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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 0-20231
FIBERMARK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 82-0429330
(State of incorporation) (IRS Employer Identification No.)
161 WELLINGTON ROAD,
P.O. BOX 498
BRATTLEBORO, VERMONT 05302
(802) 257-0365
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained to be the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes / / No /X/
The approximate aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the last sale price of the Common
Stock reported on the New York Stock Exchange was $11.50 as of March 13, 2000.
Excluded from this computation were shares held by directors and executive
officers of the Company and their associates as a group. Such exclusion does not
signify that members of this group are "affiliates" of or controlled by the
Company.
The number of shares of Common Stock outstanding was 6,830,483 as of
March 13, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
REGISTRANT'S DEFINITIVE PROXY STATEMENT THAT WILL BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH REGISTRANT'S 1999 ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 24, 2000 IS INCORPORATED BY REFERENCE
INTO PART III OF THIS REPORT.
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PART I
ITEM 1. BUSINESS
FiberMark is a leading producer of specialty fiber-based materials
(paper, synthetic and composite) with ten production facilities in the United
States and Europe. Formed in 1989 as an independent company, FiberMark
subsequently went public in 1993. The company develops customer-focused
solutions for markets worldwide that value differentiated products and services.
Our products, typically used by customers who manufacture components or finished
products for industrial and consumer applications, include base materials or
media for:
o filtration (transportation, vacuum, water, and industrial)
o specialty tapes and labels
o wallcovering, table cloths and flooring, abrasive and
electrical/electronic applications
o communication/graphic arts materials in the office, home, school or
commercial settings
With its versatile manufacturing and technical capabilities and strong service
orientation, FiberMark holds leadership positions in its core markets. Using a
wide range of fibers and raw materials, including wood pulp and recovered paper,
glass, rayon and other synthetic fibers, and cotton denim, the company's
manufacturing capabilities comprise papermaking, synthetic web technology
(meltblown), saturating, coating, embossing, laminating and other converting
processes. Our engineered materials are typically sold in roll or sheet form
directly to customers through our internal sales force. In some markets,
products are sold through distributors or paper merchants.
OVERVIEW
As a specialty fiber-based materials producer, FiberMark serves a broad range of
markets that stem from four core product families: filter media, durable
specialties (tape and label base materials), technical specialties (base
materials for a multitude of markets) and cover materials for office, home and
school supplies. The company's three operating segments include: German
Operations and Filter Media North America, Durable Specialties, and Technical &
Office Products. The relationship of FiberMark's operating segments to our
product families is described in Footnote 21, "Segment Information".
An outline of our core product families follows:
- ------------------------------------------------------- -----------------------------------------------------
FILTER MEDIA TAPE BASE AND LABEL MATERIAL
- ------------------------------------------------------- -----------------------------------------------------
TRANSPORTATION TAPE SUBSTRATES/BASE MATERIALS
Liquid (Fuel/Hydraulic/Lube) Medical
Air Automotive (Painting)
Cabin Air Home Construction (Painting)
HOME Electronics
Vacuum (Air) Graphic Arts (Application Tape)
Water (Liquid) Photographic
INDUSTRIAL BINDING TAPES
Industrial Fuels Edge Binding and Reinforcing Tapes
Beverage Processing (Home and Office)
Hot Oil Processing (Fast Food)
Pharmaceutical Processing DURABLE BASE MATERIALS
Labels - imitation leather and synthetic
Protective Coverings
2
- ------------------------------------------------------- -----------------------------------------------------
TECHNICAL SPECIALTIES OFFICE/SCHOOL PRODUCTS
BASE MATERIALS COVER MATERIALS
- ------------------------------------------------------- -----------------------------------------------------
ELECTRICAL/ELECTRONICS HEAVYWEIGHT COVER MATERIALS
Insulating Base for Transformers Binding
Printed Circuit Board Base Filing
Fuel Cell Composite
COMMUNICATIONS/GRAPHIC ARTS LIGHTWEIGHT COVER MATERIALS
Book Cover Base Filing
Archival Materials Presentation
Security Paper
Printing Papers
Label Base
INDUSTRIAL HIGH PERFORMANCE
Fire Retardant Material
(Automotive/Industrial Filter)
Wet Strength (Industrial Process)
Friction Materials (Automotive)
Absorbent Materials (Medical)
HOME/COMMERCIAL
Abrasive Base (Sandpaper)
Wallcovering
Flooring
Table Cloth
BUSINESS STRATEGY
The company seeks to maximize the return to our shareholders by pursuing the
following elements of our strategy:
o Gain market leadership by excelling at serving existing and new markets
with high value-added opportunities
o Pursue strategic, accretive acquisitions that build on our core
competencies in existing and new markets
o Forge global, mutually beneficial partnerships with our suppliers
and customers, providing catalysts for innovation and increasing
our knowledge of marketplace needs
o Strengthen product and business development to accelerate our
internal growth rates
o Optimize operations to gain an unparalleled competitive advantage in
the markets we serve
o Enhance our technical, manufacturing, and service capabilities,
aligning them with the product and service needs of our markets
o Add value to customers through continuous improvement of
productivity, including consolidation of operations that will
generate improvements in quality, service or cost
o Broaden our raw materials base
o Enhance responsiveness to customer requirements
o Create new market opportunities
o Reduce costs
o Reduce exposure to supply/demand volatility
3
OVERVIEW OF MAJOR MARKETS AND FIBERMARK PRODUCT FAMILIES
FILTER MEDIA
Filter media now comprises the largest product family for FiberMark, due to the
January 1998 acquisition of Steinbeis Gessner GmbH. FiberMark Gessner's filter
business, together with our North American Filter Media business, accounted for
31% of 1999 sales. The following chart summarizes the filter materials produced
by the company, the markets they serve, and representative customers.
TYPE OF MEDIA END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS
- --------------------------------------------------------------------------------------------------------------------
TRANSPORTATION FILTRATION:
o Saturated and unsaturated o Liquid filters Delphi Automotive Systems Corp.,
paper that may be reinforced (Fuel, lube, hydraulic oil) Eurofilters N.V., Filterwerke
with glass, cotton or synthetic Mann+Hummel GmbH, Fleetguard Inc.,
fibers o Air filters Division of Cummings Engine Co.,
o Synthetic (non-woven (engine and vehicle passenger Mahle Filterwerke GmbH, Purolator
meltblown) cabin) Products
o Composite materials
- --------------------------------------------------------------------------------------------------------------------
o Paper and synthetic o Vacuum cleaner Branofilter GmbH, Electrolux Filter
(non-woven meltblown) bags (air filtration) AB, The Eureka Co., Home Care
Industries, Inc.
- --------------------------------------------------------------------------------------------------------------------
o Carbon-activated paper for o Filters for residential water Met-Pro (Keystone Filter Division),
removal of taste and odor filtration (drinking water, Omni Filter & Manufacturing
o Pleated/saturated paper for swimming pools, spas)
particulate removal
- --------------------------------------------------------------------------------------------------------------------
o Hot-oil filter bags and o Filter products for hot-oil Food service distributors
sheets filtration in fast food
restaurants
- --------------------------------------------------------------------------------------------------------------------
COMPETITORS
The largest single competitor in the filter business is Ahlstrom Filtration,
Inc., (a division of A. Ahlstrom Corp.). Additional competitors include
Hollingsworth and Vose Co. and Devon Valley Industries, a division of Mead Corp.
In the vacuum filter media market only, Monadnock Paper Mills, Inc., is also a
competitor.
MANUFACTURING
Filter media is produced at our Feldkirchen/Westerham facility in Germany, and
our Richmond, Virginia, and Rochester, Michigan, facilities. We manufacture base
materials, including paper, often with combinations of non-wood pulp sources
such as natural and synthetic fibers, synthetic fiber-based materials, and
composite paper and non-woven materials. In addition to manufacturing these base
materials, we have saturating, creping, laminating and other finishing
capabilities.
4
DURABLE SPECIALTIES
Our durable specialties product lines are produced and marketed by our U.S.
Durable Specialties Division and the durable specialties business from FiberMark
Gessner, accounting for 28% of FiberMark's 1999 business. Tape substrates
represent the company's primary product family within durable specialties. The
company is one of the leading producers of specialty tape substrates and a broad
range of saturated, coated non-woven and paper materials. The following chart
summarizes the key product lines, their corresponding finished products and
markets, and representative customers within this market:
MATERIALS/PRODUCTS END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS
- --------------------------------------------------------------------------------------------------------------------
o Base for masking tape and o Masking tape/pressure
other pressure sensitive tapes sensitive tape for:
o automotive painting (OEM and
repair)
o building construction/
renovation (painting aid) o 3M
o carrier and bandoliering o Avery Dennison Corp.
materials use for electronics o Beiersdorf (Tesa)
components manufacturing o Eagle OPG, Inc.
o medical/surgical tapes and o Esselte Corp.
bandages o Intertape Polymer Group
o Nitto Denko Corp.
o Sicad
o Smead Manufacturing Co.
- --------------------------------------------------------------------------------------------------------------------
o Stripping and o Filing products, checkbooks,
edge-binding tape memo pads
o saturated paper
o coated non-woven
synthetic materials
- --------------------------------------------------------------------------------------------------------------------
o Label base and protective o Labels for seat belts and
covering materials (synthetic infant car seats; protective
material) covers for air bags
- --------------------------------------------------------------------------------------------------------------------
COMPETITORS
The company's competitors include a mix of large integrated manufacturers and
smaller independent companies, including Kimberly Clark Corp., Northeast Paper
Converting Company and Southern Label Company, Inc. In some of its niche
markets, the company competes with various small competitors, none of which has
a dominant market position. Manufacturers of alternate materials must also be
considered competitors.
MANUFACTURING
The base materials for this market are either manufactured in FiberMark
facilities including Bruckmuhl, Germany, and Hughesville, New Jersey, or are
purchased from outside suppliers. Our Quakertown facility is a converting
facility, relying on supply sources from within and outside of FiberMark. For
example, a substantial portion of the substrate used in making the company's
edge binding and reinforcing tapes is Tyvek-Registered Trademark-, purchased
from DuPont and marketed under the FiberMark trade name SUPER
ARCOFLEX-Registered Trademark-. Base materials are typically saturated, coated
and embossed within FiberMark facilities, and in some cases, by our customers.
5
TECHNICAL SPECIALTIES
Technical Specialties represent the most diverse product families and markets
within the company. Its materials are used in communications, including base or
cover materials for electrical/electronics and graphic arts, as well as other
technical specialties such as abrasive backing materials. As a group, these
products and markets represent 25% of FiberMark's 1999 sales revenue.
FIBERMARK MATERIALS/PRODUCTS END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS
- --------------------------------------------------------------------------------------------------------------------
o Abrasive backing material o Abrasives for hand and machine
(wet and dry applications) sanding (sandpaper)
o 3M
- ------------------------------------------------------------------------------------o Automotive Composites Co.
o Security paper o Identity cards (Social Security), o Bedford Materials Co., Inc.
ticket stock, stock certificates, o Eastman Kodak Corp.
drivers' licenses and car o Crescent Cardboard, Co.
registrations, passports o Holyoke Card
- ------------------------------------------------------------------------------------o Nielson and Bainbridge
o Archival quality (acid free) o Matboard for picture mounting/ o C. Klingspor
paper and boards; cover materials framing o Isola
for storing, presenting o Archival filing and storage o Permafiber, Corp.
information or materials products o Rexam DSI
- ------------------------------------------------------------------------------------o True-Vue/Miller
o Base material for insulating o Electrical transformers o Saint-Gobain (Carborundum, Norton)
or shielding; carrier, (insulating material); consumer o Virginia Abrasives Corp.
bandoliering and cushioning base electronics and personal computers:
material for electronics printed circuit board substrate and
components materials used in the electronic
components manufacturing process
- ------------------------------------------------------------------------------------
o Base materials for o Wallcovering, flooring
home/commercial use
- ------------------------------------------------------------------------------------
o Specialty cover materials for o Publishing: hard- and soft-cover
presenting, storing, and diaries, planners, reference books
preserving information or o Graphic arts/printing trade:
materials menus, promotional literature, maps,
durable documents, labels, flock
- ------------------------------------------------------------------------------------
o Disposable wetlaid nonwovens o Disposable medical products
(drapes, garments) and table cloths
- --------------------------------------------------------------------------------------------------------------------
COMPETITORS
The company's competitors in this market group include a mix of large integrated
manufacturers and smaller independent companies, including Arjo Wiggins Appleton
PLC, International Paper Co., Brownville Specialty Paper Products Inc., Crocker
Technical Papers, Inc., Ahlstrom Lystil SA, (a division of A. Ahlstrom Corp.),
Dexter Corp. and Crown Vantage Inc. In some of its niche markets, the company
competes with various small competitors, none of which has a dominant market
position. In many of these product lines, manufacturers of alternate materials
such as polyethylene or vinyl must also be considered competitors.
6
MANUFACTURING
The base materials for this group of markets are typically manufactured in the
four mills in this Technical & Office Products Division: Fitchburg,
Massachusetts; Warren Glen and Hughesville, New Jersey; and Brattleboro,
Vermont. Additionally, the Bruckmuhl, Germany, facility also manufacturers some
technical specialties in the abrasive category. All of FiberMark Lahnstein's
product lines are counted among technical specialties. Other FiberMark
facilities may, at times, manufacture materials for this market.
OFFICE PRODUCTS
Office products cover materials are used in communications applications,
primarily for supplies used in the office, home or school. Marketed by our
Technical & Office Products Division, office products materials comprise 16% of
the company's revenue. The major components of this product family/market, the
end products/markets and representative customers are noted below:
FIBERMARK MATERIALS/PRODUCTS END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS
- --------------------------------------------------------------------------------------------------------------------
o Specialty cover materials for o Office and school supplies: o ACCO World Corp.
products that present, bind, document/report covers, presentation o Esselte Corp.
store or preserve information folders, data binders, ring binders, o Smead Manufacturing Co.
notebooks, filing products, diaries
and planners
- --------------------------------------------------------------------------------------------------------------------
COMPETITORS
The company's competitors in this market group include a mix of large integrated
manufacturers and smaller independent companies, including: International Paper
Co., Brownville Specialty Paper Products Inc., Crocker Technical Papers, Inc.
and Merrimac Paper Co., Inc. In many of these product lines, manufacturers of
alternate materials such as polyethylene or vinyl are also competitors.
MANUFACTURING
The base materials for this group of markets are largely manufactured in
Brattleboro, Vermont, but are also manufactured or processed further by other
facilities within the Technical & Office Products Division, notably Warren Glen
and Hughesville, New Jersey.
INTERNATIONAL SALES
With the combination of the German business acquisitions and pre-existing
international sales, the company now sells or manufacturers 34.0% of its
business outside North America. The majority of these sales are in Europe. A
detailed breakdown of sales revenue and property, plant and equipment by
geographic region is found in the final tables of Footnote 21, Segment
Information.
7
EXECUTIVE OFFICERS
The company's executive officers are:
NAME AGE POSITION
- ---- --- --------
Alex Kwader ............................................. 57 President and
Chief Executive Officer
Bruce Moore.............................................. 52 Vice President and
Chief Financial Officer
David R. Kruft............................................ 59 Vice President and General Manager,
Durable Specialties
David E. Rousse........................................... 47 Vice President and General Manager,
Technical & Office Products
Dr. Walter M. Haegler..................................... 52 Vice President and General Manager,
FiberMark Gessner and Filter Media
Alex Kwader has been the President and Chief Executive Officer of
FiberMark since August 1991 and a director since November 1991. He is a member
of the Executive Committee of the Board. Since 1970, Mr. Kwader has been
employed by the company and its predecessor, Boise Cascade ("BCC"), a
diversified paper products company. He served as Senior Vice President of the
company from March 1990 to August 1991 and as Vice President from the company's
inception in June 1989 until March 1990. From 1970 until June 1989, Mr. Kwader
was employed by BCC, in various managerial positions. Mr. Kwader was General
Manager of the Pressboard Products Division from 1986 until June 1989. From 1980
to 1985, he served as General Manager of the Latex Fiber Products Division of
BCC. Mr. Kwader holds a B.S. in Mechanical Engineering from the University of
Massachusetts and a M.S. from Carnegie Mellon University and attended the
Harvard Business School Executive Program.
Bruce Moore has served as Vice President of the Company since its
inception in June 1989 and as Chief Financial Officer since December 1990. From
1980 to 1989, Mr. Moore was employed by BCC in various management positions,
including Controller and General Manager of the Latex Fiber Products Division.
Mr. Moore holds a B.A. in Business Administration from Siena College and
attended the Stanford University Executive Program.
David R. Kruft has served as Vice President and General Manager,
Durable Specialties Division, since joining FiberMark in 1996 at the time of the
Arcon acquisition. He held the position of President of Arcon since 1993, having
joined Arcon in 1990. Employed for over 20 years by Esselte Pendaflex
Corporation, his most recent role at Esselte was Senior Vice President and
Division Head for the Boorum and Pease office products line with $66 million in
sales. Mr. Kruft received his B.S. in Mechanical Engineering from Hofstra
University.
David E. Rousse has served as Vice President and General Manager,
Technical & Office Products Division, since April 1999. Mr. Rousse served in the
same capacity for Office Products since January 1997, and joined FiberMark in
1996 in the role of Vice President, Marketing and Business Development. He was
previously employed by International Paper in a number of marketing and general
management positions, primarily in their Strathmore Papers fine printing papers
unit, with other assignments in office papers and envelope products. He was
selected for a Fellowship in the President's Executive Exchange Program working
in the U.S. International Trade Commission in Washington, D.C. He began his
career with W.R. Grace & Company in finance, marketing, and sales/sales
management roles. Mr. Rousse received his B.S. in Engineering from Dartmouth
College, and an M.B.A from the Amos Tuck School of Business at Dartmouth.
8
Dr. Walter M. Haegler has served as Vice President and General Manager,
FiberMark Gessner GmbH, since the January 1998 acquisition of Steinbeis Gessner
GmbH. Since May 1999, he also assumed responsibility for Filter Media worldwide,
and in September 1999, for FiberMark Lahnstein GmbH. With Gessner since 1987, he
served as Managing Director of Steinbeis Gessner from 1990 until 1997, and as
plant manager of the Feldkirchen site from 1987 until 1990. Before joining
Gessner, Dr. Haegler was Research and Development and Application Technology
Manager for VP Schickedanz during 1981 to 1987. Dr. Haegler received a Ph.D. and
Masters Degree from the University of Erlangen in inorganic and analytical
chemistry.
9
ITEM 2. PROPERTIES
The following table depicts all of the company's properties as of
December 31, 1999.
FACILITIES OWNED/ SQ. LAND
- ---------- LEASED FEET ACRES
------ ------- -----
Brattleboro, Vt. .................................................... Owned 200,000 39
Fitchburg, Mass. .................................................... Owned 255,000 161
Warren Glen, N.J. ................................................... Owned 299,000 162
Hughesville, N.J..................................................... Owned 88,000 166
Beaver Falls, N.Y. (closed on January 29, 1999) ..................... Owned 100,000 167
Owensboro, Ky. (closed on January 14, 1998) ......................... Owned 47,000 15
Rochester, Mich. .................................................... Owned 96,000 17
Richmond, Va. ....................................................... Leased 112,000 --
Quakertown, Pa. ..................................................... Owned 165,000 7
Bruckmuhl, Germany .................................................. Owned 275,698 39
Feldkirchen/Westerham, Germany ...................................... Owned 223,396 27
Lahnstein, Germany .................................................. Owned 188,585 12
The corporate headquarters is located at the Brattleboro, Vermont,
site. The company owns a production facility in Lowville, New York, that it
leases to a customer. Most facilities offer web production capabilities, largely
paper, but often with the inclusion of synthetic or specialty fibers producing
composite materials. Most of our facilities also combine with some level of
finishing or converting capabilities (eg. laminating, coating, saturating,
embossing). Our facility in Quakertown, Pennsylvania, however, is strictly a
converting facility, coating and saturating base material purchased from other
FiberMark facilities and outside sources. Additionally, Feldkirchen/Westerham
contains a meltblown unit for producing synthetic non-woven materials.
International sales offices are maintained in Kowloon, Hong Kong; and Annecy,
France, as well as at corporate headquarters and all three German facilities.
ITEM 3. LEGAL PROCEEDINGS
The company is involved in legal proceedings arising in the ordinary
course of business. The company does not believe that the outcome of any of
these proceedings will have a material adverse effect on the operations or
financial condition of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended December 1999.
EMPLOYEES
As of December 31, 1999, the company employed a total of 1,562
employees, of which 513 were salaried and 1,049 were hourly.
In the U.S., all of our hourly employees are members of either the
Paper, Allied-Industrial, Chemical and Energy Workers International Union
(PACE), formerly the United Paper Workers International Union (UPIU), or the
International Brotherhood of Electrical Workers, with the exception of the
Quakertown, Pennsylvania, facility, where hourly employees are non-union. In
Germany, employees
10
are represented by the Mining, Chemicals and Energy Trade Union,
INDUSTRIEGEWERKSCHAFT BERGBAU, CHEMIE AND ENERGIE (IG BCE). A portion of
salaried employees (71%) and all of the hourly employees are union eligible, but
are not necessarily members. Membership is voluntary and information is not
disclosed regarding employee membership by employees or the union. Employees are
represented by a local union working committee.
The table below sets out the expiration dates of the company's labor contracts:
FACILITY EXPIRATION DATE
-------- ---------------
Warren Glen, N.J. (a) ...................................................... May 23, 2004
May 25, 2004
Hughesville, N.J. (a) ...................................................... May 23, 2004
May 25, 2004
Rochester, Mich. ........................................................... June 26, 2004
Fitchburg, Mass. ............................................................ April 30, 2003
Brattleboro, Vt. ........................................................... August 31, 2002
Bruckmuhl and Feldkirchen/Westerham, Bavaria, Germany (b)................... February 29, 2000
Lahnstein, Germany (b)...................................................... February 29, 2000
Richmond, Va. .............................................................. April 28, 2000
(a) Workers at Warren Glen, N.J. and Hughesville, N.J. are subject to two
separate collective bargaining agreements.
(b) Expiration dates relate to the main labor agreement. Portions within
these contracts have different expiration dates. German contracts are
negotiated with industry representatives and the union, not by the
company. As is typical, we will continue to operate under the old
contract until the new contract is finalized.
In general, the company believes that it has good relations with its
employees and their unions.
RAW MATERIALS
The company uses a wide array of raw materials to formulate its products,
including virgin hardwood and softwood pulp, secondary wood fiber from pre-and
post-consumer waste, secondary cotton fiber from the apparel industry, synthetic
fibers (such as nylon, polyester and fiberglass), synthetic latex, chemicals,
pigments and dyes. These materials are purchased from numerous suppliers
worldwide. The company does not produce pulp. Pulp and secondary fiber prices
are subject to substantial cyclical price fluctuations. The company experienced
a significant increase in raw material costs during 1999. The company has been
able to recover a significant portion of these cost increases through selling
price increases. The company will attempt to continue to increase its prices to
its customers, but no assurances can be made that the company will continue to
be successful in recovering a significant portion of these increases. A portion
of the company's business is cost-indexed, providing some insulation from raw
material cost variability.
The company has a long-standing relationship with DuPont as an approved
converter of Tyvek-Registered Trademark- and Dacron-Registered Trademark- and
has never experienced a disruption in supply. Although management believes that
it has a good relationship with DuPont, there can be no assurance that the
company will be able to continually purchase adequate supplies of
Tyvek-Registered Trademark-. Any material interruption in the company's supply
of Tyvek-Registered Trademark- could have a material adverse effect on the
results of operations and financial condition of the company.
11
ENVIRONMENTAL REGULATION AND COMPLIANCE
The company and its predecessors have made substantial investments in
pollution control facilities to comply with existing environmental laws and
regulations. The company made expenditures for environmental purposes of $5.3
million in 1999, $3.3 million in 1998 and $2.6 million in 1997. While the
company believes that it has made sufficient capital expenditures to maintain
compliance with existing environmental laws, any failure by the company to
comply with present and future environmental laws could subject it to future
liability or require the suspension of operations. In addition, such
environmental laws could restrict the company's ability to expand its facilities
or could require the company to acquire costly equipment or incur significant
expenses to comply with environmental regulations.
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended ("CERCLA") and similar state laws provide for responses
to, and liability for, releases of certain hazardous substances from a facility
into the environment. These obligations are imposed on the current owner or
operator of a facility from which there has been a release, the owner or
operator of a facility at the time of the disposal of hazardous substances at
the facility, on any person who arranged for the treatment or disposal of
hazardous substances at the facility, and any person who accepted hazardous
substances for transport to a facility selected by such person. Liability under
CERCLA can be strict, joint and several. Pursuant to the environmental laws,
there are currently pending investigations at the company's New Jersey
facilities relating to the release of hazardous substances, materials and/or
wastes. In addition, various predecessors of the company have been named as
potentially responsible parties ("PRPs") by the United States Environmental
Protection Agency ("EPA") for costs incurred and to be incurred in responding to
the investigation and clean-up of various third-party sites. The company has not
received any notification or inquiry from EPA or any other agency concerning
these sites. Management believes that the company will have no liability in
connection with the clean-up of these sites. However, no assurance can be given
that such predecessors will perform their responsibilities in connection with
such sites and, in the even of such non-performance, the company may incur
material liabilities in connection with such sites, and no assurance can be
given that the company will not receive PRP notices in connection with these or
other sites in the future.
In connection with the acquisition of CPG, the former owners of CPG
have agreed to indemnify (subject to certain limitations) the company for
certain identified and potential environmental liabilities arising from the
historical use of the property acquired in the acquisition of CPG or from CPG's
conduct prior to the acquisition of CPG. Management believes that the amount of
the escrow established as security for these and other indemnity obligations of
the former CPG owners will be sufficient to cover environmental liabilities
expected to be incurred in connection with the acquisition of CPG. However, no
assurance can be given that the limited indemnity provided by the former owners
of CPG will be sufficient to cover all material environmental liabilities
associated with the acquisition of CPG.
Based upon its experience to date, the management of the company
believes that the future cost of compliance with existing environmental laws,
and liability for known environmental claims pursuant to such laws, will not
have a material adverse effect on the company's financial condition and results
of operation. However, future events, such as new information, changes in
existing Environmental Laws or their interpretation, and more vigorous
enforcement policies of regulatory authorities, may give rise to additional
expenditures or liabilities that could be material to the company's financial
condition and results of operations.
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The company's Common Stock was first traded on March 11, 1993, on the
NASDAQ National Market System ("Nasdaq") under the symbol SPBI. As of the close
of business on April 8, 1997, the Common Stock ceased trading on Nasdaq and on
April 9, 1997, was listed on the New York Stock Exchange ("NYSE") under the
symbol "FMK". The following table shows the high and low sale prices per share
of the Common Stock as reported on the NYSE Composite Transactions Tape.
Year Ended December 31, 1998 High Low
- ---------------------------- ---- ---
First Quarter.................................................................... $26.31 $19.56
Second Quarter................................................................... $24.63 $15.06
Third Quarter.................................................................... $16.06 $12.38
Fourth Quarter................................................................... $17.00 $10.94
Year Ended December 31, 1999
- ----------------------------
First Quarter.................................................................... $13.50 $ 9.69
Second Quarter................................................................... $15.00 $11.50
Third Quarter.................................................................... $13.94 $12.56
Fourth Quarter................................................................... $13.50 $10.94
The company had approximately 1,107 stockholders of record of its
Common Stock as of March 13, 2000. The company's transfer agent and registrar
have indicated that the company had approximately 2,376 beneficial owners of its
Common Stock as of March 13, 2000. The company has never paid any cash dividends
on its Common Stock and does not anticipate paying cash dividends in the
foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below should be read in conjunction with the
financial statements and notes included elsewhere in this Annual Report on Form
10-K.
13
FIBERMARK, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands, Except Per Share Data)
Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
CONSOLIDATED INCOME STATEMENT DATA:
Net sales(1) ............................. $ 325,308 $ 307,092 $ 235,358 $ 124,771 $ 117,516
Cost of sales ............................ 263,385 249,337 189,294 101,981 100,106
--------- --------- --------- --------- ---------
Gross profit ............................. 61,923 57,755 46,064 22,790 17,410
General and administrative expenses ...... 24,088 22,684 16,331 9,908 8,397
Facility closure expense(2) .............. 9,818 7,274 10,000 -- --
--------- --------- --------- --------- ---------
Income from operations ................... 28,017 27,797 19,733 12,882 9,013
Loss on disposition of assets, net ....... -- -- -- -- 8,302
Cogeneration income(3) ................... -- (1,451) (215) -- (6,512)
Other expenses (income), net(4) .......... 469 152 600 (1,127) (1,198)
Interest expense (net of interest income) 11,079 10,495 9,187 1,798 892
--------- --------- --------- --------- ---------
Income before income taxes and
extraordinary items ................. 16,469 18,601 10,161 12,211 7,529
Income tax (benefit) expense(5) .......... 7,486 7,092 3,992 4,697 (424)
--------- --------- --------- --------- ---------
Income before extraordinary items ........ 8,983 11,509 6,169 7,514 7,953
Extraordinary items(6) ................... -- -- -- (297) --
--------- --------- --------- --------- ---------
Net income ............................... $ 8,983 $ 11,509 $ 6,169 $ 7,217 $ 7,953
--------- --------- --------- --------- ---------
Weighted average shares outstanding ...... 7,659 7,751 6,141 6,054 6,050
Basic earnings per share ................. $ 1.17 $ 1.48 $ 1.01 $ 1.19 $ 1.31
Diluted earnings per share ............... 1.15 1.43 0.95 1.14 1.30
OTHER CONSOLIDATION OPERATING DATA:
Depreciation and amortization ............ $ 9,290 $ 8,953 $ 7,393 $ 3,651 $ 3,342
Capital expenditures ..................... 15,736 13,943 13,528 8,457 4,865
----------------------------------------------------------
December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
CONSOLIDATED BALANCE SHEET DATA:
Working capital .......................... $ 69,085 $ 80,591 $ 61,983 $ 29,151 $ 17,634
Total assets ............................. 346,946 311,231 248,001 212,008 74,618
Long-term debt (net of current maturities) 168,974 133,583 100,000 100,000 4,625
Stockholders' equity ..................... 91,777 97,563 82,771 48,093 40,735
- ----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL DATA.
14
NOTES TO CONSOLIDATED FINANCIAL DATA
(1) The increase in net sales for the year ended December 31, 1997, reflects
the impact of the acquisition of Custom Papers Group and Arcon Coating
Mills on October 31, 1996. Net sales related to these acquisitions were
$127.9 million in 1997 as compared to $20.2 million in 1996. The increase
in net sales for the year ended December 31, 1998 reflects the acquisition
of Steinbeis Gessner GmbH in January 1998. Net sales related to this
acquisition were $81.2 million in 1998. The increase in net sales for the
year ended December 31, 1999 reflects the acquisition of Papierfabrik
Lahnstein on August 1, 1999. Net sales related to this acquisition were
$15.9 million in 1999.
(2) On November 19, 1997, the company announced that it planned to close
operations at its Owensboro, Kentucky, mill and consolidate its production
demands with several of its other mills. Operations continued until a
sufficient level of transition inventory was established to ensure
continued service to customers during the production transfer period. The
Kentucky mill was closed on January 14, 1998. The company booked a $10.0
million charge related to this mill closure in the fourth quarter of 1997.
On November 4, 1998, the company announced that it planned to cease
operations at its Beaver Falls, New York, facility and consolidate its
production demands with several of its other facilities. Operations
continued until a sufficient level of transition inventory was established
to ensure continued service to customers during the transition period. The
New York facility was closed on January 29, 1999. The company booked a $7.8
million pre-tax charge related to the closure of this facility in the
fourth quarter of 1998.
On August 31, 1999, the company initiated a project to install a new paper
machine at its Warren Glen, New Jersey, facility and to consolidate
operations from the neighboring Hughesville, New Jersey, mill. The company
plans to cease operations at Hughesville by December 31, 2000, and the book
value of the mill has been written down by $7.2 million accordingly.
Additionally, the company increased closure expenses for its previously
closed Beaver Falls and Owensboro facilities by $.1 million and $2.5
million, respectively.
(3) In 1993 the company entered into an agreement with Kamine, pursuant to
which the company was the host for a cogeneration facility developed by
Kamine at the company's Beaver Falls mill. In December 1998, Kamine sold
the cogeneration plant and assigned the ground lease contract to the new
owner. The company received a $1.5 million payment from the new owner
relative to the transaction. There are no further payments due under the
ground lease contract.
(4) Other expenses (income) for the 1999, 1998, 1997, 1996 and 1995 periods
include $1,289,000, $1,719,000, $1,718,000, $1,719,000 and $1,718,000,
respectively, of amortized income related to a deferred gain on a
sale-leaseback transaction. On April 29, 1994, the company sold and leased
back certain operating assets at the Brattleboro, Vermont, mill. The sale
of these assets resulted in a book gain of $17,187,000. This gain was
amortized over the ten-year life of the lease. The assets relative to this
lease were repurchased on September 30, 1999.
(5) For the year ended December 31, 1995, the company generated net income and
recognized an income tax benefit of ($424,000) due primarily to the release
of valuation allowances.
(6) Extraordinary items for 1996 include a $495,000 loss related to the early
extinguishment of debt, net of an income tax benefit of $198,000.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On November 19, 1997, the company announced that it planned to cease operations
at its Owensboro, Kentucky, mill and consolidate its production demands with
several of its other mills. Operations continued until a sufficient level of
transition inventory was established to ensure continued service to customers
during the production transfer period. The Kentucky mill was closed on January
14, 1998. The company took a $10.0 million pre-tax charge related to the closure
of this facility in the fourth quarter of 1997.
Effective January 1, 1998, the company acquired Steinbeis Gessner GmbH for a
purchase price of $43.0 million. Steinbeis Gessner, headquartered near Munich,
Germany, is a leading producer of specialty fiber-based materials sold into the
filter products, technical specialties and durable specialties markets. Sales
revenue for 1998 was $81.2 million. Pursuant to this acquisition, the company
sold 1,500,000 shares of common stock on December 15, 1997 with a customary
30-day over-allotment option granting the underwriters of the offering the right
to purchase up to an additional 225,000 shares. The December 15 sale resulted in
gross proceeds of $30.8 million to the company. On January 15, 1998, the
over-allotment was partially exercised through the sale of an additional 135,000
shares. The shares were sold for a gross price of $20.50 per share. After
expenses, the company realized approximately $31.0 million in total net
proceeds. To complete the financing of the Gessner acquisition, the company also
closed on a $29.6 million term loan with Bayerische Vereinsbank in Munich,
Germany on January 12, 1998. This loan amortizes over seven years with interest
rates ranging from 5.8% to 7.0%.
On November 4, 1998, the company announced that it planned to cease operations
at its Beaver Falls, New York, facility and consolidate its production demands
with several of its other facilities. Operations continued until a sufficient
level of transition inventory was established to ensure continued service to
customers during the transition period. The New York facility was closed on
January 29, 1999. The company booked a $7.8 million pre-tax charge related to
the closure of this facility in the fourth quarter of 1998.
Effective August 1, 1999, the company acquired Papierfabrik Lahnstein GmbH, a
leading European manufacturer of specialty papers and nonwoven materials used
for wallcoverings, security papers, self-adhesive labels and flooring overlay.
Annual revenues at that time were approximately $36 million. The acquisition,
with a purchase price of approximately $22 million was financed with $7.0
million of cash reserves and $15.0 million in German bank debt. This debt
amortizes over 6 years and carries a fixed interest rate of 6.5 percent.
On August 31, 1999, the company initiated a project to install a new paper
machine at its Warren Glen, New Jersey, facility and to consolidate operations
from the neighboring Hughesville, New Jersey, mill. The company plans to cease
manufacturing operations at Hughesville by December 31, 2000, and the book value
of the mill has been written down by $7.2 million accordingly. Additionally, the
company increased closure expenses for its previously closed Beaver Falls and
Owensboro facilities by $.1 million and $2.5 million, respectively.
On September 30, 1999, the company terminated the sale/leaseback facility with
The CIT Group, and repurchased the assets at its Brattleboro mill. Concurrently,
the company expanded its revolving credit facility with CIT from $20 million to
$50 million. On an annualized basis, this transaction will reduce lease expense
by $4.5 million and increase depreciation expense by $1.2 million. Due to this
cost structure reduction, inventory valuation was reduced by $751,000. The
company also incurred refinancing fees of $266,000.
16
Excluding the impact of facility write downs, the company's income from
operations improved from $12.9 million in 1996 (10.34% of sales) to $37.8
million in 1999 (11.6% of sales). This improvement is largely attributable to
the added sales volume that resulted from the 1996, 1998 and 1999 acquisitions.
Additionally, the company is benefiting from improved manufacturing efficiencies
due to equipment upgrades at several of its facilities and from cost reduction
related to consolidation of facilities and administrative staffs.
The following table sets forth, for the periods indicated, certain operating
data as a percentage of net sales.
- ---------------------------------------------------------------------------------------------------------
1999 1998 1997
------- ------ -------
Net sales ................................................................. 100.0% 100.0% 100.0%
Cost of sales ............................................................. 81.0 81.2 80.4
Gross profit .............................................................. 19.0 18.8 19.6
General and administrative expenses ....................................... 7.4 7.4 6.9
Facility closure .......................................................... 3.0 2.3 4.3
Income from operations .................................................... 8.6 9.1 8.4
Other (income) expense, net ............................................... .1 (.4) .2
Interest expense, net of interest income .................................. 3.4 3.4 3.9
Income before income taxes ................................................ 5.1 6.1 4.3
Net effect of income taxes ................................................ 2.3 2.3 1.7
Net income ................................................................ 2.8% 3.8% 2.6%
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales increased 5.9% to $325.3 million in 1999 from $307.1 million in 1998.
The acquisition of FiberMark Lahnstein, effective August 1, 1999, added $15.9
million in sales revenue for the full year of 1999.
Within the company's operating segments, sales in the German operations and
filter media segment increased by 16.7% to $142.5 million from $122.1 million in
1998. This growth was due to the August 1, 1999, acquisition of FiberMark
Lahnstein which contributed $15.9 million to 1999 revenues and to stronger
business conditions in the European filter and tape markets. Softness in the
U.S. filter market partially offset these gains. Sales in the technical and
office products segment declined by 9.2% to $117.4 million from $129.3 million
in 1998. This decline was due to market softness and the loss of some business
when a book cover customer established in-house production capabilities that
replaced some of the company's sales. Sales in the durable specialties segment
increased by 17.4% to $65.4 million from $55.7 million in 1998. This increase
reflects successful business development efforts, strong business conditions in
the U.S. and a resurgence of demand from the Far East.
Gross margin increased to 19.0% in 1999 from 18.8% in 1998. This increase is
primarily due to fixed cost savings related to the January 1999 closure of the
Beaver Falls, New York, facility.
General and administrative expenses increased by 6.2% to $24.1 million (7.4%
sales) from $22.7 million (7.4% sales) in 1998, primarily due to the Lahnstein
acquisition.
Income from operations increased .7% to $28.0 (8.6% sales) million from $27.8
million (9.1% sales) in 1998. This increase is due to the higher sales volume
and higher gross margin, offset in part by a $2.5 million increase in facility
closure expenses.
17
Other expenses increased to $.5 million in 1999 from $.2 million in 1998. This
is primarily due to the termination of the sale-leaseback credit facility on
September 30, 1999 which reduced the amortization of a deferred gain from $1.7
million in 1998 to $1.3 million in 1999.
Net interest expense increased by 5.7% to $11.1 million from $10.5 million in
1998 due to the Lahnstein acquisition, the September 30, 1999 repurchase of
sale-leaseback assets and funds used for the company's share repurchase program.
Income taxes were $7.5 million or 45.5% of taxable income in 1999 compared with
$7.1 million or 38.1% of taxable income in 1998. This increased tax rate is
primarily due to a higher mix of income from German operations which have tax
rates higher than the U.S.
Net income for 1999 was $9.0 million or $1.15 per share compared with $11.5
million or $1.43 per share in 1998. Excluding the tax adjusted impact of
facility closure expenses, which existed for both years, and the non-recurring
cogeneration income in 1998, net income for 1999 would have been $16.1 million
or $2.05 per share compared with $15.4 million or $1.91 per share in 1998. Per
share earnings are stated on a fully diluted basis.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net sales increased 30.5% to $307.1 million in 1998 from $235.4 million in 1997.
The acquisition of FiberMark Gessner, effective on January 1, 1998, added $81.2
million in sales revenue for the full year of 1998.
Within the company's operating segments, technical and office products sales
decreased by 4.9% to $129.3 million from $136.0 million in 1997. This decline
was primarily due to market softness. We also incurred some price reduction
related to lower raw material costs and the economic crisis in the Asian
markets. Sales revenue in our durable specialties operating segment declined by
4.3% to $55.7 million in 1998 from $58.2 million in 1997. This decline was due
to a sharp reduction in demand from Asian customers as well as some softness in
our domestic customer base. Sales within our Gessner and North American filter
media segment increased by 196.4% to $122.1 million in 1998 from $41.2 million
in 1997 due to the January 1, 1998 acquisition of the Gessner business and
stable business conditions in the U.S.
Gross profit margin declined to 18.8% in 1998 from 19.6% in 1997. This reduction
was due to the impact of lower demand within our U.S. customer base and also to
a temporary dip in manufacturing efficiencies as we worked through production
transfer trials related to the consolidation of two facilities within our
technical and office products operating segment.
General and administrative expenses increased 39.3% to $22.7 million (7.4% of
sales) in 1998 from $16.3 million (6.9% of sales) in 1997. This increase was due
to the impact of the Gessner acquisition.
Income from operations increased 41.1% to $27.8 million (9.1% of sales) in 1998
from $19.7 million (8.4% of sales) in 1997. This improvement was due to the
Gessner acquisition and a reduced level of facility closure expense.
In 1998 we recorded other income of $1.3 million compared with other expense of
$.4 million in 1997. This change was due to a $1.5 million payment received from
a cogeneration developer who leases property from the company. The company
anticipates no further income from this lease.
18
Net interest expense increased to $10.5 million in 1998 compared with $9.2
million in 1997. This increase was due to the debt incurred to fund the Gessner
acquisition.
Income taxes were $7.1 million or 38.1% of taxable income in 1998 compared with
$4.0 million or 39.3% of taxable income in 1997.
Net income for 1998 was $11.5 million or $1.43 per share compared with $6.2
million or $.95 per share in 1997. Excluding the tax adjusted impact of facility
closure expenses which existed for both years and the non-recurring cogeneration
income in 1998, net income for 1998 would have been $15.4 million, or $1.91 per
share, compared with $12.3 million, or $1.90 per share, in 1997. Per share
earnings are stated on a fully diluted basis.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the company had outstanding $100.0 million of senior
notes. The notes have a ten-year term beginning October 16, 1996, are
non-amortizing and carry a fixed interest rate of 9.375%. Additionally, the
company had available to it a $50.0 million revolving credit facility as of
December 31, 1999. As of such date, $28.0 million was outstanding under this
credit facility. A portion of the balance was at an interest rate of LIBOR plus
2.0% and the remainder was at an interest rate of prime plus .5%. Effective
January 1, 1998 the company acquired Steinbeis Gessner GmbH. A portion of the
purchase price was funded through term loans. As of December 31, 1999, Gessner
had a secured term loan of $25.8 million with Bayerische Bank. The balance of
this loan amortizes over six years with interest rates ranging from 6.125% to
7.015%. As of this same date, Gessner had an unsecured term loan of $3.1 million
with the previous owner. The balance of this loan amortizes over two years and
has a fixed interest rate of 5%. As of December 31, 1999, Gessner also has a
$7.2 million capital spending facility with Bayerische Vereinsbank. As of such
date $4.6 million was outstanding under this facility. The interest rate on this
loan balance is LIBOR plus 1.75% and the balance amortizes over five years. As
of December 31, 1999, Gessner also has a $7.7 million line of credit. As of such
date, no advances are outstanding under this facility. Effective August 1, 1999,
the company acquired Papierfabrik Lahnstein GmbH. A portion of the purchase
price was funded through a term loan. As of December 31, 1999, Lahnstein had a
$14.7 secured term loan with Bayerische Bank. This loan amortizes over six years
with interest rates ranging from 5.4% to 7.1% .
The company's historical requirements for capital have been primarily for
servicing debt, capital expenditures, working capital and acquisitions. Cash
flows from operating activities were $18.5 million in 1999, $18.6 million in
1998 and $7.9 million in 1997. Net cash used in investing activities was $39.7
million in 1999 compared with $52.6 million in 1998 and $13.3 million in 1997.
The increase is primarily attributable to acquisitions and capital expenditures.
In addition, the company is currently in the process of installing a new paper
machine at its Warren Glen, New Jersey, facility, which the company believes
will provide quality improvements, cost reductions, product performance
enhancements and the ability to produce a broader range of products. This
project is expected to cost $19.0 million in total, of which $1.6 million has
been spent in 1999. The company has arranged a $15.0 million capital spending
facility with Jules & Associates to partially fund this project. This facility
will have a fixed interest rate of approximately 8.5% and will amortize over
seven years. As of December 31, 1999, there were no outstanding advances under
this facility. The company expects to fully utilize this facility during the
year 2000.
Net cash provided by financing activities was $1.9 million in 1999 compared with
$32.1 million in 1998 and $28.4 million in 1997. The decrease is primarily
attributable to the termination of the CIT sale/leaseback facility, which was
paid with borrowings under the revolving credit facility, and the stock
repurchase program. The company believes that cash reserves on hand, cash flow
from operations, plus
19
amounts available under credit facilities, will be sufficient to fund its
capital requirements, debt service and working capital requirements for the
foreseeable future.
The company intends to pursue strategic acquisitions that will enhance its range
of products, complement the company's core markets, provide distribution or
sales and marketing efficiencies or provide opportunities for technology gains
or other operating efficiencies. Any such acquisition could require the company
to secure independent debt or equity financing to complete such transaction.
DISCLOSURES OF CERTAIN FINANCIAL MARKET RISKS
The company believes it has minimal exposure to financial market risks. All debt
is at a fixed rate. Most of the company's sales transactions have been conducted
in the currency where the shipment originated, limiting its exposure to changes
in currency exchange rates. The company does not use derivative financial
instruments.
INFLATION
The company attempts to minimize the effect of inflation on earnings by
controlling operating expenses. During the past several years, the rate of
general inflation has been relatively low and has not had a significant impact
on the company's results of operations. The company purchases raw materials that
are subject to cyclical changes in costs that may not reflect the rate of
general inflation.
SEASONALITY
The company's business is mildly seasonal, with the third quarter of each year
typically having the lowest level of net sales and operating income. Lower
December revenues tend to reduce fourth quarter revenues relative to the first
two quarters. This seasonality is the result of a lower level of purchasing
activity, since many of our U.S. customers shut down their manufacturing
operations during portions of July and many European manufacturers shut down
during portions of August and December.
NEW ACCOUNTING PRONOUNCEMENTS
There are no new accounting pronouncements applicable to the company.
YEAR 2000
READINESS
The company completed all Year 2000 readiness projects successfully in 1999, and
experienced no material problems as the new year began.
The company has not been informed by any of its suppliers or customers of any
material problems experienced by them since the new year began.
COSTS
The costs for gaining Year 2000 compliance were not material for the company's
business, operations, or financial condition. The implementation of new
integrated information systems was completed for strategic reasons, and
associated costs were not incremental expenditures tied to Year 2000 compliance.
20
RISKS
The transition into the Year 2000 was uneventful. The company makes no assurance
that problems, however unlikely, might not emerge at a later date.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical are forward-looking statements
subject to risk and uncertainties that could cause actual results to differ
materially. Such risk and uncertainties include fluctuations in economies
worldwide, fluctuations in our customers' demand and inventory levels (including
the loss of certain major customers); the price and availability of raw
materials and of competitive materials, which may preclude passing increases on
or maintaining prices with customers; changes in environmental and other
governmental regulations; changes in terms from lenders; ability to retain key
management and to reach agreement on labor issues; or the failure to identify or
carry out suitable strategic acquisitions.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
See the section entitled "Executive Officers" in Part I, Item 1 hereof for
information regarding the company's executive officers.
The information required by this item with respect to the company's directors is
presented under the caption entitled "Election of Directors" of the company's
Definitive Proxy Statement, which will be filed with the Securities and Exchange
Commission in connection with the solicitation of proxies for the company's
Annual Meeting of Shareholders to be held on May 24, 2000 (the "Proxy
Statement"), and is incorporated herein by reference.
The information required by this item concerning compliance with Section 16(a)
of the Exchange Act is presented under the caption entitled "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement,
and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The information required by this item is incorporated herein by reference to the
information presented under the caption entitled "Executive Compensation and
Other Information" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the
information presented under the caption entitled "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None existed.
22
PART IV
ITEM 14. 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 24 of this Form 10-K.
PAGE
----
Independent Auditors' Report .........................................................24
Consolidated Statements of Income for the years ended
December 31, 1999, 1998, and 1997................................................25
Consolidated Balance Sheets of December 31, 1999 and 1998.............................26
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997................................................27
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the years ended December 31, 1999, 1998, and 1997............................28
Notes to Consolidated Financial Statements ...........................................29
(a)(2) Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts Reserves...............................56
Independent Auditors' Report..........................................................57
(a)(3) Index to Exhibits, beginning on ......................................................58
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
fourth quarter of the fiscal year ended December 31, 1999.
(c) Exhibits
The exhibits required by this item are listed under Item 14(a)(3).....................61
23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FiberMark, Inc.:
We have audited the accompanying consolidated balance sheets of FiberMark, Inc.
as of December 31, 1999 and 1998, and the related consolidated statements of
income, stockholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period then ended December
31, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
- --------------------------
Burlington, Vermont
February 3, 2000
Vt. Reg. No. 92-0000241
24
FIBERMARK, INC
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except per share amounts)
1999 1998 1997
-------- -------- --------
Net sales .................................. $ 325,308 $ 307,092 $ 235,358
Cost of sales .............................. 263,385 249,337 189,294
--------- --------- ---------
Gross profit ....................... 61,923 57,755 46,064
Selling, general and administrative expenses 24,088 22,684 16,331
Facility closure expense (note 12) ......... 9,818 7,274 10,000
--------- --------- ---------
Income from operations ............. 28,017 27,797 19,733
--------- --------- ---------
Other (income) expense, net ................ 469 152 600
Cogeneration income (note 3) ............... -- (1,451) (215)
Interest expense ........................... 11,938 11,675 9,457
Interest income ............................ (859) (1,180) (270)
--------- --------- ---------
Income before income taxes ......... 16,469 18,601 10,161
Income tax expense (note 9) ................ 7,486 7,092 3,992
--------- --------- ---------
Net income ......................... $ 8,983 $ 11,509 $ 6,169
========= ========= =========
Basic earnings per share: .................. $ 1.17 $ 1.48 $ 1.01
========= ========= =========
Diluted earnings per share ................. $ 1.15 $ 1.43 $ 0.95
========= ========= =========
Average Basic Shares Outstanding ... 7,659 7,751 6,141
Average Diluted Shares Outstanding . 7,843 8,070 6,492
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
FIBERMARK, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In Thousands)
1999 1998
-------- ---------
ASSETS
Current assets:
Cash ............................................................... $ 12,466 $ 33,804
Accounts receivable, net of allowances of
$1,023 in 1999 and $626 in 1998 ............................. 41,880 31,518
Inventories (note 4) ............................................... 57,928 48,517
Other .............................................................. 717 700
Prepaid expense (note 7) ........................................... -- 204
Deferred income taxes (note 9) ..................................... 3,982 4,612
--------- ---------
Total current assets ....................................... 116,973 119,355
Property, plant and equipment, net (note 5) ................................ 171,423 128,375
Goodwill, net .............................................................. 47,038 49,692
Other intangible assets, net ............................................... 6,268 8,383
Prepaid expense (note 7) ................................................... -- 1,176
Other long-term assets ..................................................... 1,602 1,433
Other pension assets (note 14) ............................................. 3,642 2,817
--------- ---------
Total assets ............................................... $ 346,946 $ 311,231
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt (note 6) ............................ 7,221 3,598
Accounts payable ................................................... 17,954 16,484
Accrued liabilities (notes 14 and 16) .............................. 19,898 15,670
Accrued income taxes payable ....................................... 2,815 1,440
Accrued pension liabilities ........................................ -- 1,572
--------- ---------
Total current liabilities .................................. 47,888 38,764
--------- ---------
Revolving credit line (note 6) ............................................. 27,968 --
Long-term debt, less current portion (note 6) .............................. 141,006 133,583
Deferred gain (note 7) ..................................................... -- 9,166
Deferred income taxes (note 9) ............................................. 16,087 12,655
Other long-term liabilities (note 14) ...................................... 22,220 19,500
--------- ---------
Total long-term liabilities ................................ 207,281 174,904
--------- ---------
Total liabilities .......................................... 255,169 213,668
Commitments and contingencies (note 7)
Stockholders' equity (notes 8, 14 and 19):
Preferred stock, par value $.001 per share;
2,000,000 shares authorized and none issued ........................ -- --
Common stock, par value $.001 per share;
20,000,000 shares authorized
7,830,483 and 6,830,483 shares issued and outstanding, respectively,
in 1999 and 7,777,822 shares issued and outstanding in 1998 ........ 8 8
Additional paid-in capital ......................................... 77,052 76,554
Retained earnings .................................................. 30,017 21,034
Accumulated other comprehensive loss ............................... (2,646) (33)
Less treasury stock, 1,000,000 shares at cost ...................... (12,654) --
--------- ---------
Total stockholders' equity ................................. 91,777 97,563
--------- ---------
Total liabilities and stockholders' equity ................. $ 346,946 $ 311,231
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(In Thousands)
1999 1998 1997
------- ------- --------
Cash flows from operating activities:
Net income ................................................. $ 8,983 $ 11,509 $ 6,169
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 9,290 8,953 7,393
Amortization of deferred gain ...................... (1,289) (1,719) (1,718)
Loss on closure of facility ........................ 9,818 7,274 10,000
Loss (gain) on sale of property, plant and equipment (2) 125
Cogeneration income ................................ -- -- (215)
Deferred taxes ..................................... 4,643 3,717 (3,586)
Changes in operating assets and liabilities:
Accounts receivable ........................ (8,967) 1,555 (2,431)
Inventories ................................ (6,596) (2,132) (8,535)
Other ...................................... 736 (279) 391
Accounts payable ........................... 1,197 (7,542) 3,737
Accrued pension and other liabilities ...... (1,820) (765) (7,965)
Prepaid expense ............................ (204) (307) (306)
Other long-term liabilities ................ 297 164 1,570
Accrued income taxes payable ............... 2,369 (1,983) 3,422
-------- -------- --------
Net cash provided by operating activities .. 18,455 18,570 7,926
-------- -------- --------
Cash flows used for investing activities:
Cogeneration receipt ....................................... -- -- 2,000
Purchase of life insurance ................................. (806) (1,207) (1,342)
Additions to property, plant and equipment ................. (15,736) (13,943) (13,528)
Net proceeds from sale of property, plant and equipment .... 38 22 --
Payments for businesses acquired ........................... (22,935) (37,337) (367)
Increase in other intangible assets ........................ (254) (145) (112)
-------- -------- --------
Net cash used in investing activities ...... (39,693) (52,610) (13,349)
-------- -------- --------
Cash flows from financing activities:
CIT Sale/Leaseback Buyout .................................. (30,651) -- --
Proceeds from issuance of bank debt ........................ 20,957 29,552 --
Proceeds from issuance of common stock ..................... -- 2,628 29,205
Cost of stock offering ..................................... -- (511) (466)
Net proceeds from exercise of stock options ................ 498 466 117
Stock repurchase ........................................... (12,654) -- --
Net borrowings under revolving credit line ................. 27,968 -- --
Repayment of debt .......................................... (3,810) -- --
Debt issuance costs ........................................ (366) -- (500)
-------- -------- --------
Net cash provided by financing activities .. 1,942 32,135 28,356
-------- -------- --------
Effect of exchange rate changes on cash ............................ (2,042) (1,566) --
Net increase (decrease) in cash ............ (21,338) (3,471) 22,933
Cash at beginning of year ......................................... 33,804 37,275 14,342
-------- -------- --------
Cash at end of year ................................................ $ 12,466 $ 33,804 $ 37,275
======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
FIBERMARK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except share amounts)
Additional Accumulated
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit)
-------- -------- ------------ ------------
Balance at December 31, 1996 ................... 6,058,638 $ 6 $ 44,731 $ 3,356
Issuance of common stock ..................... 1,500,000 2 28,717 --
Issuance of common stock ..................... 1,043 -- 20 --
Exercise of stock options .................... 21,850 -- 117 --
Tax benefit of option exercise ............... -- -- 124 --
Comprehensive income:
Net income ................................. -- -- -- 6,169
Minimum pension liability adjustment, net of
tax benefit of $295 ....................... -- -- -- --
--------- ---------- ---------- ----------
Total comprehensive income .................
Balance at December 31, 1997 ................... 7,581,531 8 73,709 9,525
Issuance of common stock ..................... 135,000 -- 2,117 --
Issuance of common stock ..................... 6 -- -- --
Exercise of stock options .................... 61,285 -- 466 --
Tax benefit of option exercise ............... -- -- 262 --
Comprehensive income:
Net income .................................. -- -- -- 11,509
Minimum pension liability adjustment, net of
tax benefit of $876 ........................ -- -- -- --
Currency translation adjustment ............. -- -- -- --
--------- ---------- ---------- ----------
Total comprehensive income ..................
Balance at December 31, 1998 ................... 7,777,822 8 76,554 21,034
Exercise of stock options .................... 52,661 -- 403 --
Tax benefit of option exercise ............... -- -- 95 --
Purchase of Treasury Stock ................... (1,000,000) -- -- --
Comprehensive income:
Net income .................................. -- -- -- 8,983
Minimum pension liability adjustment, net of
tax provision of $577 ...................... -- -- -- --
Currency translation adjustment ............. -- -- -- --
--------- ---------- ---------- ----------
Total comprehensive income ..................
Balance at December 31, 1999 ................... 6,830,483 $ 8 $ 77,052 $ 30,017
========= ========== ========== ==========
Accumulated Total
Other Stockholders'
Comprehensive Treasury Equity
Income (loss) Stock (Deficit)
------------- --------- -------------
Balance at December 31, 1996 ................... -- -- $ 48,093
Issuance of common stock ..................... -- -- 28,719
Issuance of common stock ..................... -- -- 20
Exercise of stock options .................... -- -- 117
Tax benefit of option exercise ............... -- -- 124
Comprehensive income:
Net income ................................. -- -- 6,169
Minimum pension liability adjustment, net of
tax benefit of $295 ....................... (471) -- (471)
---------- ------- ----------
Total comprehensive income ................. 5,698
----------
Balance at December 31, 1997 ................... (471) -- 82,771
Issuance of common stock ..................... -- -- 2,117
Issuance of common stock ..................... -- -- --
Exercise of stock options .................... -- -- 466
Tax benefit of option exercise ............... -- -- 262
Comprehensive income:
Net income .................................. -- -- 11,509
Minimum pension liability adjustment, net of
tax benefit of $876 ........................ (1,128) -- (1,128)
Currency translation adjustment ............. 1,566 -- 1,566
---------- ------- ----------
Total comprehensive income .................. 11,947
----------
Balance at December 31, 1998 ................... (33) -- 97,563
Exercise of stock options .................... -- -- 403
Tax benefit of option exercise ............... -- -- 95
Purchase of Treasury Stock ................... -- (12,654) (12,654)
Comprehensive income:
Net income .................................. -- -- 8,983
Minimum pension liability adjustment, net of
tax provision of $577 ...................... 843 -- 843
Currency translation adjustment ............. (3,456) -- (3,456)
---------- ------- ----------
Total comprehensive income .................. 6,370
----------
Balance at December 31, 1999 ................... $ (2,646) (12,654) $ 91,777
========== ======= ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
FIBERMARK, INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) DESCRIPTION OF BUSINESS
FiberMark produces specialty fiber-based materials in three operating
segments: German operations and filter media, technical and office
products, and durable specialties. FiberMark is headquartered in
Brattleboro, Vermont, and operates seven facilities located in the eastern
and midwestern regions of the United States and three facilities in
Germany.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
The preparation of financial statements in conformity with generally
accepted accounting principles requires 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.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the moving weighted average cost method for raw materials and the
first-in, first-out (FIFO) method for work in process and finished goods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation for
financial reporting purposes is provided using the straight-line method
based upon the useful lives of the assets. 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 income. 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.
29
OTHER INTANGIBLE ASSETS AND GOODWILL
Other intangible assets and goodwill is summarized as follows at December
31, 1999 and 1998 (in thousands):
1999 1998
------ -------
Goodwill, net of accumulated amortization of
$5,338 in 1999 and $3,609 in 1998 .............. $47,038 $49,692
======= =======
Debt issue costs, net of accumulated amortization
of $1,619 in 1999 and $1,008 in 1998 ........... 4,268 4,590
Intangible pension assets (see note 14) ........ 768 2,788
Organization costs, net of accumulated amortization
of $485 in 1998 ................................ -- 57
Other, net of accumulated amortization of
$133 in 1999 and $55 in 1998 ........... 1,232 948
------- -------
Other intangible assets, net ............... $ 6,268 $ 8,383
======= =======
Goodwill represents the cost in excess of the fair value of the net assets
of acquired companies and is amortized on a straight-line basis over
thirty years. The company periodically evaluates the recoverability of
goodwill triggered by such factors as business trends and prospects and
market and economic conditions. The company measures the amount of
impairment, if any, by using the discounted cash flow method. The
significant aspects considered in the assessment, such as interest charges
and the discount rate, would be selected based on current market
conditions.
Debt issue costs related to the Series B Senior Notes are amortized using
the interest method over the life of those notes. Other debt issue costs
are amortized on a straight-line basis over the life of the related debt.
The remaining net book value of organization costs of $57,000 were written
off in the first quarter of 1999 in accordance with the American Institute
of Certified Public Accountants Statement of Position 98-5, REPORTING ON
THE COSTS OF START-UP ACTIVITIES.
Other intangible assets are stated at cost and amortized on a
straight-line basis over the estimated useful lives of the assets.
Amortization expense for other intangibles and goodwill was $2,454,000,
$2,567,000 and $2,542,000 in 1999, 1998 and 1997, respectively.
DEFERRED GAIN
The deferred gain incurred in connection with the sale-leaseback
transaction was amortized on a straight-line basis over the life of the
lease until termination (see note 7).
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and are reflected
in cost of sales. The costs amounted to $2.4 million, $2.4 million and
$1.4 million for the years ended December 31, 1999, 1998, and 1997,
respectively.
30
FOREIGN CURRENCY TRANSLATION
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 accumulated other comprehensive income (loss).
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. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The company has chosen to continue to account for stock-based
compensation 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.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128).
SFAS 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects
of options, warrants and convertible securities. The following table sets
forth the computation of basic and diluted earnings per share:
1999 1998 1997
---- ---- ----
Numerator:
Income available to common shareholders
used in basic and diluted earnings per share $ 8,983 $ 11,509 $ 6,169
========== ========== ==========
Denominator:
Denominator for basic earnings per share:
Weighted average shares ............... 7,659,420 7,751,399 6,140,673
Effect of dilutive securities:
Fixed stock options ................... 183,233 318,987 351,114
---------- ---------- ----------
Denominator for diluted earnings per share:
Adjusted weighted average shares ...... 7,842,653 8,070,386 6,491,787
========== ========== ==========
31
1999 1998 1997
---- ---- ----
Basic earnings per share . $ 1.17 $ 1.48 $ 1.01
Diluted earnings per share $ 1.15 $ 1.43 $ .95
Stock options that could potentially dilute earnings per share in the
future of 693,681, 303,130 and 69,534 in 1999, 1998 and 1997,
respectively, were not included in the computation of diluted earnings per
share because to do so would have been anti-dilutive for the periods
presented.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The company follows the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, which requires that long-lived assets and certain identifiable
intangibles be 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 future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. During the third quarter of 1999,
the company decided to discontinue manufacturing at its Hughesville, New
Jersey, facility. During the fourth quarter of 1998, the company decided
to close their Beaver Falls, New York, facility. In the fourth quarter of
1997, the company also decided to close its Owensboro, Kentucky, facility.
The costs of closing these facilities, including the costs associated with
disposing of the assets, are reflected as a component of income from
operations (see note 12).
COMPREHENSIVE INCOME
In 1998, the company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
This statement establishes rules for the reporting of comprehensive income
and its components. Comprehensive income consists of net income, minimum
pension liability adjustments, and foreign currency translation
adjustments and is presented in the Consolidated Statement of
Stockholders' Equity. The adoption of SFAS 130 had no impact on total
shareholders' equity. Prior year financial statements have been
reclassified to conform to the SFAS 130 requirements.
SEGMENT DISCLOSURES
In 1998, the company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 establishes standards for
reporting information about operating segments and related disclosures
about products and services, geographic areas, and major customers.
PENSION AND POST-RETIREMENT DISCLOSURES
In 1998, the company adopted SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POST-RETIREMENT BENEFITS. This statement revises
employers' disclosures about pension and other post-retirement benefit
plans. It does not change the measurement or recognition of those plans.
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
32
liability has been incurred and the amount of the assessment and/or
remediation can be reasonably estimated. Recoveries from third parties
which are probable of realization 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.
ENVIRONMENTAL MATTERS
Pursuant to environmental laws and regulations, there are currently
pending investigations at certain of the company's plants relating to the
release of hazardous substances, materials and/or wastes. In addition,
various predecessors of the company have been named as potentially
responsible parties ("PRPs") by the United States Environmental Protection
Agency ("EPA") for costs incurred and to be incurred in responding to the
investigation and clean-up of various third-party sites. The company has
not received any notification or inquiry from EPA or any other agency
concerning these sites. Management believes that the company will have no
material liability in connection with the clean-up of these sites.
However, no assurance can be given that such predecessors will perform
their responsibilities in connection with such sites and, in the event of
such nonperformance, the company may incur material liabilities in
connection with such sites, and no assurance can be given that the company
will not receive PRP notices in connection with these or other sites in
the future.
OTHER MATTERS
The company is involved in various legal proceedings in the ordinary
course of business. Management believes that the outcome of these
proceedings will not have a material adverse effect on the company's
financial condition, results of operations or cash flows.
REVENUE RECOGNITION
The company recognizes revenue from product sales upon shipment to
customers.
CONCENTRATION RISK
The company's hourly employees and 71% of the company's German salaried
employees are union eligible under various collective bargaining
agreements expiring through 2004. As union membership is voluntary and
membership does not need to be disclosed per German law, the percentage of
employees covered by the agreement that expires on February 29, 2000 at
the three German facilities cannot be determined. The agreement that will
expire April 28, 2000, covers 6% of the company's hourly employees at the
Richmond, Virginia, facility.
(3) COGENERATION PROJECT
In 1993, the company entered into agreements with Kamine/Besicorp Beaver
Falls L.P. ("Kamine") pursuant to which the company's Latex Fiber Products
Division would host a gas-fired, 79-megawatt combined-cycle cogeneration
facility developed by Kamine in Beaver Falls, New York. Construction of
the facility has been completed. The company received $4.4 million in cash
in 1993. The company had a firm contract with Kamine to receive a series
of cash payments totaling $7.0 million between May 1995 and May 1997. The
present value of these cash payments, in the amount of $6.5 million, was
recorded as income in the first quarter of 1995. Cash payments of $2
million each were received in May 1997 and 1996 and $3 million was
received in 1995. In December 1998, the owner of the cogeneration facility
sold the business and related equipment to another party. The company
received a one-time payment of approximately $1.5 million as consideration
for its consent to the assignment of the related ground lease to the new
owner.
33
(4) INVENTORIES
Inventories consist of the following at December 31, 1999 and 1998 (in
thousands):
1999 1998
---- ----
Raw materials .............. $21,232 $16,328
Work in process ............ 14,774 11,928
Finished goods ............. 17,561 16,681
Stores inventory ........... 2,386 1,671
Operating supplies ......... 1,975 1,909
------- -------
Total inventories $57,928 $48,517
======= =======
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31,
1999 and 1998 (in thousands):
1999 1998
---- ----
Land ......................................... $ 14,332 $ 13,940
Buildings and improvements ................... 36,950 31,754
Machinery and equipment ...................... 133,000 94,294
Construction in progress ..................... 6,626 5,660
--------- ---------
190,908 145,648
Less accumulated depreciation and amortization (19,485) (17,273)
--------- ---------
Net property, plant and equipment ............ $ 171,423 $ 128,375
========= =========
Depreciation expense was $6,836,000, $6,386,000 and $4,852,000 for the
years ended December 31, 1999, 1998, and 1997, respectively.
(6) DEBT
The company's long-term debt is summarized as follows at December 31, 1999
and 1998 (in thousands):
1999 1998
---- ----
Series B senior 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
Bank term loan - interest rates ranging from 5.765% to 7.015% payable
semi-annually in arrears on January 12 and July 12, secured by the
stock of the Gessner subsidiary, annual principal payments commencing
January 12, 1999 through the year 2005 ................................ 25,790 32,383
Term loan - interest at 5%, unsecured, interest and principal payable
annually in three installments commencing March 31, 1999 .............. 3,095 4,798
Bank term loan - interest rates ranging from 5.40% to 7.10%, payable
semi-annually in arrears on March 17 and September 17, secured by the
stock of the Lahnstein subsidiary, annual principal payments commencing
September 17, 2000 through the year 2005 .............................. 14,700 --
34
Bank term loan - interest rate ranging from 4.35% to 5.35%, payable
semi-annually in arrears on June 30 and December 30, secured by the
stock of the Lahnstein subsidiary, annual principal payments commencing
December 31, 1999
through the year 2004 .................................................. 4,642 --
--------- ---------
Total Debt ................................................................ 148,227 137,181
Less Current Portion ...................................................... (7,221) (3,598)
--------- ---------
Long-term Portion ......................................................... $ 141,006 $ 133,583
========= =========
The Series B senior notes are redeemable at the company's option in whole
or in part, on or after October 15, 2001 at redemption prices ranging from
100% to 104.688% of face value.
Approximately, $11,650,000, $10,474,000 and $9,430,000 of interest was
paid during the years ended December 31, 1999, 1998 and 1997,
respectively.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 and thereafter are as follows (in
thousands):
2000 ......................................... $ 7,221
2001 ......................................... 8,253
2002 ......................................... 8,575
2003 ......................................... 8,575
2004 ......................................... 8,059
Thereafter.................................... 107,544
The company expanded its revolving credit facility with CIT from $20.0
million to $50.0 million. The interest rate on the line as of December 31,
1999 is prime plus .5% or LIBOR plus 2%. The revolving credit line is
subject to a commitment fee payable at the rate of 3/8 of 1% per annum on
the daily average unused portion of this line. This fee is payable on a
quarterly basis. In addition, the company is required to pay an annual
Collateral Management Fee of $35,000 in connection with periodic
examination, analysis and evaluation of the collateral. As of December 31,
1999, $28.0 million was outstanding under such credit facility. There are
no balances due under this facility until its final maturity on September
30, 2002.
In connection with the acquisition of Steinbeis Gessner GmbH (see note
11), two credit facilities were established by Gessner with Bayerische
Vereinsbank AG.
Gessner has $7,740,000 in available funds through a line of credit with
Bayerische Vereinsbank AG at December 31, 1999. The interest rate on the
line as of December 31, 1999 is LIBOR plus 1.75%. The credit line is
subject to a commitment fee payable semi-annually at the rate of 1/4 of 1%
per annum on the undisbursed amount. As of December 31, 1999, no advances
were outstanding under this facility.
In addition, Gessner established a loan agreement with Bayerische
Vereinsbank AG for the purposes of financing capital expenditures. Under
this agreement, Gessner has $2,579,000 remaining in available funds at
December 31, 1999. The interest rate as of December 31, 1999 is LIBOR plus
1.75%. The available funds mature on December 31, 2000. The agreement is
subject to a
35
commitment fee at the rate of 1/4 of 1% per annum on the undisbursed
amount at maturity. As of December 31, 1999, $4,642,000 was outstanding
under such credit facility.
The company arranged a $15 million capital spending facility with Jules &
Associates to partially fund the installation of a new paper machine at
its Warren Glen, New Jersey, facility. The facility has a fixed interest
rate of approximately 8.5% and will amortize over seven years. As of
December 31, 1999, no advances were outstanding under this facility.
(7) LEASES
DEFERRED GAIN AND SALE-LEASEBACK
In April 1994, FiberMark entered into a sale-leaseback agreement with The
CIT Group, Inc. ("CIT"). FiberMark sold CIT $7,813,000 in fixed assets for
a purchase price of $25,000,000. As a result FiberMark recorded a deferred
gain of $17,187,000 which is amortized on a straight-line basis over the
life of the ten year lease. In 1999, 1998 and 1997 the company amortized
$1,289,000, $1,719,000 and $1,718,000, respectively, of the deferred gain
into income. At December 31, 1998, the deferred gain amounted to
$9,166,000, net of accumulated amortization of $8,021,000.
In connection with the sale-leaseback transaction, CIT leased back the
fixed assets to FiberMark utilizing a ten-year operating lease. The lease
requires quarterly payments of $843,000 for the first five years and
quarterly payments of $690,000 for the remaining five years of the lease.
In December 1995 FiberMark amended the sale-leaseback agreement whereby
FiberMark sold a newly constructed wet end machine ("Kobayashi") for $10
million. No gain or loss was recorded on the transaction. FiberMark
received $5.0 million of the purchase price from CIT in December 1995, the
remaining $5.0 million was placed in escrow and paid during 1996 when all
specifications were met. CIT leased back the Kobayashi machine to
FiberMark using the remaining 8.5 years of the operating lease discussed
above. The amended lease required additional payments including a first
quarter payment of $113,000 and quarterly payments of $339,901 for the
next 33 quarters.
Rental expense associated with these leases is recognized on a
straight-line basis and amounted to $3,320,000, $4,426,000 and $4,426,000
for the years ending December 31, 1999, 1998 and 1997, respectively.
Accumulated deferred rent expense included in prepaid expense amounted to
$1,380,000 as of December 31, 1998.
On September 30, 1999, the company terminated the sale/leaseback facility
with The CIT Group, and repurchased the assets at its Brattleboro mill.
Concurrently, the company expanded its revolving credit facility with CIT
from $20.0 million to $50.0 million (see note 6). The remaining
unamortized balance of the deferred gain, net of the accumulated deferred
rent expense ($7,158,000) was offset against the asset purchase price.
OTHER LEASES
The company assumed obligations under operating leases for certain
machinery, equipment and facilities with the acquisitions of Steinbeis
Gessner GmbH in January 1998 and Papierfabrik Lahnstein GmbH in August
1999, and with facilities purchased from CPG in October 1996.
Rental expense was $1,287,000, $869,000 and $420,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
36
As of December 31, 1999, 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:
----------------------------------------------------
2000 $1,230
2001 1,043
2002 961
2003 855
2004 748
Thereafter 267
------
$5,104
------
(8) PREFERRED STOCK
At December 31, 1999 and 1998, the company has 2,000,000 shares of
preferred stock authorized with none issued. The company, without
stockholder approval, can issue preferred stock with voting, conversion,
and other rights.
(9) INCOME TAXES
Income before provision for income taxes, classified by source of income
was as follows:
1999 1998 1997
------ ------ ------
U.S .................................... $ 4,134 $10,013 $10,161
Foreign ................................ 12,335 8,588 --
------- ------- -------
Income before provision for income taxes $16,469 $18,601 $10,161
======= ======= =======
The components of the provision for income taxes for the years ended
December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
----- ------ ------
Current
Federal ......... $ 1,449 $ 2,201 $ 6,137
State ........... 406 558 1,439
Foreign ......... 1,796 616 --
------- ------- -------
3,651 3,375 7,576
Deferred
Federal and State (222) 296 (3,584)
Foreign ......... 4,057 3,421 --
------- ------- -------
3,835 3,717 (3,584)
Income tax expense ... $ 7,486 $ 7,092 $ 3,992
======= ======= =======
37
9) INCOME TAXES, (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
and 1998 are presented below (in thousands):
December 31, 1999
----------------------------
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Accounts receivable ......... $ 1,062 $ --
Inventory ................... 1,075 --
Property, plant and equipment -- 20,068
Payroll related accruals .... 5,218 --
Intangible assets ........... -- 252
Miscellaneous reserves ...... 600 --
Facility closure ............ 260 --
------- -------
$ 8,215 $20,320
======= =======
December 31, 1998
----------------------------
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Accounts receivable ......... $ 687 $ --
Inventory ................... 513 --
Property, plant and equipment -- 18,627
Payroll related accruals .... 4,750 --
Intangible assets ........... -- 216
Miscellaneous reserves ...... 546 --
Deferred gain ............... 3,492 --
Facility closure ............ 812 --
------- -------
$10,800 $18,843
======= =======
SFAS No. 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 or all of the deferred tax assets will not be realized. Although
realization is not assured, management believes it is more likely than not
that the deferred tax assets will be realized through future taxable
earnings.
38
(9) INCOME TAXES, (CONTINUED)
A reconciliation of income taxes from continuing operations at the United
States statutory rate to the effective rate for the years ended December
31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
---- ---- ----
U.S. federal rate ................ 34.0% 34.0% 34.0%
State taxes net of federal benefit 7.6% 4.6% 6.1%
Foreign rate difference .......... 6.0% 3.9% --
Other ............................ (2.1%) (4.4%) (0.8%)
---- ---- ----
Effective tax rate ............... 45.5% 38.1% 39.3%
==== ==== ====
Income taxes paid during 1999, 1998 and 1997 were $2,831,000, $5,399,000
and $5,696,000, respectively.
(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 and amounts to
$175,695,000 (carrying value of $176,195,000) at December 31, 1999, and
$139,181,000 (carrying value $137,181,000) at December 31, 1998.
Management has determined that the carrying values of its other financial
assets and liabilities approximated fair value at December 31, 1999 and
1998.
(11) ACQUISITIONS
1999 ACQUISITION
Effective August 1, 1999, the company acquired Papierfabrik Lahnstein GmbH
for a purchase price of $22.1 million. FiberMark Lahnstein manufactures
specialty papers and nonwoven materials. The operation's coating
substrates are used for wallcoverings, security papers, self-adhesive
labels and flooring overlay; printing substrates for graphic arts
applications, specialty tags and labels; and disposable nonwovens for
medical products and tablecloths. This acquisition was financed with $6.9
million of cash reserves along with borrowings under a DM 28.5 ($15.2)
million bank facility with Bayerische Vereinsbank. 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 respective fair values. The 1999 consolidated results include
Lahnstein's results of operations for five months.
39
The following summarized unaudited pro forma results of operations for the
years ended December 31, 1999 and 1998, assumes the Lahnstein acquisition
occurred as of the beginning of the periods presented (dollars in
thousands, except per share amounts):
Unaudited Unaudited
1999 1998
--------- ---------
Net sales .............. $348,384 340,723
Net income ............. 9,875 12,277
Basic earnings per share 1.29 1.58
The unaudited pro forma results are not necessarily indicative of actual
results of operations that would have occurred had the acquisitions been
consummated as of the above dates, nor are they necessarily indicative of
future operating results.
1998 ACQUISITION
Effective January 1, 1998, the company purchased all of the outstanding
shares of Steinbeis Gessner GmbH (Gessner) for $40.0 million and DM 8.08
($4.4) million in cash. Gessner manufactures crepe masking and specialty
tape materials, wet and dry abrasives papers, filter media for automotive
air, oil and fuel and filter media for automotive cabins and vacuum
cleaner bags. The acquisition was financed with a portion of the proceeds
of the sale of 1,500,000 shares of the company's common stock for $28.7
million along with borrowings under a DM 54.0 ($29.6) million bank
facility provided by Bayerische Vereinsbank AG and an unsecured note
issued by Gessner and guaranteed by the company to the seller in the
amount of DM 8.0 ($4.4) million. The acquisition was accounted for using
the purchase method. Accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based upon their respective fair
values. This resulted in approximately $6.4 million of cost in excess of
net assets acquired, or goodwill which is being amortized on a straight
line basis over thirty years. The 1998 consolidated results include
Gessner's results of operation for the entire year.
The following summarized unaudited pro forma results of operations for the
year ended December 31, 1997, assumes the Gessner acquisition occurred as
of the beginning of the periods presented (dollars in thousands, except
per share amounts):
Unaudited
---------
Net sales .............. $313,719
Net income ............. 9,851
Basic earnings per share 1.30
The unaudited pro forma results are not necessarily indicative of actual
results of operations that would have occurred had the acquisitions been
consummated as of the above dates, nor are they necessarily indicative of
future operating results.
(12) FACILITY CLOSURE
On January 14, 1998, the company closed the Owensboro, Kentucky, facility.
Production at this facility was moved into certain of the company's other
operations. As of December 31, 1997, the company recorded a facility
closure charge of $10,000,000 to recognize severance and benefits for the
employees to be terminated ($450,000) to reflect contract cancellation
costs ($325,000), to reflect the
40
write down to estimated fair market value of the plant and equipment not
expected to be transferred to other facilities ($8,129,000), to write off
goodwill ($186,000) and organization costs ($185,000) and to write off or
accrue for other miscellaneous costs ($725,000). The company terminated 39
administrative and plant employees. The actual termination benefits paid
were $492,000. Results of operations of the facility amounted to a $.3
million loss for the year ended December 31, 1997.
In 1998 the company added $520,000 to previously accrued expenses related
to its Owensboro, Kentucky, mill to facility closure expense. The company
also added $2,468,000 to previously accrued facility closure expenses in
1999 for its Owensboro, Kentucky, mill to reflect a full write off of
property, plant and equipment value for that facility.
The company ceased operations at its Beaver Falls, New York, facility on
January 29, 1999. Part of the historical demand from this facility has
been taken in-house by an integrated customer. The balance of the
production demand will be absorbed by other mills within the company. As
of December 31, 1998, the company recorded a facility closure charge of
$7,794,000 to recognize severance and benefits for the employees to be
terminated ($1,427,000) to reflect contract cancellation costs ($250,000)
and to reflect the write off of property, plant and equipment
($6,117,000). The company terminated 87 administrative and plant
employees. Actual termination benefits paid were $1,449,000. Results of
operations of the facility amounted to a $.1 million income for the year
ended December 31, 1998. In 1999 the company added approximately $120,000
to previously accrued facility closure expenses for its Beaver Falls, New
York, mill to reflect additional severance and benefits for terminated
employees.
On August 31, 1999, the company initiated a project to install a new paper
machine at its Warren Glen, New Jersey, facility and to consolidate
operations from the neighboring Hughesville, New Jersey, mill. The company
plans to cease operations at Hughesville in December 2000. As of December
31, 1999, the company recorded a facility closure charge of $7,230,000 to
recognize severance and benefits for employees to be terminated
($523,000), and to reflect the write off of property, plant and equipment
($6,707,000). The company expects to terminate 33 administrative and plant
employees. Results of operations of the facility amounted to a $135,000
loss for the year ended December 31, 1999.
(13) RELATED PARTY TRANSACTIONS
The company paid a management fee of $250,000 for the year ended December
31, 1997 to an equity owner, MDC Management company ("MDC"), pursuant to a
management agreement with MDC which called for an annual fee of $250,000
through 1997.
(14) RETIREMENT AND DEFERRED COMPENSATION PLANS
QUALIFIED PLANS
The company has a defined contribution plan (salaried and hourly) and a
defined benefit (hourly) retirement plan for FiberMark.
DEFINED CONTRIBUTION PLAN
The defined contribution plan is a 401(k) ERISA and IRS-qualified plan
covering substantially all employees that permits employee salary
deferrals up to 16% of salary with the company matching 50% of the first
6%. Defined contribution expense for the company was $1,022,000,
$1,017,000 and $1,102,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
41
DEFINED BENEFIT PLAN FOR HOURLY EMPLOYEES
Effective August 13, 1997, the CPG defined benefit pension plan was merged
into the FiberMark, Inc. pension plan and the assets and liabilities of
both plans were combined. The defined benefit plan 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 following table sets forth the accumulated pension benefit obligation
(APBO) (in thousands):
1999 1998
---- ----
APBO at January 1 ................... $ 25,831 $ 11,680
Increase due to Gessner acquisition . -- 10,322
Increase due to Lahnstein acquisition 6,634 --
Service cost ........................ 743 702
Interest cost ....................... 1,702 1,437
Actuarial loss (gain) ............... (1,337) 2,657
Benefits paid ....................... (1,319) (967)
Plan amendments ..................... 435 --
Foreign currency impact ............. (1,663) --
-------- --------
APBO at December 31 ................. $ 31,026 $ 25,831
======== ========
The funded status at December 31 is (in thousands):
1999 1998
---- ----
Projected benefit obligation ............ $(31,026) $(25,831)
Fair value of plan assets ............... 13,631 11,062
--------
Funded status ........................... (17,395) (14,769)
Unrecognized net transition obligation .. 13 16
Unrecognized prior service cost ......... 539 150
Unrecognized net loss ................... 1,417 3,493
-------- --------
Accrued pension cost before
adjustment for minimum liability .... (15,426) (11,110)
Adjustment to recognize minimum liability (1,010) (3,659)
-------- --------
Accrued pension cost included in other
long-term liabilities ............... $(16,436) $(14,769)
======== ========
42
Net periodic pension expense included the following components (in
thousands):
1999 1998 1997
---- ---- ----
Service cost ............................. $ 753 $ 691 $ 445
Interest cost ............................ 1,744 1,405 686
Return on assets ......................... (1,417) (2,055) (668)
Net amortization and deferral:
Unrecognized net transition obligation 3 3 3
Unrecognized prior service cost ...... 46 12 12
Unrecognized loss .................... 81 83 14
Net asset gain deferred .............. 382 1,320 40
Recognized net loss .................. 101 -- --
------- ------- -------
Net periodic pension expense ............. $ 1,693 $ 1,459 $ 532
======= ======= =======
The following table reconciles plan assets (in thousands):
1999 1998
---- ----
Fair value of plan assets at beginning of year $ 11,062 $ 7,832
Return on plan assets ........................ 1,417 2,055
Employer contributions ....................... 2,471 2,142
Benefits paid ................................ (1,319) (967)
-------- --------
Fair value of plan assets at end of year ..... $ 13,631 $ 11,062
======== ========
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation at December 31, 1999 and
1998 was 7.25% and 6.5%, respectively. The expected long-term rate of
return on plan assets was 9% in 1999 and 1998.
As is required by SFAS No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, for
plans where the accumulated pension benefit obligation exceeds the fair
value of plan assets, the company has recognized in the accompanying
consolidated balance sheets the minimum liability of the unfunded
accumulated pension benefit obligation as a long-term liability with an
offsetting intangible asset ($552,000 and $166,000 at December 31, 1999
and 1998, respectively, included in other intangible assets, net) and
equity adjustment, net of tax impact.
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.
During 1997 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:
43
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.
The following table sets forth the accumulated pension benefit obligation
(APBO) (in thousands):
1999 1998
---- ----
APBO at January 1 ................. $ 3,604 $ 3,464
Service cost ...................... 136 182
Interest cost ..................... 230 251
Actuarial gain .................... (481) (293)
Plan Amendments ................... (64) --
Benefits paid ..................... -- --
------- -------
APBO at December 31................ $ 3,425 $ 3,604
======= =======
The funded status at December 31 is (in thousands):
1999 1998
---- ----
Projected benefit obligation ................... $(3,425) $(3,604)
Fair value of plan assets ...................... 1,895 566
------- -------
Funded Status .................................. (1,530) (3,038)
Unrecognized prior service cost ................ 2,269 2,583
Unrecognized net (gain) or loss ................ (1,078) 71
------- -------
Accrued pension cost before
adjustment for minimum liability ........... (339) (384)
Adjustment to recognize minimum liability ...... (939) (2,557)
------- -------
Accrued pension cost included in other long-term
liabilities ................................ $(1,278) $(2,941)
======= =======
Net periodic pension expense included the following components (in
thousands):
1999 1998 1997
---- ---- ----
Service cost ...................... $ 136 $ 182 $ 87
Interest cost ..................... 230 251 104
Return on assets .................. (735) 34 --
Net amortization and deferral:
Unrecognized prior service cost 250 256 128
Net asset gain (loss) deferred 668 (58) --
----- ----- -----
Net periodic pension expense ...... $ 549 $ 665 $ 319
===== ===== =====
44
The following table reconciles plan assets (in thousands):
1999 1998
---- ----
Fair value of plan assets at beginning of year $ 566 $ --
Return on plan assets ........................ 735 (34)
Employer contributions ....................... 594 600
Benefits paid ................................ -- --
------ ------
Fair value of plan assets at end of year ..... $1,895 $ 566
====== ======
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation at December 31, 1999 and
1998 was 7.25% and 6.5%, respectively. The expected long-term rate of
return on plan assets was 7% in 1999 and 1998.
As required by SFAS No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, for plans
where the accumulated pension benefit obligation exceeds the fair value of
plan assets, the company has recognized in the accompanying consolidated
balance sheets the minimum liability of the unfunded accumulated pension
benefit obligation as a long-term liability with an offsetting intangible
asset of $216,000 and $2,622,000 at December 31, 1999 and 1998,
respectively, included in other intangible assets, net.
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, earn a
guaranteed rate of return. As of December 31, 1999 and 1998, the company
has accrued $3,642,000 and $2,809,000, 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 $28,000, $17,000 and $152,000 for the years ended December 31,
1999, 1998 and 1997, 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 $3,642,000 and $2,817,000 as of December 31, 1999 and 1998,
respectively.
(15) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The company provides certain health care and life insurance benefits to
specific groups of former CPG employees when they retire. 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 eligibility 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 prior owners.
45
The following table sets forth the accumulated pension benefit obligation
(APBO) (in thousands):
1999 1998
---- ----
APBO at January 1 ............... $ 1,641 $ 1,604
Service cost .................... 30 35
Interest cost ................... 93 101
Actuarial gain .................. (257) (34)
Benefits paid ................... (66) (65)
------- -------
APBO at December 31.............. $ 1,441 $ 1,641
======= =======
The funded status at December 31 is (in thousands):
1999 1998
---- ----
Funded status at December 31 ................... $(1,441) $(1,641)
Unamortized prior cost ......................... 23 --
Unrecognized net actuarial loss (gain) ......... (205) 71
------- -------
Accrued post-retirement benefit cost included in
other long-term liabilities ............... $(1,623) $(1,570)
======= =======
Net periodic post-retirement benefits cost included the following
components (in thousands):
1999 1998 1997
---- ---- ----
Service cost ........ $ 30 $ 35 $ 43
Interest cost on APBO 93 101 99
Prior service cost .. 3 -- --
Actuarial gain ...... (7) -- --
----- ----- -----
$ 119 $ 136 $ 142
===== ===== =====
The assumed health care cost trend rate used in measuring future benefit
costs was 7.5%, gradually declining to 6% by 2001 and remaining at that
level thereafter. A 1% increase in this annual trend rate would result in
an accumulated post-retirement benefit obligation of $1,327,000 and the
aggregate of service and interest cost components of net periodic
post-retirement benefit expense for the year ended December 31, 1999 of
$118,000. Conversely, a 1% decrease in the annual trend rate would result
in an accumulated post-retirement benefit obligation of $1,245,000 and the
aggregate of service and interest cost components of net periodic
post-retirement benefit expense of $108,000 for the year ended December
31, 1999. The assumed discount rate used in determining the accumulated
post-retirement benefit obligation was 7.25% and 6.5% as of December 31,
1999 and 1998, respectively.
(16) ACCRUED LIABILITIES CONSIST OF (IN THOUSANDS): 1999 1998
---------------------------------------------- ---- ----
Salaries and related benefits $ 9,858 $ 7,170
Interest 2,003 2,003
Facility closure costs 684 1,670
Post-retirement benefits 1,623 1,570
Other 5,730 3,257
----- -----
$ 19,898 $ 15,670
======== ========
46
(17) SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash disclosures related to the acquisitions:
1999 1998
---- ----
Assets acquired ........... $ 36,046 $ 54,656
Liabilities assumed........ (12,977) (16,270)
-------- --------
Cash paid ................. 23,069 38,386
Less cash acquired......... (134) (1,049)
-------- --------
$ 22,935 $ 37,337
======== ========
During 1999 the company recorded an intangible asset related to the hourly
defined benefit pension plan of $386,000 and a long-term liability of
$1,806,000. The offset resulted in a minimum pension liability adjustment
of $843,000, net of tax provision.
During 1999 the company reduced its intangible asset related to the SERP
in the amount of $2,406,000 and reduced the related long-term liability
for the same amount.
Non-cash investing and financing activities:
During 1998 the company recorded an intangible asset related to the hourly
defined benefit pension plan amounting to $166,000 and a long-term
liability of $2,170,000. The offset resulted in a minimum pension
liability adjustment of $1,128,000, net of tax benefit.
During 1998 the company increased its intangible asset related to the SERP
in the amount of $135,000 and a related long-term liability for the same
amount.
During 1997 the company recorded an intangible asset related to the hourly
defined benefit pension plan amounting to $180,000 and a long-term
liability of $946,000. The offset resulted in a minimum pension liability
adjustment of $471,000, net of tax benefit.
During 1997 the company recorded an intangible asset related to the SERP
in the amount of $2,487,000 and recorded a long-term liability for the
same amount.
(18) SIGNIFICANT BUSINESS CONCENTRATIONS
1999 1998 1997
---- ---- ----
CUSTOMER CONCENTRATION
Total % sales from top 5 customers . 24% 24% 28%
Foreign sales as % of total sales(a) 34% 29% 8%
Europe ......................... 27% 23% 2%
Far East ....................... 4% 3% 4%
Other (including Latin America) 3% 3% 2%
(a)Excluding Canada
47
(19) STOCK OPTION AND BONUS PLANS
The company has several stock option plans which provide for grants of
non-qualified or incentive stock options. The 1992 Amended and Restated
Stock Option Plan ("1992 Plan") is fully granted at 301,425 shares of
common stock to management of the company. Options granted under the 1992
Plan typically vest at a rate of 20% per year and are exercisable for a
period of ten years from the grant date.
The 1994 Stock Option Plan ("1994 Plan") is fully granted at 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 1994 Director Stock Option Plan ("Directors' Plan") authorizes the
grant of up to 225,000 shares of common stock to directors who are not
otherwise full-time employees of the company. The Plan was amended in 1996
to increase the authorized shares from 75,000 to 225,000 shares and to
allow for an accelerated vesting schedule not to exceed five years.
Options will vest and become exercisable based upon target levels set for
the fair market value of the common stock or in the event of a merger or
asset sale. The options are exercisable for a period of eight years from
the date of grant.
During 1997 the company authorized the grant of up to 600,000 incentive
stock options under a new plan, the 1997 Stock Option Plan ("1997 Plan")
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.
During 1998 the company authorized the grant of up to 200,000 stock
options under a new plan, the 1998 Stock Option Plan ("1998 Plan") to
non-employee Directors. The 1998 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, 1999:
Weighted
Number Average
of Exercise
Shares Price
-------- ------------
Outstanding, December 31, 1996 751,234 $ 7.83
1997: Granted 182,500 21.87
Exercised (21,850) 5.36
Forfeited (7,500) 9.96
-------
Outstanding, December 31, 1997 904,384 10.70
1998: Granted 335,000 20.88
Exercised (61,285) 7.60
Forfeited (26,715) 13.02
-------
Outstanding, December 31, 1998 1,151,384 13.77
48
(19) STOCK OPTION AND BONUS PLANS, (CONTINUED)
1999: Granted 196,500 13.75
Exercised (52,661) 7.67
Forfeited (126,828) 14.83
---------
Outstanding, December 31, 1999 1,168,395 $ 13.93
=========
The following table summarizes information about stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------------- ---------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 12/31/99 Life Price 12/31/99 Price
-------- ----------- ----------- --------- ----------- ---------
$ 3.33 207,380 2.6 $ 3.33 207,380 $ 3.33
6.00 to 7.83 93,100 5.1 7.00 87,884 6.95
9.00 to 9.41 133,913 6.5 9.21 112,882 9.25
13.38 to 13.75 420,002 8.6 13.58 90,041 13.47
19.44 to 25.63 209,000 7.9 21.66 89,600 22.28
30.00 to 38.00 105,000 8.4 33.00 -- --
--------- -------
1,168,395 587,787
========= =======
The company has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
Accordingly, no compensation cost has been recognized for stock options
granted under the plans during 1999, 1998 and 1997 as the options were all
granted at exercise prices which equaled the market value at the date of
the grant. Compensation for the options granted prior to December 31,
1992, at $3.33 per share was measured as of the grant date based upon a
fair market value of $5.33 per share as determined by the Board of
Directors and is being recognized as expense over the vesting period. Had
compensation cost for the company's stock option plans been determined
based on the fair value at the grant date for awards during 1999, 1998 and
1997 consistent with the provisions of SFAS No. 123, the company's net
income would have been reduced to the pro forma amounts indicated below:
1999 1998 1997
---- ---- ----
Net income, as reported ............... $ 8,983 $ 11,509 $ 6,169
Net income, pro forma ................. 7,265 9,919 5,304
Basic earnings per share, as reported . $ 1.17 $ 1.48 $ 1.01
Basic earnings per share, pro forma ... .95 1.28 .86
Diluted earnings per share, as reported $ 1.15 $ 1.43 $ .95
Diluted earnings per share, pro forma . .93 1.23 .82
49
(19) STOCK OPTION AND BONUS PLANS, (CONTINUED)
Pro forma net income reflects only options granted after 1994. Therefore,
the full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net income 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 1999, 1998 and 1997,
respectively: risk-free interest rate of 6%; dividend yield of $0;
expected volatility of 33%, 51% and 31%; and expected lives per the plan
agreement.
Effective January 1, 1994, the Compensation Committee adopted the
Executive Bonus Plan, which provides for bonus payments of a percentage of
base salary based upon achievement by the company 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 earnings per share of the company increase. The Executive Bonus Plan
is designed to directly align the interests of the executive officers and
the stockholders. Although the Executive Bonus Plan is subject to annual
review by the Committee, the Committee expects it to remain in place for a
five-year term. Expense recorded under the plan amounted to $652,000,
$660,000 and $1,001,000 in 1999, 1998 and 1997, respectively.
(20) UNAUDITED QUARTERLY SUMMARY INFORMATION
The following is a summary of unaudited quarterly summary information for
the years ended December 31, 1999, 1998 and 1997 (in thousands, except per
share data).
1999(a) March 31 June 30 Sept 30(1) Dec 31
------- -------- ------- ---------- ------
Net sales ................ $ 75,906 $ 75,982 $ 81,866 $ 91,554
Gross profit ............. 15,276 15,599 13,831 17,217
Net income (loss) ........ 4,054 4,210 (1,533) 2,252
Basic earnings per share . 0.52 0.54 (0.20) 0.30
Diluted earnings per share 0.51 0.53 (0.20) 0.30
1998(a) March 31 June 30 Sept 30 Dec 31(2)
------- -------- ------- ------- ---------
Net sales ................ $ 79,951 $ 78,591 $ 73,150 $ 75,400
Gross profit ............. 15,676 14,767 13,383 13,929
Net income ............... 4,351 3,751 3,318 89
Basic earnings per share . 0.56 0.48 0.43 0.01
Diluted earnings per share 0.54 0.46 0.41 0.01
1997 March 31 June 30 Sept 30(1) Dec 31(3)
---- -------- ------- ---------- ---------
Net sales ................ $ 59,442 $ 59,415 $ 57,802 $ 58,699
Gross profit ............. 11,265 11,318 11,517 11,964
Net income (loss) ........ 2,733 3,054 3,199 (2,817)
Basic earnings per share . 0.45 0.50 0.53 (0.44)
Diluted earnings per share 0.43 0.48 0.50 (0.44)
50
(a) Effective August 1, 1999, the company acquired Lahnstein Papierfabrik
GmbH at a purchase price of approximately $22 million. Effective
January 1, 1998, the company acquired Steinbeis Gessner GmbH for a
purchase price of approximately $43 million.
(1) On August 31, 1999, the company initiated a project to install a new
paper machine at its Warren Glen, New Jersey, facility and to
consolidate operations from the neighboring Hughesville, New Jersey,
mill. The company plans to cease manufacturing operations at
Hughesville by December 31, 2000, and the book value of the mill has
been written down by $7.2 million accordingly. Additionally, the
company incurred closure expenses for its previously closed Beaver
Falls and Owensboro facilities of $.1 million and $2.5 million
respectively.
(2) In the fourth quarter of 1998, the company announced its decision to
close the facility located in Beaver Falls, New York. Income from
operations reflects a $7,794,000 charge as a result of this event.
(3) In the fourth quarter of 1997, the company announced its decision to
close the facility located in Owensboro, Kentucky. Income from
operations reflects a $10,000,000 charge as a result of this event.
Note: Equivalent shares of common stock have not been included in the
1999 third quarter and 1997 fourth quarters diluted earnings per
share calculation as their effect would be anti-dilutive.
(21) SEGMENT INFORMATION
On December 31, 1998, the company adopted Statement of Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION (SFAS 131). 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: technical and office
products, durable specialties and German operations and filter media. Each
operating segment consists of facilities with common management, with
significant marketing and manufacturing overlap.
The technical and office products segment manufactures a wide range of
specialty fiber-based materials used in communications, including base or
cover materials for electrical/electronics, graphic arts and office
products, as well as other technical specialties. This represents our
Technical & Office Products Division.
Durable specialties produces specialty tape substrates, using a broad
range of saturated, coated paper and non-woven materials. This represents
our U.S. Durable Specialties Division.
German operations and filter media manufactures filter media used in
automotive, vacuum, water and industrial filtration, including paper,
synthetic non-woven materials and composite materials. FiberMark Gessner
also manufactures technical specialties (abrasives) and durable
specialties (tape backing materials). This segment encompasses FiberMark
Gessner GmbH, Filter Media North America, and FiberMark Lahnstein
(technical specialties).
The following table details sales and selected financial data by operating
segment (in thousands). Inter-segment sales are accounted for as if the
sales were to third parties.
51
21. Segment Information, (continued)
The following table categorizes net sales in each market segment into the
appropriate operating segment:
(In Thousands)
Operating Segment
------------------------------------------------------------------------------
German Operations Technical
and and Office Durable
Filter Media Products Specialties Other Total
----------------- ---------- ----------- ----- -----
3 months ended December 31, 1999
Net sales
Market Segment
Filter Media ............... 24,690 1,234 -- -- 25,924
Technical Specialties ...... 11,394 14,111 -- -- 25,505
Durable Specialties ........ 7,209 -- 18,113 -- 25,322
Office Products ............ -- 14,803 -- -- 14,803
-------- -------- -------- --- --------
Total .............. $ 43,293 $ 30,148 $ 18,113 $-- $ 91,554
======== ======== ======== === ========
3 months ended December 31, 1998
Net sales
Market Segment
Filter Media ............ 23,368 188 -- -- 23,556
Technical Specialties ... 669 18,207 -- -- 18,876
Durable Specialties ..... 4,739 -- 14,081 -- 18,820
Office Products ......... -- 14,148 -- -- 14,148
-------- -------- -------- --- --------
Total ........... $ 28,776 $ 32,543 $ 14,081 $-- $ 75,400
======== ======== ======== === ========
(In Thousands)
Operating Segment
------------------------------------------------------------------------------
German Operations Technical
and and Office Durable
Filter Media Products Specialties Other Total
----------------- ---------- ----------- ----- -----
12 months ended December 31, 1999
Net sales
Market Segment
Filter Media ............ 95,231 5,237 -- -- 100,468
Technical Specialties ... 22,448 58,019 -- -- 80,467
Durable Specialties ..... 24,846 -- 65,382 -- 90,228
Office Products ......... -- 54,145 -- -- 54,145
-------- -------- -------- --- --------
Total ........... $142,525 $117,401 $ 65,382 $-- $325,308
======== ======== ======== === ========
12 months ended December 31, 1998
Net sales
Market Segment
Filter Media ............ 94,692 4,065 -- -- 98,757
Technical Specialties ... 7,181 72,717 -- -- 79,898
Durable Specialties ..... 20,216 -- 55,688 -- 75,904
Office Products ......... -- 52,533 -- -- 52,533
-------- -------- -------- --- --------
Total ........... $122,089 $129,315 $ 55,688 $-- $307,092
======== ======== ======== === ========
52
21. Segment Information, (continued)
(In Thousands)
Operating Segment
-------------------------------------------------------------------------------
German Operations Technical
and and Office Durable
Filter Media Products Specialties Other Total
--------------- ---------- ----------- ----- -----
3 MONTHS ENDED DECEMBER 31, 1999
Net sales ...................... $ 43,293 $ 30,148 $ 18,113 -- $ 91,554
Inter-segment net sales ........ 296 551 -- (847) --
-------- -------- -------- -------- --------
Total net sales ................ $ 43,589 $ 30,699 $ 18,113 $ (847) $ 91,554
======== ======== ======== ======== ========
EBIT ........................... $ 5,209 $ 2,781 $ 2,807 $ (2,588)(1) $ 8,209
======== ======== ======== ======== ========
Depreciation and amortization .. $ 797 $ 1,252 $ 611 -- $ 2,660
(Excl. Def. Gain)
Total assets ................... $144,107 $121,587 $ 31,175 $ 50,077 $346,946
3 MONTHS ENDED DECEMBER 31, 1998
Net sales ...................... $ 28,776 $ 32,543 $ 14,081 -- $ 75,400
Inter-segment net sales ........ 284 419 95 (798) --
-------- -------- -------- -------- --------
Total net sales ................ $ 29,060 $ 32,962 $ 14,176 $ (798) $ 75,400
======== ======== ======== ======== ========
EBIT ........................... $ 2,784 $ 3,282 $ 1,763 $ (5,823)(2) $ 2,006
======== ======== ======== ======== ========
Depreciation and amortization .. $ 734 $ 979 $ 630 -- $ 2,343
Total assets ................... $112,917 $102,333 $ 57,011 $ 38,970 $311,231
(1) 1999 Other Includes Facility closure (Technical & Office Products Segment) $ (2,588)
--------
$ (2,588)
(2) 1998 Other Includes Facility closure (Technical & Office Products Segment) $ (7,274)
Cogeneration Income 1,451
--------
$ (5,823)
53
(21) Segment Information, (continued)
(In Thousands)
Operating Segment
-------------------------------------------------------------------------------
German Operations Technical
and and Office Durable
Filter Media Products Specialties Other Total
----------------- ---------- ----------- ----- -----
1999
Net sales ................. $142,525 $117,401 $ 65,382 $ -- $325,308
Inter-segment net sales ... 320 3,566 120 (4,006) --
-------- -------- -------- ---------- --------
Total net sales ........... $142,845 $120,967 $ 65,502 $ (4,006) $325,308
======== ======== ======== ========== ========
EBIT ...................... $ 17,030 $ 11,876 $ 9,477 $(10,835)(1) $ 27,548
======== ======== ======== ========== ========
Depreciation & Amortization $ 2,979 $ 3,921 $ 2,390 $ -- $ 9,290
Total Assets .............. $144,107 $121,587 $ 31,175 $ 50,077(4) $346,946
1998
Net sales ................. $122,089 $129,315 $ 55,688 $ -- $307,092
Inter-segment net sales ... 333 918 296 (1,547) --
-------- -------- -------- ---------- --------
Total net sales ........... $122,422 $130,233 $ 55,984 $ (1,547) $307,092
======== ======== ======== ========== ========
EBIT ...................... $ 14,623 $ 12,729 $ 7,567 $ (5,823)(2) $ 29,096
======== ======== ======== ========== ========
Depreciation & Amortization $ 2,649 $ 3,814 $ 2,490 $ -- $ 8,953
Total Assets .............. $112,917 $102,333 $ 57,011 $ 38,970(4) $311,231
1997
Net sales ................. $ 41,206 $135,964 $ 58,188 $ -- $235,358
Inter-segment net sales ... 21 4,749 1,456 (6,226) --
-------- -------- -------- ---------- --------
Total net sales ........... $ 41,227 $140,713 $ 59,644 $ (6,226) $235,358
======== ======== ======== ========== ========
EBIT ...................... $ 4,752 $ 15,985 $ 8,396 $ (9,785)(3) $ 19,348
======== ======== ======== ========== ========
Depreciation & Amortization $ 853 $ 4,396 $ 2,144 $ -- $ 7,393
Total assets .............. $ 30,467 $107,478 $ 59,799 $ 50,257(4) $248,001
(1) 1999 Other Includes Sale/Leaseback Buyout (Technical & Office Products Segment) $ (1,017)
Facility Closure (Technical & Office Products Segment) (9,818)
--------
$(10,835)
(2) 1998 Other Includes Facility Closure (Technical & Office Products Segment) $ (7,274)
Cogeneration Income 1,451
--------
$ (5,823)
(3) 1997 Other Includes Facility Closure (Technical & Office Products Segment) $(10,000)
Cogeneration Income 215
--------
$ (9,785)
(4) Corporate assets not allocated to operating segments.
54
(21) Segment Information, (continued)
Information concerning principal geographic areas is as follows (in
thousands):
1999 1998 1997
---- ---- ----
NET SALES(a)
North America $214,703 $217,664 $216,752
Europe ...... 87,833 69,202 3,287
Far East .... 13,013 9,426 9,377
Other ....... 9,759 10,800 5,942
-------- -------- --------
Total .. $325,308 $307,092 $235,358
(a) Revenues are attributed to countries based on
product shipment destination.
1999 1998
---- ----
PROPERTY, PLANT AND EQUIPMENT, NET
North America .... $108,112 $ 87,910
Europe ........... 63,311 40,465
-------- --------
Total ....... $171,423 $128,375
1999 1998
---- ----
NET ASSETS
North America ........... $ 62,168 $ 77,401
Europe .................. 29,609 20,162
-------- --------
Total .............. $ 91,777 $ 97,563
55
FIBERMARK, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In Thousands)
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------- ---------- ---------- ---------- ---------
Year Ended December 31, 1999 Allowances for possible
losses on accounts receivable............................. 626 694 297 1,023
Year Ended December 31, 1998 Allowances for possible
losses on accounts receivable............................. $203 $ 586 $163 $626
Year Ended December 31, 1997 Allowances for possible
losses on accounts receivable............................. $333 $(113) $17 $203
56
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FiberMark, Inc.:
Under date of February 3, 2000, we reported on the consolidated balance sheets
of FiberMark, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999, as contained in the annual report on Form 10-K
for the year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
- -------------------
Burlington, Vermont
February 3, 2000
Vt. Reg. No. 92-0000241
57
ITEM 14 (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
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 "Indenture") among the
Company, CPG Co., Specialty Paperboard/Endura, Inc. ("Endura") and
the Wilmington Trust Company ("Wilmington")
4.4(9) Specimen Certificate of 9 3/8% 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)
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
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
58
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
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 1998 Amended and Restated Non-Employee Directors Stock Option Plan
10.35(10) Loan Agreement dated September 15, 1999 between FiberMark GmbH
(the "Borrower") and Bayerische Hypo- und Vereinsbank
Aktiengesellschaft (Lender)
10.36(10) Loan Amendment Agreement dated September 15, 1999 between
FiberMark GmbH (the "Borrower") and Bayerische Hypo- und
Vereinsbank Aktiengesellschaft (Lender)
10.37(10) Share Pledge Agreement dated September 15, 1999 between FiberMark
Beteiligungs GmbH and FiberMark GmbH (the "Pledgors") and
Bayerische Hypo- und Vereinsbank AG (the "Pledgee")
59
10.38(10) 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(10) 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(10) 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.
21 List of FiberMark subsidiaries
23.1 Consent of KPMG LLP
27 Financial Data Schedule
60
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.
61
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 20th day of March, 2000.
FiberMark, Inc.
By /s/ Alex Kwader
---------------------------
Alex Kwader
President 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 Bruce Moore, 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 President and March 20, 2000
- ---------------------------------- Chief Executive Officer
Alex Kwader
/s/ K. Peter Norrie Chairman of the Board March 20, 2000
- ----------------------------------
K. Peter Norrie
/s/ Brian C. Kerester Director March 20, 2000
- ----------------------------------
Brian C. Kerester
/s/ Marion A. Keyes, IV Director March 20, 2000
- ----------------------------------
Marion A. Keyes, IV
/s/ George E. McCown Director March 20, 2000
- ----------------------------------
George E. McCown
/s/ Glenn S. McKenzie Director March 20, 2000
- ----------------------------------
Glenn S. McKenzie
/s/ Jon H. Miller Director March 20, 2000
- ----------------------------------
Jon H. Miller
/s/ Elmar B. Schulte Director March 20, 2000
- ----------------------------------
Elmar B. Schulte
/s/ Edward P. Swain, Jr. Director March 20, 2000
- ----------------------------------
Edward P. Swain, Jr.
/s/ Bruce Moore Vice President March 20, 2000
- ---------------------------------- Chief Financial Officer
Bruce Moore
62