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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 0-20231
FIBERMARK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 82-0429330
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
161 Wellington Road,
P.O. Box 498
Brattleboro, Vermont 05302
(Address of principal executive offices, including zip code)
(802) 257-0365
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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|_|
Indicate by check mark if 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 infor-mation
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
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 $186,587,467 as of March 16,
1998.*
The number of shares of Common Stock outstanding was 7,733,781 as of March
16, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
Registrant's definitive Proxy Statement that will be filed with the
Securities and Exchange Commission in connection with Registrant's 1997 annual
meeting of stockholders to be held on May 5, 1998 is incorporated by reference
into Part III of this Report.
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* Excludes 2,595,211 shares of Common Stock held by directors and officers
and stockholders whose beneficial ownership exceeds five percent of the
shares outstanding March 16, 1998. Exclusion of shares held by any person
should not be construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the management or
policies of the Registrant, or that such person is controlled by or under
common control with the Registrant.
1
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PART I.
Item 1. Business
FiberMark, Inc. is a leading manufacturer and converter of specialty
fiber-based materials. Through its eight United States production facilities,
the company has focused on niche markets where it can provide high value-added
specialty materials that meet rigorous technical specifications and customer
service requirements. Products, sold worldwide to customers who manufacture
finished products for both industrial and consumer use, include cover materials
for office, home, and school supplies; materials for specialty tapes and labels;
filter media for automotive, vacuum, water and industrial filters; and base
materials for graphic arts uses, electrical applications, book covers and
abrasive products.
Overview
The company has four distinctive categories of products. The table below
provides an overview of the company's primary product lines and facilities:
Technical Durable
Filter Products Specialties Office Products Specialties
Primary o Saturated filter o Electrical o Pressboard filing, o Tape substrates
Products media transformer board cover and binder
materials
o Non-saturated o Acid-free board o Lightweight filing o Binding tapes
o filter media and cover materials
o Industrial filter o Abrasive backing o Premium cover o Hinge and
media papers reinforcing tapes
o Premium cover
o Printed circuit
board base
o Photographic
packaging paper
and board
o Wet-strength tag
o Book cover
Facilities Richmond,VA(b) Fitchburg, MA(b) Brattleboro, VT(b)
Rochester, MI Warren Glen, NJ Warren Glen, NJ Quakertown, PA(b)
(a) Fitchburg, MA Hughesville, NJ Hughesville, NJ Owensboro, KY(c)
Owensboro, KY(c)
Beaver Falls, NY
Richmond, VA
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(a) The company also has sales offices in Annecy, France; Kowloon, Hong Kong;
and Tokyo, Japan.
(b) Division Headquarters.
(c) The company ceased operations at this facility on January 14, 1998. The
company has transferred or intends to transfer the production of this
facility to certain of its other facilities.
2
Business Strategy
The company's strategy is to increase sales and earnings by building a
global customer-focused company, through the pursuit of selected strategic
acquisitions, while strengthening and growing our core business. The following
are the key elements of this strategy:
o Strategic Acquisitions. The company intends to continue pursuing
growth through strategic acquisitions that complement the company's
core markets, provide distribution or sales and marketing
efficiencies or provide opportunities for technology gains or other
operating efficiencies.
o Strengthen International Presence in Specialty Fiber-based
Materials. Historically, the company has devoted significant
resources to its international marketing efforts that were intended
to create export markets for the company's products. The Gessner
acquisition will strengthen the company's international presence and
allow it to capitalize on Gessner's extensive sales and marketing
capabilities to further increase sales of the company's products to
international customers.
o Business Rationalization. The company continually evaluates its
organizational structure and manufacturing operations to identify
opportunities to more effectively meet its customers' requirements
and to reduce costs. As a result, the company may reconfigure its
manufacturing operations, including the number of facilities
operated and the locations at which products are manufactured.
o Invest in Technology and Capital Improvements. The company seeks to
reduce costs, increase capacity where needed, enhance manufacturing
capabilities and improve product quality through selected capital
investments. The company intends to continue to upgrade its
facilities and equipment to achieve further operating efficiencies
and, in particular, to take advantage of the technology transfer
opportunities it expects to realize from the Gessner acquisition.
o Effective Utilization of Diverse Fibers, Including Recycled
Materials. The company intends to continue to capitalize on its
position as a leading manufacturer of specialty fiber-based
materials. In order to meet customer demand for recycled content and
high performance, as well as to achieve greater cost controls, the
company seeks to leverage its investments in fiber-cleaning
technology and maximize its use of recycled materials. The company
is actively pursuing new product development projects with existing
and potential new customers. See "Manufacturing - Use of Recycled
Fiber."
Filter Products
Market. The company is a major supplier of saturated and non-saturated
filter papers used in fluid and air filters for the automotive and heavy-duty
truck and equipment industries. The company estimates that the market for both
saturated and non-saturated papers was approximately $170 million in 1996, of
which 80% was utilized in the automotive and heavy-duty truck and equipment
markets. The other major market for these products includes dry cleaner solvent
filtration and potable water filtration. The market for automotive and
heavy-duty truck and equipment filters has grown at a compound annual growth
rate of approximately 5.7% over the ten-year period from 1986 to 1996. The
company also manufactures industrial filter paper used in a variety of
industrial applications and processes.
3
Products. The table below sets forth the company's primary filter products
materials.
Filter Products
Product Type Characteristics Typical End Uses
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Saturated filter media Controlled porosity; enhanced Air, oil, fuel and hydraulic
strength and rigidity; high filters for heavy and light duty
temperature and chemical trucks and passenger cars;
resistance dry-cleaning solvent filters
Non-saturated filter media Controlled porosity; high Oil filters for heavy-duty
density; may be impregnated equipment and diesel trucks;
with activated carbon and home water filters
other fillers
Industrial filter media Controlled porosity; high Hot-oil filters for the fast-food
temperature resistance; industry; paint and lacquer
cleanliness manufacturing; fruit juice
processing
The company's major filter product is solvent-based saturated filter
media, which is controlled porosity paper saturated with phenolic and other
resins to increase its strength and rigidity for use in various high temperature
applications. This product is purchased by filter manufacturers who cut, pleat
and cure the paper for use in oil, fuel and hydraulic fluid filters for heavy
and light duty trucks and passenger cars. These filters are sold primarily to
the replacement market but also to original equipment manufacturers. The company
manufactures many grades of saturated filter paper to specifications provided by
its customers. The company believes that it is one of the three largest
producers of saturated filter paper in the United States.
The company also produces non-saturated filter media. This category
includes non-saturated paper containing activated carbons and other fillers and
edge filter media. Primary uses of non-saturated filter paper include oil
filtration in heavy equipment and diesel trucks and home water filters. In
addition, the company produces industrial filter papers for various food service
and industrial applications, including filtration of hot oil used in fast-food
preparation, the manufacture of paints and lacquers and the processing of fruit
juices.
Customers. The company sells its filter products primarily through its own
sales staff directly to its customers. Principal customers for the company's
saturated filter media include the Fleetguard Filtration Systems division of
Cummins Engine Co., Inc. ("Fleetguard"), the Delphi Automotive Systems division
of General Motors Corp. ("General Motors"), AlliedSignal, Inc. (Fram filters),
Purolator Products, Inc. and Miki Sangyo U.S.A. Inc., a trading company and the
major supplier of filter paper used in filters supplied to the U.S.
manufacturing sites of Nissan Motor Co., Ltd. and Honda Motor Co., Ltd. The
company's saturated filter paper is used to make filters which are used on
vehicles manufactured by General Motors, Chrysler Corp. and Ford Motor Corp.
Fleetguard is also the company's primary customer for non-saturated filter
media. The company has long-term relationships with its customers and believes
that these relationships with its customers are based on its ability to provide
superior service and technical support.
The company's major customers for its industrial filter media products
include National Filters, Inc. and Lubrizol Corp. for commercial manufacturing
applications, Seneca Foods Corp. for food processing applications and KFC North
America division of PepsiCo Inc. in the hot-oil filter market. In addition, the
company supplies industrial filter media to various smaller manufacturers and
users.
4
Competition. The company's primary competition in solvent-based saturated
filter media comes from Ahlstrom Filtration, Inc. ("Ahlstrom"), a division of A.
Ahlstrom Corp. In addition, the Hollingsworth & Vose Company is the dominant
manufacturer of water-based saturated filter papers, a market in which the
company has a smaller presence. To the extent that industry efforts to develop
water-based alternatives to solvent-based filter papers are successful, the
company's solvent-based filter papers may face increased competition from such
water-based alternatives.
In the markets for non-saturated filter media and industrial filter media,
the company competes primarily with Ahlstrom, Knowlton Specialty Papers, Inc.
and Lydall, Inc. In each of these markets, producers tend to manufacture custom
designed products on an exclusive basis for their customers.
Technical Specialties
Market. The company manufactures specialty fiber-based materials
customized to meet the unique performance characteristics required by specific
customers and end-use markets. Technical specialties include paper used as
insulation material in electrical transformer coils, acid-free board used for
archival quality picture mounting and records storage applications, photographic
packaging paper and board, printed circuit board base papers, wet-strength tag
used primarily in the laundry and dry-cleaning industries and paper backings for
sandpaper and other abrasives. The company has been able to successfully enter
niche markets in the technical specialties area in which it believes its
manufacturing flexibility and technical expertise give it a competitive
advantage in meeting rigorous customer requirements. The company believes that
it is the U.S. market leader in many of its markets, including electrical
transformer papers, acid-free board, wet-strength tag and heavyweight industrial
abrasive backing materials. In addition, the company is a leading producer of
saturating base paper for the manufacture of printed circuit boards. Many of the
company's technical specialties have been used in their current applications for
many years and have proven to be cost-effective in meeting the performance
requirements for which they are utilized. To supplement these products, the
company works to develop new products that have the potential to experience
positive growth due to superior performance, lower cost or both.
The company is one of the two leading domestic producers of
latex-reinforced material used in book covers and related products. These
materials are used by customers in applications where durability and distinctive
appearance are important, such as flexible covers for books, menus, photo
albums, desktop calendars, appointment books and reports.
5
Products. The table below sets forth the company's primary technical
specialties:
Technical Specialties
Product Type Characteristics Typical End Uses
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Electrical transformer High dielectric strength Power transformer coil
paper insulation
Acid-free board High pH (acid-free), Archival quality picture
exceptional cleanliness mounting and document
storage
Abrasive backing paper High-tear strength, smooth Heavyweight sandpaper and
surfaces and controlled other commercial abrasives
electrostatic properties
Printed circuit board base Low density; uniform high Interior of printed circuit
paper bulk boards
Photographic packaging Totally opaque; high-strength Photographic film protection
paper and board
Wet-strength tag High-strength saturated sheet; Laundry and dry-cleaning
moisture and solvent resistant labels
Heavyweight book cover Strong cotton fiber base sheets Flexible covers for softbound
latex-reinforced and books, menus, photo albums,
leather-texture desktop calendars and
accessories, appointment books
and reports
Lightweight book cover Latex-reinforced base sheets of Exterior cover material for
higher bulk and lower weight hardbound books; photo
albums, report covers
Premium cover papers Well-formed papers with good Printed report covers;
strength, color/texture and promotional and advertising
printable surfaces materials
The company supplies electrical transformer papers with high dielectric
strength which are wrapped around individual electrical transformer coils as
insulating material. The company is the major supplier of such paper to Bedford
Materials, Inc., which operates the transformer insulation business formerly
owned by Westinghouse Electrical Corp., and is one of two major suppliers to the
other major U.S. manufacturer of electrical transformers.
The company manufactures acid-free board used as picture mounting art
board and archival storage media. Acid-free picture mounting art board and
storage media are designed to prevent the degradation and discoloration of
artwork and documents caused by acidic exposure. The company believes that its
acid-free products have superior performance characteristics that have resulted
in their wide acceptance in the marketplace.
The company's photographic packaging paper is primarily dual composition
paper used by Eastman Kodak Company ("Kodak") and Polaroid Corp. ("Polaroid") to
package certain films. Such products must meet demanding standards for opacity
in order to prevent premature exposure of the film. The company's strong
position in the market for photographic packaging paper is based in part upon
the company's ability to manufacture multi-ply paper.
6
The company also manufactures printed circuit board base materials that
are used in the manufacture of circuit boards for remote control devices and
other electrical components. The company's printed circuit board base papers
have the advantage of low density and high bulk, allowing circuit board
manufacturers to lower their costs and increase their output by processing fewer
sheets than they would with competing materials.
The company's wet-strength papers are primarily used as tags in the
laundry and dry cleaning industries to identify clothing as it is processed
through washing machines and dry cleaning equipment.
These products, in addition to withstanding physically and chemically
harsh processes, are manufactured in multiple colors that must not be
transferred onto the clothing to which they are attached. The company is a major
producer of this paper in the United States and is now exporting to the United
Kingdom, with opportunities to expand into other European markets.
Sandpaper and other abrasive backing materials are used in the manufacture
of heavyweight sandpaper and other commercial abrasives. The company's sandpaper
and other abrasive backing papers are designed to meet customers' exacting
specifications for tear strength, smooth surfaces and controlled electrostatic
properties.
Using proprietary manufacturing processes, the company combines pulp,
latex, recycled rag fiber and other materials to produce flexible and durable
specialty materials for use in a variety of book cover applications. The company
sells its book cover materials directly to customers in this market, who in turn
coat, emboss and decorate the material and sell it to manufacturers of end-use
products.
The company's primary latex product is manufactured using recycled rag
fibers, resulting in increased durability and a leather-like texture and
appearance. These products are used for day books, diaries, menu covers and
soft-cover books. The company is also a leading supplier of light-weight
materials used in covering hardbound books.
Customers. The company sells its technical specialties through its own
sales force to a variety of customers. Major customers include: Bedford
Materials, Inc. and the TMC division of Avery Dennison Corp. (electrical
transformer paper); the Nielsen and Bainbridge division of Esselte Corp. and the
Crescent Cardboard division of Potomac Corp. (acid-free paper); Kodak
(photographic packaging paper); and Pajco-Holliston (coating base for book
covers). The company works with its customers to develop new products and to
provide technical support for existing products.
Competition. The company's competitors in technical specialties vary by
product type. Generally, the company faces competition from both foreign and
domestic specialty manufacturers. The company's focus is to compete in products
and markets that require manufacturing flexibility, product properties and
quality levels not provided by integrated paper mills. The company's key
competitors include Kimberly-Clark Corporation ("Kimberly-Clark"), Sorg Paper
Co., a subsidiary of Mosinee Paper Corp., Arjo Wiggins USA, Inc., Robert Cordier
AG and Merrimac Paper Co., Inc. ("Merrimac"). In the latex-reinforced book cover
market, the company primarily competes with Rexam DSI, Inc. and, to a lesser
degree, with products of plastic-coated and coated cloth book cover materials.
7
Office Products
Market. The company manufactures a wide range of materials used in the
manufacture of office products. The company believes that it is the largest
domestic supplier of pressboard, which is converted into data binders, notebook
covers, report covers, ring binders, and file and index guides. The company also
pursues niche markets within the office supplies market where its capabilities
and customer relationships give it a competitive advantage.
Products. The table below sets forth the company's primary office products
materials.
Office Products
Product Type Characteristics Typical End Uses
------------ --------------- ----------------
Pressboard filing cover High density paperboard designed for Data binders; ring binders; report covers;
and binder material strength, rigidity, durability and notebook covers; pressboard folders
appearance; may be embossed or acrylic
coated; high recycled content
Lightweight filing and Lighter weight paperboard, designed for Filing products; portfolios; report covers;
cover materials decorative embellishments and less demanding document covers; presentation covers;
end-uses than pressboard promotional materials
Premium cover papers Well-formed papers with good strength, Printed report covers; promotional materials
Premium cover papers color/texture and printable surfaces
The largest component of the office products division's net sales is a
heavyweight paperboard (pressboard) which is densified through a proprietary
manufacturing process developed by the company. This densification process
provides pressboard with the strength, rigidity, durability and appearance
required for data binders, ring binders, notebook covers and report covers. The
company and its predecessors have offered their pressboard line of products for
more than 100 years and believes it has established significant brand awareness
and loyalty among its customers.
The company produces certain types of lightweight filing and cover
materials for conversion into file folders, expanding wallets, notebook covers
and report covers. The company is continuing its focus on certain products for
the lightweight filing and cover material market, such as colored file folder
and report covers for the growing on-demand document printing market, with
specific emphasis on products meeting the market's recycled content
requirements. The company's lightweight filing and cover materials are generally
manufactured using similar equipment and processes and are sold to many of the
same customers as the company's heavyweight office products. The company
continues to experience the benefits of the Brattleboro paper machine upgrade,
completed in October 1995, which increased capacity by 25%. With the added
capacity, the company is working to build this lightweight business through the
strength of its relationships with office products converters. These lightweight
materials, manufactured to meet consumer and government demand for recycled
paper products, provide an opportunity for the company to increase its
penetration in the office products market.
8
The company manufactures a line of premium cover stocks sold through paper
distributors to commercial printers. These papers have good strength and may
have colored or textured surfaces and are typically used for printed report
covers and promotional and advertising materials.
The company offers many of its products in acrylic coated and embossed
form, providing additional durability and stain resistance. The company has the
capability to custom manufacture materials in a variety of colors and can finish
its products to customer specifications, including glazing (densification),
coating, embossing, laminating, sheeting, slitting and rewinding.
Customers. The company sells its office products through its own sales
representatives to major domestic office products converters, including: Acco
World Corporation, a division of Fortune Brands Inc.; Smead Manufacturing
Company and Esselte Pendaflex Corp. The company has long-term relationships with
all of its major customers in this market. The company's customers produce
office products from the company's paper-based materials and sell end-use
products through contract stationers, paper merchants, office products
wholesalers, buying groups, warehouse clubs, catalog sales, office products
superstores, retail office supply stores and other outlets. The company also
markets its materials through direct sales representatives or manufacturer's
representatives in Asia, Canada, Mexico, Central and South America and Europe.
Competition. In the office products supply market, the company competes
with a number of other producers of heavyweight pressboard, colored file folder
paper and lightweight filing and cover materials, including International Paper
Company, Temple-Inland Inc., Brownville Specialty Products and Merrimac. The
company believes it holds a leading position in the domestic market for
pressboard and a growing presence in the lightweight filing and cover materials
market. In markets that use pressboard, the company also competes with producers
of vinyl and plastic materials for binding and presentation products. In the
premium cover and text market, the company also competes against divisions of
Georgia Pacific Corp., Fox River Paper Co., Crown Vantage Inc. and a number of
other manufacturers.
Durable Specialties
Market. The company is one of the largest producers of specialty tape
substrates and a broad range of saturated, coated and non-woven materials. The
primary markets for the company's durable specialties are tape substrates
(primarily industrial and consumer masking tapes), binding tapes and hinge and
reinforcing tapes, and book cover materials. There are seven major North
American producers of pressure sensitive tape, who, together, account for the
majority of the industry's total sales. Most of these producers have
self-saturating capabilities for general-purpose tapes and look to suppliers
like the company for specialty paper backings.
The company believes it is a leading supplier of binding tapes and hinge
and reinforcing tapes converted from specialty papers and substitutes for the
manufacture of notepads, books, expandable file folders and checkbooks.
The company has also sought out niche markets in which it believes it can
have a competitive advantage for its durable specialties. The company produces
high strength materials used in the apparel industry as blue jean tags and for
various other tag and label applications.
9
Products. The table below sets forth the company's primary durable
specialties.
Durable Specialties
Product Type Characteristics Typical End Uses
------------ --------------- ----------------
Tape substrates Enhanced strength, release, impermeability Industrial and commercial masking tapes;
or heat resistance barrier tapes; pressure-sensitive tapes;
bandolier tapes; packaging tapes
Binding tapes Tyvek(R) and latex-impregnated paper tapes Note pads; composition books; checkbooks
Hinge and reinforcing tapes Durable Tyvek(R) high fold-and tear-strength Expandable file folders
reinforcing materials
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Tyvek(R) is a registered trademark of DuPont.
The company's tape substrates are used in the manufacture of industrial
and consumer masking tapes, barrier tapes, other pressure-sensitive tapes and
bandoliering tapes. The company's products have the strength and technical
properties to meet various performance demands. These products include
barrier-coated and heat resistant industrial masking tapes for the automotive
paint and aircraft manufacturing industries and packaging tapes which withstand
the rigors of worldwide shipping. The company's bandoliering tapes are used by
the electronics industry to carry resistors, capacitators and other items during
high-speed automated assembly of electronic devices.
The company is a leading producer of high strength binding tapes and hinge
and reinforcing tape using Tyvek(R) as a base material. These products are
primarily used to protect, bind and decorate books and documents, checkbooks and
note pads. The company's Tyvek(R) tapes, marketed under the trade name Super
ArcoFlex(R) are used to decorate pad bindings and are able to withstand the
stress incurred during cutting in high volume manufacturing. The company also
uses Tyvek(R) in the manufacture of supported gussets for red wallet expansion
folders. Gussets are the accordion folder material between the two folder side
sheets that allow the folder to expand. The company has developed a method to
strengthen the gussets by laminating coated Tyvek(R) to the folder material
forming the gusset and sells this material under the name Expanlin. The company
also sells coated Tyvek(R) to converters who laminate it to the folder material
themselves. The result is a material that is stronger, longer lasting and more
reliable than unsupported gussets. The company believes that Expanlin has become
the preferred material used in supported gussets by expansion folder
manufacturers.
Other durable specialties include imitation leather stock which is sold to
garment label manufacturers who cut and print the material with various brand
and product information for use as blue jean tags. This material is expected to
maintain its crisp appearance after repeated washing cycles. The company has
also developed a tag and label product line for manufacturers who require tags
and labels with the strength of Tyvek(R). These products can be color-coated and
are used as luggage tags by the airline industry, as flame-retardant labels for
the automotive industry and other types of demanding packaging applications.
10
Customers. The company offers its customers a broad product line with
flexible product development and manufacturing capabilities. This flexibility
has fostered long-term relationships with its client base. The company sells its
specialty tape substrates to many of the leading tape manufacturers, including
American Tape Company and 3M. The company believes that the international
customer base for these products may increase as the company's sales force is
trained to sell these additional product lines. In the checkbook industry, the
company's major customer is Deluxe Check Printers, a division of Deluxe Corp.
The company sells blue jean tags and its other tag and label products to a
variety of converters and end-users.
Competition. For tape backing the company primarily competes against
Kimberly-Clark. In the binding tape and hinge and reinforcing tape markets, the
company competes against several smaller competitors including Rexford Paper
Co., Northeast Paper Converting Company and Southern Label Company, Inc. The
company believes it holds a leading position in the market for Tyvek(R) based
binding tapes and hinge and reinforcing tapes. In other niche markets, the
company competes with various small competitors, none of which has a dominant
market position.
Manufacturing
Mills and Converting Facilities. The company operates eight facilities, seven of
which are owned and one is leased. The company closed its former Arcon facility
in Oceanside, New York in December 1997 and relocated the operation to its
facility in Quakertown, Pennsylvania. The company also closed its Owensboro,
Kentucky, paper mill in January 1998, moving its production to other FiberMark
facilities.
Office Products. The company's main mill for the production of office
products is located in Brattleboro, Vermont. Mills located at Warren Glen, New
Jersey and Hughesville, New Jersey also produce office products materials.
Recent improvements have included an upgrade to the Brattleboro mill that
significantly increased its capacity and its ability to produce a wider range of
lighter weight products. The company has also recently completed a series of
capital improvements at its Warren Glen mill, which have increased productivity,
reduced costs and waste and increased the ability of the mill to use a wider
range of pulps and recycled materials.
The cylinder paper machines in use at the Brattleboro and Warren Glen
mills are configured to produce a broad range of specialty materials, including
pressboard, filing and cover materials of various weights, colors and finishes.
The machine in the Brattleboro mill features computer-controlled monitoring of
color, weight, thickness and moisture content. The configuration of the cylinder
machine allows the production of multiple-ply products, resulting in greater
strength and stiffness than a comparable one-ply product made on a Fourdrinier
paper machine. In addition, this process enables the company to use lower-cost
recycled fiber pulp in the interior layers and higher-cost virgin pulp layers on
the exterior of a product, providing greater strength and the surface appearance
desired by consumers. Finishing capabilities at the Brattleboro mill include
glazing, coating, embossing, rewinding, laminating and sheeting.
Technical Specialties. The company manufactures technical specialties at a
number of its facilities, including its Hughesville, Warren Glen, Richmond,
Fitchburg, Owensboro (closed January 14, 1998) and Beaver Falls facilities. The
Hughesville mill manufactures primarily technical specialty papers, including
photographic packaging, electrical transformer paper and wet-strength tag. The
company's mill located in Beaver Falls, New York specializes in the production
of proprietary latex-impregnated materials for use as book covers and similar
products. The stock preparation process at the Beaver Falls mill allows blending
of latex, cork, cotton fiber, pulp and other materials into a variety of
products with specific performance characteristics. The mill has a fiber
reclamation system, enabling it to utilize recycled fiber.
11
Durable Specialties. Durable specialties are manufactured in the company's
mills and its Quakertown converting facility. A significant portion of the
saturating base paper used in this facility was provided by the Owensboro mill,
which closed in January 1998. Its production has been or will be moved to other
technical specialties facilities.
Filter Products. The company's filter products are produced primarily at
its Richmond, Rochester and Fitchburg mills. The Richmond mill uses a
methanol-based resin saturating process that allows the saturation of base paper
off the paper machine. A recent upgrade of the Richmond mill increased
saturation capacity by 50%. The Rochester mill uses an in-line saturating
process. The company manufactures its non-saturated filter papers at its
Fitchburg mill.
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 and fiberglass), synthetic latex and a
wide variety of chemicals, pigments and dyes. These materials are procured from
numerous suppliers in the United States, Canada, Brazil and Indonesia. 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 1994 and 1995, but was able to partially
recover these increases with selling price increases, cost containment efforts
and the early benefits resulting from the paper machine upgrade performed in
1995. There can be no assurance that the company will be able to pass any future
increases in the price of pulp through to its customers in the form of price
increases.
The company's sole source of supply of the Tyvek(R) used in production of
certain of its products is DuPont. The company has a long-standing relationship
with DuPont as an approved converter of Tyvek(R) 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(R). Any material
interruption in the company's supply of Tyvek(R) could have a material adverse
effect on the results of operations and financial condition of the company.
Use of Recycled Fiber. The company believes that materials with recycled
content continue to grow in consumer acceptance. The company has made
significant capital investments in recycling equipment and systems. The use of
the company's cylinder paper machines in the manufacturing process for
pressboard products allows the use of recycled fiber in the product interior,
while virgin pulp is used on the product exterior, providing greater strength as
well as the product appearance desired by customers. Recently completed capital
investments to upgrade Warren Glen's fiber processing facility has enhanced this
location's ability to process a wider range of pulps and recycled materials.
The company's office products are manufactured with up to 100% recycled
fiber, of which up to 50% may be post-consumer waste. Post-consumer waste refers
to paper waste from end-users of paper products, and is generally considered the
standard by which government agencies and environmentally conscious consumers
evaluate recycled content. The company presently meets and expects to continue
to meet government and consumer recycled content requirements.
Research and Development. The company's expenditures on research and
development were $1.4 million, $1.2 million, and $1.0 million in the fiscal
years ended December 31, 1997, 1996 and 1995, respectively. The company has a
research and development staff with expertise in chemistry, papermaking and
materials science. This staff works closely with the company's customers to
develop, test and produce new product formulations designed to meet customer
specifications.
12
Employees
As of December 31, 1997, the company employed a total of 1,042 employees,
of which 307 were salaried and 735 were hourly. Of the salaried employees, 161
were in manufacturing, 52 in sales and marketing, 13 in research and development
and 81 in professional or administrative support.
The hourly employees at the Quakertown, Pennsylvania location are
non-union. The remaining hourly employees are members of either the United
Paperworkers International Union, the International Brotherhood of Boilermakers,
Iron Ship Builders, Blacksmiths, Forgers and Helpers or the International
Brotherhood of Electrical Workers. The company believes that, in general, it has
good relations with its employees and their unions. The table below sets out the
expiration dates of the company's labor contracts:
Facility Expiration Date
-------- ---------------
Fitchburg, MA (a)........................................... April 30, 1998
Warren Glen, NJ (b)......................................... May 23, 1999
May 25, 1999
Hughesville, NJ(b).......................................... May 23, 1999
May 25, 1999
Rochester, MI............................................... May 23, 1999
Richmond, VA................................................ April 28, 2000
Beaver Falls, NY............................................ June 30, 2000
Brattleboro, VT............................................. August 31, 2002
- ----------
(a) The company expects to commence negotiations for a new collective
bargaining agreement ("New CBA") at the Fitchburg mill in the second
quarter of 1998. While the company believes that it has generally good
relations with its employees, no assurances can be given that a
satisfactory New CBA will be negotiated prior to the expiration of the
existing agreement or, if a satisfactory New CBA is not negotiated, that
there will not be a labor disruption. No assurances can be given, however,
that a work stoppage would not create such a material disruption or that,
if created, such a disruption would not have a material adverse impact on
the company's results of operations.
(b) Workers at Warren Glen, NJ and Hughesville, NJ are subject to two separate
collective bargaining agreements.
Cogeneration Project
In 1993, the company has entered into an agreement with Kamine, pursuant
to which the company's Beaver Falls facility is the host for a gas-fired,
79-megawatt combined-cycle cogeneration facility developed by Kamine at the
company's Beaver Falls mill. Construction of the facility has been completed,
although it is not currently operational. The company received an initial cash
payment of $4.4 million in 1993 and a series of deferred cash payments from
Kamine totaling $7.0 million between May 1995 and May 1997. The present value of
these deferred cash payments, in the amount of $6.5 million, was recorded as
income in the first quarter 1995. The payment received in May 1997 was the last
payment due under this agreement.
Environmental Regulation and Compliance
Like similar companies, the company's operations and properties are
subject to a wide variety of federal, state and local laws and regulations,
including those governing the use, storage, handling, generation, treatment,
emission, release, discharge and disposal of certain materials, substances and
13
wastes, the remediation of contaminated soil and groundwater, and the health and
safety of employees (collectively, "Environmental Laws"). As such, the nature of
the company's operations exposes it to the risk of claims with respect to
environmental protection and health and safety matters and there can be no
assurance that material costs or liabilities will not be incurred in connection
with such claims.
The company and its predecessors have made substantial investments in
pollution control facilities to comply with existing Environmental Laws. The
company made expenditures for environmental purposes of $2.6 million, $1.7
million, and $2.5 million for the fiscal years ended December 31, 1997, 1996 and
1995, respectively. 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 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 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
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.
14
Executive Officers
The company's executive officers are:
Name Age Position
- ---- --- --------
Alex Kwader......................... 55 President and
Chief Executive Officer
Bruce Moore......................... 50 Vice President and
Chief Financial Officer
Stephen A. Steidle.................. 53 Vice President and
General Sales Manager
David C. Bernhard................... 50 Vice President and General
Manager, Filter Products
David R. Kruft...................... 57 Vice President and General
Manager, Durable Specialties
David E. Rousse..................... 45 Vice President and General
Manager, Office Products
Robert W. Yousey.................... 51 Vice President and General
Manager, Technical Specialties
Alex Kwader has been the President and Chief Executive Officer of the
company since August 1991 and a director since November 1991. Since 1970, Mr.
Kwader has been employed by the company and Boise Cascade ("BCC") in various
management positions. 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. Mr. Kwader was also General Manager of the
Pressboard Division from June 1989 to August 1991, serving in the same capacity
for the BCC Pressboard Division from 1986 until June 1989. From 1980 to 1985, he
served as General Manager of the BCC Latex Fiber Products Division. 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.
Stephen A. Steidle has served as Vice President and General Sales Manager
for the office products business since February 1994. He assumed international
sales responsibility for the company in January 1997. He has held sales
management positions with the company and BCC for more than 10 years and has a
total of 25 years of service with the company and BCC. Mr. Steidle received a
B.A. in Psychology from the University of Maine and an MBA from the University
of Maine.
David C. Bernhard has served as Vice President and General Manager, Filter
Products, since January 1997. With FiberMark since 1995, Mr. Bernhard most
recently served as General Manager for Endura Products, and previously was
Technology Development Manager for the company. He was employed for over 26
years with Scott Paper Company in Mobile, Alabama in the S.D. Warren subsidiary,
and Fort Edward, New York and Chester, Pennsylvania in the Consumer Products
business. Mr. Bernhard received a B.S. degree in Pulp and Paper from the College
of Forestry at Syracuse University.
15
David R. Kruft has served as Vice President and General Manager, Durable
Specialties, since 1996 at the time of the Arcon acquisition, where he held the
position of President since 1993. Prior to joining Arcon in 1990, he was
employed by Esselte Pendaflex Corporation for over 20 years, most recently as
Senior Vice President and Division Head for the Boorum and Pease office products
line. Mr. Kruft received a B.S. in Mechanical Engineering from Hofstra
University.
David E. Rousse has served as Vice President and General Manager, Office
Products, since January 1997, and joined FiberMark in 1996 in the role of Vice
President - Marketing and Business Development. He was employed for 12 years
with Strathmore Paper Company and later International Paper in a number of
marketing and general management positions for the fine printing papers, office
papers, and envelopes product lines. He was selected for a Fellowship in the
President's Executive Exchange Program working in the U.S. International Trade
Commission. He began his career with W.R. Grace & Company in finance, marketing,
and sales / sales management roles. Mr. Rousse received a B.S. in Engineering
from Dartmouth College, and an MBA from the Amos Tuck School of Business at
Dartmouth.
Robert F. Yousey has served as Vice President and General Manager,
Technical Specialties, since 1996 at the time of the CPG acquisition, where he
held the position of Executive Vice President of Operations for all CPG
manufacturing sites. He joined James River in 1980 and through various
divestitures was employed as General Manager of the Riegel Fitchburg Division of
James River, and also as General Manager of the Fitchburg mill. He started his
career with Latex Fiber Industries and later Boise Cascade in 1969 and worked
for 11 years in significant mill and corporate roles. Mr. Yousey received a B.S.
in Chemical Engineering from the University of Texas.
Item 2. Properties
The company owns and operates six specialty fiber-based materials mills
and one converting facility and also leases one facility. The following table
depicts all of the company's properties as of December 31, 1997.
Owned/ Sq. Land
Facilities Leased Feet Acres
- ---------- ------ ---- -----
Brattleboro, VT.............................. Owned 200,000 39
Fitchburg, MA................................ Owned 255,000 161
Warren Glen, NJ.............................. Owned 299,000 162
Hughesville, NJ.............................. Owned 88,000 166
Beaver Falls, NY............................. Owned 100,000 167
Owensboro, KY (closed on January 14, 1998)... Owned 47,000 15
Rochester, MI................................ Owned 96,000 17
Richmond, VA................................. Leased 64,000 -
Quakertown, PA............................... Owned 165,000 7
The corporate headquarters is located at the Brattleboro, VT site. The
company owns a production facility in Lowville, NY that it leases to a customer.
Foreign sales offices are maintained in Kowloon, Hong Kong; Tokyo, Japan; and
Annecy, France.
16
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 1997.
17
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 Nasdaq and on the NYSE Composite
Transations Tape, as the case may be. The high and low sales prices for the
first quarter of 1996 through the second quarter of 1997 have been adjusted to
give effect to a 3-for-2 stock split in the form of a dividend, which was
effective May 13, 1997 for shareholders of record at the close of business on
May 6, 1997 (the "Stock Split").
Year Ended December 31, 1996 High Low
---- ---
First Quarter............................................... $10.00 $7.83
Second Quarter.............................................. $10.17 $8.50
Third Quarter............................................... $13.00 $8.67
Fourth Quarter.............................................. $14.17 $10.83
Year Ended December 31, 1997
First Quarter............................................... $18.00 $13.33
Second Quarter.............................................. $21.38 $15.25
Third Quarter............................................... $22.50 $19.00
Fourth Quarter.............................................. $22.19 $19.13
The company had approximately 1,108 stockholders of record of its Common
Stock as of March 16, 1998. The company's transfer agent and registrar has
indicated that the company had approximately 2,149 beneficial owners of its
Common Stock as of March 16, 1998. 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.
18
FIBERMARK, INC.
Selected Consolidated Financial Data
(In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------
Consolidated Income Statement Data:
Net sales(1) .............................. $ 235,358 $ 124,771 $ 117,516 $ 105,416 $ 79,982
Cost of sales ............................. 189,294 101,981 100,106 88,138 66,360
----------------------------------------------------------------
Gross profit .............................. 46,064 22,790 17,410 17,278 13,622
General and administrative expenses ....... 16,331 9,908 8,397 8,584 7,881
Facility closure expense(5) ............... 10,000 0 0 0 0
----------------------------------------------------------------
Income from operations .................... 19,733 12,882 9,013 8,694 5,741
Loss on disposition of assets, net ........ 0 0 8,302 0 0
Cogeneration income ....................... (215) 0 (6,512) 0 (4,404)
Other expenses (income), net(2) ........... 600 (1,127) (1,198) (658) 374
Interest expense (net of interest income) . 9187 1,798 892 1,356 3,137
----------------------------------------------------------------
Income before income taxes and
extraordinary items ................... 10,161 12,211 7,529 7,996 6,634
Income tax (benefit) expense(3) ........... 3,992 4,697 (424) 2,768 1,921
----------------------------------------------------------------
Income before extraordinary items ......... 6,169 7,514 7,953 5,228 4,713
Extraordinary items(4) .................... 0 (297) 0 (149) (2,103)
Net income ................................ $ 6,169 $ 7,217 $ 7,953 $ 5,079 $ 2,610
----------------------------------------------------------------
Net income available to common shareholders 6,169 7,217 7,953 5,079 2,251
----------------------------------------------------------------
Weighted average shares outstanding ....... 6,141 6,054 6,050 6,031 5,258
Basic earnings per share .................. $ 1.01 $ 1.19 $ 1.31 $ 0.84 $ 0.43
Diluted earnings per share ................ 0.95 1.14 1.30 0.82 0.42
Other Consolidated Operating Data:
Depreciation and amortization ............. $ 7,393 $ 3,651 $ 3,342 $ 4,006 $ 3,681
Capital expenditures ...................... 13,528 7,546 4,865 1,603 900
----------------------------------------------------------------
December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------
Consolidated Balance Sheet Data:
Working capital ........................... $ 61,983 $ 29,151 $ 17,634 $ 14,296 $ 799
Total assets .............................. 248,001 212,008 74,618 87,817 55,754
Long-term debt (net of current maturities) 100,000 100,000 4,625 21,081 14,580
Redeemable preferred stock ................ 0 0 0 0 0
Stockholders' equity ...................... 82,771 48,093 40,735 32,662 27,390
==============================================================================================================
(1) The increase in net sales for the year ended December 31, 1994 reflects
the impact of the acquisition of the Endura Products division of W.R.
Grace & Co. on June 30, 1994. The acquisition contributed $18.1 million to
the company's net sales for the last six months of 1994. For the year
ended December 31, 1995, the acquisition contributed $37.3 million to the
company's net sales. The increase in net sales for the year ended December
31, 1997 reflects the impact of the acquisition of CPG Investors Group
Inc. and Arcon Holdings Corp. on October 31, 1996. Net
19
sales related to these acquisitions were $127.9 million in 1997 as
compared to $20.2 million in 1996.
(2) Other expenses (income) for the 1997, 1996, 1995 and 1994 periods include
$1,718,000, $1,719,000, $1,718,000 and $1,146,000, 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 is being
amortized over the ten-year life of the lease.
(3) From its inception through December 31, 1991, the company generated net
operating losses. For the year ended December 31, 1993, the company
generated net income and recognized an income tax provision of $1,921,000.
For the year ended December 31, 1994, the company generated net income and
recognized an income tax provision of $2,768,000. 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.
(4) Extraordinary items for 1993 include a $3,518,000 loss related to the
early extinguishment of debt and a fee in connection with the termination
of an interest rate collar agreement, net of an income tax benefit of
$1,415,000. Extraordinary items for 1994 include a $248,000 loss related
to the early extinguishment of debt, net of an income tax benefit of
$99,000. 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.
(5) 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.
20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
On March 22, 1995, the company sold the assets of its Lewis mill and the
company's gasket business to Armstrong World Industries, Inc. ("Armstrong") for
$12,933,000 (the "Sale"). As part of the Sale, inventory in the amount of
$1,080,000 was sold at book value to Armstrong. The net book value of the assets
sold was $19,311,000 and total expenses relating to the Sale were $1,924,000.
This transaction resulted in a loss of $8,302,000 before taxes. The company used
a substantial portion of the proceeds to retire outstanding indebtedness. The
remaining proceeds were added to working capital.
On October 31, 1996, the company acquired all of the outstanding stock of CPG
Investors Inc. ("CPG"). CPG operated five paper mills and manufactured a diverse
portfolio of specialty fiber-based products for industrial and technical
markets. Annual sales revenue approximated $95.0 million.
On October 31, 1996, the company also acquired all of the outstanding stock of
Arcon Holdings Corp. ("Arcon"). Arcon operated two converting facilities and
manufactured colored binding and stripping tapes and edge cover materials sold
primarily into the office products, checkbook and bookbinding markets. Annual
sales revenue approximated $28.0 million.
Both of the 1996 acquisitions were financed with proceeds from the issuance of
$100.0 million in senior notes. These notes are non-amortizing, have a ten-year
term and carry a fixed interest rate of 9.375%. The aggregate purchase price for
both CPG and Arcon, including acquisition costs, was approximately $91.5
million. Additionally, the company incurred approximately $4.5 million in
financing costs. The balance of the proceeds from the senior note offering was
added to the cash reserve of the company.
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 charge related to the closure of this
facility in the fourth quarter of 1997.
On November 19, 1997, the company also announced its intent to acquire 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. Annual sales revenue approximated $85.0 million.
Pursuant to this acquisition, the company sold 1,500,000 share 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 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 DM54.0 million (approximately $30.2
million) term loan with Bayerische Vereinsbank in Munich, Germany and seller
financing from the previous owner on January 12, 1998. The German bank loan
amortizes over seven years and has a fixed interest
21
rate of 6.8%. The effective date of ownership transfer on the Steinbeis Gessner
business was January 1, 1998.
Excluding the impact of the Owensboro write down, the company's income from
operations improved from $8.7 million in 1994 (8.3% of sales) to $29.7 million
in 1997 (12.6% of sales). This improvement is largely attributable to the added
sales volume that resulted from the 1994 and 1996 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.
Results of Consolidated Operations
The following table sets forth, for the periods indicated, certain operating
data as a percentage of net sales.
================================================================================
1997 1996 1995
Net sales ........................................ 100.0% 100.0% 100.0%
Cost of sales .................................... 80.4 81.7 85.2
---------------------------
Gross profit ..................................... 19.6 18.3 14.8
General and administrative expenses .............. 6.9 7.9 7.1
Facility closure ................................. 4.3 -- --
---------------------------
Income from operations ........................... 8.4 10.4 7.7
Loss on sale of assets, other (income),
expense and cogeneration income, net .......... .2 (.9) 0.5
Interest expense ................................. 3.9 1.5 0.8
---------------------------
Income before income taxes ....................... 4.3 9.8 6.4
Net effect of income taxes and extraordinary tax
benefit ........................................ 1.7 4.0 (0.4)
---------------------------
Net income ....................................... 2.6% 5.8% 6.8%
================================================================================
Year Ended December 31, 1997 Compared to December 31, 1996
Net sales increased 88.6% to $235.4 million in 1997 from $124.8 million in 1996.
The company acquired CPG and Arcon on October 31, 1996. These acquisitions
contributed $127.9 million in sales revenue for the full year of 1997 as
compared to $20.2 million for the final two months of 1996.
Within the company's markets, office products sales increased by 2.6% to $55.8
million in 1997 from $54.4 million in 1996. This increase is attributable to
moderate growth in demand for our pressboard, and new business in lightweight
filing and cover materials. Sales of technical specialties increased by 150.2%
to $77.8 million in 1997 from $31.1 million in 1996, due to the impact of the
1996 acquisitions. Durable specialties net sales increased by 80.8% to $58.2
million in 1997 from $32.2 million in 1996. This increase is primarily due to
the impact of the 1996 acquisitions. In addition, sales with a key customer grew
due to their expansion into new geographic markets and new distribution
channels, in part fueled by a new product developed with them in 1995. Net sales
of filter products increased by 522.9% to $43.6 million in 1997 from $7.0
million in 1996 due to the impact of the 1996 acquisitions.
22
Gross profit margin increased to 19.6% in 1997 from 18.3% in 1996. This
improvement relates to lower fiber prices, productivity gain at the company's
Brattleboro, Vermont mill and early benefits from the consolidation of acquired
operations at Oceanside, New York into the company's Quakertown, Pennsylvania
facility.
General and administrative expenses increased to $16.3 million (6.9% of sales)
in 1997 from $9.9 million (7.9% of sales) in 1996. This increase is due to the
impact of the 1996 acquisitions.
In 1997, the company booked a $10.0 million charge related to the closure of its
Owensboro, Kentucky mill. Operations at this mill permanently closed on January
14, 1998.
Income from operations increased to $19.7 million (8.4% of sales) in 1997 from
$12.9 million (10.4% of sales) in 1996. This improvement is due to the higher
sales volume brought about by the 1996 acquisitions, lower fiber prices, and
improved manufacturing efficiencies. These improvements were offset by the $10.0
million charge related to the closure of the Owensboro, Kentucky mill.
In 1997, the company recorded other expense of $.4 million as compared to other
income of $1.1 million in 1996. This change is due to higher levels of
amortization expense related to the 1996 acquisitions.
Net interest expense increased to $9.2 million in 1997 as compared to $1.8
million in 1996. This increase is due to the debt incurred to fund the 1996
acquisitions.
Income taxes were $4.0 million or 39.3% of taxable income in 1997 as compared to
$4.7 million or 38.5% of taxable income in 1996.
Net income before extraordinary items for 1997 was $6.2 million or $.95 per
share. Excluding the impact of the Owensboro closure, net income would have been
$12.3 million or $1.90 per share, as compared to $7.2 million or $1.14 per share
in 1996. Per share earnings are stated on a fully diluted basis.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased 6.2% to $124.8 million in 1996 from $117.5 million in 1995.
The CPG and Arcon acquisitions added $20.2 million in sales revenue over the
final two months of 1996. In March 1995, the company sold its gasket business to
Armstrong. This caused its gasket product revenue, part of technical
specialties, to decline by $6.7 million in 1996 as compared to 1995.
Within the company's markets, office products sales declined by 5.1% or $2.9
million to $54.4 million in 1996 from $57.3 million in 1995. This decline in
office products was due to the capacity loss associated with the sale of Lewis
mill to Armstrong in March 1995, predominantly in the lightweight cover and
filing grades. Technical specialties net sales increased by 1.6% or $0.5 million
to $31.1 million in 1996 from $30.6 million in 1995 due to the impact of the
prior acquisitions in the last two months of 1996, offset by the capacity loss
associated with the sale of the Lewis mill. Durable specialties net sales
increased by 8.8% or $2.6 million to $32.2 million in 1996 from $29.6 million in
1995. Filter products net sales increased from $0.0 in 1995 to $7.0 million in
1996, due to the impact of the acquisition of CPG.
Gross profit margin increased to 18.3% in 1996 from 14.8% in 1995. This
improvement is primarily due to lower prices for pulp and recycled fiber and to
improved manufacturing efficiencies resulting from equipment upgrades.
23
General and administrative expenses increased 17.9% to $9.9 million (7.9% of
sales) in 1996 from $8.4 million (7.1% of sales) in 1995. This increase is
primarily due to expenses incurred in connection with CPG and Arcon
acquisitions.
Income from operations increased 43.3% to $12.9 million (10.4% of sales) in 1996
from $9.0 million (7.7% of sales) in 1995.
Other income decreased 14.0% to $1.0 million in 1996 as compared to $1.2 million
in 1995. 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
deferred gain of $17.2 million, which is being amortized at the rate of $1.7
million per year. This income was offset by amortization of organizational and
financing costs and goodwill.
Net interest expense increased to $1.8 million in 1996 as compared to $.9
million in 1995. This increase is due to the debt incurred to fund the prior
acquisitions.
Income taxes were $4.7 million or 38.5% of income before income taxes and
extraordinary item in 1996.
Net income before extraordinary items in 1996 was $7.5 million or $1.19 per
share compared to $8.0 million or $1.30 per share in 1995. Excluding the
positive effects of a non-recurring cogeneration payment and a one-time tax
adjustment, and the negative effect of the loss on the sale of the Lewis mill,
net income in 1995 would have been $6.3 million or $1.03 per share. Per share
earnings are stated on a fully diluted basis.
Liquidity and Capital Resources
As of December 31, 1997, the company had outstanding $100.0 million of senior
notes. The notes have a ten-year term, are non-amortizing and carry a fixed
interest rate of 9.375%. Additionally, the company had available to it a $20.0
million revolving credit facility as of December 31, 1997. As of such date, no
advances were outstanding under such credit facility. On January 12, 1998, the
company also closed on a DM 54.0 (approximately $30.2) million term loan with
Bayerische Vereinsbank AG in Munich, Germany and an unsecured note issued by
Gessner and guaranteed by the company to the seller in the amount of DM8.0
(approximately $4.6) million to fund a portion of the purchase price related to
the acquisition of Steinbeis Gessner. The German bank loan amortizes over seven
years and has a fixed interest rate of 6.8%. The seller note carries an
interest rate of 5% and amortizes over three years. On this same date the
company also closed on a $8.3 million revolving credit facility and on a $8.3
million capital spending facility with Bayerische Vereinsbank. As of such date,
no advances were outstanding under these facilities. Dollar equivalents are
based on a rate of 1.791DM per dollar, which was the noon buying rate on the New
York spot market for cable transfers.
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 $7.9 million, $17.1 million and $8.1
million in 1997, 1996 and 1995 respectively. During these periods, additions to
property, plant and equipment were $13.5 million, $8.5 million and $4.9 million
respectively. In addition, the company expects to fund certain expenditures
related to technology transfer projects between Gessner and the company, which
the company believes will provide quality improvements, cost reductions, product
performance enhancements and the ability to produce a broader range of products.
24
The company currently anticipates that the implementation of these projects can
be accomplished over a two to three year period, at a cost of $20 to $25
million. The company believes that cash reserves on hand, cash flow from
operations, plus 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.
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. This
seasonality is the result of a lower level of purchasing activity in the third
quarter, since many of our U.S. customers shut down their manufacturing
operations during portions of July. The seasonality of the company's operations
including Gessner is likely to be similar, as many European manufacturers shut
down during portions of August.
New Accounting Pronouncements
In 1997 and early 1998, the Financial Accounting Standards Board issued the
following accounting standards:
SFAS No. 130, Reporting Comprehensive Income, will be effective for
periods beginning after December 15, 1997.
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, will be effective for periods beginning after December 15,
1997.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, will be effective for periods beginning after
December 15, 1997.
Management does not believe that the above pronouncements will have a
significant effect on the company's financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1: Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP is effective for
financial statements issued for fiscal years beginning after December 15, 1998.
The company has yet to analyze in detail the potential impact on its financial
statements upon adoption of this pronouncement.
25
Year 2000
The company has implemented or is in the process of implementing new integrated
information systems that are already Year 2000 compliant. The company expects
full system implementation well before the year 2000. The company has
communicated with its principal customers to ensure that Year 2000 issues will
not have an adverse impact on the company. The costs of achieving Year 2000
compliance are not expected to have a material impact on the company's business,
operations or its financial condition.
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, failure to identify or carry
out suitable strategic acquisitions, or other risk factors discussed in this
report.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
None
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data of the company required by this
item are file as exhibits hereto, are listed under Item 14(a)(1) and (2) and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
26
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 Stockholders to be held on May 5, 1998 (the "Proxy
Statement"), and is incorporated herein be 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 Ace 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
The information required by this item is incorporated herein be reference to the
information presented under the caption entitled "Certain Transactions" of the
Proxy Statement.
27
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
----
Report of Independent Accountants................................ 29
Consolidated Balance Sheets of December 31, 1997 and 1995........ 31
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995............................. 32
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996, and 1995....................... 33
Consolidated Statements of Cash Flow for the years ended
December 31, 1997, 1996, and 1995............................. 34
Notes to Consolidated Financial Statements....................... 35
(a)(2) Index to Consolidated Financial Statements Schedule:
Report of Independent Accountants................................ 54
Schedule II - valuation and Qualifying Accounts Reserves......... 56
(a)(3) Index to Exhibits beginning on page 57
(b) Reports on Form 8-K
Therewere no reports on Form 8-K filed by the Registrant during the
fourth quarter of the fiscal year ended December 31, 1997.
(c) Exhibits
The exhibits required by this Item are listed under Item 14(a)(3).
(d) Consolidated Financial Statement Schedule
The consolidated financial statement schedule required by this item
is listed under Item 14(a)(2).
28
Independent Auditor's Report
Board of Directors
FiberMark, Inc.
We have audited the accompanying consolidated balance sheets of FiberMark, Inc.
as of December 31, 1997 and 1996 and the related consolidated statements of
income, stockholders' equity, and cash flows for the years then ended. 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. The consolidated financial statements
of FiberMark, Inc. as of December 31, 1995 were audited by other auditors whose
report dated January 26, 1996 expressed an unqualified opinion on those
financial statements.
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, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Burlington, Vermont
February 6, 1998
Vt. Reg. No. 92-000024
29
Independent Auditor's Report
To the Board of Directors and Stockholders of
FiberMark, Inc.:
We have audited the consolidated statements of income, stockholders' equity and
cash flow of FiberMark, Inc. (formerly Specialty Paperboard, Inc.) for the year
ended December 31, 1995. 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
responsible 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 consolidated results of FiberMark, Inc.
(formerly Specialty Paperboard, Inc.) and its cash flow for the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
COOPERS AND LYBRAND L.L.P.
Boston, Massachusetts
March 16, 1998
30
FIBERMARK, INC.
Consolidated Balance Sheets
December 31, 1997 and 1996
(In Thousands)
=========================================================================================
Assets 1997 1996
----------------------
Current assets:
Cash ........................................................... $ 37,275 $ 14,342
Accounts receivable, net of allowances of $203
in 1997 and $333 in 1996 ..................................... 23,278 20,847
Cogeneration receivable (note 3) ............................. 0 1,785
Inventories (note 4) ......................................... 37,486 29,293
Other ........................................................ 210 596
Deferred income taxes (note 9) ............................... 3,769 2,090
----------------------
Total current assets ....................................... 102,018 68,953
----------------------
Property, plant and equipment, net (note 5) .................... 90,243 89,696
Goodwill, net .................................................. 45,179 46,950
Other intangible assets, net ................................... 8,146 5,642
Prepaid expense (note 7) ....................................... 1,073 767
Other long-term assets (note 15) ............................... 1,342 0
----------------------
Total assets (note 6) .......................................... $ 248,001 $ 212,008
=========================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ............................................ 18,822 15,085
Accrued liabilities ......................................... 14,455 22,018
Accrued income taxes payable ................................ 4,262 840
Accrued pension liabilities ................................. 2,496 1,859
----------------------
Total current liabilities ................................. 40,035 39,802
----------------------
Long-term debt, less current portion (note 6) .................. 100,000 100,000
Deferred gain (note 7) ......................................... 10,885 12,603
Deferred income taxes (note 9) ................................. 9,308 11,510
Other long-term liabilities .................................... 5,002 0
----------------------
Total long-term liabilities ............................... 125,195 124,113
----------------------
Total liabilities ......................................... 165,230 163,915
----------------------
Commitments and contingencies (note 7)
Stockholders' equity (notes 8, 15 and 19):
Preferred stock, par value $.001 per share,
2,000,000 shares authorized and none issued ............... 0 0
Common stock, par value $.001 per share;
20,000,000 shares authorized
7,581,531 shares issued and outstanding in 1997 and
6,058,638 shares issued and outstanding in 1996 ........... 8 6
Additional paid-in capital .................................. 73,709 44,731
Retained earnings ........................................... 9,525 3,356
Minimum pension liability adjustment, net of tax benefit .... (471) 0
----------------------
Total stockholders' equity ..................................... 82,771 48,093
----------------------
Total liabilities and stockholders' equity ..................... $ 248,001 $ 212,008
=========================================================================================
See accompanying notes to consolidated financial statements.
31
FIBERMARK, INC.
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
(In Thousands Except Per Share Amounts)
=======================================================================================
1997 1996 1995
Net sales ...................................... $ 235,358 $ 124,771 $ 117,516
------------------------------------
Cost of sales .................................. 189,294 101,981 100,106
------------------------------------
Gross profit ................................. 46,064 22,790 17,410
Selling, general and administrative expenses ... 16,331 9,908 8,397
Facility closure expense (note 13) ............. 10,000 0 0
------------------------------------
Income from operations ....................... 19,733 12,882 9,013
------------------------------------
Other (income) expense, net .................... 600 (1,013) (1,198)
Loss on sale of assets (note 12) ............... 0 0 8,302
Cogeneration income (note 3) ................... (215) (97) (6,512)
Interest expense ............................... 9,457 1,992 1,270
Interest income ................................ (270) (211) (378)
Income before income taxes and
extraordinary item ....................... 10,161 12,211 7,529
Income tax (benefit) expense (note 9) .......... 3,992 4,697 (424)
------------------------------------
Income before extraordinary item ............. 6,169 7,514 7,953
------------------------------------
Extraordinary item:
Loss on early extinguishment of debt
(net of income tax benefit of $198) (note 6) 0 (297) 0
------------------------------------
Net income ................................. $ 6,169 $ 7,217 $ 7,953
------------------------------------
Basic earnings per share:
Income before extraordinary items .......... $ 1.01 $ 1.24 $ 1.31
Extraordinary item ......................... 0.00 (0.05) 0.00
------------------------------------
Net income ............................... $ 1.01 $ 1.19 $ 1.31
------------------------------------
Diluted earnings per share: .................... $ .95 $ 1.14 $ 1.30
=======================================================================================
See accompanying notes to consolidated financial statements.
32
FIBERMARK, INC.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
(In Thousands Except Share Amounts)
===============================================================================================================
Additional Accumulated Total
Common Stock Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Adjustments Equity
----------------------------------------------------------------------------
Balance at December 31, 1994 ... 6,050,148 $ 6 $ 44,711 $ (11,814) $ (241) $ 32,662
Net income ................... 0 0 0 7,953 0 7,953
Amortization of
unearned compensation ...... 0 0 0 0 120 120
----------------------------------------------------------------------------
Balance at December 31, 1995 ... 6,050,148 6 44,711 (3,861) (121) 40,735
Net income ................... 0 0 0 7,217 0 7,217
Exercise of stock options .... 8,490 0 20 0 0 20
Amortization of
unearned compensation ...... 0 0 0 0 121 121
----------------------------------------------------------------------------
Balance at December 31, 1996 ... 6,058,638 6 44,731 3,356 0 48,093
Net income ................... 0 0 0 6,169 0 6,169
Issuance of common stock ..... 1,500,000 2 28,717 0 0 28,719
Issuance of common stock ..... 1,043 0 20 0 0 20
Exercise of stock options .... 21,850 0 117 0 0 117
Tax benefit of option exercise 0 0 124 0 0 124
Minimum pension liability
adjustment ................. 0 0 0 0 (471) (471)
----------------------------------------------------------------------------
Balance at December 31, 1997 ... 7,581,531 $ 8 $ 73,709 $ 9,525 $ (471) $ 82,771
===============================================================================================================
See accompanying notes to consolidated financial statements
33
FIBERMARK, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
======================================================================================================
1997 1996 1995
------------------------------------
Cash flows from operating activities:
Net income .................................................. $ 6,169 $ 7,217 $ 7,953
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................. 7,393 3,651 3,342
Amortization of deferred gain ............................. (1,718) (1,719) (1,718)
Write off of deferred debt costs and other deferred charges 0 495 27
Amortization of unearned compensation ..................... 0 121 120
Loss on closure of facility ............................... 10,000 0 0
Loss on sale of assets .................................... 0 0 8,302
Gain on sale of property, plant and equipment ............. 0 0 (8)
Cogeneration income ....................................... (215) (97) (6,512)
Deferred taxes ............................................ (3,586) 2,406 (3,724)
Changes in operating assets and liabilities:
Accounts receivable ..................................... (2,431) 1,475 1,821
Inventories ............................................. (8,535) (1,431) (301)
Other ................................................... 391 947 2,289
Accounts payable ........................................ 3,737 357 (3,262)
Accrued pension and other liabilities ................... (7,965) 3,067 96
Prepaid expense ......................................... (306) (255) (306)
Other long-term liabilities ............................. 1,570 0 0
Accrued income taxes payable ............................ 3,422 840 0
------------------------------------
Net cash provided by operating activities ............... 7,926 17,074 8,119
------------------------------------
Cash flows used for investing activities:
Cogeneration receipt ........................................ 2,000 2,000 3,000
Purchase of life insurance .................................. (1,342) 0 0
Additions to property, plant and equipment .................. (13,528) (8,457) (4,865)
Kobayashi payments .......................................... 0 0 (5,000)
Additions to organization costs ............................. 0 0 (741)
Net proceeds from sale of property, plant and equipment ..... 0 0 17
Net proceeds from sale of assets ............................ 0 0 12,933
Expenses paid in connection with sale of assets ............. 0 0 (1,744)
Payments for businesses acquired ............................ 0 (87,000) 0
Acquisition costs ........................................... (367) 0 0
Increase in other intangible assets ......................... (112) 0 0
------------------------------------
Net cash provided by (used in) investing activities ....... (13,349) (93,457) 3,600
------------------------------------
Cash flows from financing activities:
Proceeds from sale-leaseback agreement ...................... 0 0 5,000
Proceeds from issuance of common stock ...................... 29,205 0 0
Cost of stock offering ...................................... (466) 0 0
Proceeds from exercise of stock options ..................... 117 20 0
Increase in revolving credit line ........................... 2,811 64,159 133,466
Payments on revolving credit line ........................... (2,811) (64,159) (140,759)
Repayment of senior term debt ............................... 0 (6,313) (9,275)
Proceeds from issuance of Series B senior notes ............. 0 100,000 0
Debt issue costs ............................................ (500) (4,500) 0
------------------------------------
Net cash provided by (used in) financing activities ...... 28,356 89,207 (11,568)
------------------------------------
Net increase in cash ..................................... 22,933 12,824 151
34
Cash at beginning of year ..................................... 14,342 1,518 1,367
------------------------------------
Cash at end of year ........................................... $ 37,275 $ 14,342 $ 1,518
======================================================================================================
See accompanying notes to consolidated financial statements.
35
FIBERMARK, INC.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Description of Business
FiberMark operates in a single segment as a manufacturer and converter of
specialty paper products. The company's market focus is in four core product
areas: office products, technical specialties, durable specialties and filter
products. FiberMark is headquartered in Brattleboro, Vermont and operates eight
paper mills and converting facilities located in the eastern and midwestern
regions of the United States.
(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 (WIP) and finished goods. During
1996 the company changed its method of accounting for WIP and finished goods
inventory from the average cost method to the FIFO method. The change in
accounting method had no material effect on income for the year ended December
31, 1996.
Property, Plant and Equipment
Property, plant and equipment are carried 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
36
maintenance and repairs are charged to expense. Leasehold improvements are
amortized over the shorter of the life of the improvement or the lease term.
37
Other Intangible Assets and Goodwill
Intangible assets include primarily organization, debt issue, goodwill,
acquisition costs and intangible assets related to pension plans (see note 15).
Organization costs of $233,000 and $594,000, net of accumulated amortization of
$309,000 and $310,000 as of December 31, 1997 and 1996, respectively, arose in
conjunction with the acquisition of the Endura Products Division and are
amortized on a straight-line basis over seven years. During the fourth quarter
of 1997, organization costs amounting to $185,000, net of accumulated
amortization of $177,000 were written off in conjunction with the closing of the
Owensboro, Kentucky facility (see note 13). Debt issue costs of $5,000,000 and
$4,500,000, net of accumulated amortization of $483,000 and $33,000 as of
December 31, 1997 and 1996, respectively, are related to the issuance of the
Series B senior notes and are amortized using the interest method over the life
of those notes. Costs associated with the acquisition of Steinbeis Gessner GmbH
effective January 1, 1998 amounts to $367,000. These costs have been capitalized
as of December 31, 1997 and will be included in the costs of the acquired
enterprise. The acquisition will be accounted for under the purchase method (see
note 20).
Goodwill of $45,179,000 and $46,950,000, net of accumulated amortization of
$1,805,000 and $244,000 as of December 31, 1997 and 1996, respectively,
represents the cost in excess of net assets of acquired companies and is
amortized on a straight-line basis over thirty years. During the fourth quarter
of 1997, goodwill of $186,000 net of accumulated amortization of $24,000 was
written off in conjunction with the closing of the Owensboro, Kentucky facility
(see note 13).
Amortization of intangibles, including goodwill, amounted to $2,542,000,
$812,000 and $576,000 as of December 31, 1997, 1996 and 1995, respectively. The
company periodically evaluates the recoverability of intangibles resulting from
business acquisitions and measures the amount of impairment, if any, by
assessing current and future levels of income and cash flows as well as other
factors, such as business trends and prospects and market and economic
conditions.
Deferred Gain
The deferred gain incurred in connection with the sale-leaseback transaction is
being amortized on a straight-line basis over the life of the lease (see note
7).
Research and Development
The company expenses research and development costs as incurred. The costs
amounted to $1.4 million, $1.2 million, and $1.0 million for the years ended
December 31, 1997, 1996, and 1995, respectively.
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.
38
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. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
SFAS 128 requirements. Weighted average number of common and common equivalent
shares outstanding and earnings per common and common equivalent share have also
been restated to give effect to a 3-for-2 stock split effective May 13, 1997.
The following table sets forth the computation of basic and diluted earnings per
share:
=====================================================================================
1997 1996 1995
------------------------------------
Numerator:
Income available to common shareholders used
in basic and diluted earnings per share .. $ 6,169 $ 7,217 $ 7,953
------------------------------------
Denominator:
Denominator for basic earnings per share:
Weighted average shares .................. 6,140,673 6,053,889 6,050,148
Effect of dilutive securities:
Fixed stock options ...................... 351,114 274,684 50,409
------------------------------------
Denominator for diluted earnings per share:
Adjusted weighted average shares ......... 6,491,787 6,328,573 6,100,557
------------------------------------
Basic earnings per share ..................... $ 1.01 $ 1.19 $ 1.31
Diluted earnings per share ................... $ .95 $ 1.14 $ 1.30
=====================================================================================
39
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This statement 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. Adoption of the Statement did not have a material impact on the company's
financial position, results of operations, or liquidity in 1996. During the
fourth quarter of 1997 the company decided to close their Owensboro, Kentucky
facility. The costs of closing this facility, including the costs associated
with disposing of the assets, are reflected as a component of income from
operations (see note 13).
Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation costs,
arising from claims, assessments, litigation, fines and penalties, and other
sources are recorded when it is probable that a liability has been incurred and
the amount of the assessment and/or remediation can be reasonably estimated.
Recoveries from third parties 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
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 96-1, Environmental Remediation Liabilities. SOP
96-1 was adopted by the company on January 1, 1997 and requires, among other
things, environmental remediation liabilities to be accrued when the criteria of
SFAS No. 5, Accounting for Contingencies, have been met. The guidance provided
by the SOP is consistent with the company's current method of accounting for
environmental remediation costs and, therefore, adoption of this new Statement
does not have a material impact on the company's financial position, results of
operations, or liquidity. Pursuant to the Environmental Laws, 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 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
40
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. Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
(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
has 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, $2 million and $3 million were
received in May 1997, 1996 and 1995, respectively.
(4) Inventories
Inventories consist of the following at December 31, 1997 and 1996 (in
thousands):
================================================================================
1997 1996
-------------------------
Raw materials .............................. $13,707 $11,356
Work in process ............................ 10,365 6,667
Finished goods ............................. 10,990 8,783
Stores inventory ........................... 1,415 1,568
Operating supplies ......................... 1,009 919
-------------------------
Total inventories ...................... $37,486 $29,293
================================================================================
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31, 1997 and
1996 (in thousands):
================================================================================
1997 1996
------------------------
Land ............................................... $ 7,347 $ 6,816
Buildings and improvements ......................... 17,217 16,666
Machinery and equipment ............................ 70,425 65,995
Construction in progress ........................... 9,347 11,234
104,336 100,711
Less accumulated depreciation and amortization ..... (14,093) (11,015)
------------------------
Net property, plant and equipment .................. $ 90,243 $ 89,696
================================================================================
Depreciation expense was $4,852,000, $2,839,000 and $2,766,000 for the years
ended December 31, 1997, 1996, and 1995, respectively.
41
(6) Debt
The company's long-term debt is summarized as follows at December 31, 1997 and
1996 in thousands:
================================================================================
1997 1996
-----------------------
Series B senior notes - interest at 9-3/8%, interest
payable semi-annually in arrears on April 15 and
October 15, unsecured, due October 15, 2006......... 100,000 100,000
================================================================================
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. Up to 35% of the notes are redeemable at the company's
option on or prior to October 15, 1999 using the net proceeds of a public equity
offering at a redemption price equal to 109.375% of the principal amount plus
accrued and unpaid interest thereon subject to certain other conditions as
described in the agreement.
In conjunction with the issuance of the Series B senior notes, (see note 11),
the company repaid the senior term debt from CIT then outstanding. As a result,
the company expensed $297,000 of deferred financing costs, net of income tax
expense of $198,000. The loss has been reflected in the consolidated statements
of income as an extraordinary item.
Approximately, $9,430,000, $1,797,000 and $1,362,000 of interest was paid during
the years ended December 31, 1997, 1996 and 1995, respectively.
The company has $20,000,000 in available funds through a revolving credit line
with the CIT Group, Inc., at December 31, 1997, 1996 and 1995. The interest rate
on the line as of December 31, 1997 is prime plus .5% or LIBOR plus 2%. The
revolving credit line is subject to a commitment fee payable at the rate of 1/2
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
examinations, analyzing and evaluating the collateral.
(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 over the life of the ten year
lease. In 1997, 1996 and 1995 the company amortized $1,718,000, $1,719,000 and
$1,718,000, respectively, of the deferred gain into income. At December 31, 1997
and 1996, the deferred gain amounted to $10,885,000 and $12,603,000 net of
accumulated amortization of $6,302,000 and $4,584,000, respectively.
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.
42
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 $4,426,000, $4,426,000 and $3,067,000 for the years ending
December 31, 1997, 1996 and 1995, respectively. Accumulated deferred rent
expense included in prepaid expense amounted to $1,073,000 and $767,000 as of
December 31, 1997 and 1996, respectively.
Total future minimum lease payments under the sale-leaseback agreement are set
forth as follows (in thousands):
- --------------------------------------------------------------------------------
Payments to be made in the years ending December 31:
1998 ............................................................... $4,732
1999 ............................................................... 4,273
2000 ............................................................... 4,120
2001 ............................................................... 4,120
2002 ............................................................... 4,120
Thereafter ......................................................... 4,810
- --------------------------------------------------------------------------------
Other Leases
The company assumed obligations under operating leases for certain machinery,
equipment and facilities purchased from CPG on October 31, 1996. Rental expense
was $1,043,000 and $150,000 for the year and two month period ended December 31,
1997 and 1996, respectively.
As of December 31, 1997, 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:
1998 ............................................................... $1,099
1999 ............................................................... 940
2000 ............................................................... 400
2001 ............................................................... 291
2002 ............................................................... 282
Thereafter ......................................................... 721
------
$3,733
- --------------------------------------------------------------------------------
(8) Preferred Stock
At December 31, 1997, 1996 and 1995, 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,
43
conversion, and other rights.
44
(9) Income Taxes
The components of the provision for income taxes before extraordinary item for
the years ended December 31, 1997, 1996 and 1995 are as follows (in thousands):
================================================================================
1997 1996 1995
----------------------------------
Current:
Federal .............................. $ 6,137 $ 2,607 $ 2,557
State ................................ 1,439 1,031 743
----------------------------------
7,576 3,638 3,300
Deferred ............................... 3,584 1,059 (3,724)
----------------------------------
Income tax (benefit) expense ......... $ 3,992 $ 4,697 $ (424)
================================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1997 and 1996 are
presented below (in thousands):
================================================================================
December 31, 1997
----------------------------
Deferred Tax Deferred Tax
Assets Liabilities
Accounts receivable ............................ $ 342 $ 0
Inventory ...................................... 707 0
Property, plant and equipment .................. 0 15,654
Payroll related accruals ....................... 2,434 0
Intangible assets .............................. 585 0
Miscellaneous reserves ......................... 1,279 0
Deferred gain .................................. 4,191 0
Facility closure ............................... 577 0
----------------------------
$10,115 $15,654
December 31, 1996
----------------------------
Deferred Tax Deferred Tax
Assets Liabilities
----------------------------
Accounts receivable ............................ $ 308 $ 0
Inventory ...................................... 758 0
Property, plant and equipment .................. 0 17,684
Payroll related accruals ....................... 1,672 0
Intangible assets .............................. 282 0
Miscellaneous reserves ......................... 808 0
Deferred gain .................................. 5,041 0
Cogeneration income ............................ 0 605
----------------------------
$ 8,869 $18,289
================================================================================
45
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. For the year ended
December 31, 1995, the company reduced the valuation allowance to $0. 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.
A reconciliation of income taxes from continuing operations at the United States
statutory rate to the effective rate for the years ended December 31, 1997, 1996
and 1995 are as follows:
================================================================================
1997 1996 1995
--------------------------------
U.S. federal rate ....................... 34.0% 34.0% 34.0%
Decrease in valuation allowance ......... 0.0% 0.0% (49.9%)
State taxes net of federal benefit ...... 6.1% 5.8% 5.9%
Other ................................... (0.8%) (1.4%) 4.4%
--------------------------------
Effective tax rate ...................... 39.3% 38.4% (5.6%)
================================================================================
Income taxes paid during 1997, 1996 and 1995 were $5,696,000, $3,698,000 and
$3,130,000, 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 $103,313,000 (carrying value $100,000,000) at December 31,
1997. Management has determined that the carrying values of its other financial
assets and liabilities approximate fair value at December 31, 1997.
(11) Acquisitions
1996 Acquisitions
The company purchased all of the outstanding stock of Arcon Holdings ("Arcon")
as of October 31, 1996. Concurrently with the transfer of the purchase price to
the stockholders of Arcon, the stockholders agreed to repay all amounts owed
under Arcon's revolver and term loans and repurchase and cancel warrants then
outstanding.
The company also purchased all of the issued and outstanding common stock of CPG
Investors Inc. ("CPG") on October 31, 1996. Concurrently with the transfer of
the purchase price to the stockholders of CPG, the stockholders agreed to repay
all amounts owed under CPG's revolving and term loans.
The aggregate purchase price of CPG and Arcon was approximately $91,500,000
which includes costs of the acquisitions. The acquisitions were financed through
the issuance of senior notes in the amount of $100,000,000 and were accounted
for using the purchase method. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based upon their respective
46
fair values. This treatment resulted in approximately $46,668,000 of cost in
excess of net assets acquired. Such excess, or goodwill, is being amortized on a
straight-line basis over thirty years. The 1996 consolidated results include
Arcon and CPG's results of operations from the date of the acquisitions through
the end of the year. The following summarized unaudited pro forma results of
operations for the year ended December 31, 1996, assumes the Arcon and CPG
acquisitions occurred as of the beginning of the period (dollars in thousands
except per share amounts):
- --------------------------------------------------------------------------------
Unaudited
-----------
Net sales ................................................ $227,822
Net income ............................................... 10,709
Basic earnings per share ................................. 1.77
- --------------------------------------------------------------------------------
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) Sale of Assets
On March 22, 1995, the company sold the assets of its Lewis Mill and the
company's gasket business to Armstrong World Industries Inc. ("Armstrong") for
$12,933,000 (the "Sale"). As part of the sale, inventory in the amount of
$1,080,000 was sold at book value to Armstrong. The net book value of the assets
sold was $19,311,000 and total expenses relating to the sale are estimated at
$1,924,000. At December 31, 1995, $1,744,000 of these expenses had been paid;
the remaining expenses were accrued in 1995 and paid in 1996. This transaction
resulted in a loss of $8,302,000 before taxes. Approximately $160,000 of the
purchase price was held by Armstrong pending the receipt of a New York State tax
clearance certificate. This payment was received by the company in May 1995. The
Lewis mill was part of a two-mill division located at the company's Latex Fiber
Products Division in Beaver Falls, New York.
(13) Facility Closure
On January 14, 1998, the company closed the Owensboro, Kentucky facility.
Production at this facility will be moved into certain of the company's other
operations. The exit plan contemplates moving some of the inventory and
equipment to other facilities and management expects to sell the remaining
assets at or above the adjusted carrying value. 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 write down to 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). Results of
operations of the facility amounted to a $.3 million loss for the year ended
December 31, 1997.
(14) Related Party Transactions
The company paid a management fee of $250,000 for the years ended December 31,
1997, 1996 and 1995, to an equity owner, MDC Management Company ("MDC"). The
company has a management
47
agreement with MDC which calls for an annual fee of $250,000 through 1997. In
1996 the company also paid MDC $250,000 in conjunction with the CPG and Arcon
acquisitions.
48
(15) 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 $564,000, $229,000 and $193,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
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.
A summary of the components of net periodic pension expense for the year ended
December 31, 1997 is as follows (in thousands):
================================================================================
Service cost - benefits earned during the period ................. $ 445
Interest cost on projected benefit obligation .................... 686
Actual return on plan assets ..................................... (668)
Net amortization and deferral .................................... 69
-----
Net periodic pension expense ................................... $ 532
================================================================================
The following table sets forth the funded status of the plan and the amount
reflected in the accompanying consolidated balance sheet (in thousands):
Actuarial present value of accumulated and projected benefit obligation:
Vested...................................................... $ (9,585)
Nonvested ............................................ (622)
--------
(10,207)
Plan assets at fair value ....................................... 7,832
--------
Projected benefit obligation in excess of plan assets ........... (2,375)
Unrecognized net loss ........................................... 765
Unrecognized net transition obligation .......................... 18
Unrecognized prior service costs ................................ 162
49
Adjustment required to recognize minimum liability .............. (945)
--------
Accrued pension cost ...................................... $(2,375)
================================================================================
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation at December 31, 1997 was 7.25%. The
expected long-term rate of return on plan assets was 9% in 1997.
As is required by SFAS No. 87, Employers' Accounting for Pensions, for plans in
which the accumulated 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 benefit obligation as a long-term
liability with an offsetting intangible asset and equity adjustment, net of tax
impact. The closure of the facility in Owensboro, Kentucky resulted in a
curtailment of the plan. However, since the plan benefit is not salary related,
there is no curtailment gain or loss as a result of the facility closure.
Defined Benefit Plan (1996 and Prior)
The defined benefit plan is an ERISA and IRS-qualified plan based upon the
negotiated benefit and years of service in the collective bargaining agreement
between the Unions and the company. Plan assets are invested principally in
equity securities, government and corporate debt securities and other fixed
income obligations. The company annually contributed at least the minimum amount
as required by ERISA.
A summary of the components of net periodic pension expense for the year ended
December 31, 1996 is as follows (in thousands):
================================================================================
Service cost - benefits earned during the period ................. $ 126
Interest cost on projected benefit obligation .................... 101
Actual return on plan assets ..................................... (133)
Net amortization and deferral .................................... 69
-----
Net periodic pension expense ............................... $ 163
================================================================================
Pension expense was approximately $134,000 for the year ended December 31, 1995.
The following table sets forth the funded status of the plan and the amount
reflected in the accompanying consolidated balance sheet (in thousands):
Actuarial present value of accumulated and projected benefit obligation:
Vested...................................................... $ (1,411)
Nonvested................................................... (134)
--------
(1,545)
Plan assets at fair value......................................... 1,360
--------
Projected benefit obligation in excess of plan assets............. (185)
50
Unrecognized net loss............................................. 0
Unrecognized transition obligation................................ 21
Unrecognized prior service costs.................................. 90
Adjustment required to recognize minimum liability................ (111)
--------
Accrued pension cost........................................ $ (185)
================================================================================
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation at December 31, 1996 was 7.5%. The
expected long-term rate of return on plan assets was 9% in 1996.
Defined Benefit Plan - CPG Employees
CPG employees were covered by a noncontributory defined benefit plan. This is an
ERISA and IRS-qualified plan which has benefits based on stated amounts for each
year of credited service. The plan's assets consist principally of equity
securities, government and corporate debt securities and other fixed income
obligations. The company annually contributed at least the minimum amount as
required by ERISA.
Net periodic pension expense for the two months ended December 31, 1996 included
the following components (in thousands):
================================================================================
Service cost ..................................................... $ 42
Interest cost on projected benefit obligation .................... 83
Actual return on plan assets ..................................... (80)
Net amortization and deferral .................................... (7)
----
Net periodic pension expense ............................... $ 38
================================================================================
The following table presents the funded status of the company's pension plan and
the net pension liability included in the consolidated balance sheet as of
December 31, 1996 (in thousands):
================================================================================
Actuarial present value of benefit obligations:
Vested benefits ............................................. $(6,827)
Nonvested benefits .......................................... (517)
-------
Projected benefit obligation .............................. (7,344)
Fair value of plan assets ....................................... 5,651
-------
Projected benefit obligation in excess of plan assets ........... (1,693)
Unrecognized net gain ........................................... 102
Additional minimum liability .................................... (102)
-------
Accrued pension cost ...................................... $(1,693)
================================================================================
51
The actuarial present value of the projected benefit obligation as of December
31, 1996 was calculated using a discount rate of 7.5%. A long-term rate of
return of 9% was used to calculate the net periodic pension expense.
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:
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.
A summary of the components of net periodic pension cost for the year ended
December 31, 1997 is as follows (in thousands):
================================================================================
Service cost - benefits earned during the period .................. $ 87
Interest cost on projected benefit obligation ..................... 104
Net amortization and deferral ..................................... 128
----
Net periodic pension expense ............................... $319
================================================================================
The following table sets forth the funded status of the plan and the amount
reflected in the accompanying consolidated balance sheet as of December 31, 1997
(in thousands):
================================================================================
Actuarial present value of benefit obligations:
Vested benefits ............................................... $(1,332)
Nonvested benefits ............................................ (1,474)
-------
Accumulated benefit obligation .................................. (2,806)
Effect of projected future compensation levels ................ (353)
Projected benefit obligation .................................... (3,159)
Plan assets at fair value ....................................... 0
-------
Projected benefit obligation in excess of fair value ............ (3,159)
Unrecognized prior service cost ................................. 2,840
Adjustment required to recognize minimum liability .............. (2,487)
-------
52
Accrued pension cost ............................................ $(2,806)
================================================================================
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation at December 31, 1997 was 7%.
As required by SFAS No. 87, Employers' Accounting for Pensions, for plans where
the accumulated benefit obligation exceeds the fair value of plan assets, the
company has recognized in the accompanying consolidated balance sheet the
minimum liability of the unfunded accumulated benefit obligation as a long-term
liability with an offsetting intangible asset.
53
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, 1997 the company has accrued $1,494,000 for its obligation
under the plan. The company's expense which includes company contributions and
interest expense amounted to $89,000 for the year ended December 31, 1997.
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 $1,342,000 as of December 31,
1997.
(16) Postretirement 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 postretirement benefit obligations related
to employees who retired prior to the acquisition were not assumed by the
company and remain the responsibility of prior owners.
Net periodic postretirement benefits cost included the following components (in
thousands):
================================================================================
Year Two Months
Ended Ended
December 31, December 31,
1997 1996
-----------------------------
Service cost .................................. $ 43 $ 14
Interest cost on accumulated postretirement
benefit obligation ........................ 99 23
Net amortization and deferral ................. 0 (1)
-----------------------------
Net periodic postretirement benefits cost . $142 $ 36
================================================================================
54
The following table sets forth the accumulated postretirement benefit obligation
included in accrued liabilities on the company's consolidated balance sheets (in
thousands):
================================================================================
Year Two Months
Ended Ended
December 31, December 31,
1997 1996
----------------------------
Accumulated postretirement benefit obligation:
Fully eligible participants ................. $ (44) $ 181)
Retirees .................................... (493) (208)
Other active plan participants .............. (926) (938)
----------------------------
Accumulated postretirement benefit obligation ... (1,463) (1,327)
Unrecognized net loss ....................... 129 74
----------------------------
Accrued postretirement benefit liability ........ $(1,334) $(1,253)
================================================================================
The assumed health care cost trend rate used in measuring future benefit costs
was 8%, gradually declining to 6% by 2001 and remaining at that level
thereafter. A 1% increase in this annual trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1997 by $85,000
and the aggregate of service and interest cost components of net periodic
postretirement benefit expense for the year ended December 31, 1997 by less than
$10,000. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 7.5% as of December 31, 1997 and
1996, respectively.
(17) Supplemental Cash Flow Information
Non-cash investing and financing activities:
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
Approximately 28%, 41%, and 47% of the company's total 1997, 1996 and 1995
sales, respectively, were concentrated in five customers. In 1996 and 1995
revenue from a single customer was $15,425,000 (12% of total sales) and,
$18,933,000 (16% of total sales), respectively. Sales to a second customer
accounted for 10% of total sales in both 1996 and 1995. In 1997, no sales to a
single customer accounted for an amount equal to or greater than 10% of the
company's total sales.
Approximately 8%, 12%, and 13% of the company's products were sold to foreign
customers (excluding Canada) in 1997, 1996 and 1995, respectively. The principal
international markets served by the company include Asia/Pacific Rim, Latin
America, Mexico and Europe.
55
(19) Stock Option and Bonus Plans
The company has three stock option plans which provide for grants of
nonqualified or incentive stock options. The 1992 Amended and Restated Stock
Option Plan ("1992 Plan") is fully granted at 301,422 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.
The following table sets forth the stock option transactions for the three years
ended December 31, 1997:
================================================================================
Weighted
Number of Average Exercise
Shares Price
----------------------------
Outstanding December 31, 1994 ............. 392,220 $ 4.15
Granted ............................. 66,150 7.83
Forfeited ........................... (45,477) 3.87
----------------------------
Outstanding December 31, 1995 ............. 412,893 4.77
Granted ............................. 381,102 10.99
Exercised ........................... (8,490) 4.05
Forfeited ........................... (31,275) 7.06
----------------------------
Outstanding December 31, 1996 ............. 754,230 7.83
Granted ............................. 182,500 21.87
Exercised ........................... (21,850) 5.36
Forfeited ........................... (7,500) 9.96
----------------------------
Outstanding December 31, 1997 ............. 907,380 $ 10.69
================================================================================
56
The following table summarizes information about the stock options outstanding
at December 31, 1997:
=============================================================================================
Options Outstanding Options Exercisable
----------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
- ---------------------------------------------------------------------------------------------
$ 3.33 ............... 225,378 4.0 $ 3.33 225,378 $ 3.33
6.00 to 7.83......... 128,400 6.2 6.81 83,142 6.64
9.00 to 9.41......... 217,250 7.3 9.24 143,753 9.34
13.5 ............... 153,852 8.6 13.50 30,770 13.50
$ 21.87 ............... 182,500 9.3 $21.87 16,500 $21.87
----------------------------------------------------------------
907,380 499,543
=============================================================================================
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 1997, 1996 and 1995 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 1997,
1996 and 1995 consistent with the provisions of SFAS No. 123, the company's net
income would have been reduced to the pro forma amounts indicated below:
================================================================================
1997 1996 1995
----------------------------------
Net income, as reported................... $6,169 $7,217 $7,953
Net income, pro forma..................... 5,304 7,075 7,918
Basic earnings per share, as reported..... $ 1.01 $ 1.19 $ 1.31
Basic earnings per share, pro forma....... .86 1.17 1.31
Diluted earnings per share, as reported... $ .95 $ 1.14 $ 1.30
Diluted earnings per share, pro forma..... .82 1.12 1.30
================================================================================
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
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 1997, 1996 and 1995: risk-free interest rate of
6%; dividend yield of $0; expected volatility of 45%; and expected lives of ten
(10) years.
57
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 $1,001,000, $398,000 and $322,000 in 1997, 1996 and 1995,
respectively.
(20) Subsequent Event
Effective January 1, 1998 the company purchased all of the outstanding shares of
Steinbeis Gessner GmbH ("Gessner") for $40.0 million and DM5.315 ($3.1) million
in cash. Gessner manufacturers crepe masking and specialty tape materials, wet
and dry abrasive papers, filter media for automotive air, oil and gasoline and
filter media for automotive cabins and vacuum cleaner bags. This 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 DM54.0
($30.2) 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 DM8.0 ($4.6) million. The acquisition will be accounted for as a
purchase and will result in approximately $5.1 million in goodwill.
(21) Unaudited Quarterly Summary Information
The following is a summary of unaudited quarterly summary information for the
years ended December 31, 1997 and 1996 (in thousands except per share data).
================================================================================
1997 Mar 31 Jun 30 Sep 30 Dec 31(1)
------------------------------------------
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)
------------------------------------------
1996 Mar 31 Jun 30 Sep 30 Dec 31(2)
------------------------------------------
Net sales ......................... $ 24,859 $ 26,086 $ 26,789 $ 47,037
Gross profit ...................... 3,503 5,011 5,115 9,161
Net income ........................ 1,048 1,816 2,093 2,260
Basic earnings per share .......... 0.17 0.30 0.35 0.37
Diluted earnings per share ........ 0.17 0.29 0.33 0.35
================================================================================
(1) 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 loss as a result of this event. Equivalent shares
of common stock have not been included in the 1997 fourth quarter diluted
earnings per share calculation as their effect would be antidilutive.
58
(2) In the fourth quarter of 1996 the company acquired Arcon Holdings
Corporation and CPG Investors Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
FiberMark, Inc.
Under date of February 6, 1998, we reported on the consolidated balance sheets
of FiberMark, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the two years ended December 31, 1997, which are included in the Annual
Report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules in item (14(a)(2) herein. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, 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.
KPMG Peat Marwick LLP
Burlington, Vermont
February 6, 1998
59
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of
FiberMark, Inc.:
In connection with our audits of the consolidated financial statements of
FiberMark, Inc. (formerly Specialty Paperboard, Inc.) as of December 31, 1995
and for the period ended December 31, 1995, which consolidated financial
statements are included in the Annual Report on Form 10-K, we have also audited
the consolidated financial statement schedule listed in Item 14(a)(2) herein.
In our opinion, this consolidated financial statements schedule, when
considered in relation to the basic consolidated financial statements taken as
whole, present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 26, 1996
60
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, 1997 Allowances for possible
losses on accounts receivable ...................... $ 333 ($113) $ 17 $ 203
Year Ended December 31, 1996 Allowance for possible
losses on accounts receivable ...................... $ 253 $ 173 $ 93 $ 333
Year Ended December 31, 1995 Allowances for possible
losses on accounts receivable ...................... $ 258 $ 104 $ 109 $ 253
61
Item 14(a)(3) Exhibits
Number Description
- ------ -----------
2.1(11) Share Purchase Agreement dated as of November 26, 1997, among
Steinbeis Holding GmbH ("Steinbeis"), Zetaphoenicis Beteiligungs
GmbH and Thetaphoenicis 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 A Senior Note due 2006
(included in Exhibit 4.3 hereof).
4.5(9) Specimen Certificate of 9 3/8% Series B Senior Note due 2006
(included in Exhibit 4.3 hereof).
4.6(9) Form of Guarantee of Senior Notes issued pursuant to the Indenture
(included in Exhibit 4.3 hereof).
4.7(9) Registration Rights Agreement dated as of October 16, 1996 among the
Company, Endura, CPG Co. and BT Securities Corporation.
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(8) Paper Procurement Agreement, between the Company and
Pajco/Holliston, dated February 23, 1995.
10.8(1) Energy Service Agreement (Latex mill), dated as of November 19,
1992, between Kamine and the Company.
10.9(2) Amendment No. 1 to the Energy Service Agreement (Latex mill), dated
as of May 7, 1993, between Kamine and the Company.
10.10(1) Energy Service Agreement (Lewis mill), dated as of November 19,
1992, between Kamine and the Company.
10.11(2) Amendment No. 1 to the Energy Service Agreement (Lewis mill), dated
as of May 7, 1993, between Kamine and the Company.
62
10.12(1) Restated Ground Lease, dated as of November 19, 1992, between Kamine
and the Company.
10.13(1) Beaver Falls Cogeneration Buyout Agreement, dated as of November 20,
1992, between Kamine, Kamine Beaver Falls Cogen. Co., Inc. and the
Company.
10.14(2) Consent and Agreement (Energy Services Agreement), dated as of May
7, 1993, by the Company.
10.15(2) First Amendment of Restated Ground Lease, dated as of May 7, 1993,
between Kamine and the Company.
10.16(2) Memorandum of Lease, dated as of May 7, 1993, between Kamine and the
Company.
10.17(2) Lessor Consent and Estoppel Certificate, dated as of May 7, 1993,
between the Company and Deutsche Bank AG, New York Branch, Ansaldo
Industria of America, Inc. and SV Beavers Falls, Inc.
10.18(7)(3) The Company's 1994 Stock Option Plan and related forms of Option
Agreements.
10.19(7)(3) The Company's 1994 Directors Stock Option Plan and related form of
Option Agreement.
10.20(9)(3) Amendment to the Company's 1994 Directors Stock Option Plan.
10.21(4)(3) The Company's Executive Bonus Plan.
10.22(9) Deed of Lease between James River Paper Company, Inc. and
CPG-Virginia Inc. dated as of October 31, 1993.
10.23(9) Amended and Restated Agreement of Lease, between Arnold Barsky doing
business as A&C Realty and Arcon Mills Inc., dated June 1, 1988.
10.24(9) Lease Agreement dated November 15, 1995, between IFA Incorporated
and Custom Papers Group Inc. ("Custom Papers Group").
10.25(9) Master Lease Agreement dated January 1, 1994, between Meridian
Leasing Corp. and Custom Papers Group.
10.26(9) Master Equipment Lease Agreement dated February 3, 1995, between
Siemens Credit Corp. and CPG Holdings Inc.
10.27(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.
10.28(11) Loan Agreement dated as of November 24, 1997, between Steinbeis and
Gessner.
10.29(11) Expansion Land Option and Preemption Right Agreement dated as of
November 13, 1997, between Steinbeis and Gessner.
10.30 Third Amended and Restated Financing Agreement & Guaranty
10.31 Second Amended and Restated Security Agreement dated December 31,
1997, between FiberMark Office Products, LLC and CIT Group/Equipment
Financing, Inc.
10.32 Second Amended and Restated Security Agreement dated December 31,
1997, between FiberMark, Inc. FiberMark Durable Specialties, Inc.,
and FiberMark Filter and Technical Products
10.33 Loan Agreement dated as of January 7, 1998, between Zetaphoenicis
Beteiligungs GmbH and Bayerische Vereinsbank AG ("Bayerische").
10.34 Working Credit Facility dated as of January 13, 1998, between
Gessner and Bayerische.
10.35 Capex Loan Agreement dated as of January 13, 1998, between Gessner
and Bayerische.
10.36 Form of Amended and Restated Non-Employee Directors Stock Option
Plan dated February 18, 1998.
21 List of FiberMark subsidiaries
63
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
- ----------
(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 13, 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.
64
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 25th day of March, 1998.
FiberMark, Inc.
By /s/
----------------------------------
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/ President and March 25, 1998
- --------------------------- Chief Executive Officer
Alex Kwader
/s/ Chairman of the Board March 25, 1998
- ---------------------------
K. Peter Norrie
/s/ Director March 25, 1998
- ---------------------------
Brian C. Kerester
/s/ Director March 25, 1998
- ---------------------------
Marion A. Keyes
/s/ Director March 25, 1998
- ---------------------------
George E. McCown
/s/ Director March 25, 1998
- ---------------------------
Jon H. Miller
/s/ Director March 25, 1998
- ---------------------------
Glenn S. McKenzie
/s/ Director March 25, 1998
- ---------------------------
E. P. Swain, Jr.
/s/ Director March 25, 1998
- ---------------------------
Fred P. Thompson
/s/ Director March 25, 1998
- ---------------------------
John D. Weil
/s/ Vice President and March 25, 1998
- ---------------------------
65
Bruce Moore Chief Financial Officer
66