilation, air-conditioning, process air filtration	Manufacturers/ converters of vacuum cleaners or bags Producers of industrial filter element and filter sets
Home/Commercial
Nonwoven wallcovering base Abrasive base Printing substrates: specialty nonwoven/synthetic content materials Security paper Overlay and other flooring materials	Wallcovering/wallpaper Sandpaper: hand and machine Graphic arts/printing: menus, promotional items, maps, durable documents, labels Identity: cards, licenses, tickets, registrations, stock certificates Laminated imitation wood veneer flooring	Wallcovering manufacturers Coated abrasives manufacturers Paper merchants (servicing printing industry) Paper merchants (servicing printing industry) Flooring manufacturers
Tape Substrates
Masking tape base § Raw (unsaturated) § Saturated Other tape base	Masking tape for general purposes and painting: § Automotive OEM and repair § Building construction/renovation Application tape to transfer vinyl lettering for signage	Leading tape manufacturers, worldwide, particularly in Europe and Asia Pacific Self-adhesive coaters (tape manufacturers)

Materials/Products	End Products/Markets	Typical Customers
Book Publishing and Premium Packaging Markets
Colored saturated paper § Lightweight § Heavyweight Graphic white saturated paper Cloth covering materials Saturated base Bonded leather	Covering materials for hardbound books (elem./high school textbooks, photo albums, scrapbooks and sample books) Self-supporting covers for softbound books Premium packaging coverings (luxury goods and media, such as DVD and CD sets) Menus	Leading publishers/printers Manufacturers/converters Specialty distributors and agents
Other Decorative Specialties
Latex-saturated based: white and color	Wallcovering Binding materials, jeans labels, game boards

Materials/Products	End Products/Markets	Typical Customers
Tape Substrates
Base for masking tape and other pressure sensitive tapes § Raw § Saturated	Masking tape (general purposes and painting aid): § Automotive OEM and repair § Building construction/renovation § Carrier and bandoliering materials § Medical (first aid; indicator)	Pressure sensitive (and diversified) tape manufacturers/ converters Electronic components manufacturers
Electrical/Electronics
Insulating base Electronic component carrier material	Electrical distribution transformers Chips and other electronic components manufacturing	Manufacturers of electrical transformer components Manufacturers of chips and other electronic components
Graphic Arts/Specialty Printing
Archival quality, acid free paper and boards; cover materials for storing, presenting information or materials Security paper	Matboard for picture mounting/framing Archival filing and storage products Identity cards/materials and tickets	Manufacturers of mounting and framing supplies Manufacturers of conservation storage and presentation supplies Specialty security/ticket manufacturers/printers
Home/Commercial
Abrasive backing material Latex-treated material Label base: synthetic and imitation leather	Sandpaper: hand and machine sanding Wallboard joining Labels for seat belts, infant car seats and jeans	Coated abrasives manufacturers Drywall materials manufacturers Label manufacturers/ converters
Commerical/Industrial
Wet strength Absorbent materials	Industrial process Blotter; humidity indicator, battery fabrication process	Specialty distributors Specialty distributors and manufacturers

Facility	Expiration Date

Reading, Pennsylvania	May 8, 2005
Warren Glen, New Jersey (a)	May 23, 2004
	May 25, 2004
Hughesville, New Jersey (a)	May 23, 2004
	May 25, 2004
Lowville, New York	March 31, 2004
Brattleboro, Vermont	August 31, 2005
Bolton, England	May 5, 2004
Bruckmühl and Feldkirchen/Westerham, Germany (b)	March 31, 2004
Lahnstein, Germany (b)	March 31, 2004

Facilities	Type of Facility	Owned/Leased	Sq. Feet

United States
Brattleboro, Vermont⁽¹⁾	Corporate/Mill/Converting	Owned	200,000
Brownville, New York⁽²⁾	Mill/Converting	Owned	123,000
Hughesville, New Jersey	Mill/Converting	Owned	88,000
Leominster, Massachusetts	Sales Office	Leased	2,500
Lowville, New York⁽³⁾	Converting	Owned	191,000
Quakertown, Pennsylvania	Converting	Owned	165,000
Reading, Pennsylvania	Converting	Leased	188,000
South Hadley, Massachusetts	Sales/Administration	Leased	24,211
Warren Glen, New Jersey	Mill/Converting	Owned	299,000
West Springfield, Massachusetts	Technical Center	Owned	158,000
(production site closed 6/30/02)

International
Bolton, England (Red Bridge)⁽⁴⁾	Converting	Owned	70,000
Bruckmühl, Germany	Mill/Converting	Owned	275,698
Feldkirchen/Westerham, Germany	Mill/Converting	Owned	223,396
Lahnstein, Germany	Mill/Converting	Owned	188,585
Annecy, France	Sales Office	Leased	183
Kowloon, Hong Kong, PRC	Sales Office	Leased	546
Tokyo, Japan	Sales Office	Leased	161

Inactive (United States)
Fitchburg, Massachusetts	Closed 12/9/01	Owned	255,000
Johnston, Rhode Island	Closed 6/30/03	Owned	80,000
Owensboro, Kentucky	Closed 1/14/98	Owned	47,000
Rochester, Michigan	Closed 3/31/02	Owned	96,000

Year Ended December 31, 2003	High		Low

First Quarter	$	8.19	$	4.65
Second Quarter	$	6.26	$	4.50
Third Quarter	$	5.19	$	2.00
Fourth Quarter	$	2.35	$	1.20

FIBERMARK, INC.
Selected Consolidated Financial and Operational Data

(In thousands, except per share and employee data)

	Year Ended December 31,
		2003			2002			2001(4)			2000			1999

Consolidated Income Statement Data:
Net sales (1)	$	397,411		$	397,199		$	394,321		$	355,453		$	325,308
Cost of sales		336,665			324,692			342,888			294,237			263,385

Gross profit		60,746			72,507			51,433			61,216			61,923
Selling, general and administrative expenses		43,947			37,204			31,275			25,132			24,088
Restructuring and facility closure expense (reversal) (2)		882			(70	)		25,993			7,972			9,818
Sale of technology (2)		-			(2,997	)		(12,336	)		(8,422	)		-
Asset impairment charges (3)		93,647			42,878			-			-			-

Income (loss) from operations		(77,730	)		(4,508	)		6,501			36,534			28,017
Foreign exchange transaction gain (6)		(3,990	)		-			-			-			-
Other expense, net (5)		2,109			1,464			6,629			1,579			469
Interest expense		35,375			35,317			27,551			15,236			11,938
Interest income		(229	)		(727	)		(425	)		(1,769	)		(859	)

Income (loss) before income taxes		(110,995	)		(40,562	)		(27,254	)		21,488			16,469
Income tax expense (benefit) (7)		8,185			13,432			(8,441	)		8,629			7,486

Net Income (loss)	$	(119,180	)	$	(53,994	)	$	(18,813	)	$	12,859		$	8,983


Weighted average shares outstanding		7,066			7,023			6,876			6,830			7,659

Basic earnings (loss) per share		(16.87	)		(7.69	)		(2.74	)		1.88			1.17
Diluted earnings (loss) per share		(16.87	)		(7.69	)		(2.74	)		1.84			1.15

Other Consolidated Operating Data:
Depreciation and amortization	$	17,003		$	15,835		$	17,102		$	11,444		$	9,290
Capital expenditures		22,730			16,036			27,743			42,598			15,736


	December 31,
		2003			2002			2001			2000			1999

Consolidated Balance Sheet Data:
Working capital	$	59,349		$	94,252		$	75,770		$	76,397		$	69,085
Total assets		399,707			493,915			516,939			386,213			346,946
Long-term debt (net of current maturities)		338,749			341,073			339,277			182,294			168,974
Stockholders' equity (deficit)		(68,852	)		36,229			80,537			102,948			91,777

Other Data:
Actual shares outstanding		7,066			7,066			6,903			6,827			6,830
Employees		1,699			1,853			2,061			1,609			1,562


	2003			2002			2001

Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		84.7			81.7			87.0

Gross profit		15.3			18.3			13.0
Selling general and administrative expenses		11.1			9.4			7.9
Restructuring and facility closure		0.2			-			6.6
Sale of technology		-			(0.8	)		(3.1	)
Asset impairment charges		23.6			10.8			-

Income (loss) from operations		(19.6	)		(1.1	)		1.6
Foreign exchange gain		(1.0	)		-			-
Other expense, net		0.5			0.4			1.5
Interest expense		8.9			8.9			7.0
Interest income		(0.1	)		(0.2	)		(0.1	)

Net loss before income taxes		(27.9	)		(10.2	)		(6.9	)
Income tax expense (benefit)		2.1			3.4			(2.1	)

Net loss		(30.0)	%		(13.6)	%		(4.8)	%

Net cash provided by (used in):	Year ended December 31, 2003			Year ended December 31, 2002


Operating activities		(6,879	)		17,005
Investing activities		(24,059	)		(12,253	)
Financing activities		967			2,536
Effect of exchange rates		515			5,013

Net increase (decrease) in cash		(29,456	)		12,301

	2004		2005-2007		2008-2010		Thereafter		Total

Long-term debt	$	2.8	$	107.9	$	0.0	$	228.7	$	339.4
Letters of credit		8.6		0.0		0.0		0.0		8.6
Operating leases		3.3		4.0		0.0		0.0		7.3
Sale-leaseback		1.2		2.1		0.0		0.0		3.3
Forward purchase contracts		4.8		0.0		0.0		0.0		4.8

	$	20.7	$	114.0	$	0.0	$	228.7	$	363.4

	Credit Facility

North American borrowing base	$	21.5
German borrowing base		40.0

Total borrowing base		61.5
Less:reserves against availability		(4.8	)

Net availability		56.7
Less:outstanding borrowings		(5.9	)
letters of credit		(8.6	)

Unused borrowing capacity	$	42.2

Borrowing Source	Base Rate Index	Margin Over Index

U.S.	LIBOR	3.00%
U.S.	Prime rate	1.50%
Germany	Euribor	3.00%
Germany	Euro Index	4.50%

Name	Age	Position
Alex Kwader	61	Chief Executive Officer and Chairman of the Board Director

A. Duncan Middleton	57	President Director

Dr. Walter M. Haegler	56	Senior Vice President and Managing Director, German Operations

John E. Hanley	47	Vice President and Chief Financial Officer

David R. Kruft	63	Senior Vice President, Sales and Marketing, North American Operations

Robert O. Stein	43	Senior Vice President, North American Operations

Materials/Products	End Products/Markets	Typical Customers
Specialty cover materials (heavyweight and lighter-weight) for products that present, bind, store or preserve information	Binding: data and ring binders, notebooks Filing/active use: file folders, pressboard folders and other filing products Presentation: document/report covers, folders Diaries, date books, planners	Diversified or specialized manufacturers/converters of school, home and office supplies Paper merchants (selling to printers) Checkbook printers/manufacturers
Binding tapes: edge binding and reinforcing Primarily coated synthetic nonwoven materials	Filing products, checkbooks, memo pads

Name	Age	Director Since
Alex Kwader	61	Employee Director; see above

A. Duncan Middleton	57	Employee Director; see above

Brian C. Kerester	45	1996

Glenn S. McKenzie	51	1994 (Service break May 1998-May 1999)

Elmar B. Schulte	62	1998

Edward P. Swain, Jr.	68	1998

			Annual Compensation				Long Term Compensation Awards
									All Other
Name and Principal Position	Year		Salary ($)		Bonus ($)		Options⁽¹⁾ (#)		Compensation⁽²⁾ ($)

Alex Kwader Chairman and Chief Executive Officer		2003 2002 2001		537,528 500,016 481,266		- - -		- - -		15,221 1,704,934 30,664	⁽³⁾

Walter M. Haegler Senior Vice President and Managing Director — German Operations		2003 2002 2001		329,093 258,277 225,213		- - -		- - -		7,569 1,000 9,832

A. Duncan Middleton President		2003 2002		322,500 282,885		- -		- 75,000		18,088 15,769

David R. Kruft Senior Vice President Sales and Marketing — North American Operations		2003 2002 2001		262,020 243,258 227,010		- - -		- - -		14,188 1,131,165 18,029	^⁽³⁾

Robert O. Stein Senior Vice President Operations — North American Operations		2003 2002 2001		238,512 213,000 183,586		- - -		- - -		16,238 13,523 14,396

Bruce Moore⁽⁴⁾ Vice President of Financial and Strategic Planning		2003 2002 2001		408,116 270,000 262,500		- - -		- - -		15,610 86,494 17,420

	Number of Shares Acquired		Number of Securities Underlying Unexercised Options at December 31, 2003⁽²⁾		Value of Unexercised In-the-Money Options at December 31, 2003($)^(2,3)
Name	on Exercise in 2003	Value Realized⁽¹⁾	Exercisable	Unexercisable	Exercisable	Unexercisable

Alex Kwader	-	-	169,350	5,400	-	-
Walter M. Haegler	-	-	42,200	7,800	-	-
A. Duncan Middleton	-	-	15,000	60,000	-	-
David R. Kruft	-	-	53,651	3,000	-	-
Robert O. Stein	-	-	24,700	25,300	-	-
Bruce Moore	-	-	81,750	3,000	-	-