<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
TO
Commission file number 0-016951
FIBREBOARD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 94-0751580
(STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER IDENTIFICATION
INCORPORATION) NO.)
2121 N. CALIFORNIA BLVD., SUITE 560, WALNUT CREEK, CA 94596
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(510) 274-0700
(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, $0.01 Par Value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XXX. 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 the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. XXX.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 21, 1994 was $158,676,282.
As of the close of business on March 21, 1994, the Registrant had
outstanding 4,201,420 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Fibreboard Corporation's Proxy Statement relating to its 1994
Annual Meeting of Stockholders, which will be filed pursuant to Regulation 14A
not later than April 30, 1994, are incorporated by reference in Part III.
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<PAGE>
FIBREBOARD CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEMS PAGE NO.
- -------------------- -------------
<S> <C> <C>
PART I
Items 1 and 2 Business and Properties.......................................................... 3
Wood Products Group.............................................................. 3
Industrial Insulation Products Group (Pabco)..................................... 7
Resort Operations................................................................ 9
Discontinued Operations.......................................................... 10
Environmental Matters............................................................ 11
Item 3 Legal Proceedings................................................................ 11
Asbestos-Related Personal Injury Claims.......................................... 11
Asbestos-in-Buildings Claims..................................................... 11
Insurance Coverage for Personal Injury Claims.................................... 11
Insurance Coverage for Asbestos-in-Buildings Claims.............................. 12
Other Litigation................................................................. 12
Item 4 Submission of Matters to a Vote of Security Holders.............................. 13
Executive Officers of the Registrant............................................. 13
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters............ 14
Item 6 Selected Financial Data.......................................................... 15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 15
1993 vs. 1992.................................................................... 15
Liquidity and Capital Resources.................................................. 17
1992 vs. 1991.................................................................... 18
Impact of Inflation.............................................................. 20
Item 8 Financial Statements and Supplementary Data...................................... 20
Consolidated Statements of Income................................................ 21
Consolidated Balance Sheets...................................................... 22
Consolidated Statements of Cash Flows............................................ 24
Consolidated Statements of Stockholders' Equity.................................. 26
Notes to Consolidated Financial Statements....................................... 27
Report of Independent Public Accountants......................................... 49
Report of Management............................................................. 50
Selected Quarterly Financial Data................................................ 51
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 51
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 51
Item 11 Executive Compensation........................................................... 51
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 52
Item 13 Certain Relationships and Related Transactions................................... 52
PART IV
Item 14 Exhibits, Financial Statements, Schedules and Reports on Form 8-K................ 52
</TABLE>
2
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Fibreboard Corporation (Fibreboard) is a Delaware corporation incorporated
in 1917. Between June 1978 and June 1988, Fibreboard was a wholly-owned
subsidiary of Louisiana-Pacific Corporation (L-P). In June 1988, L-P distributed
to its shareholders Fibreboard's common stock, and Fibreboard once again became
an independent, publicly held company. Fibreboard operates in three primary
industry segments: wood products, industrial insulation products and resort
operations.
Sales in 1993 for each segment were as follows:
<TABLE>
<CAPTION>
IN MILLIONS %
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wood Products................................................................. $ 190.5 72
Industrial Insulation Products................................................ 49.2 18
Resort Operations............................................................. 25.5 10
-----------
$ 265.2
-----------
-----------
</TABLE>
Wood Products manufactures lumber, hardwood plywood and other value-added
wood products and owns approximately 91,000 acres of timberland in northern
California. Industrial Insulation Products, sold under the trade name of Pabco,
manufactures molded insulation for high temperature and industrial applications,
fireproofing board used in commercial construction and metal jacketing. Resort
Operations includes Northstar-at-Tahoe, a year-round resort including ski and
golf facilities, and Sierra-at-Tahoe, a day ski area, both located near Lake
Tahoe, California.
Fibreboard employs approximately 2,500 people (including approximately 1,100
seasonal employees in resort operations), all of whom are non-union.
Information concerning the revenues, operating results and identifiable
assets of each of Fibreboard's three industry segments can be found in Note 12
to Fibreboard's consolidated financial statements, "Industry Segment
Information" on page 38.
WOOD PRODUCTS GROUP
PRODUCTS
- Softwood lumber, principally pine industrial grade and fir dimension
lumber;
- Mouldings and millwork used in the construction of windows, doors and
furniture parts;
- High-grade hardwood plywood panels used primarily in furniture and
cabinets, including premium priced thin panels used in the furniture
industry;
- Processed bark for decorative landscape applications and soil amendments;
and
- Paper-on-wood veneer wraps and other component parts used in the
agricultural container industry (these businesses were sold in early
1994).
More than 35% of Fibreboard's sawmill production is industrial grade lumber
which historically has been retained by Fibreboard or sold to others for further
processing into moulding, millwork, windows, doors and furniture parts.
Fibreboard's management believes that the specialty nature of industrial grade
lumber makes it more profitable and somewhat less subject to price fluctuations
than other grades. The remaining sawmill output is comprised of common and
dimension lumber grades used in lower-end industrial applications and in framing
for home construction and remodeling applications.
3
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MARKETS
Products are marketed directly to factories or remanufacturing operations
for further processing, to wholesalers and to other building material
distributors located principally in the western United States. Fibreboard's
industrial grade lumber market extends to the midwestern states, while its
common and dimension lumber market is largely confined to California.
MARKET POSITION, COMPETITION AND ENTRY BARRIERS
Fibreboard does not account for a significant percentage of the nations's
lumber production. The principal means of competition are price, delivery and
quality. Fibreboard believes that the location of its sawmills are ideal for the
west coast lumber market.
Fibreboard believes it is one of the five largest hardwood plywood producers
in the United States, with an approximate 10% market share. Fibreboard's market
share is limited by its production capacity. The principal means of competition
are quality and delivery. Fibreboard believes its California manufacturing
location is a competitive advantage in serving the southern California furniture
and cabinet industries.
Fibreboard does not account for a significant percentage of the nation's
moulding and millwork production. Fibreboard's moulding and millwork operations
compete with a limited number of large producers and several hundred small
operations, and benefit from Fibreboard's integrated lumber supply.
There are substantial barriers to entry to Fibreboard's markets including:
(a) difficulties in achieving meaningful economies of scale; (b) industry
capital requirements; (c) timber supply; and (d) existing and potential
environmental regulation and forest land set asides.
SUPPLIERS
Fibreboard's sawmill and plywood operations require approximately 135
million board feet of logs to operate at scheduled capacities. Fibreboard owns
approximately 91,000 acres of timberland in northern California, of which
approximately 84,000 acres can supply raw materials to its operations.
Fibreboard's timberlands are comprised primarily of ponderosa pine and white
fir, with smaller amounts of other species. These lands can supply on a
sustained yield basis approximately 30% -35% of the log requirements for
Fibreboard's present sawmills and plywood mill operating at scheduled
capacities. The balance of Fibreboard's log requirements are supplied by U.S.
Forest Service (USFS) timber cutting contracts, cutting contracts with private
timberland owners and by open market purchases. Fibreboard's logging operations
are conducted by independent contractors.
Fibreboard's USFS timber cutting contracts are typically "pay-as-cut"
contracts. Contracts are generally awarded in an open, competitive bid process,
although some are awarded using sealed bids. Stumpage prices typically are
subject to escalation and de-escalation based on movement of published indices
for finished products.
Approximately 50%-60% of Fibreboard's log needs have historically come from
the Stanislaus National Forest in California. In 1991, the USFS issued its
Stanislaus management plan which will govern that forest's operations for the
next 10 to 15 years (the Final Plan). The Final Plan projects an annual
allowable sale quantity (the ASQ) of 88 million board feet. This ASQ represents
a 30% reduction from the average quantity of timber sold each year since 1973.
Historically, approximately 30% of the ASQ has been set aside for small
business. This amount is currently under review by the USFS.
Fibreboard has appealed the Final Plan to the USFS Washington, D.C. office,
challenging the methodologies used and conclusions reached. If that appeal is
not successful, Fibreboard will consider legal action through the court system.
Fibreboard cannot predict whether any such efforts will be successful in
increasing the ASQ.
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In January 1993, the USFS issued new interim rules governing the harvest of
federal timber in California to protect the habitat of the California spotted
owl. While the owl has not been declared "endangered" or "threatened" under the
Endangered Species Act, the new rules impose logging restrictions for two years
while further study of the owl's status is undertaken. The new rules generally
prohibit logging trees larger than 30 inches in diameter under any USFS timber
contract awarded after March 1, 1993, and impose certain other restrictions.
Fibreboard joined an appeal of these new rules, asserting there was no
existing scientific evidence indicating the California spotted owl is in danger
and that the new rules were an overly restrictive reaction to protectionist
pressures. This appeal was rejected by the USFS. The affected companies have
initiated litigation challenging this decision. Fibreboard cannot predict
whether there will be any ability to lessen the potential impact of these new
rules.
Because of the issues discussed above, the USFS has set the tentative total
harvest from the Stanislaus National Forest for fiscal 1994 at 46 million board
feet. Of this total, nearly 40% is expected to be devoted to biomass and
firewood programs, which yield few, if any, commercial sawlogs. Of the remaining
sales volume, nearly 80% will be set aside for the small business program, as
recent years small business offerings have not reached target levels. Fibreboard
believes the harvest quantities from neighboring national forests will be
reduced as well.
Fibreboard expects that future costs of timber harvested from USFS lands
will increase as competition for available timber mounts. While history is not
necessarily indicative of the future, prices for Fibreboard's lumber products
increased during 1993, apparently in response to supply constraint concerns as
demand was less than robust. Fibreboard believes continued supply constraints
will enhance the value of its fee-owned timber, even though production decreases
may be necessitated.
In response to these supply issues, during 1993 Fibreboard aggressively
pursued alternative sources of timber supply. Examples include securing
quantities of cottonwood logs from the Pacific Northwest for the plywood mill,
cutting logs imported from New Zealand and Chile and securing cutting rights to
4,800 acres of privately owned timberland in northern New Mexico. Fibreboard
expects to continue seeking alternative sources of timber supply in the future.
In addition, due to the high prices available to private timberland owners, the
amount of timber acquired from private parties increased dramatically during
1993. Fibreboard anticipates the footage available from private parties will
continue at high levels during 1994.
While Fibreboard believes it has adequate timber available to meet its needs
for 1994 and well into 1995, it currently is unable to determine the ultimate
outcome of these timber supply issues. In the event there is inadequate timber
to support all existing manufacturing operations of Fibreboard and its
competitors, some facilities (potentially including Fibreboard operations) may
be forced to curtail operations or close. Fibreboard will evaluate the need for
such actions based on the quantity and characteristics of available timber and
existing market conditions for its products at the time such decisions are
required.
Fibreboard's remanufacturing operations purchase primarily industrial grade
pine lumber for value-added processing. Fibreboard sawmills supply more than 50%
of these annual lumber requirements with the remainder purchased on the open
market. Fibreboard has not experienced any difficulties in procuring adequate
raw materials for these facilities, although a timber supply shortage could
result in lower volumes of industrial lumber available and/or higher prices.
ENVIRONMENTAL POLICY
Fibreboard endeavors to adhere to sound environmental practices in both
management of its forest lands and facility operations. Fibreboard believes it
has been an industry leader in environmentally sound timber management.
Fibreboard timberlands are composed of multiple-aged stands. Fibreboard makes
optimal use of
5
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all fiber by (a) maximizing productivity by directing logs to the conversion
facility that can most efficiently and profitably convert those logs to products
and (b) processing waste materials formerly discarded in landfills to lower
costs and to generate additional sales.
BUYERS
Markets for Fibreboard's wood products are price sensitive. However,
industry pricing is supported by the general shortage of timber available for
harvest in California and the western states. Adverse effects of competing in
price sensitive markets are minimized by Fibreboard's integrated operations and
proximity to its primary markets.
FACILITIES
LUMBER
<TABLE>
<CAPTION>
NORMAL ANNUAL
PRODUCTION
CAPACITY
(THOUSAND BOARD
PLANT LOCATION FEET) PRODUCTION SCHEDULE
- ------------------------------------------------------------------ ----------------- ---------------------
<S> <C> <C>
Standard, CA...................................................... 80,000 2 shifts-5 days/week
Chinese Camp, CA.................................................. 70,000 2 shifts-5 days/week
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TOTAL......................................................... 150,000
</TABLE>
REMANUFACTURING
<TABLE>
<CAPTION>
NORMAL ANNUAL
PRODUCTION
CAPACITY
(THOUSAND BOARD
PLANT LOCATION FEET) PRODUCTION SCHEDULE
- ------------------------------------------------------------------ ----------------- ---------------------
<S> <C> <C>
Fresno, CA* (box & some millwork)................................. 12,000 2 shifts-5 days/week
Red Bluff, CA (millwork).......................................... 40,000 2 shifts-5 days/week
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TOTAL......................................................... 52,000
</TABLE>
HARDWOOD PLYWOOD
<TABLE>
<CAPTION>
NORMAL ANNUAL
PRODUCTION
CAPACITY
(THOUSAND BOARD
PLANT LOCATION FEET) PRODUCTION SCHEDULE
- ------------------------------------------------------------------ ----------------- ---------------------
<S> <C> <C>
Standard, CA...................................................... 120,000 3 shifts-5 days/week
Fresno, CA........................................................ 14,000 2 shifts-5 days/week
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TOTAL......................................................... 134,000
</TABLE>
OTHER OPERATIONS
<TABLE>
<CAPTION>
PLANT LOCATION KEY PRODUCTS
- ------------------------------------------------------------------ -------------------------------------------
<S> <C>
Fresno, CA*....................................................... Paper-on-wood veneer wraps
Keystone, CA...................................................... Decorative bark
<FN>
*THESE FACILITIES WERE SOLD IN EARLY 1994.
</TABLE>
CAPITAL SPENDING
In recent years, Fibreboard has maintained a capital spending program at
each of its wood products facilities to lower manufacturing costs. Through
capital improvements, including significant enhancements to the Chinese Camp,
Standard Plywood and Red Bluff facilities, Fibreboard has enhanced the value of
its core business. Management anticipates wood products capital expenditures
should range from $2 to $3 million annually.
6
<PAGE>
SEASONALITY
The wood products business is somewhat seasonal and usually experiences
increased levels of demand during the warm weather construction season. In
addition, wood products are significantly affected by economic cycles.
OPERATING RESULTS--WOOD PRODUCTS GROUP
<TABLE>
<CAPTION>
HISTORICAL PERFORMANCE
(000'S OMITTED)
1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales......................................................... $ 190,494 $ 169,655 $ 165,101
Operating Income:
Operations.................................................. 18,468 17,321 11,450
Unusual items (1)........................................... -- -- (7,896)
-------------------------------
Pre-tax Operating Income (1).................................. 18,468 17,321 3,554
<FN>
(1) INCLUDES UNUSUAL INCOME/(EXPENSE) CONSISTING PRIMARILY OF PLANT SALES AND
RESTRUCTURING CHARGES.
</TABLE>
INDUSTRIAL INSULATION PRODUCTS GROUP (PABCO)
PRODUCTS
Pabco produces molded industrial insulation, fireproofing board and metal
jacketing. Molded industrial insulation (calcium silicate--"CalSil") is produced
in a variety of standard sizes and configurations for use in industrial
construction and maintenance, primarily for high temperature piping and boiler
applications. The panel industrial fireproofing board (Super Firetemp-TM-, also
a form of calcium silicate insulation) can be used in industrial and commercial
applications such as protecting columns, flues, cable trays, tanks, bulkheads,
etc.
Super Firetemp competes with a number of generic fireproofing products.
Super Firetemp retains its shape, size and strength under continuous service at
temperatures in excess of 2,000(0) F. and may be re-used after exposure to
extreme temperatures. Super Firetemp is exceptionally easy to cut and handle,
and can be applied directly to the surface it is protecting, unlike competing
products which require clearance space. Consequently, Super Firetemp's
durability, space efficiency and ease of application may provide greater cost
savings to users than competing products.
Pabco also manufactures metal jacketing and metal elbows used to cover and
protect molded insulation products after installation.
MARKET POSITION, COMPETITION AND ENTRY BARRIERS
Fibreboard believes there are four significant producers of molded calcium
silicate industrial insulation used in the United States. Pabco is the largest
producer of this specialized product category which directly competes with
fiberglass, mineral wool, foam glass and ceramic fibers in the industrial
insulation market. Pabco's CalSil production facilities are the largest, single
product plants in its segment of the domestic industrial insulation industry.
Pabco's precision-molded, modular technology allows for more efficient operation
at a wider range of volumes than can be achieved by major competitors. Pabco's
key insulation and metal plants include operations in the Gulf States region
where buyers and sales are currently concentrated. Pabco believes its products
are preferred in construction projects where ease of installation is paramount
since Pabco's product is more easily field fabricated. Each of Pabco's major
competitors operates single-facility, older plants located in the midwest and
eastern states. Fibreboard believes these may be higher-cost facilities, in
areas of inherent labor cost disadvantages.
Barriers to entry in CalSil production are significant due to capital
requirements. However, in certain applications, other types of insulation may be
substituted.
7
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Fibreboard believes that there are only three major domestic producers of
metal elbows and jacketing material for insulation protection with each having a
roughly equal share of the domestic market. The three producers have substantial
excess capacity compared to market demand.
Pabco is the only North American producer of calcium silicate-based
industrial fireproofing board which it manufactures under an exclusive foreign
license. However, competing foreign products have been sold in the United States
with some success.
The principal means of competition are price, quality and service.
SUPPLIERS
The primary raw materials in calcium silicate insulation are diatomaceous
earth and limestone. There are relatively few sources of supply of diatomaceous
earth of a quality which Pabco considers acceptable for production of calcium
silicate insulation. However, Pabco has entered into long term material supply
contracts on favorable terms. The raw materials for the metal operations are
aluminum, stainless steel, vinyl and paper materials. Pabco has not experienced
any difficulties in obtaining adequate supplies and does not anticipate any such
difficulties, although metal pricing has varied significantly over the last
three years.
BUYERS
A majority of Pabco's revenues are derived in the maintenance market.
Primary customers include insulation contractors and distributors concentrated
in the Gulf States region. Products are marketed by Pabco's sales force to
insulation distributors and contractors. Although industrial insulation sales
are price sensitive, Fibreboard believes Pabco's low-cost facilities, material
and energy costs give Pabco a significant cost advantage over competitors.
FACILITIES
MOLDED INDUSTRIAL INSULATION
<TABLE>
<CAPTION>
NORMAL ANNUAL
PRODUCTION
CAPACITY
PLANT LOCATION (CUBIC FEET) PRODUCTION SCHEDULE
- ---------------------------------------------------------------------- ---------------- ---------------------
<S> <C> <C>
Ruston, LA............................................................ 2,300,000 3 shifts-7 days/week
Grand Junction, CO.................................................... 2,300,000* 3 shifts-7 days/week
--------
TOTAL............................................................... 4,600,000
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<FN>
*FACILITY WAS OPERATED FOR ONLY THREE MONTHS DURING 1993 TO MATCH PRODUCTION
WITH DEMAND.
</TABLE>
PANEL INDUSTRIAL FIREPROOFING BOARD
<TABLE>
<CAPTION>
NORMAL ANNUAL
PRODUCTION
CAPACITY
PLANT LOCATION (POUNDS) PRODUCTION SCHEDULE
- ---------------------------------------------------------------------- ---------------- ---------------------
<S> <C> <C>
Grand Junction, CO.................................................... 7,500,000 3 shifts-7 days/week
</TABLE>
METAL JACKETING
<TABLE>
<CAPTION>
NORMAL ANNUAL
PRODUCTION
CAPACITY
PLANT LOCATION (CUBIC FEET) PRODUCTION SCHEDULE
- ---------------------------------------------------------------------- ---------------- ---------------------
<S> <C> <C>
Palestine, TX......................................................... (1) 1 shift-5 days/week
Poca, WV.............................................................. (1) 1 shift-5 days/week
Huntington Beach, CA.................................................. (1) 1 shift-5 days/week
<FN>
(1) CAPACITY CANNOT BE EXPRESSED IN A STANDARD UNIT OF MEASURE.
</TABLE>
8
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CAPITAL SPENDING
The industrial insulation group requires minimal capital expenditures,
primarily for maintenance purposes, averaging less than $1 million per year.
Fibreboard's management does not foresee any significant required capital
expenditures, other than maintenance expenditures, for the foreseeable future.
SEASONALITY
Industrial insulation products are impacted by petrochemical and general
economic cycles affecting industrial capital expenditure programs. In general,
sales activity is not significantly impacted by seasonality.
OPERATING RESULTS--INDUSTRIAL INSULATION PRODUCTS GROUP
<TABLE>
<CAPTION>
HISTORICAL PERFORMANCE
(000'S OMITTED)
1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales............................................................................ $ 49,215 $ 49,701 $ 52,292
Operating Income:
Operations..................................................................... 5,382 6,138 4,497
Unusual items (1).............................................................. -- -- (4,956)
-------------------------------
Pre-tax Operating Income (loss).................................................. 5,382 6,138 (459)
<FN>
(1) REPRESENTS RESTRUCTURING CHARGE.
</TABLE>
RESORT OPERATIONS
FACILITIES
Fibreboard is the owner, developer and operator of a 4,500 acre year-round
destination resort near the north shore of Lake Tahoe, California. The resort,
Northstar-at-Tahoe (Northstar), features extensive ski facilities located on an
8,600 foot mountain with a vertical ski trail drop of 2,200 feet. Facilities
include eight chair lifts and a high-speed gondola plus a day lodge, various
restaurants, shops, entertainment and group conference facilities. Summer
facilities include riding stables, mountain bike and hiking trails, an 18-hole
golf course, tennis courts, a swimming pool and other recreational amenities.
Northstar includes 598 building lots and 654 condominium units, all of which
have been sold. Participating owners may offer homes or condominiums for rental
through Northstar's rental management program. Northstar has significant
additional land which is suitable for real estate development. Northstar is
currently pursuing approvals for a new subdivision consisting of 158 single
family home sites. Northstar anticipates the average sales price of these lots,
once developed, will be $125,000 to $160,000 each. Northstar intends to begin
offering lots for sale on a phased basis over seven years, beginning in 1995.
During 1993, Fibreboard purchased the assets of Sierra Ski Ranch, a day ski
area located near the south shore of Lake Tahoe in California. The ski area,
renamed Sierra-at-Tahoe (Sierra), features 44 ski trails located on an 8,900
foot mountain with a vertical drop of 2,200 feet. Facilities include nine
chairlifts, three restaurants and retail and ski rental shops.
Sierra is a day use only area, and has no lodging facilities. Lodging is
available in South Lake Tahoe, 14 miles away.
MARKETS
Northstar and Sierra are marketed through a variety of public media,
including magazines, newspapers, radio, television and outdoor advertising, as
well as through direct convention sales and contacts with business and trade
groups.
Northstar is located approximately 200 highway miles east of San Francisco
and approximately 40 miles west of Reno, Nevada, while Sierra is located
approximately 190 highway miles east of San Francisco. The
9
<PAGE>
primary market area is the state of California. Fibreboard estimates that
approximately 60% of Northstar's skiers are from northern California and 18%
from southern California compared to Sierra where an estimated 90% of skiers are
from northern California. Fibreboard believes Northstar's location, ease of
access, quality of facilities, service, amenities and image appeal directly to
the family and high income skier segments of its market while Sierra appeals
primarily to the value-conscious day skier.
MARKET POSITION AND COMPETITION
Northstar is one of the better known year-round destination resorts in the
Lake Tahoe vicinity. Northstar competes directly with other ski resorts in the
area as well as with major ski and year-round destination resorts throughout the
western United States. Sierra's competition is primarily limited to ski areas
located in the central Sierra Nevada Mountain, although it does attract some
destination skiers from the South Lake Tahoe area.
CAPITAL SPENDING
Over the past several years, Northstar has made substantial capital
expenditures to improve efficiency and competitiveness. Major projects included
detachable high speed chairlifts, a six passenger gondola, additional snowmaking
and a new mountaintop restaurant. Northstar has expanded its snowmaking
capability to reduce vulnerability to weather patterns and add stability to the
revenue stream. Snowmaking also improves the attractiveness of the ski mountain
to a broader as well as more experienced range of skiers. Fibreboard anticipates
that annual resort operations capital expenditures, primarily for annual
maintenance and additional resort amenities, will approximate $3 million.
SEASONALITY
Operations are highly seasonal with more than 75% of revenues realized
during the ski season from late November through early-April. The length of the
ski season and the profitability of operations are significantly affected by
weather. Although Northstar has snowmaking capacity to mitigate some of the
effects of adverse weather conditions, abnormally warm weather or lack of
adequate snowfall can materially reduce revenues. Sierra lacks significant
snowmaking capability but generally benefits from higher annual snowfall than
Northstar. Depending on the weather and other factors, annual skier visits have
varied from 240,000 to 420,000 at Northstar and 130,000 to 330,000 at Sierra
over the last decade.
OPERATING RESULTS--RESORT OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL PERFORMANCE
(000'S OMITTED)
1993 1992 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales............................................................ $ 25,501 $ 20,361 $ 16,663
Pre-tax Operating Income*........................................ 2,325 1,648 144
<FN>
*INCLUDES NEGATIVE IMPACT OF 1993 MID-YEAR ACQUISITION OF SIERRA WHICH HAD
ANTICIPATED EXPENSES IN EXCESS OF REVENUES OF APPROXIMATELY $1 MILLION.
</TABLE>
DISCONTINUED OPERATIONS
During 1991, Fibreboard closed its Roxboro, North Carolina facility which
manufactured a substitute lumber product. The plant had operated in start-up
since early 1989 and could not reach production levels or efficiencies necessary
to continue operations. This facility was sold during 1993. Additional
information concerning discontinued operations can be found in Note 14 of
Fibreboard's consolidated financial statements, "Discontinued Operations," on
page 39.
10
<PAGE>
ENVIRONMENTAL MATTERS
All of Fibreboard's production facilities are subject to regulation by
federal and state environmental agencies. Fibreboard believes its facilities
substantially meet applicable environmental requirements in all material
respects. Although compliance with environmental requirements is currently not
materially burdensome, given the uncertainties associated with environmental
matters generally, and with changing laws and regulations in particular, there
can be no assurance that continued compliance will not be materially burdensome
in the future.
Information concerning Fibreboard's involvement in landfill clean-ups is
incorporated herein by reference to Note 17 of Fibreboard's consolidated
financial statements, "Other Litigation and Contingencies," on page 48.
ITEM 3. LEGAL PROCEEDINGS
ASBESTOS-RELATED PERSONAL INJURY CLAIMS
At December 31, 1993, Fibreboard was a defendant in approximately 57,800
personal injury claims. Approximately 14,600 of these claims were filed on or
after August 27, 1993 and will be covered by the Global Settlement discussed
below, if approved. Additional claims are anticipated in the future. These
claims typically allege injury or death from asbestos exposure. Fibreboard is
typically only one of several defendants. These claims seek compensatory, and in
many cases, punitive damages in varying amounts depending on injury severity.
Claims are pending in federal and state courts throughout the United States.
During 1993 Fibreboard reached settlement agreements (the Global Settlement
and Insurance Settlement) with its insurers and plaintiff representatives which,
if approved by the courts, should resolve Fibreboard's existing and future
asbestos-related personal injury liabilities within insurance resources and
existing corporate reserves. These settlements require court approval (Gerald
Ahearn, James Dennis and Charles W. Jeep, on Behalf of Themselves and Others
Similarly Situated, Plaintiffs, v. Fibreboard Corporation, Defendant,
Continental Casualty Company and Pacific Indemnity Company, Intervenors, Civil
Action No. 6:93cv526, U.S. District Court for the Eastern District of Texas,
Tyler Division).
Additional information concerning personal injury claims can be found in
Note 16 to Fibreboard's consolidated financial statements, "Asbestos-Related
Litigation," which begins on page 40.
ASBESTOS-IN-BUILDINGS CLAIMS
At December 31, 1993, Fibreboard was a defendant in 21 asbestos-in-buildings
claims pending in federal and state courts throughout the United States.
Fibreboard is typically only one of several defendants. These claims involve
many thousands of buildings and seek hundreds of millions of dollars in
compensatory damages for expenses incurred for locating, testing and monitoring
or removing asbestos-containing materials. Many claims also seek punitive
damages.
Additional information concerning Fibreboard's asbestos-in-buildings claims
can be found in Note 16 to Fibreboard's consolidated financial statements,
"Asbestos-Related Litigation," which begins on page 40.
INSURANCE COVERAGE FOR PERSONAL INJURY CLAIMS
Fibreboard is litigating with two insurers, Continental Casualty Company and
Pacific Indemnity Company, to determine the amount of insurance available to
Fibreboard under policies issued by these companies (In Re Asbestos Insurance
Coverage Cases, Judicial Council Coordination Proceeding No. 107). The
litigation has been completed at the trial court level, with judgments favoring
Fibreboard on all issues. These judgments were appealed to the California Court
of Appeal by the insurers. In November 1993, the Court of Appeal issued its
ruling on the trigger and scope of coverage issues which upheld the favorable
trial
11
<PAGE>
court judgments in these areas, except the court held the period for coverage
would begin at the time of exposure to Fibreboard's asbestos products rather
than at the time of exposure to any company's asbestos product, with the
presumption that those periods are the same. The insurers have filed petitions
for review with the California Supreme Court, which has granted review but not
yet scheduled any further activity.
At the request of Fibreboard, Continental and Pacific Indemnity, the Court
of Appeal withheld its ruling on certain issues which were unique between
Fibreboard and its insurers while the parties seek approval of the Global and
Insurance Settlements.
If the Global and/or Insurance Settlements are ultimately approved,
Fibreboard and its insurers will seek to dismiss the insurance coverage
litigation.
Further information concerning this litigation can be found in Note 16 to
Fibreboard's consolidated financial statements, "Asbestos-Related Litigation,"
which begins on page 40.
INSURANCE COVERAGE FOR ASBESTOS-IN-BUILDINGS CLAIMS
Fibreboard believes the total limits of insurance policies in effect from
1932 to 1985 which may provide coverage for the asbestos-in-buildings claims
aggregate approximately $420 million, which is in addition to the bodily injury
insurance coverage and does not include additional policies which contain no
aggregate limit. A portion of this coverage was confirmed through settlements
with certain insurers during 1993. As the remaining insurers dispute coverage,
Fibreboard is pursuing an insurance coverage suit (Fibreboard vs. Continental
Casualty, et al; Superior Court of the State of California for the City and
County of San Francisco). Trial in this action has been continued. During the
continuance, Fibreboard and its insurers are attempting to settle their
disputes.
Additional information concerning this litigation can be found in Note 16 to
Fibreboard's consolidated financial statements, "Asbestos-Related Litigation,"
which begins on page 40.
OTHER LITIGATION
Fibreboard has been named as a potentially responsible party in two
California landfill clean ups, the Operating Industries Inc. site in Monterey
Park and the GBF landfill in Pittsburg and has been named as a defendant in a
private lawsuit related to the Acme landfill in Martinez, CA. Additional
information concerning Fibreboard's involvement can be found in Note 17 to
Fibreboard's consolidated financial statements, "Other Litigation and
Contingencies," on page 48.
In March 1994, two purported class action lawsuits were filed in Delaware
Chancery Court naming the Company and its directors as defendants (Sonem
Partners Ltd., et al. v. Roach, et al., Civil Action No. 13411; Vogel v. Roach,
et al., Civil Action No. 13421). Both lawsuits allege substantially similar
causes of actions for breach of fiduciary duty relating to the recent amendment
of Fibreboard's stockholder rights plan and Fibreboard's rejection of a March
1994 unsolicited proposal from Carl Pohlad of a merger with or an acquisition of
Fibreboard. Both lawsuits seek injunctive relief and unspecified monetary
damages. Fibreboard believes the purported class action suits are without merit
and intends to defend them vigorously.
Fibreboard is involved in a number of additional disputes arising from its
operations. Fibreboard believes resolution of these disputes will not have a
material adverse impact on its financial condition or results of operations.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers of Fibreboard follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Name Age Position
- ----------------------------------------------------------------------------------
<S> <C> <C>
John D. Roach 50 Chairman, President and Chief Executive Officer
James P. Donohue 53 Senior Vice President, Finance and Administration
and Chief Financial Officer
Michael R. 40 Senior Vice President, General Counsel and Secretary
Douglas
James D. Costello 50 Vice President, Wood Products Operations
Stephen L. 53 Vice President, Corporate Relations
DeMaria
Herbert M. 55 Vice President, Industrial Insulation Products
Elliott
William A. Jensen 41 Vice President, Resort Operations
Garold E. Swan 41 Vice President and Controller
</TABLE>
Officers serve at the discretion of the board of directors.
Mr. Roach was elected Chairman, President and Chief Executive Officer of
Fibreboard on July 2, 1991. Prior to his election, Mr. Roach was Executive Vice
President of Manville Corporation, where he served as President of its Mining
and Minerals Group and President of Celite Corporation, a wholly-owned Manville
subsidiary. In addition, Mr. Roach served as President of Manville Sales
Corporation and the Fiberglass and Specialty Products Groups from 1988 to 1989,
and as Chief Financial Officer of Manville Corporation from 1987 to 1988. Prior
to Manville, Mr. Roach was a strategy consultant and Vice Chairman of Braxton
Associates; Vice President and Managing Director of the Strategic Management
Practice for Booz, Allen, Hamilton; and Vice President and Director of The
Boston Consulting Group. Previous experience at Northrop Corporation included
Director of Strategic Planning, economic analysis, accounting, management
information systems and co-manager of a venture capital subsidiary. Mr. Roach is
a director of Magma Power Company.
Mr. Donohue was elected Senior Vice President, Finance and Administration
and Chief Financial Officer in October 1991. Prior to joining Fibreboard, he was
an Executive Vice President of Continental Bank in Chicago where he held a wide
variety of senior management positions during his 25 years with the bank.
Mr. Douglas became General Counsel to Fibreboard in September 1987 and was
elected Secretary in November 1990. He was named a Vice President in August 1991
and Senior Vice President in October 1993. From March 1986 to September 1987 he
was employed by the Asbestos Claims Facility, of which Fibreboard was a member,
as Senior Legal Counsel and then as Director of Law--West Coast Region. From
1982 to 1986 he was an attorney in the asbestos litigation group of Jim Walter
Corporation.
Mr. Costello has been Vice President, Wood Products Operations since
December 1988. He previously was employed by Snider Lumber Products Co., Inc.
from December 1983 until December 1988. Prior to December 1983, he was employed
by Fibreboard for 14 years. Mr. Costello rejoined Fibreboard with the
acquisition of Snider in October 1988, at which time he was president of Snider.
Mr. Costello is First Vice Chairman of Western Wood Products Association, an
industry group.
13
<PAGE>
Mr. DeMaria joined Fibreboard in May 1989 as Director--Corporate
Communications and Investor Relations and was elected Vice President, Corporate
Relations in August 1991. Prior to joining Fibreboard, he was Executive Vice
President of the California Forest Protective Association, an industry trade
association representing the interests of industrial timberland owners before
the California legislature and regulatory agencies.
Mr. Elliott was appointed General Manager of Pabco in October 1991 and was
elected Vice President, Industrial Insulation Products in February 1992. Prior
to joining Fibreboard, Mr. Elliott was a partner in Management Resource
Partners, a professional management firm advising corporations on financial and
operating matters and functioned as CEO, CFO or a director of companies with
sales from $5-$50 million. Mr. Elliott has been CFO of Consolidated Fibers and
Itel Corporation, Vice President Corporate Development of Alexander and Baldwin
and a consultant for A.T. Kearney.
Mr. Jensen joined Fibreboard in October 1991 as General Manager of
Northstar-at-Tahoe and was elected Vice President in June 1993. From 1989 to
1992, Mr Jensen was Vice President of Marketing and Sales for Sunday River Ski
Resort in Bethel, Maine. From 1986 to 1989, Mr Jensen was Vice President,
Tracked Vehicles for Kassbohrer of North America, a manufacturer of ski resort
snow grooming vehicles and equipment.
Mr. Swan has been Controller of Fibreboard since October 1988, and was
elected a Vice President in October, 1991. He previously was an Audit and
Financial Consulting Manager in the Portland, Oregon office of Arthur Andersen &
Co.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 21, 1994, there were 12,373 holders of record of Fibreboard
common stock. Fibreboard's common stock is traded on the American Stock Exchange
under the symbol FBD. Information with respect to the quarterly high and low
market sales prices for Fibreboard's common stock for 1993 and 1992, based upon
sales transactions reported by the American Stock Exchange, is provided below.
Market Prices of Fibreboard Common Stock
<TABLE>
<CAPTION>
1993 1992
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
FOR THE QUARTERS ENDED
- -----------------
March 31.............................................................................. 12 6 7/8 4 5/8 2 1/8
June 30............................................................................... 14 1/4 10 9 1/2 4 1/8
September 30.......................................................................... 26 7/8 11 1/2 9 3/8 5 1/8
December 31........................................................................... 35 5/8 21 1/8 7 7/8 5 1/8
</TABLE>
The closing price of Fibreboard's common stock on March 21, 1994 was
$38 7/8.
Since its spin-off from Louisiana-Pacific Corporation on June 6, 1988,
Fibreboard has not paid cash dividends. Fibreboard's Structured Settlement
Program contains restrictions on the amount of dividends or distributions to
shareholders. At December 31, 1993, no amounts were available for the payment of
dividends or other distributions.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
--------------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1993 1992 1991 1990 1989
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ 265,210 $ 239,717 $ 234,056 $ 244,609 $ 218,069
Income (loss) from continuing operations (1)..... 11,713 9,432 (29,288) 3,269 3,771
Income (loss) from continuing operations per
share (fully diluted) (1)....................... 2.62 2.30 (7.33) .84 .97
Operating assets................................. 261,359 223,590 226,205 281,939 258,579
Asbestos-related assets.......................... 969,136 826,582 363,015 67,660 36,686
Total assets..................................... 1,230,495 1,050,172 589,220 349,599 295,265
Long-term debt (2)............................... 23,539 13,306 17,508 27,914 27,729
<FN>
- ------------------------
(1) INCLUDES PRE-TAX $3,762 GAIN ON SURPLUS REAL ESTATE SALES AND REDUCED
DEPRECIATION EXPENSE OF $1,437 REFLECTING ADJUSTMENT OF ASSET LIVES DURING
1993; PRE-TAX $2,353 PENSION GAIN AND $2,998 GAIN ON SURPLUS REAL ESTATE
SALES IN 1992; CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE OF
$(1,954), NET OF TAX IN 1991; PRE-TAX UNUSUAL ITEMS OF $(13,912) IN 1991,
$9,816 IN 1990 AND $31,340 IN 1989; AND ASBESTOS-RELATED COSTS OF $20,000
IN 1991 AND $28,333 IN 1989. SEE NOTES TO FINANCIAL STATEMENTS FOR
ADDITIONAL INFORMATION CONCERNING THESE ITEMS.
(2) DOES NOT INCLUDE AMOUNTS FOR ASBESTOS CLAIMS SETTLEMENTS UNDER FIBREBOARD'S
STRUCTURED SETTLEMENT PROGRAM OR INSURANCE ASSIGNMENT PROGRAM. SEE NOTE 16
TO THE FINANCIAL STATEMENTS, "ASBESTOS-RELATED LITIGATION," ON PAGE 40 FOR
ADDITIONAL INFORMATION. ALSO DOES NOT INCLUDE ASBESTOS-RELATED LONG TERM
DEBT OF $21,361 IN 1993, $20,572 IN 1992 AND $19,726 IN 1991.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1993 VS. 1992
Net sales increased 11%, reflecting increased wood products sales and resort
operations revenues while sales of industrial insulation products were flat.
Income from continuing operations was $11.7 million compared to $9.4 million in
1992. Operating profit increased in wood products and resort operations, but
declined slightly in insulation products.
WOOD PRODUCTS
Wood products sales increased 12%, due principally to increased selling
prices in all three major product lines while shipment volumes declined in
lumber and plywood. Mill closures and manufacturing operations consolidations
accounted for the majority of the lumber volume decline while softer demand
impacted plywood shipments. Selling prices for many products reached record
highs during the second quarter, before falling during the third quarter. Prices
strengthened during the fourth quarter and have steadied during the first
quarter of 1994.
Wood products operating income increased from $17.3 million to $18.5
million. This improvement was due to price increases and manufacturing
improvements offset by increased log costs and volume decreases. Price increases
during the year were largely in response to timber and finished product shortage
concerns, as timber supply continued to be more restricted and additional
industry production capacity reductions were made during the year.
Fibreboard believes it has adequate raw material on hand or under contract
to operate its primary converting facilities at scheduled production levels
through 1994 and into 1995. At year end 1993, Fibreboard had record log
inventories which represent nearly 70% of anticipated log needs for 1994.
However, these inventories were acquired when prices were relatively high. While
Fibreboard expects solid operating performance during 1994, the higher costs of
these inventories could keep margins from equaling the record levels attained in
1993.
15
<PAGE>
Future timber supply remains a strategic concern. Competition for the
reduced timber available from the USFS has resulted in higher prices for those
contracts where Fibreboard has been the successful bidder. Harvest rules
announced in early 1993 for USFS timber in California, designed to provide
protection to the California spotted owl for two years while further study is
performed, are likely to further reduce the quantity of timber available for
harvest. Fibreboard has responded to these concerns by pursuing non-traditional
sources of raw materials. Examples include imported logs from New Zealand and
Chile, cottonwood peeler logs from the Pacific Northwest and the acquisition of
timber cutting rights on 4,800 acres in northern New Mexico. Fibreboard expects
to continue pursuing alternative timber sources in the future, as well as
evaluating various operating configurations available to respond most profitably
to raw material constraints.
In the past, timber supply concerns have resulted in increased sales prices
for Fibreboard's wood products. While there can be no assurance, Fibreboard
believes sales prices for its products will continue to increase should timber
supply be further constrained. Continuing supply constraints should also enhance
the value of Fibreboard's fee-owned timberlands.
INDUSTRIAL INSULATION PRODUCTS
Industrial insulation products sales were nearly unchanged between years. A
lack of significant construction and maintenance activity in the petrochemical
and power generation industries was offset by a modest increase in export sales
activity. This low demand level is expected to continue into 1994.
Operating income decreased to $5.4 million from $6.1 million in 1992. The
decrease was caused by reduced average sales prices for molded insulation
products, which were partially offset by continuing manufacturing improvements
and tighter margins on sales of metal products.
RESORT OPERATIONS
Resort revenues increased from $20.4 million to $25.5 million on a 16%
increase in skier visits. The increase in skier visits was a result of improved
snowfall in the Sierra during the first quarter of 1993 compared to 1992.
Northstar set records during 1993 in a number of areas, including skier days,
meals served and lodging room nights.
Operating income improved from $1.6 million to $2.3 million. This increase
understates the significant improvements achieved at Northstar-at-Tahoe during
the year, as the business unit operating income includes anticipated start-up
and operating expenses at Sierra since its acquisition at the beginning of the
second quarter in excess of revenues of approximately $1 million. Sierra is
expected to contribute operating profits in future years. The Northstar
improvement was due to the increase in skier visits, lower snowmaking costs due
to increased snowfall, aggressive marketing and cost controls. Fibreboard
believes Northstar's marketing campaign has resulted in increased market share
among North Lake Tahoe ski resorts.
GENERAL CORPORATE EXPENSES
Unallocated costs declined from $11.9 million to $8.3 million, reflecting
improvements resulting from the organizational restructuring completed during
1992 and reversal of certain contingency accruals no longer considered
necessary, offset by higher incentive compensation tied to stock performance. In
addition, 1992 costs include $1.0 million to increase the reserve for future
landfill cleanup costs.
ASBESTOS-RELATED COSTS
The 1993 and 1992 results of operations do not include any asbestos-related
costs. During 1993, $1.8 million of unreimbursed costs related to the asbestos
litigation were incurred and charged against the reserve established in prior
years.
As more fully discussed in Note 16 to the consolidated financial statements,
at December 31, 1991, Fibreboard estimated its potential liability for
asbestos-related personal injury claims to be received through
16
<PAGE>
the end of the decade at $1,610 million and that it would ultimately receive
insurance proceeds of $1,584 million related to those claims. Although
Fibreboard, its insurers and plaintiffs' representatives entered into the
Insurance and Global Settlements discussed elsewhere, Fibreboard does not
believe these settlements impact its estimate of liability through the end of
the decade, and no additional events have transpired which indicate these
estimates should be changed. Consequently, no adjustment has been made to the
estimated liability for personal injury claims through the end of the decade or
anticipated insurance proceeds. Fibreboard will periodically evaluate its
estimates and make adjustments as circumstances and future developments dictate.
OTHER ITEMS
Interest expense declined from $4.2 million to $3.6 million, due to lower
rates on variable rate debt and lower aggregate borrowings.
Interest and other income decreased from $7.7 million to $5.6 million. Other
income included $2.4 million in 1992 resulting from the freezing of a defined
benefit pension plan and gains from the sales of surplus real estate of $3.0
million in 1992 and $3.8 million in 1993. Interest income declined as lower
amounts were available for investment at lower rates than in prior years.
On July 1, 1993, Fibreboard adjusted the depreciable lives of its assets to
more closely approximate their economic useful lives, resulting in a reduction
of depreciation expense of $1.4 million during 1993. This expense reduction is
included in the segment results discussed above.
Fibreboard's effective tax rate was 41% in 1993 and 44% in 1992. Fibreboard
adopted Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109) on January 1, 1993. SFAS 109 requires an asset and
liability approach for financial accounting and reporting for income taxes, and
requires the recognition of the tax impact of certain items for which no income
tax impact would have been provided in the past. Fibreboard recorded no
adjustment of its tax accounts as a result of adopting SFAS 109.
LIQUIDITY AND CAPITAL RESOURCES
During 1993, Fibreboard generated cash flows from operations before working
capital changes of $23.3 million, compared to $24.1 million in 1992. Non-cash
working capital increased $30.6 million in 1993 versus $7.3 million in 1992,
reflecting a significant buildup in inventories, primarily logs. Fibreboard
believes it will continue to generate substantial cash flows from operations in
the future, including the effect of a significant reduction of inventories
during 1994.
Fibreboard has a $40 million operating line of credit that can be used to
support its operating cash needs and which expires in August 1994. Borrowings
are limited to specified percentages of pledged eligible receivables and
inventories. At December 31, 1993, borrowings were $17.7 million and $16.6
million remained available. Borrowings are limited in purpose to support
business operations, prosecute the insurance coverage litigation and pay
in-house asbestos claims management costs, but may not be used to pay defense or
indemnity costs of asbestos-related claims. In addition, Fibreboard's resort
operations have two revolving credit facilities, a $5 million operating credit
line which expires May 31, 1995 and a $10 million reducing revolving line which
expires May 31, 1998 and under which maximum availability is reduced by $1.4
million in April of each year. Fibreboard believes these facilities, combined
with cash generated from on-going operations, will be adequate to fund existing
operating cash needs.
In anticipation of the expiration of its $40 million operating line of
credit, Fibreboard has initiated discussions with a number of banks regarding a
replacement facility. Fibreboard believes it will be able to secure a
replacement facility which will have higher aggregate availability and lower
borrowing costs. Fibreboard expects to finalize such a facility prior to the
expiration of its current facility.
17
<PAGE>
In addition to working capital needs, Fibreboard anticipates primarily
discretionary capital expenditures of approximately $6 million to $7 million
during 1994. The planned capital expenditures are primarily for replacements and
improvements of machinery and equipment and additional ski area amenities.
Capital expenditures will be funded from operating cash flow and borrowings
under Fibreboard's credit facilities as needed.
Fibreboard has scheduled principal reductions of long-term debt due in 1994
of $4.8 million. Of this amount, Fibreboard will receive $1.0 million from notes
receivable which have interest and payment terms identical to a like amount of
Fibreboard's revenue bonds.
In addition to cash needs related to continuing operations, Fibreboard must
fund its on-going asbestos-related costs. To date, substantially all such costs,
other than the cost of litigating insurance coverage issues, have been funded
from insurance resources. At December 31, 1993, Fibreboard had $0.8 million in
cash on hand restricted for asbestos-related uses.
Fibreboard and Continental have entered into an interim agreement under
which Continental agreed to make certain funds available for defense and
indemnity costs associated with asbestos-related personal injury claims during
the period pending final approval of the Global and/or Insurance Settlements
discussed below, or if neither are approved, through the final conclusion of the
insurance coverage litigation, however long that may take. Fibreboard believes
the amounts to be paid by Continental under this interim agreement and amounts
available under prior settlements with asbestos-in-buildings insurers will be
adequate to satisfy its asbestos-related cash requirements as they come due.
During 1993, Fibreboard and its insurers entered into the Insurance
Settlement Agreement, and Fibreboard, its insurers and plaintiffs
representatives entered into the Global Settlement Agreement. These agreements
are interrelated. Final court approval of these agreements is required.
Fibreboard believes trial court approval could occur during 1994, but if
appealed, it may be 1995 or later before final court approval could be obtained.
If both the Global and Insurance Settlement Agreements are approved,
Fibreboard believes its existing and future personal injury asbestos liabilities
will be resolved through insurance resources and existing corporate reserves. If
the Insurance Settlement is approved but the Global Settlement is not approved,
the insurers will provide Fibreboard with up to $2 billion to resolve claims
pending as of August 27, 1993 and all future claims, and will pay claims settled
but not yet paid as of August 27, 1993.
In November 1993, the California Court of Appeal issued its rulings on the
trigger and scope of coverage issues before it, confirming the trial court
judgments, except the court held the period for coverage would begin at the time
of exposure to Fibreboard's asbestos products rather than at the time of
exposure to any company's asbestos product, with the presumption that those
periods are the same. The court withheld ruling on the unique issues between
Fibreboard and its insurers at the request of the parties. The insurers have
filed petitions for review of the Court of Appeal rulings with the California
Supreme Court, which has granted review, but not yet scheduled any further
activity. In the event the Global and/or Insurance Settlements are approved by
the court, Fibreboard and its insurers will seek to dismiss their insurance
coverage disputes.
Fibreboard believes it is probable its insurance coverage for personal
injury claims will ultimately be confirmed on appeal or the settlements
discussed above will be approved by the court. However, if neither the Global
Settlement nor Insurance Settlement is approved and if the trial court decisions
in the insurance coverage litigation are subsequently overturned or
substantially modified on appeal, Fibreboard would not have adequate resources
to fund its asbestos personal injury liabilities.
18
<PAGE>
1992 VS. 1991
Net sales increased 2%, primarily from increased wood products sales as
increased resort operations revenues were nearly offset by a decline in
industrial insulation products sales. Income from continuing operations was $9.4
million compared to a loss of $29.3 million in 1991. Operating profit increased
in each of the business segments. Further, there were no unusual charges in
1992, whereas unusual items and asbestos-related pre-tax charges of $33.9
million were recorded in 1991.
WOOD PRODUCTS
Wood products sales increased 3%, due principally to increased selling
prices for lumber and millwork products, countered by reduced shipments of all
products except hardwood plywood. Mill closures and manufactur-ing operations
consolidations accounted for the majority of the volume declines. Selling prices
for many products reached record highs during the second quarter, before falling
during the third quarter. Prices strengthened during the fourth quarter.
Wood products operating income increased from $11.5 million to $17.3
million. This improvement was due to price increases and manufacturing
improvements resulting from an operational restructuring begun in 1991 and
completed in 1992. Price increases during the year were largely in response to
timber shortage concerns, as demand was less than robust. Raw material costs
increased during the second half of 1992 following finished product price
increases, and were further increased by competitive pressures caused by timber
supply concerns.
INDUSTRIAL INSULATION PRODUCTS
Industrial insulation products sales declined 5% from 1991 levels, primarily
due to reduced shipment volumes and slightly lower sales prices for molded
insulation products. Reduced sales activity reflects a lack of significant
construction and maintenance activity in the petrochemical and power generation
industries.
Despite reduced sales, operating income increased to $6.1 million from $4.5
million in 1991. This improvement reflects operating efficiencies gained in the
molded insulation operations, tight cost controls in the metals operations and
production improvements in the manufacture of industrial fireproofing board.
RESORT OPERATIONS
Resort revenues increased from $16.7 million to $20.4 million on a 22%
increase in skier visits. The increase in skier visits was a result of improved
snowfall in the Sierra during the first quarter of 1992 compared to 1991. In
addition, a new record for golf rounds was set during the summer.
Operating income improved from $0.1 million to $1.6 million. The improvement
was due to the increase in skier visits and summer activity, aggressive
marketing and cost controls.
GENERAL CORPORATE EXPENSES
Unallocated costs declined from $12.2 million to $11.9 million. However, on
a comparative basis, the reduction was more significant as 1992 costs include
$1.0 million to increase the reserve for future landfill cleanup costs and
increased incentive compensation costs of $1.7 million when compared to 1991.
ASBESTOS-RELATED COSTS
During 1992, $4.7 million of unreimbursed costs related to the asbestos
litigation were incurred and charged against the reserve established in prior
years. The 1992 results of operations do not include any amounts for
asbestos-related costs.
As more fully discussed in Note 16 to the consolidated financial statements,
at December 31, 1991, Fibreboard estimated its potential liability for
asbestos-related personal injury claims to be received through the end of the
decade at $1,610 million and that it would ultimately receive insurance proceeds
of
19
<PAGE>
$1,584 million related to those claims. As a result, a $20 million increase in
an existing reserve for unreimbursed asbestos costs was recorded. During 1992,
no events transpired which indicated these estimates should be changed.
Consequently, no adjustment was made to the estimated liability for personal
injury claims through the end of the decade or anticipated insurance proceeds.
OTHER ITEMS
Interest expense declined from $5.3 million to $4.2 million, due to lower
rates on variable rate debt and lower aggregate borrowings.
Interest and other income increased from $3.2 million to $7.7 million. Other
income included $2.4 million resulting from the freezing of a defined benefit
pension plan and $3.0 million of gain from the sales of surplus real estate.
Interest income declined as lower amounts were available for investment at lower
rates than in prior years.
Fibreboard's effective tax rate for continuing operations was 44% in 1992
and 15% in 1991. The low effective tax rate in 1991 was due to the
non-deductible nature of a sizeable portion of the restructuring charges
recorded during the year as well as resolution of a tax dispute with
Fibreboard's former parent.
IMPACT OF INFLATION
Inflation has not had any significant impact on Fibreboard's operations
during the three years ended December 31, 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Income for each of the three years in the period ended December 31, 1993...... 21
Consolidated Balance Sheets as of December 31, 1993 and 1992............................................. 22
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,
1993.................................................................................................... 24
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December
31, 1993................................................................................................ 26
Notes to Consolidated Financial Statements............................................................... 27
Report of Independent Public Accountants................................................................. 49
Report of Management..................................................................................... 50
Supplementary Data (unaudited)--Selected Quarterly Financial Data for each of the two years in the period
ended December 31, 1993................................................................................. 51
</TABLE>
20
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------
1993 1992 1991
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C> <C>
Net sales................................................................ $ 265,210 $ 239,717 $ 234,056
Cost of sales............................................................ 225,214 205,802 206,765
----------------------------------
Gross margin............................................................. 39,996 33,915 27,291
Other expenses:
Selling and administrative............................................. 22,120 20,703 23,445
Asbestos-related costs (Note 16)....................................... -- -- 20,000
Unusual items (Note 13)................................................ -- -- 13,912
----------------------------------
Income (loss) from operations............................................ 17,876 13,212 (30,066)
Interest expense, net of capitalized interest (Note 1)................. (3,575) (4,222) (5,342)
Interest and other income.............................................. 5,551 7,707 3,182
----------------------------------
Income (loss) from continuing operations before income taxes............. 19,852 16,697 (32,226)
Income taxes relating to continuing operations (Note 1).................. (8,139) (7,265) 4,892
----------------------------------
Income (loss) from continuing operations before cumulative effect of a
change in accounting principle.......................................... 11,713 9,432 (27,334)
Cumulative effect of change in accounting for post retirement benefits
other than pensions less applicable income taxes of $1,148
(Note 8)................................................................ -- -- (1,954)
Discontinued operations (Note 14):
Loss from operations less applicable income taxes of $2,228............ -- -- (3,792)
Anticipated loss on disposal less applicable income taxes of $6,373.... -- -- (10,851)
----------------------------------
Net income (loss)........................................................ $ 11,713 $ 9,432 $ (43,931)
----------------------------------
----------------------------------
Earnings per share--primary (Note 1):
Income (loss) from continuing operations before a change in accounting
principle............................................................. $ 2.66 $ 2.30 $ (6.84)
Cumulative effect of accounting change................................. -- -- (.49)
Loss from discontinued operations...................................... -- -- (3.66)
----------------------------------
Net income (loss)........................................................ $ 2.66 $ 2.30 $ (10.99)
----------------------------------
----------------------------------
Earnings per share--fully diluted (Note 1):
Income (loss) from continuing operations before a change in accounting
principle............................................................. $ 2.62 $ 2.30 $ (6.84)
Cumulative effect of accounting change................................. -- -- (.49)
Loss from discontinued operations...................................... -- -- (3.66)
----------------------------------
Net income (loss)........................................................ $ 2.62 $ 2.30 $ (10.99)
----------------------------------
----------------------------------
Weighted average shares outstanding
Primary................................................................ 4,396 4,101 3,997
Fully diluted.......................................................... 4,470 4,101 3,997
</TABLE>
SEE ATTACHED NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
- --------------------------------------------------------------------------
1993 1992
(DOLLAR AMOUNTS
IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1).............. $ 5,322 $ 16,011
Receivables (Notes 2 and 4)..................... 16,268 15,336
Income tax refund receivable (Note 1)........... 3,500 3,315
Current portion of notes receivable (Note 5).... 988 987
Inventories (Notes 1 and 4)..................... 80,158 52,136
Prepaid expenses................................ 1,373 795
Deferred income taxes (Note 1).................. 6,898 --
----------------------
114,507 88,580
Net assets of discontinued operations (Note
14)............................................ -- 2,193
----------------------
Total current assets............................ 114,507 90,773
Timber and timberlands, net (Note 1).............. 35,564 33,511
Property, plant and equipment, at cost: (Notes 1,
4 and 5)
Land and improvements........................... 21,079 17,486
Buildings....................................... 25,569 20,875
Machinery and equipment......................... 110,771 101,482
Construction in progress........................ 1,198 120
----------------------
158,617 139,963
Accumulated depreciation........................ (69,121) (63,429)
----------------------
Net property, plant and equipment............... 89,496 76,534
Notes receivable (Note 5)......................... 11,432 12,429
Other assets...................................... 10,360 10,343
----------------------
Total operating assets.......................... 261,359 223,590
Cash restricted for asbestos costs................ 827 6,497
Asbestos costs to be reimbursed (Note 16)......... 968,309 820,085
----------------------
Total assets.................................... $1,230,495 $1,050,172
----------------------
----------------------
</TABLE>
SEE ATTACHED NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
- --------------------------------------------------------------------------
1993 1992
(DOLLAR AMOUNTS
IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 4)................. $ 17,657 $ 24,262
Current portion of long-term debt (Note 5)...... 4,764 4,191
Accounts payable and accrued liabilities (Note
3)............................................. 29,858 30,824
Reserve for asbestos-related costs (Note 16).... 2,700 3,000
----------------------
Total current liabilities..................... 54,979 62,277
Long-term debt (Note 5)........................... 23,539 13,306
Reserve for asbestos-related costs (Note 16)...... 16,795 18,297
Other long-term liabilities (Note 7 and 8)........ 18,790 15,589
Deferred income taxes (Note 1).................... 21,935 13,537
----------------------
Total operating liabilities................... 136,038 123,006
Asbestos claims settlements (Note 16).............
Current......................................... 11,048 12,573
Long-term....................................... 941,880 786,151
----------------------
Total asbestos claims settlements............. 952,928 798,724
Long-term debt associated with asbestos (Note
5)............................................... 21,361 20,572
----------------------
Total liabilities............................. 1,110,327 942,302
Commitments & Contingencies (Notes 11, 16 and 17)
Stockholders' equity (Notes 7, 9 and 10):
Preferred stock, $.01 par value, 3,000,000
shares authorized; none issued................. -- --
Common stock, $.01 par value, 15,000,000 shares
authorized; 4,201,420 and 4,142,300 shares
issued......................................... 42 41
Additional paid-in capital...................... 75,836 74,264
Retained earnings............................... 46,717 35,004
Minimum pension liability adjustment (Note 7)... (2,427) (1,439)
----------------------
Total stockholders' equity.................... 120,168 107,870
----------------------
$1,230,495 $1,050,172
----------------------
----------------------
</TABLE>
SEE ATTACHED NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------
1993 1992 1991
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations............................... $ 11,713 $ 9,432 $ (29,288)
Cumulative effect of accounting change................................. -- -- 1,954
----------------------------------
Income (loss) before effect of accounting change....................... 11,713 9,432 (27,334)
Adjustments to reconcile income (loss) to net cash provided
(used) by operating activities:
Depreciation, amortization and depletion............................. 10,517 11,998 13,852
Deferred income taxes................................................ 2,227 5,563 (7,819)
Deferred long term benefits.......................................... 1,606 (374) 1,894
Compensation for stock grants........................................ 1,039 517 308
Restructuring charge................................................. -- -- 12,852
Gain on sale of assets............................................... (3,762) (2,998) (96)
Asbestos-related reserve............................................. -- -- 20,000
Change in working capital:
Receivables........................................................ (867) 3,500 4,774
Inventories........................................................ (27,799) (4,858) (1,081)
Prepaid expenses................................................... (578) 84 434
Accounts payable and accrued liabilities........................... (1,414) (6,070) 3,419
----------------------------------
Net cash provided (used) by continuing operations...................... (7,318) 16,794 21,203
Discontinued operations:
Loss................................................................. -- -- (14,643)
Depreciation......................................................... -- -- 648
Deferred income taxes................................................ -- -- (8,601)
Restructuring charge................................................. -- -- 17,224
Net assets change.................................................... 2,193 139 (1,472)
----------------------------------
Net cash provided (used) by discontinued operations.................... 2,193 139 (6,844)
Cash flows from investing activities:
Non-cash net assets of acquired operations............................. (13,054) -- --
Proceeds from asset sales.............................................. 5,313 4,066 428
Property, plant and equipment additions................................ (9,815) (5,027) (7,425)
Timber and timberlands changes, net.................................... (3,270) (344) (6,993)
Reductions of notes receivable......................................... 996 3,862 23,136
Decrease (increase) in other assets.................................... (517) 559 (1,941)
----------------------------------
Net cash provided (used) by investing activities....................... (20,347) 3,116 7,205
</TABLE>
(CONTINUED)
24
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------
1993 1992 1991
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from financing activities:
New borrowings........................................... $ 15,000 $ 7,560 $ 27,367
Repayment of debt........................................ (10,799) (10,403) (43,543)
Employee stock plan transactions......................... 534 44 162
-------------------------------
Net cash provided (used) by financing activities......... 4,735 (2,799) (16,014)
-------------------------------
Net cash provided (used) by business activities.......... (20,737) 17,250 5,550
Cash flows from asbestos-related activities:
Receipts from insurers................................... 19,848 18,016 56,030
Structured settlement program payments................... (1,638) (10,167) (17,277)
Other asbestos-related cash transactions................. (13,832) (18,865) (35,145)
Change in cash restricted for asbestos costs............. 5,670 5,255 (11,752)
-------------------------------
Net cash provided (used) by asbestos-related
activities.............................................. 10,048 (5,761) (8,144)
-------------------------------
Net increase (decrease) in cash............................ (10,689) 11,489 (2,594)
Cash at beginning of year.................................. 16,011 4,522 7,116
-------------------------------
Cash at end of year........................................ $ 5,322 $ 16,011 $ 4,522
-------------------------------
-------------------------------
Cash paid during the year for:
Interest (net of capitalized interest)................... $ 3,011 $ 4,112 $ 4,647
Income taxes............................................. 5,538 7,138 6,544
Non-cash items:
Increase (decrease) in accrued asbestos-related legal
costs................................................... (574) 846 216
Increase in asbestos claims settlements.................. 244,072 468,293 306,284
Increase in receivables from sale of surplus real
estate.................................................. 250 250 --
</TABLE>
SEE ATTACHED NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------
1993 1992 1991
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Beginning balance, 15,000,000 shares authorized;
4,142,300, 4,052,213 and 3,922,948 issued............ $ 41 $ 40 $ 39
Shares issued under employee stock plans, 59,120,
90,087 and 129,265 shares............................ 1 1 1
-------------------------------
Ending balance, 15,000,000 shares authorized;
4,201,420, 4,142,300 and 4,052,213 issued............ $ 42 $ 41 $ 40
-------------------------------
-------------------------------
Additional paid-in capital:
Beginning balance..................................... $ 74,264 $ 73,246 $ 72,319
Fair value in excess of par value for shares issued
under employee
stock plans.......................................... 533 777 927
Compensation related to employee stock plans.......... 1,039 241 --
-------------------------------
Ending balance........................................ $ 75,836 $ 74,264 $ 73,246
-------------------------------
-------------------------------
Retained earnings:
Beginning balance..................................... $ 35,004 $ 25,572 $ 69,503
Net income (loss)..................................... 11,713 9,432 (43,931)
-------------------------------
Ending balance........................................ $ 46,717 $ 35,004 $ 25,572
-------------------------------
-------------------------------
Minimum pension liability:
Beginning balance..................................... $ (1,439) $ -- $ --
Changes during the year............................... (988) (1,439) --
-------------------------------
Ending balance $ (2,427) $ (1,439) $ --
-------------------------------
-------------------------------
</TABLE>
SEE ATTACHED NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION
The consolidated financial statements include the accounts of Fibreboard
Corporation, a Delaware Corporation, and all its wholly-owned subsidiaries
(collectively Fibreboard) after elimination of intercompany balances and
transactions.
EARNINGS PER SHARE
Net earnings per common and common equivalent share are calculated using the
weighted average number of common shares outstanding during the year plus the
net additional number of shares which would be issuable upon the exercise of
stock options, assuming Fibreboard used the proceeds received to purchase
additional shares at market value. The effect of common stock equivalents was
not material in 1992 and 1991.
CASH AND CASH EQUIVALENTS
Fibreboard utilizes a centralized cash management system to minimize the
amount of cash on deposit with banks and maximize interest income from amounts
not required for immediate disbursement. Cash includes cash on hand or in banks
available for immediate disbursal. Cash equivalents are short-term investments
that have an original maturity date of less than 90 days.
INVENTORY VALUATION
Inventories are valued at the lower of cost (first-in, first-out) or market.
Inventory costs include material, labor and operating overhead. Operating
supplies are priced at average cost. Inventories are valued as follows:
<TABLE>
<CAPTION>
DECEMBER 31
- -----------------------------------------------------------------------------------------------
1993 1992
<S> <C> <C>
Finished goods........................................................... $ 21,833 $ 18,697
Raw materials............................................................ 56,649 32,340
Supplies................................................................. 1,676 1,099
--------- ---------
Total inventories...................................................... $ 80,158 $ 52,136
--------- ---------
--------- ---------
</TABLE>
TIMBER
Fibreboard follows an overall policy on fee timber that amortizes timber
costs over the total fiber available during the estimated growth cycle. Timber
carrying costs are expensed as incurred.
PROPERTY, PLANT AND EQUIPMENT
Fibreboard uses the units of production method of depreciation for most
machinery and equipment which amortizes the cost of equipment over the estimated
number of units that the equipment will be able to produce during its useful
life.
Provisions for depreciation of buildings and the remaining machinery and
equipment have been computed using straight-line rates based upon the estimated
service lives (5-30 years) of the various units of property.
27
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Fibreboard capitalizes interest on borrowed funds incurred during
construction periods. Capitalized interest is amortized over the lives of the
related assets. Interest capitalized in 1993, 1992 and 1991 was $183, $142 and
$0.
Fibreboard capitalizes logging road construction costs as part of "Land and
Improvements." These costs are amortized as the timber volume adjacent to the
road system is harvested.
On July 1, 1993, Fibreboard adjusted the depreciable lives of its assets to
more closely approximate their useful lives, resulting in a reduction of
depreciation expense of $1,437.
INCOME TAX POLICIES
The income tax provision (benefit) includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Current income taxes.............................................. $ 8,579 $ 2,661 $ 1,779
Benefit of operating loss carryforward............................ (729) -- --
Deferred income taxes............................................. 289 4,604 (16,420)
--------- --------- ---------
$ 8,139 $ 7,265 $ (14,641)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income taxes are allocated to the components of income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Continuing operations............................................. $ 8,139 $ 7,265 $ (4,892)
Change in accounting principle.................................... -- -- (1,148)
Discontinued operations........................................... -- -- (8,601)
-------------------------------
$ 8,139 $ 7,265 $ (14,641)
-------------------------------
-------------------------------
</TABLE>
The following table summarizes the differences between the statutory federal
and effective tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Federal tax rate............................. 35 % 34 % 34 %
State income taxes........................... 6 7 2
Goodwill amortization........................ -- -- (9)
Book/tax basis differences................... -- 2 (5)
Other........................................ -- 1 (7)
----------------------------
41 % 44 % 15 %
----------------------------
----------------------------
</TABLE>
In 1993, the Omnibus Budget Reconciliation Act of 1993 was signed into law
increasing the federal tax rate from 34% to 35%.
Effective January 1, 1993, the Company implemented the provisions of
Statement of Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109). SFAS 109 utilizes the liability method and
28
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statements and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The adoption of SFAS
109 had no effect on reported net income in the Consolidated Statements of
Income.
Prior to the implementation of SFAS 109, the Company accounted for income
taxes using Accounting Principles Board Opinion No. 11, Accounting for Income
Taxes (APB 11). The following table summarizes the major components of the
provision (benefit) for deferred taxes under APB 11 which resulted from timing
differences in the recognition of income and expense for financial reporting and
tax purposes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
- -------------------------------------------------------------------------------------------
1992 1991
<S> <C> <C>
Asbestos related costs............................................... $ 5,245 $ (5,863)
Depreciation......................................................... (1,325) 1,168
Installment sales.................................................... -- (5,022)
Deferred start-up costs.............................................. -- (3,980)
Tax basis of inventories............................................. (139) 695
Income and expense affecting future years............................ 516 319
Involuntary conversions.............................................. (7) (130)
Plant shut down costs................................................ 474 (2,432)
Post retirement benefits............................................. (160) (1,175)
--------------------
$ 4,604 $ (16,420)
--------------------
--------------------
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
- ---------------------------------------------------------------------------------------------
1993
<S> <C>
Deferred tax assets:
Accrued liabilities..................................................... $ 5,804
Other................................................................... 1,094
-------
Total deferred tax assets............................................. $ 6,898
-------
Deferred tax liabilities:
Property, plant and equipment........................................... $ 12,302
Timber.................................................................. 9,760
Post retirement benefits................................................ (5,486)
Non asbestos settlements................................................ (1,822)
State taxes............................................................. 5,705
Other................................................................... 1,476
-------
Total deferred tax liabilities........................................ $ 21,935
-------
-------
</TABLE>
29
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
2. RECEIVABLES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
- ------------------------------------------------------------------------------------
1993 1992
<S> <C> <C>
Trade receivables............................................. $ 16,166 $ 15,273
Less reserves for bad debts................................... (702) (625)
Other receivables............................................. 804 688
--------------------
$ 16,268 $ 15,336
--------------------
--------------------
</TABLE>
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
- ------------------------------------------------------------------------------------
1993 1992
<S> <C> <C>
Accounts payable.............................................. $ 9,577 $ 11,286
Asbestos-related legal costs.................................. 430 1,004
Salaries and wages payable.................................... 5,532 5,003
Taxes other than income taxes................................. 1,978 1,351
Accrued interest.............................................. 398 224
Workers' compensation......................................... 4,339 5,493
Other......................................................... 7,604 6,463
--------------------
$ 29,858 $ 30,824
--------------------
--------------------
</TABLE>
Fibreboard is self-insured for the majority of its workers' compensation
benefits. Workers' compensation
expense was $1,074, $1,836 and $2,384 in 1993, 1992 and 1991 based on actual and
estimated claims incurred.
4. NOTES PAYABLE
At December 31, 1993, Fibreboard has a $40,000 operating line of credit
facility. This facility is secured by a substantial majority of Fibreboard's
receivables, inventories and machinery and equipment. The facility expires in
August 1994. Maximum borrowings are limited to a calculated availability based
upon levels of eligible receivables and inventories. At December 31, 1993,
borrowings were $17,657 with an additional $16,576 available, net of $5,599 in
standby letters of credit.
Borrowings under the facility carry interest at the prime rate plus 2 1/2%
(8 1/2% at December 31, 1993). The agreement requires that Fibreboard maintain
certain financial ratios and other covenants and prohibits the use of borrowings
to pay defense and indemnity costs of asbestos-related claims. At December 31,
1993, Fibreboard was in compliance with the requirements of this credit
facility.
During 1993, Fibreboard secured a $5,000 operating line of credit dedicated
for the seasonal cash needs of its resort operations. Borrowings under the
facility carry interest at the prime rate plus 1/4% (6 1/4% at December 31,
1993). The facility expires May 31, 1995. At December 31, 1993, no amounts were
outstanding.
30
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
5. LONG-TERM DEBT
Fibreboard's long-term debt not associated with asbestos consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
- ------------------------------------------------------------------------------------------
1993 1992
<S> <C> <C>
Term loans, interest at 11.8% payable in monthly installments of
$153 plus interest through September 1995, $57 plus interest from
October 1995 through July 1997, with the balance payable August
1997, secured by substantially all assets of a wood products
subsidiary......................................................... $ 6,164 $ 8,000
Reducing revolving credit facility, interest at prime plus 1/2%
(6 1/2% at December 31, 1993), payable in annual installments of
$1,429 with the balance due May 1998, secured by the assets of a
resort subsidiary.................................................. 10,000 --
Term loan, interest at prime plus 1/2% (6 1/2% at December 31,
1993), payable in varying annual installments through 1998, secured
by the assets of a resort subsidiary............................... 5,000 --
Pollution control project revenue bonds, 6.6%, payable annually
through 1999, unsecured............................................ 6,875 7,785
Other debt--4.7% to 11.5% payable in varying amounts................ 264 1,712
--------------------
28,303 17,497
Less: Current portion............................................. (4,764) (4,191)
--------------------
$ 23,539 $ 13,306
--------------------
--------------------
</TABLE>
Required repayment of long-term debt is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
1994................................................................................................... $ 4,764
1995................................................................................................... 4,950
1996................................................................................................... 4,384
1997................................................................................................... 5,939
1998................................................................................................... 4,074
Thereafter............................................................................................. 4,192
---------
$ 28,303
---------
---------
</TABLE>
31
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Fibreboard has notes receivable with terms and payment dates which are
substantially identical to $6,875 of revenue bonds included in the above table.
Payments under these notes are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
1994................................................................................................... $ 970
1995................................................................................................... 1,035
1996................................................................................................... 1,105
1997................................................................................................... 1,175
1998................................................................................................... 1,255
Thereafter............................................................................................. 1,335
---------
$ 6,875
---------
---------
</TABLE>
Fibreboard's loan agreements contain various financial covenants. At
December 31, 1993, these covenants were met.
Fibreboard's asbestos related long-term debt consists of the following and
is due upon conclusion of the asbestos bodily injury insurance coverage
litigation. In the event Fibreboard prevails in the insurance coverage
litigation, the amounts will be repaid from insurance proceeds.
<TABLE>
<CAPTION>
DECEMBER 31
- ------------------------------------------------------------------------------------------------
1993 1992
<S> <C> <C>
Amounts advanced under reimbursement agreement, interest at prime minus 2%
(4.0% at December 31, 1993).............................................. $ 21,361 $ 20,572
</TABLE>
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT-TERM INVESTMENTS
Carrying amount approximates fair value because of the short maturity of
these investments.
NOTES RECEIVABLE
Fair value of notes receivable is estimated by discounting future cash flows
using current rates at which similar loans would be made.
NOTES PAYABLE TO BANKS
Carrying amount approximates fair value based on current rates offered to
the corporation for similar debt.
LONG-TERM DEBT
Fair market value is estimated by discounting the future cash flows using
the current rates at which similar debt could be placed.
32
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The estimated fair values of financial instruments are as follows:
<TABLE>
<CAPTION>
1993 1992
- ----------------------------------------------------------------------------------------------------
CARRY. FAIR CARRY. FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments....................... $ 6,149 $ 6,149 $ 22,508 $ 22,508
Notes receivable...................................... 12,420 12,721 13,416 13,862
Financial liabilities:
Notes payable to banks................................ $ 17,657 $ 17,657 $ 24,262 $ 24,262
Long-term debt........................................ 28,303 28,818 17,497 18,391
</TABLE>
Fibreboard's consolidated balance sheets include financial instruments
resulting from the asbestos-related litigation, asbestos costs to be reimbursed,
asbestos claims settlement obligations and asbestos-related long-term debt.
These are unique financial instruments. Consequently, these instruments are not
traded nor is it likely a willing buyer could be found for them. Therefore, it
is not practicable to estimate a market value. The balance sheets as of December
31, 1993 and 1992 reflects asbestos costs to be reimbursed of $968,309 and
$820,085, asbestos claims settlements of $952,928 and $798,724 and
asbestos-related long-term debt of $21,361 and $20,572.
7. PENSION PLANS
Fibreboard has pension plans covering substantially all employees.
Contributions to a frozen defined benefit plan are based on actuarial
calculations of amounts necessary to cover current cost and amortization of
prior service cost over periods ranging from 10 to 20 years. All benefits
accrued under this plan are fully vested. Contributions to defined contribution
plans are nondiscretionary and based on varying percentages of eligible
compensation for the year.
The status of Fibreboard's frozen defined benefit pension plan at December
31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
- -----------------------------------------------------------------------------------------------
1993 1992
<S> <C> <C>
Accumulated benefit obligation........................................... $ 73,612 $ 71,814
--------------------
--------------------
Projected benefit obligations............................................ $ 73,612 $ 71,814
Plan assets.............................................................. 55,218 56,401
--------- ---------
Projected benefit obligations in excess of plan assets................. (18,394) (15,413)
Unrecognized obligation at transition.................................... 1,326 1,446
Unrecognized net loss in past service.................................... 4,113 2,398
Adjustment required to recognize minimum liability....................... (5,439) (3,844)
--------------------
Net accrued pension expense............................................ $ (18,394) $ (15,413)
--------------------
--------------------
</TABLE>
33
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The actuarial assumptions used to determine accrued pension expense and the
funded status of the plans for 1993 were: 7.5% discount rate on benefit
obligations and a 8% expected long-term rate of return on plan assets. The
assets of the plan at December 31, 1993 and 1992 consist of bonds, both
corporate and government, stocks, cash and cash equivalents.
As required by Statement of Accounting Standards No. 87, Employers'
Accounting for Pensions, Fibreboard has recognized a minimum pension liability
associated with its frozen defined benefit plan. As a result, Fibreboard
recorded an after tax reduction in equity of $2,427 at December 31, 1993 and
$1,439 at December 31, 1992.
Pension expense for 1993, 1992 and 1991 included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Benefits earned by employees...................................... $ -- $ 878 $ 558
Interest cost on projected benefit obligation..................... 5,489 5,739 6,021
Return on plan assets............................................. (5,832) (3,655) (6,109)
Net amortization and deferral..................................... 1,729 (750) 138
Curtailment gain -- (2,353) --
-------------------------------
Net pension cost (income) of defined benefit plans................ 1,386 (141) 608
Contributions to defined contribution pension plans............... 2,033 730 1,144
-------------------------------
Net pension expense............................................... $ 3,419 $ 589 $ 1,752
-------------------------------
-------------------------------
</TABLE>
On December 31, 1992, a defined benefit pension plan with assets in excess
of obligations was frozen, resulting in a curtailment gain of $2,353. The assets
of the plan were merged with Fibreboard's other defined benefit pension plan.
The curtailment gain is reflected as a component of interest and other income in
the Consolidated Statements of Income. Beginning January 1, 1993, active
employees are covered by a defined contribution pension plan.
8. NON-PENSION POST-RETIREMENT BENEFITS
Through 1992, Fibreboard provided post-employment benefits to employees who
met certain requirements until they reached age 65. The benefits provided were
mainly health care and dental. This benefit was discontinued for employees who
retired after December 31, 1992. However, post-employment benefits are available
to certain collective bargaining units of facilities which have been sold.
On January 1, 1991, Fibreboard adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Post Retirement Benefits Other than
Pensions, and recorded the full transition obligation. Fibreboard does not hold
any assets to fund the obligation.
34
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The status of Fibreboard's non-pension post retirement benefits at December
31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
- --------------------------------------------------------------------------------------------------
1993 1992
<S> <C> <C>
Net Periodic Post Retirement Benefit Cost
Service Cost.............................................................. $ -- $ 73
Interest Cost............................................................. 674 331
--------------------
Total................................................................... $ 674 $ 404
--------------------
--------------------
Accrued Benefit Cost
Accumulated post retirement benefit obligation
Retirees................................................................ $ 3,647 $ 2,985
Other active plan participants.......................................... -- 356
--------------------
3,647 3,341
Unrecognized net (gain) loss.............................................. 98 (15)
--------------------
Total................................................................... $ 3,549 $ 3,356
--------------------
--------------------
</TABLE>
A 16% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1993. The cost trend rate was assumed to decrease
slightly until 2003 at which time the rate was assumed to stabilize at 7%.
Increasing the assumed health care cost trend rates by 1% in each year would
increase the accumulated post retirement benefit obligation as of December 31,
1993 by $185 and the aggregate of the service and interest cost components of
net periodic post retirement cost for the year then ended by $60. The weighted
average discount rate used in determining the accumulated post retirement
benefits was 7.5%.
9. STOCK OPTION AND STOCK PURCHASE PLANS
Fibreboard has a stock option and rights plan for certain officers,
directors and key employees. The plan provides for the granting of stock
options, stock appreciation rights, limited stock appreciation rights and
restricted stock awards. Awards under the plan are determined by the
compensation committee of the Board of Directors. The maximum number of shares
available for award under the plan is 800,000. Option prices are set by the
committee. Option prices for grants must be at least 85% of the fair market
value on the date of grant. The time limit within which options may be exercised
and other exercise terms are fixed by the committee.
When stock options are exercised, the proceeds (including any tax benefits
to Fibreboard resulting from the exercise) are credited to the appropriate
common stock and additional paid-in capital accounts. Compensation related to
restricted stock awards and certain option grants (measured at the grant date)
is recognized as expense over the term of the related award.
At December 31, 1993, options to purchase 499,400 shares at prices from
$2.83 to $14.25 were outstanding. Options exercised in 1993 were 59,120. At
December 31, 1993, options to purchase 486,650 shares were immediately
exercisable. Options becoming exercisable in 1994 are 12,750. Option awards for
42,000 shares include limited stock appreciation rights for a like number of
shares. Each limited stock
35
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
appreciation right entitles the holder, in certain limited circumstances, to
surrender the underlying option in exchange for cash equal to the difference
between fair market value at the date of surrender and the option price for such
shares.
At December 31, 1993, restricted stock awards of 45,000 shares were
outstanding. The shares awarded will be issued 23,000 shares in 1994, 7,000
shares in 1995 and 15,000 in 1996 provided the grantee is employed continuously
through the issue date.
In addition, Fibreboard has an employee stock purchase plan. The plan allows
employees to purchase Fibreboard stock with an aggregate purchase price of up to
15% of the employee's base salary at the beginning of each purchase period. The
purchase price shall be the lesser of 85% of fair market value at the beginning
of each purchase period or 85% of fair market value at the actual purchase date.
The maximum number of shares issuable under the plan is 250,000. During 1993,
1992 and 1991, 0, 17,360 and 61,497 shares of Fibreboard stock were sold to
employees under this plan.
In 1993, Fibreboard adopted a long-term equity incentive plan, which
provides for awards of phantom stock units. Each phantom stock unit entitles the
grantee to a cash payment equal to the fair market value of one share of
Fibreboard common stock at the maturity date less the fair market value on the
grant date. At December 31, 1993, 126,400 phantom stock units had been awarded,
which mature 47,400 units in 1995 and 79,000 units in 1996.
Compensation expense recognized for these plans was $1,039, $517 and $308 in
1993, 1992 and 1991.
10. PREFERRED STOCK PURCHASE RIGHTS
In 1988, Fibreboard implemented a stockholder rights plan and distributed to
stockholders one preferred share purchase right for each share of Fibreboard
common stock then outstanding. Under the rights plan, as amended in 1994, each
right entitles the registered holder to purchase from Fibreboard 1/100th of a
share of Series A Junior Participating Preferred Stock at an exercise price of
$106 per 1/100th share, subject to adjustment. The rights will not be
exercisable until a party acquires beneficial ownership of 15% or more of
Fibreboard's then outstanding common shares. The rights, which do not have
voting rights, expire in February 2004 and may be redeemed in whole by
Fibreboard, at its option, at a price of $.01 per right prior to the expiration
or exercise of the rights.
In the event Fibreboard is acquired in an unsolicited merger or other
business combination transaction, each right will entitle the holder to receive,
upon exercise of the right, common stock of the acquiring company having a
market value of two times the then current exercise price of the right. In the
event a party acquires 15% or more of Fibreboard's outstanding common shares,
each right will entitle the holder to receive upon exercise Fibreboard common
shares having a market value of two times the exercise price of the right.
36
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
11. COMMITMENTS
Fibreboard is obligated to purchase timber under cutting contracts,
primarily with the U.S. Forest Service, which extend to 1996. The table below
presents Fibreboard's best estimate of its commitment under timber cutting
contracts by year of contract expiration:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
1994................................................................................................. $ 1,379
1995................................................................................................. 6,905
1996................................................................................................. 2,559
-----------
$ 10,843
-----------
-----------
</TABLE>
Fibreboard leases certain office space and machinery and equipment under
operating leases which expire within five years and for which minimum lease
payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
1994................................................................................................. $ 1,601
1995................................................................................................. 1,408
1996................................................................................................. 1,105
1997................................................................................................. 524
1998................................................................................................. 314
-----------
$ 4,952
-----------
-----------
</TABLE>
In addition, the Company leases property from the U.S. Forest Service for
one of its resort operations. Lease payment terms are based on a percentage of
revenues. Total rent expense for all operating leases amounted to $2,194, $1,753
and $1,812 in 1993, 1992 and 1991.
37
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
12. INDUSTRY SEGMENT INFORMATION
Information about Fibreboard's industry segments is set forth below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Outside sales
Wood products............................................ $ 190,494 $ 169,655 $ 165,101
Industrial insulation products........................... 49,215 49,701 52,292
Resort operations........................................ 25,501 20,361 16,663
-------------------------------
Consolidated............................................. $ 265,210 $ 239,717 $ 234,056
-------------------------------
-------------------------------
Operating profit (loss)
Wood products--Operations................................ $ 18,468 $ 17,321 $ 11,450
Wood products--Unusual Items............................. -- -- (7,896)
-------------------------------
18,468 17,321 3,554
Industrial insulation products--Operations............... 5,382 6,138 4,497
Industrial insulation products--Unusual Items............ -- -- (4,956)
-------------------------------
5,382 6,138 (459)
Resort operations........................................ 2,325 1,648 144
-------------------------------
26,175 25,107 3,239
Asbestos-related costs..................................... -- -- (20,000)
Unallocated unusual items.................................. -- -- (1,060)
Unallocated expense, net................................... (8,299) (11,895) (12,245)
Interest expense........................................... (3,575) (4,222) (5,342)
Interest and other income.................................. 5,551 7,707 3,182
-------------------------------
Income (loss) before taxes................................. $ 19,852 $ 16,697 $ (32,226)
Identifiable assets
Wood products............................................ $ 165,023 $ 138,731 $ 140,598
Industrial insulation products........................... 25,831 27,480 28,677
Resort operations........................................ 36,100 24,331 16,997
Discontinued operations.................................. -- 2,193 2,332
Unallocated assets....................................... 34,405 30,855 37,601
Asbestos-related assets.................................. 969,136 826,582 363,015
-------------------------------
Total assets........................................... $1,230,495 $1,050,172 $ 589,220
-------------------------------
-------------------------------
Depreciation, depletion and amortization
Wood products............................................ $ 6,340 $ 7,031 $ 8,454
Industrial insulation products........................... 1,041 1,810 2,031
Resort operations........................................ 2,514 2,331 2,338
Capital expenditures
Wood products............................................ 4,240 2,969 4,081
Industrial insulation products........................... 324 114 264
Resort operations(1)..................................... 17,794 2,966 1,223
<FN>
(1) INCLUDES ACQUISITION ASSETS OF $12,981 IN 1993.
</TABLE>
38
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
13. UNUSUAL ITEMS
Fibreboard's results of operations include the following unusual items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Anticipated costs of plant closures.................................... $ -- $ -- $ (3,925)
Goodwill writeoff...................................................... -- -- (8,430)
Other.................................................................. -- -- (1,557)
-------------------------------
$ -- $ -- $ (13,912)
-------------------------------
-------------------------------
</TABLE>
During 1991, Fibreboard recognized an anticipated $3,925 loss related to the
closure and disposition of its manufacturing facilities located in Turlock and
Wallace, CA. The Turlock facility was closed to complete a realignment of the
wood products operating facilities while the Wallace facility was closed in
response to timber supply constraints.
Fibreboard previously recorded goodwill associated with acquisitions made in
1988 and 1989. Based upon historical operating results, Fibreboard concluded in
1991 that there was no future value to the goodwill
associated with these transactions. Accordingly, the remaining unamortized
balance of goodwill was written off.
14. DISCONTINUED OPERATIONS
During 1991, Fibreboard terminated operations of its Roxboro, NC engineered
lumber manufacturing facility. The net loss through closing of $3,792 has been
reflected as discontinued. In addition, the assets of the facility were
written-down to net realizable value and a reserve established for ongoing costs
which resulted in an additional net loss of $10,851. Sales and losses before
taxes for discontinued operations in 1991 were $3,589 and ($23,244). During
1993, this facility with net assets of $2,193 was sold at a gain of $665, which
is reflected as a component of "Interest and other income" in the Consolidated
Statements of Income.
15. ACQUISITIONS AND DISPOSITIONS
In July 1993, Fibreboard acquired the net assets of Sierra Ski Ranch, a ski
facility located in California, for $13,054. The acquisition was accounted for
as a purchase of assets. The ski area was subsequently renamed Sierra-at-Tahoe.
Subsequent to December 31, 1993, Fibreboard sold its agricultural container
manufacturing facilities located in Fresno, CA in order to concentrate its
resources on the primary wood products and remanufacturing businesses.
39
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
16. ASBESTOS-RELATED LITIGATION
CONTINGENT LIABILITY FOR ASBESTOS-RELATED CLAIMS
OVERVIEW:
Fibreboard's ability to continue operations outside of bankruptcy protection
has been dependent upon its ongoing capability to fund asbestos-related defense
and indemnity costs. Prior to 1972, Fibreboard manufactured insulation products
containing asbestos. Fibreboard has since been named as a defendant in many
thousands of personal injury claims for injuries allegedly caused by asbestos
exposure and in asbestos-in-buildings actions involving many thousands of
buildings.
Fibreboard believes it has unique insurance coverage for personal injury
claims, as the trial court has held (with the issue on appeal) that claims with
initial exposure to asbestos prior to 1959 are covered by two no-aggregate-limit
policies.
During 1993, Fibreboard and its insurers entered into the Insurance
Settlement Agreement, and Fibreboard, its insurers and plaintiffs
representatives entered into the Global Settlement Agreement. These agreements
are interrelated. Final court approval of these agreements is required.
Fibreboard believes trial court approval could occur during 1994, but if
appealed, it may be 1995 or later before final court approval could be obtained.
If both the Global and Insurance Settlement Agreements are approved,
Fibreboard believes its existing and future personal injury asbestos liabilities
will be resolved through insurance resources and existing corporate reserves. If
the Insurance Settlement is approved but the Global Settlement is not approved,
the insurers will provide Fibreboard with up to $2,000,000 to resolve claims
pending as of August 27, 1993 and all future claims, and will pay claims settled
but not yet paid as of August 27, 1993.
CLAIMS ACTIVITY:
Fibreboard has already resolved 132,200 personal injury claims for
approximately $1,521,100, not including legal defense costs. Substantially all
of the settlements have been achieved through 1) payments by Fibreboard's
insurers; 2) assignments of Fibreboard's rights to insurance payments; or 3)
deferring payments pending resolution of the personal injury insurance coverage
litigation discussed below. An additional 23,900 claims have been disposed of at
no cost to Fibreboard other than legal defense costs. At December 31, 1993,
Fibreboard estimates that approximately 57,800 claims have been filed against it
which remain unresolved. Approximately 14,600 of these claims were initially
filed against Fibreboard on or after August 27, 1993 and will be covered by the
Global Settlement, if approved. Fibreboard is unable to determine the exact
number of claims that may be filed in the future, although the number is
expected to be substantial.
Fibreboard has achieved excellent results in resolving asbestos-in-buildings
actions. At December 31, 1993, of the 151 actions served against it, Fibreboard
has been dismissed from 126 (31 of which joined the National Schools class
action), settled or agreed to settle five for $2,020, tried one to a defense
verdict and remains a defendant in 21 actions. In one of the remaining actions,
Fibreboard won a defense verdict on product identification and cost of abatement
issues, although further proceedings are scheduled.
40
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The following tables illustrate asbestos-related claims activity for the
last three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Personal Injury Claims
New claims received (1).......................................... 35,100 37,000 18,100
Claims disposed
Settled........................................................ 27,907 54,137 9,752
Dismissed...................................................... 2,716 1,898 3,721
"Green Card" settlements (2)................................... 429 862 1,446
Judgments (3).................................................. 48 18 52
Adjustments (4)................................................ 2,300 1,900 2,100
Average settlement amount per claim settled (5)
pre-1959 claims.............................................. $ 12 $ 14 $ 36
post-1959 claims............................................. $ 4 $ 3 $ 6
Claims pending at year end (6)................................... 57,800 56,200 78,000
Asbestos-in-Buildings Claims
New actions received............................................. -- 1 1
Actions disposed
Dismissed...................................................... 7 12 8
Settled........................................................ 1 -- --
Actions pending at year end...................................... 21 29 40
<FN>
- ------------------------
(1) FIBREBOARD BELIEVES NEW CLAIMS RECEIVED INCREASED DURING 1993 AND 1992 IN
ANTICIPATION OF THE GLOBAL AND INSURANCE SETTLEMENTS IN 1993 AND DUE TO
SIGNIFICANT YEAR END SETTLEMENTS OF OUTSTANDING CLAIMS IN 1992 THAT
INCLUDED A SIGNIFICANT NUMBER OF UNFILED CLAIMS INCORPORATED INTO LARGE
GROUP SETTLEMENTS. OF THE CLAIMS RECEIVED IN 1993, 14,600 CLAIMS WERE FILED
ON OR AFTER AUGUST 27, 1993 AND WILL BE COVERED BY THE GLOBAL SETTLEMENT,
IF APPROVED.
(2) UNDER GREEN CARD SETTLEMENTS, THERE IS NO DETERMINATION OF LIABILITY BY
FIBREBOARD TO A CLAIMANT. INSTEAD, FIBREBOARD WAIVES THE STATUTE OF
LIMITATIONS SHOULD A CLAIMANT DEVELOP AN ASBESTOS-RELATED IMPAIRMENT IN THE
FUTURE.
(3) JUDGMENTS REPRESENT DEFENSE VERDICTS IN FAVOR OF FIBREBOARD, OR PLAINTIFF
VERDICTS WHERE THE NET AMOUNT PAYABLE BY FIBREBOARD IS ZERO AFTER APPLYING
PRIOR SETTLEMENT AMOUNTS OR PLAINTIFF VERDICTS WHERE THE JUDGMENT HAS BEEN
PAID. SINCE 1988, 42 JUDGMENTS HAVE RESULTED IN MONETARY PAYMENTS,
AGGREGATING $8,038. ADDITIONAL JUDGMENTS FAVORING PLAINTIFFS HAVE BEEN
ENTERED. FIBREBOARD IS APPEALING THESE JUDGMENTS. THE AMOUNT OF SUCH
JUDGMENTS IS INCLUDED IN FIBREBOARD'S OVERALL LIABILITY ESTIMATE DISCUSSED
BELOW.
(4) OFTEN, MULTIPLE CLAIMS ARE FILED FOR THE SAME INJURY. IN ADDITION,
FIBREBOARD'S CLAIMS DATABASE WAS CONSTRUCTED BY MERGING SEVERAL THIRD-PARTY
DATABASES IN 1988. DURING 1992 AND 1993, FIBREBOARD ATTEMPTED TO IDENTIFY
DUPLICATE CLAIMS AND REMOVE THEM FROM THE DATABASE. IT IS OFTEN NOT
POSSIBLE TO FULLY IDENTIFY DUPLICATE CLAIMS UNTIL THE CLAIMS ARE PREPARED
FOR TRIAL. FIBREBOARD ANTICIPATES ADDITIONAL FUTURE ADJUSTMENTS.
(5) THESE AVERAGES ARE FOR CLAIMS WHERE THE INITIAL YEAR OF EXPOSURE IS KNOWN.
THE AVERAGE SETTLEMENT AMOUNT PER CLAIM INCREASED DRAMATICALLY IN 1991 DUE
TO FIBREBOARD SETTLING AN EXTRAORDINARY NUMBER OF HIGH DOLLAR JUDGMENTS
FROM CONSOLIDATED PROCEEDINGS IN TEXAS AND NEW YORK UNDER THE INSURANCE
ASSIGNMENT PROGRAM. EXCLUDING THESE SETTLEMENTS, THE AVERAGE AMOUNT PER
CLAIM SETTLED DURING 1991 WAS $11.
(6) OF THE 1993 PENDING CLAIMS, 14,600 WERE FILED ON OR AFTER AUGUST 27, 1993
AND WILL BE COVERED BY THE GLOBAL SETTLEMENT, IF APPROVED.
</TABLE>
41
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
INSURANCE COVERAGE FOR PERSONAL INJURY CLAIMS:
During 1993, Fibreboard entered into a settlement agreement with Continental
Casualty Company (Continental) and Pacific Indemnity Company (Pacific) (the
Insurance Settlement). In addition, Fibreboard, Continental, Pacific and
plaintiffs' representatives entered into a settlement agreement (the Global
Settlement). These agreements are interrelated. Final court approval of the
agreements is required. Fibreboard believes trial court approval could occur
during 1994, but if appealed, it may be 1995 or later before final court
approval could be obtained.
If both the Global Settlement and Insurance Settlement are approved,
Fibreboard believes its existing and future personal injury asbestos liabilities
will be resolved through insurance resources and existing corporate reserves.
Fibreboard will contribute $10,000 toward a $1,535,000 settlement trust, which
it will obtain from other remaining insurance sources and existing reserves. The
remainder of the trust will be funded by Continental and Pacific (at December
31, 1993, the insurers had placed $1,525,000 in an escrow account pending court
approval of the settlements). The trust will be used to compensate "future"
plaintiffs, defined as those plaintiffs who had not filed a claim against
Fibreboard before August 27, 1993. Such future plaintiffs only source of
compensation will be the trust, as an injunction will be entered prohibiting
future claims against Fibreboard or the insurers.
If the Global Settlement is not approved, but the Insurance Settlement is
approved, the insurers will instead provide Fibreboard with up to $2,000,000 to
resolve pending and future claims and will pay the deferred payment portion of
existing settled claims.
While Fibreboard is optimistic, there is no assurance final court approval
of either the Global Settlement or the Insurance Settlement can be obtained. If
neither the Global Settlement nor the Insurance Settlement is approved, the
parties will be bound by the outcome of the insurance coverage litigation,
unless other settlements are reached.
All insurance proceeds due from other insurers under previous settlements
have been received with the exception of approximately $10,000 from Home
Insurance (Home). Fibreboard intends to draw these funds for substantially all
of its contribution to the Global Settlement if approved.
In the event the settlements discussed above are not approved, Fibreboard
believes it has substantial insurance coverage for asbestos-related defense and
indemnity costs. Fibreboard's disputes with Continental and Pacific have been
the subject of litigation which began in 1979. Trial court judgments rendered in
1990 give Fibreboard virtually unlimited insurance coverage for asbestos-related
personal injury claims where the initial exposure to asbestos occurred prior to
March 1959. Under the judgments, these insurers can be required to pay up to
$500 for each occurrence (defined as each individual claim) with no limitation
on the aggregate number of occurrences.
The insurers appealed to the California Court of Appeal. Among other issues,
Continental disputed the definition of an occurrence under its policy as well as
the trigger and scope of coverage as determined by the trial court, while
Pacific argued that its policy contained an aggregate limit as well as disputing
the trigger and scope of coverage issues. In November 1993, the Court of Appeal
issued its ruling on the trigger and scope of coverage issues, confirming the
favorable trial court judgments, except the court held the period for coverage
would begin at the time of exposure to Fibreboard's asbestos products rather
than at the time of exposure to
42
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
any company's asbestos product, with the presumption that these periods are the
same. The insurers have filed petitions for review with the California Supreme
Court, which has granted review but not yet scheduled any further activity. At
the request of Fibreboard, Continental and Pacific, the Court of Appeal withheld
its ruling on the remaining issues while the parties seek approval of the Global
and Insurance Settlements. If the Global and/or Insurance Settlements are
ultimately approved, Fibreboard and its insurers will seek to dismiss the
insurance coverage litigation.
Fibreboard has entered into an interim agreement with Continental under
which Continental agreed to provide a full defense to Fibreboard on pre-1959
claims and make certain funds available as needed to pay currently due
Structured Settlement Obligations and other personal injury defense costs for
which Fibreboard does not otherwise have insurance available during the period
pending final approval of the Global and/or Insurance Settlement, or if neither
is approved, through the ultimate conclusion of the insurance coverage appeal,
however long that may take. In exchange for the benefits provided under this
agreement, Fibreboard agreed not to settle additional pre-1959 personal injury
claims without Continental's consent.
If neither the Global Settlement nor the Insurance Settlement are approved
and Fibreboard prevails in the appeal of the insurance coverage litigation,
Continental has agreed to provide Fibreboard with $315,000 to $425,000 to
resolve personal injury claims alleging first exposure to asbestos after March
1959, less any amounts Fibreboard recovers from the Pacific settlement described
below. Continental would also continue to have responsibility for all pre-1959
personal injury claims against Fibreboard up to $500 per claim.
In March 1992, Fibreboard and Pacific entered into a settlement agreement
(the Pacific Agreement). If the Global Settlement or Insurance Settlement is
approved, the Pacific Agreement will be of no effect. If neither of the
settlements is approved, the Pacific Agreement establishes amounts payable to
Fibreboard if the trial court judgments are upheld. Fibreboard received $10,000
upon signing the agreement and received an additional $10,000 during 1993. In
addition, if the judgments are affirmed on appeal, Fibreboard will receive from
$80,000 to $105,000 to be used for claims costs for which it does not otherwise
have insurance.
In the event the trigger and scope of coverage judgments are reversed on
appeal, Pacific will owe Fibreboard nothing and will have a right to repayment
of interim funds previously advanced.
Fibreboard believes amounts available under the settlements discussed above
will be adequate to fund defense and indemnity costs until the insurance
coverage appeal is concluded, whether as a result of the final approval of the
Global and/or Insurance Settlements or the final resolution of the insurance
coverage litigation.
LIABILITY QUANTIFICATION:
At the end of 1991, Fibreboard attempted to quantify its liability for
asbestos-related personal injury claims then pending as well as anticipated to
be received through the end of the decade. There are many opportunities for
error in such an exercise. Assumptions concerning the number of claims to be
received, the disease mix of pending and future claims and projections of
defense and indemnity costs may or may not prove correct. Fibreboard's
assumptions are based on its historical experience, modified as appropriate for
anticipated demographic changes or changes in the litigation environment.
43
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Notwithstanding the inherent risk of significant error in such a
calculation, Fibreboard estimated that the amount necessary to defend and
dispose of asbestos-related personal injury claims pending at December 31, 1991
and anticipated through the end of the decade plus the costs of prosecuting its
insurance coverage litigation would aggregate $1,610,000. Because of the dynamic
nature of this litigation, it is more difficult to estimate how many personal
injury claims will be received after 1999 as well as the costs of defending and
disposing of those future claims. Consequently, Fibreboard's estimated liability
contains no amounts for personal injury claims received after the end of the
decade, although it is likely additional claims will be received thereafter.
Fibreboard believes it is probable that it will ultimately receive insurance
proceeds of $1,584,000 for the defense and disposition of the claims quantified
above. Fibreboard's opinion is based on its understanding of the disputed
issues, the financial strength of the insurers and the opinion of outside legal
counsel regarding the outcome of the litigation.
As a result, Fibreboard recorded a liability, net of anticipated insurance
proceeds, of $26,000 at December 31, 1991, representing its best estimate of the
unreimbursed cost of resolving personal injury claims then pending and
anticipated through the remainder of the decade as well as the costs of
prosecuting the insurance coverage litigation. Although there likely will be
claims filed beyond the end of the decade, these have not been estimated. During
1993 and 1992, unreimbursed costs of $1,802 and $4,729 were charged against this
reserve.
Although Fibreboard, its insurers and plaintiffs' representatives entered
into the Insurance and Global Settlements discussed above, Fibreboard does not
believe these settlements impact its estimate of liability through the end of
the decade, and no additional events have transpired which indicate the
potential liability and insurance proceeds estimates should be changed.
Consequently, no adjustment has been made to the estimated liability for
personal injury claims through the end of the decade or anticipated insurance
proceeds. Fibreboard will continue to reevaluate its estimates and will make
adjustments to the effect dictated by changes in the personal injury litigation.
ASBESTOS-IN-BUILDINGS LIABILITIES:
Fibreboard does not believe it is presently possible to reasonably estimate
potential liabilities for asbestos-in-buildings claims, if any. Fibreboard
believes that its asbestos-containing products, properly used, cause no damage
to buildings. Further, Fibreboard can frequently identify its
asbestos-containing products and aggressively pursues dismissals of claims where
its products are not identified. To date, Fibreboard has been very successful in
obtaining dismissals, and has won the only trial which went to verdict and won a
defense verdict on product identification and cost of abatement issues in
another trial in which further proceedings are scheduled.
Fibreboard has only paid nominal amounts for settlement of two
asbestos-in-buildings claims in prior years, although it did settle three claims
during 1993, including settlement agreements in the National Schools class
action and another class action, for $2,010. The class action settlements are
subject to court approval. Further, although personal injury claims have similar
characteristics, the same cannot be said for asbestos-in-buildings claims. Each
claim can involve from one to several thousand buildings, each of which may vary
as to age, ability to identify various producers products contained in the
building as well as the
44
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
extent of a producer's product present, building use, difficulty of abatement
(if required) and so on. Thus, while extrapolation of personal injury claims
disposition experience may provide useful information for estimating future
personal injury liability, such an analysis cannot be applied to
asbestos-in-buildings claims.
Trials in a number of the pending asbestos-in-buildings claims are scheduled
over the next few years. To date Fibreboard has successfully defended these
claims, or settled the claims for nominal amounts compared to the damages
sought. Based on its experience to date, Fibreboard is optimistic
asbestos-in-buildings claims can be resolved within available insurance
resources.
INSURANCE FOR ASBESTOS-IN-BUILDINGS CLAIMS:
Fibreboard has reached final settlements with three of its primary insurers
and one of its excess level insurers. In addition, a settlement subject to court
approval has been reached with a fourth primary insurer. The final settlements
confirm more than $175,000 of insurance as needed to defend and dispose of
asbestos-in-buildings claims, of which $4,269 has been used through December 31,
1993.
Fibreboard is also litigating with its remaining insurance carriers and
believes the total limits of insurance policies in effect from 1932 to 1985
which may provide coverage for asbestos-in-buildings claims aggregate
approximately $420 million (including the $175,000 referred to in the prior
paragraph), which is in addition to the personal injury insurance coverage and
does not include additional policies which contain no aggregate limit. The
insurers dispute coverage, although to date substantially all of Fibreboard's
costs of defending asbestos-in-buildings claims have been paid by primary
carriers.
Fibreboard is seeking a declaration that the underlying asbestos-in-building
claims are covered under various insurance policies. While Fibreboard does not
expect that this trial will take as many years to complete as the personal
injury insurance coverage trial, it will likely extend through 1994 and perhaps
into 1995. Barring settlement, final resolution of the insurance available for
asbestos-in-buildings claims may not be known for some time as an appeal of the
trial court decision is likely.
The trial commenced in May 1991 and is continuing in phases. In June 1991
the Superior Court entered a judgment which was affirmed on appeal declaring
that a $10,000 excess liability insurance policy issued to Fibreboard's former
parent, Louisiana-Pacific Corporation, for the period April 1, 1979 to April 1,
1980 is void because of fraud, misrepresentation and concealment in the policy
application due to the insurer not being informed of the existing
asbestos-related claims against Fibreboard at the time. The effect of this
judgment is not expected to be significant unless Fibreboard is first forced to
exhaust the primary and underlying excess insurance to defend and dispose of
asbestos-in-buildings claims.
The trial has been continued. No date has been set for the trial to
recommence. Fibreboard is continuing settlement discussions with the remaining
insurers. While optimistic, Fibreboard cannot predict whether such discussions
will result in settlements.
EVENTS IMPACTING ASBESTOS-RELATED LIABILITIES
A number of events could impact Fibreboard's ability to continue to manage
its asbestos-related liabilities within available resources. The potential
impact of the personal injury issues which follow are largely dependent on
whether the Global and/or Insurance Settlements are approved.
45
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
INSURANCE ASSIGNMENT PROGRAM:
During 1991, Fibreboard introduced its Insurance Assignment Program as a
settlement vehicle for large groups of claims. Under this program, the
plaintiffs accept an assignment of Fibreboard's right to insurance monies from
Continental as complete settlement of their claims against Fibreboard.
Consequently, these settlements involve no cash payments by Fibreboard. This
contrasts with settlements under Fibreboard's Structured Settlement Program, in
existence since 1988, wherein partial payments are made by Fibreboard using
insurance funds with the remainder of the settlement deferred pending resolution
of insurance coverage.
The settlement agreements entered into to date under the Insurance
Assignment Program do not require Fibreboard to pay cash unless insurance
proceeds are ultimately not available. Additional provisions of certain
settlement agreements provide that Fibreboard and the plaintiffs return to the
"status quo" existing prior to settlement if certain specified court actions are
not obtained. The plaintiffs have a right to return to the status quo should
Continental declare bankruptcy prior to the final resolution of the personal
injury insurance coverage litigation.
During 1992, Fibreboard obtained widespread acceptance of this program to
resolve large numbers of pending and not yet filed claims. Fibreboard also
obtained a judicial determination in California state court supporting the right
of Fibreboard to settle claims via the Insurance Assignment Program. This
judgment is being appealed by Continental to the California Court of Appeal.
Insurance Assignment Program settlements are recorded as a liability when
the settlement is executed. A corresponding asset for anticipated insurance
proceeds is also recorded. This accounting treatment differs from the handling
of unresolved claims, where no gross liability is recorded until such time as
the claim is settled.
This program was initially used during 1991 to settle the Cimino
consolidated group of claims for $185,000. During 1992, Continental entered into
a separate settlement agreement with the Cimino plaintiffs. The terms of the
agreement, which have been approved by the Court, include a release of
Fibreboard from any obligation to the Cimino plaintiffs, regardless of the
outcome of the insurance coverage litigation. As a result, Fibreboard removed
the $185,000 liability and the related asset from its balance sheet.
Under the interim agreement with Continental, Fibreboard agreed not to use
this settlement vehicle without Continental's prior consent. Fibreboard and
Continental have been converting prior Insurance Assignment Program settlements
to three-party settlements among Fibreboard, Continental, and the plaintiffs,
rather than between Fibreboard and plaintiffs alone.
STRUCTURED SETTLEMENT PROGRAM:
Beginning in 1988, Fibreboard has used its Structured Settlement Program
(SSP) to settle personal injury claims. Under the SSP, Fibreboard and the
plaintiff agree to a settlement amount. Fibreboard agrees to pay 40% of the
settlement amount of pre-1959 claims in cash, and the remainder is deferred
until September 1, 1996. Settlements of post-1959 claims result in deferring
100% of the settlement amount.
As a consequence of the insurance settlements with Continental and Pacific
in 1993, the SSP now has been superseded by three-party agreements among
Continental, Fibreboard and the plaintiffs, whereby Continental or Fibreboard
agrees to pay certain amounts depending upon the resolution of the insurance
coverage case or the final approval or disapproval of the Global and Insurance
Settlements. These three-party agreements typically provide a partial cash
payment from Continental on pre-1959 claims.
46
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
OTHER ISSUES (PERSONAL INJURY CLAIMS):
During 1991, the Judicial Panel on Multi-District Litigation issued a ruling
which requires consolidation of all personal injury cases pending in the federal
court system for pre-trial handling and scheduling purposes. Claims pending in
state courts are not impacted by this ruling. Fibreboard is unable to determine
what effect, if any, this consolidation will have on personal injury litigation.
There has been a continuation in the trend to consolidate or combine large
numbers of personal injury claims for trial. Fibreboard has had reasonable
success to date settling large group cases.
OTHER ISSUES (ASBESTOS-IN-BUILDINGS CLAIMS):
Many asbestos-in-buildings claims allege a conspiracy and/or concert of
action theory which assert, among other things, that the asbestos producers
withheld information regarding the potential danger of asbestos. If this theory
prevails at trial, it could eliminate the requirement that the plaintiff
positively identify Fibreboard's products as present in buildings in trials
where the conspiracy theory is alleged. The conspiracy theory has not yet been
tested in trial against Fibreboard, although Fibreboard believes it has
meritorious defenses.
OTHER ISSUES (PUNITIVE DAMAGE CLAIMS):
Most of the personal injury claims and many of the asbestos-in-buildings
actions also seek punitive damages. Fibreboard has not paid any punitive damages
judgments except when funded by insurance. It is uncertain whether punitive
damages would be covered by insurance as the law in this area varies from state
to state. During 1991, Fibreboard received a ruling by the 9th Circuit Court of
Appeal that punitive damages awarded by the Cimino jury in Texas and by a West
Virginia jury in a consolidated trial similar to Cimino were covered by
insurance. However, this ruling may have limited applicability in view of the
varying state rules regarding punitive damage awards.
RESOURCES AVAILABLE FOR ASBESTOS-RELATED COSTS
Under the terms of the interim agreement, Continental will provide a full
defense to Fibreboard on pre-1959 claims and make certain funds available as
needed to pay currently due Structured Settlement obligations and other personal
injury defense costs for which Fibreboard does not have insurance available
during the period pending final approval of the Global and/or Insurance
Settlement, or if neither is approved, through the ultimate conclusion of the
insurance coverage appeal, however long that may take. At December 31, 1993,
Fibreboard had approximately $821 in cash on hand restricted for
asbestos-in-buildings-related expenditures. Fibreboard's operating line of
credit contains prohibitions on using operating cash flow or borrowed funds to
pay for asbestos-related costs, other than the costs of pursuing the insurance
coverage litigation and internally generated case management expenses. At
December 31, 1993, $11,048 was due in 1994 to asbestos claimants who had
accepted Structured Settlement Program obligations. Fibreboard believes
restricted cash on hand, amounts available under the interim agreement with
Continental and amounts available under settlement agreements with Fibreboard's
asbestos-in-buildings insurers will be adequate to fund defense and indemnity
costs of personal injury and asbestos-in-buildings claims plus any amounts due
under current and future Structured Settlement Program settlements.
47
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
17. OTHER LITIGATION AND CONTINGENCIES
Fibreboard has been named as a potentially responsible party in two separate
landfill clean-ups in the state of California, the Operating Industries, Inc.
landfill in Monterey Park and the GBF landfill in Pittsburg. In addition,
Fibreboard has been named a defendant in a private party lawsuit seeking to
recover costs of clean-up and remediation of the Acme landfill in Martinez,
California. In all cases, Fibreboard's former container products division was
responsible for materials deposited at the landfills. Fibreboard is working with
the steering committees of each site to determine Fibreboard's allocable share
of investigation and remediation costs. Fibreboard has established a reserve
against which the costs of study and cleanup, as well as ongoing legal and
steering committee administrative costs, will be charged. The amount of the
reserve was increased by $986 in 1992 to account for the addition of the Acme
landfill contingency and to reflect more current remediation cost estimates for
the GBF landfill. As of December 31, 1993, the reserve had a remaining balance
of $1,814. Fibreboard believes the reserve will be adequate to cover its
remaining costs associated with these landfill sites.
Fibreboard is involved in a number of additional disputes arising from its
operations. Fibreboard believes resolution of these disputes will not have a
material adverse impact on its financial condition or results of operations.
48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Fibreboard Corporation:
We have audited the accompanying consolidated balance sheets of
Fibreboard Corporation (a Delaware corporation) and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fibreboard Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in more detail in Note 16 to the accompanying financial
statements, Fibreboard has been subject to significant asbestos-related
litigation and claims allegedly caused by products that the Company manufactured
prior to 1972. The amounts involved are substantial. During 1993, Fibreboard,
its insurance carriers, and counsel for personal injury claimants entered into
agreements which, if finally approved by the court, would resolve the Company's
asbestos-related personal injury liabilities within available insurance and
existing reserves. However, if these agreements are not approved by the court,
the ultimate resolution of these claims and litigation could be materially
adverse to Fibreboard causing a substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements have been
prepared assuming that Fibreboard will continue as a going concern and do not
include any adjustments that might result from the final resolution of these
asbestos-related uncertainties.
Arthur Andersen & Co.
San Francisco, California,
February 11, 1994.
49
<PAGE>
REPORT OF MANAGEMENT
The objectivity and integrity of the consolidated financial statements are
the responsibility of Fibreboard Corporation management. To discharge this
responsibility, management maintains a system of internal controls designed to
provide reasonable assurance that assets are safeguarded and that accounting
records are reliable. Management supports an internal audit program to provide
assurance that the system of internal controls is operating effectively. The
consolidated financial statements and notes thereto and other financial
information included in this annual financial report have been prepared by
management in accordance with generally accepted accounting principles, and by
necessity include some items determined using management's best judgment,
tempered by materiality.
The Board of Directors discharges its responsibility for reported financial
information through its Audit Committee. This Committee, composed of all outside
directors, meets periodically with management, the internal audit department and
Arthur Andersen & Co. to review the activities of each.
<TABLE>
<S> <C>
John D. Roach James P. Donohue
Chairman, President and Senior Vice President,
Chief Executive Officer Finance and Administration
Garold E. Swan
Vice President and Controller
</TABLE>
50
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER
(UNAUDITED) SHARE)
- -------------------------------------------------------------
EARNINGS
PER SHARE
GROSS NET (FULLY
QUARTER NET SALES MARGIN INCOME DILUTED)
<S> <C> <C> <C> <C>
1993
1st............ $ 74,894 $16,741 $6,420(1) $ 1.47
2nd............ 65,021 10,617 3,370 .77
3rd............ 59,136 6,393 1,188(2) .26
4th............ 66,159 6,245 735(3) .16
----------------------------
TOTAL...... $ 265,210 $39,996 $11,713 $ 2.62
----------------------------
----------------------------
1992
1st............ $ 70,860 $14,279 $5,487(4) $ 1.35
2nd............ 59,944 10,194 2,692 .66
3rd............ 54,497 6,397 1,168(5) .28
4th............ 54,416 3,045 85(6) .02
----------------------------
TOTAL...... $ 239,717 $33,915 $9,432 $ 2.30
----------------------------
----------------------------
<FN>
(1) INCLUDES A PRE-TAX GAIN OF $1,388 ON THE SALE OF SURPLUS REAL ESTATE.
(2) INCLUDES A PRE-TAX GAIN OF $708 ON THE SALE OF SURPLUS REAL ESTATE AND A
REDUCTION OF DEPRECIATION EXPENSE OF $678 DUE TO ADJUSTING THE DEPRECIABLE
LIVES OF ASSETS.
(3) INCLUDES A PRE-TAX GAIN OF $1,626 ON THE SALE OF SURPLUS REAL ESTATE AND A
REDUCTION OF DEPRECIATION EXPENSE OF $759 DUE TO ADJUSTING THE DEPRECIABLE
LIVES OF ASSETS.
(4) INCLUDES A PRE-TAX GAIN OF $1,445 ON THE SALE OF SURPLUS REAL ESTATE.
(5) INCLUDES A PRE-TAX GAIN OF $681 ON THE SALE OF SURPLUS REAL ESTATE.
(6) INCLUDES A PRE-TAX GAIN OF $2,353 FROM CURTAILING A DEFINED BENEFIT PENSION
PLAN AND $872 FROM THE SALE OF SURPLUS REAL ESTATE.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Directors of Fibreboard is incorporated
herein by reference from "Election of Directors" and "Directors Not Standing for
Election" of Fibreboard Corporation's Proxy Statement to be filed pursuant to
Regulation 14A not later than April 30, 1994. See also "Executive Officers of
the Registrant" in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated herein by
reference from "Compensation of Directors" and "Executive Compensation" of
Fibreboard's Proxy Statement to be filed pursuant to Regulation 14A not later
than April 30, 1994.
51
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners
and Management is incorporated herein by reference from "Security Ownership of
Management and Principal Stockholders" of Fibreboard's Proxy Statement to be
filed pursuant to Regulation 14A not later than April 30, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, financial statement schedules and exhibits filed
in this report.
1. Index to Financial Statements and Supplementary Data. See page 20.
2. Index to Financial Statement Schedules. See page 56.
3. The following exhibits are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <S>
3.1 Fibreboard's Restated Certificate of Incorporation (incorporated herein by reference from
Fibreboard Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended
on June 28, 1988).
3.2 Fibreboard's Restated Bylaws as amended June 8, 1993 (incorporated herein by reference
from Fibreboard Corporation's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993).
4.1 Specimen Common Stock Certificate, $.01 par value (incorporated herein by reference from
Fibreboard Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended
on June 28, 1988).
4.2 Rights Agreement dated as of August 25, 1988 between Fibreboard Corporation and Bank of
America, N.T.&S.A. as Rights Agent (incorporated herein by reference from Fibreboard
Corporation's Current Report on Form 8-K dated August 25, 1988).
4.2 .1 Amendment No. 1 to Rights Agreement, dated as of February 11, 1994, between Fibreboard
Corporation and The First National Bank of Boston (incorporated herein by reference from
Fibreboard Corporation's Form 8-A/A dated February 15, 1994).
10.1 * Form of Indemnification Agreement between Fibreboard Corporation and each director and
officer of Fibreboard Corporation (incorporated herein by reference from Fibreboard
Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended on June
28, 1988).
</TABLE>
52
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <S>
10.2 Asset Purchase Agreement dated February 22, 1988, between Fibreboard Corporation and
Gaylord Container Corporation (incorporated herein by reference from Fibreboard
Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended on June
28, 1988).
10.3 Fibreboard Corporation Restated 1988 Employee Stock Option and Rights Plan (incorporated
herein by reference from Fibreboard Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992).
10.4 Form of Fibreboard Corporation Profit Sharing 401(k) Plan (incorporated herein by
reference from Fibreboard Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.5 Fibreboard Corporation 1988 Employee Stock Purchase Plan (incorporated herein by reference
from Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31,
1988).
10.5 .1 Prospectus Supplement (Appendix) to Registration Statement on Form S-8 No. 33-26449 for
Shares issuable under the Fibreboard Corporation 1988 Employee Stock Purchase Plan
(incorporated herein by reference from Fibreboard Corporation's Annual Report on Form
10-K for the year ended December 31, 1989).
10.6 Agreement of Compromise, Settlement and Release dated May 27, 1987, between Fibreboard
Corporation and The Home Insurance Company (incorporated herein by reference from
Fibreboard Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended
on June 28, 1988).
10.7 Fibreboard Corporation Structured Settlement Program Description dated November 8, 1988
(incorporated herein by reference from Fibreboard's Current Report on Form 8-K dated
November 8, 1988).
10.8 Form of Structured Settlement Agreement (incorporated herein by reference from
Fibreboard's Current Report on Form 8-K dated November 8, 1988).
10.9 Form of Stipulation Regarding Settlement Negotiations and Right to Alternative Dispute
Resolution (incorporated herein by reference from Fibreboard's Current Report on Form 8-K
dated November 8, 1988).
10.1 0 Amended and Restated Trust Agreement dated September 29, 1989 by and among Fibreboard
Corporation, the Trustees and the Directors and Officers of Fibreboard (incorporated
herein by reference from Fibreboard Corporation's Annual Report on Form 10-K for the year
ended December 31, 1989).
10.1 1 Consulting/Sales Representation Agreement dated February 20, 1989 between Distribution
International and Pabco Metals Corporation, a wholly-owned subsidiary of Fibreboard
Corporation (incorporated herein by reference from Fibreboard Corporation's Current
Report on Form 8-K dated February 20, 1989).
</TABLE>
53
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <S>
10.1 2* Summary description of Fibreboard Corporation incentive compensation arrangements.
10.1 3* Employment Agreement dated July 2, 1991 between Fibreboard Corporation and John D. Roach
(incorporated herein by reference from Fibreboard Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991).
10.1 4 Second Amended and Restated Credit Agreement dated February 14, 1992 between Snider Lumber
Products Co., Inc. and Wells Fargo Bank, National Association (incorporated herein by
reference from Fibreboard Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.1 5 Accounts Financing Agreement and related documents dated August 23, 1991 between Congress
Financial Corporation (Western) and Fibreboard Corporation (incorporated herein by
reference from Fibreboard Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.1 6* Form of Severance Agreement dated January 1, 1992 between Fibreboard Corporation and
Messrs. Donohue, Costello, Douglas, DeMaria, Elliott and Swan (incorporated herein by
reference from Fibreboard Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.1 7 Agreement and related documents dated March 27, 1992 between Fibreboard Corporation and
Pacific Indemnity Company (incorporated herein by reference from Fibreboard Corporation's
Annual Report on Form 10-K for the year ended December 31, 1991).
10.1 8 Rescission of Insurance Policies dated March 27, 1992 between Fibreboard Corporation and
Pacific Indemnity Company (incorporated herein by reference from Fibreboard Corporation's
Annual Report on Form 10-K for the year ended December 31, 1991).
10.1 9* Fibreboard Corporation Supplemental Retirement Plan (incorporated herein by reference from
Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31,
1992).
10.2 0 Settlement Agreement dated January 1, 1993 between Fibreboard Corporation and Continental
Casualty Company (incorporated herein by reference from Fibreboard Corporation's Annual
Report on Form 10-K for the year ended December 31, 1992).
10.2 1 Settlement Agreement dated January 1, 1993 between Fibreboard Corporation and Fireman's
Fund Insurance Company, Insurance Company of North America and Royal Insurance Company
(incorporated herein by reference from Fibreboard Corporation's Annual Report on Form
10-K for the year ended December 31, 1992).
10.2 2 Settlement Agreement between Fibreboard Corporation and American Home Assurance Company,
et al (incorporated herein by reference from Fibreboard Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992).
</TABLE>
54
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <S>
10.2 3 Agreement of Purchase and Sale between Fibreboard Corporation and Sierra Ski Ranch, Inc.
dated as of June 11, 1993 (incorporated herein by reference from Fibreboard Corporation's
Quarterly Report on Form 10-Q for the period ended June 30, 1993).
10.2 4 Settlement Agreement among Fibreboard Corporation, Continental Casualty Company and Ness,
Motley, Loadholt, Richardson & Poole and certain affiliated law firms dated as of August
5, 1993 (incorporated herein by reference from Fibreboard Corporation's Quarterly Report
on Form 10-Q for the period ended June 30, 1993).
10.2 5 Agreement between Fibreboard Corporation and Continental Casualty Company dated April 9,
1993 (incorporated herein by reference from Fibreboard Corporation's Current Report on
Form 8-K dated April 9, 1993).
10.2 6 Loan Agreement dated May 3, 1993 between First Interstate Bank of Nevada, N.A. and Trimont
Land Company (incorporated herein by reference from Fibreboard Corporation's Quarterly
Report on Form 10-Q for the period ended September 30, 1993).
10.2 7 Loan Agreement dated September 17, 1993 between First Interstate Bank of Nevada, N.A. and
Sierra-at-Tahoe and Trimont Land Company (incorporated herein by reference from
Fibreboard Corporation's Quarterly Report on Form 10-Q for the period ended September 30,
1993).
10.2 8 Settlement Agreement dated October 12, 1993 among Fibreboard Corporation, Continental
Casualty Company, CNA Casualty Company of California, Columbia Casualty Company and
Pacific Indemnity Company (incorporated herein by reference from Fibreboard Corporation's
Quarterly Report on Form 10-Q for the period ended September 30, 1993).
10.2 9 Supplemental Agreement dated October 12, 1993 between Fibreboard Corporation and
Continental Casualty Company (pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934, as amended, confidential treatment has been requested for this
exhibit. This agreement has been placed under court seal.).
10.3 0 Global Settlement Agreement among Fibreboard Corporation, Continental Casualty Company,
CNA Casualty Company of California, Columbia Casualty Company, Pacific Indemnity Company
and The Settlement Class, together with Exhibits A-E (incorporated herein by reference
from Fibreboard Corporation's Current Report on Form 8-K dated December 23, 1993).
10.3 1* Fibreboard Corporation Long-Term Equity Incentive Plan.
22. Fibreboard Corporation Subsidiaries.
24. Consent of Arthur Andersen & Co.
*Denotes management contract or compensation plan identified pursuant to Item 14(a)(3) of
Form 10-K.
</TABLE>
55
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed during the period October
1, 1993 to December 31, 1993:
<TABLE>
<CAPTION>
DATE OF REPORT EVENT REPORTED
- --------------------- ----------------------------------------------------------------------------------------
<S> <C>
November 17, 1993 Announcing Court of Appeal decision in asbestos personal injury insurance coverage
litigation (In Re Asbestos Insurance Coverage Cases)
December 23, 1993 Global Settlement Agreement among Fibreboard Corporation, Continental Casualty Company,
CNA Casualty Company of California, Columbia Casualty Company, Pacific Indemnity Company
and The Settlement Class.
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
SCHEDULE
- ----------------------------------------------------------------------------------------------------
PAGE
----
<C> <S> <C>
VIII Valuation and qualifying accounts for each of the three years in the period ended 57
December 31, 1993
IX Short term borrowings for each of the three years in the period ended December 31, 1993 58
X Supplementary income statement information for each of the three years in the period ended 58
December 31, 1993
Report of independent public accountants on financial statement schedules. 59
</TABLE>
56
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER
31
(000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO UNCOLLECTIBLE ASBESTOS BALANCE AT
BEGINNING COSTS AND ACCOUNTS RELATED END OF
DESCRIPTION OF PERIOD EXPENSES WRITTEN OFF PAYMENTS PERIOD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1991
- ---
Reserve for:
Doubtful accounts...................................... $ 697 $ 343 $ (353) $ -- $ 687
Asbestos related costs................................. 15,676 20,000 -- (9,650) 26,026
1992
- ---
Reserve for:
Doubtful accounts...................................... 687 225 (287) -- 625
Asbestos related costs................................. 26,026 -- -- (4,729) 21,297
1993
- ---
Reserve for:
Doubtful accounts...................................... 625 615 (538) -- 702
Asbestos related costs................................. 21,297 -- -- (1,802) 19,495
</TABLE>
57
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
SCHEDULE IX -- SHORT TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31
(000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- --------------------------------------------------------------------------------------------------------------------------
WEIGHTED MAXIMUM AVERAGE WEIGHTED (1)
BALANCE AT AVERAGE AMOUNT AMOUNT AVERAGE
END OF INTEREST OUTSTANDING OUTSTANDING INTEREST RATE
DURING DURING
CATEGORY OF AGGREGATE SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD DURING PERIOD
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1991
- ---
Amounts Payable to Banks (2)....................... $ 16,702 9.0% $ 27,099 $ 17,413 10.1%
1992
- ---
Amounts Payable to Banks (2)....................... 24,262 8.5% 24,262 15,717 8.8%
1993
- ---
Amounts Payable to Banks (2)....................... 17,657 8.5% 25,672 13,207 8.5%
<FN>
(1) CALCULATED AS THE QUOTIENT OF X DIVIDED BY Y, WHERE X EQUALS THE SUM OF
THE DAILY BORROWINGS TIMES THE RATE IN EFFECT ON THOSE BORROWINGS AND Y
EQUALS THE SUM OF THE DAILY BORROWINGS.
(2) SEE NOTE 4 TO FINANCIAL STATEMENTS "NOTES PAYABLE" FOR A DESCRIPTION OF THE
PRINCIPAL TERMS OF FIBREBOARD'S CREDIT FACILITY.
</TABLE>
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED
DECEMBER 31
(000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- ------------------------------------------------------------------------------------------------------------
CHARGE TO COSTS AND EXPENSES
ITEM 1993 1992 1991
<S> <C> <C> <C>
Maintenance and repairs.................................................... $ 12,463 $ 12,256 $ 13,023
Taxes other than payroll and income taxes.................................. 3,462 2,829 2,798
Goodwill amortization...................................................... -- -- 8,658
</TABLE>
58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholders of Fibreboard Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Fibreboard Corporation included in this
Form 10-K, and have issued our report thereon dated February 11, 1994. Our
report on the consolidated financial statements includes an explanatory
paragraph with respect to the significant uncertainty surrounding the asbestos
claims that have been filed against the Company as discussed in Note 16 to the
financial statements. Our audits were made for the purpose of forming an opinion
on those statements taken as a whole. The schedules listed in the index of
financial statement schedules on page 56 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
San Francisco, California
February 11, 1994.
59
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
FIBREBOARD CORPORATION
(Registrant)
Dated: March 25, 1994
By: /s/ JOHN D. ROACH
------------------------------------
JOHN D. ROACH
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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 IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/s/ JOHN D. ROACH Chairman, President, Chief March 25, 1994
------------------------------------------- Executive Officer and
JOHN D. ROACH Director (Principal
Executive Officer)
/s/ JAMES P. DONOHUE Senior Vice President, March 25, 1994
------------------------------------------- Finance and
JAMES P. DONOHUE Administration and Chief
Financial Officer
(Principal Financial
Officer)
/s/ GAROLD E. SWAN Vice President and March 25, 1994
------------------------------------------- Controller (Principal
GAROLD E. SWAN Accounting Officer)
/s/ PHILIP R. BOGUE Director March 25, 1994
-------------------------------------------
PHILIP R. BOGUE
/s/ WILLIAM D. EBERLE Director March 25, 1994
-------------------------------------------
WILLIAM D. EBERLE
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/s/ G. ROBERT EVANS Director March 25, 1994
-------------------------------------------
G. ROBERT EVANS
/s/ GEORGE B. JAMES Director March 25, 1994
-------------------------------------------
GEORGE B. JAMES
/s/ JOHN W. KOEBERER Director March 25, 1994
-------------------------------------------
JOHN W. KOEBERER
/s/ JAMES F. MILLER Director March 25, 1994
-------------------------------------------
JAMES F. MILLER
</TABLE>
61
<PAGE>
FIBREBOARD CORPORATION
EXHIBIT INDEX TO FORM 10-K FOR YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-----------
<C> <S> <C>
* 3.1 Fibreboard's Restated Certificate of Incorporation (incorporated herein by reference from
Fibreboard Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended on
June 28, 1988).
* 3.2 Fibreboard's Restated Bylaws as amended June 8, 1993 (incorporated herein by reference from
Fibreboard Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993).
* 4.1 Specimen Common Stock Certificate, $.01 par value (incorporated herein by reference from
Fibreboard Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended on
June 28, 1988).
* 4.2 Rights Agreement dated as of August 25, 1988 between Fibreboard Corporation and Bank of America,
N.T.&S.A. as Rights Agent (incorporated herein by reference from Fibreboard Corporation's
Current Report on Form 8-K dated August 25, 1988).
* 4.2.1 Amendment No. 1 to Rights Agreement, dated as of February 11, 1994, between Fibreboard
Corporation and The First National Bank of Boston (incorporated herein by reference from
Fibreboard Corporation's Form 8-A/A dated February 15, 1994).
* 10.1 Form of Indemnification Agreement between Fibreboard Corporation and each director and officer
of Fibreboard Corporation (incorporated by reference from Fibreboard Corporation's Registration
Statement on Form 10 dated May 23, 1988, as amended on June 28, 1988).
* 10.2 Asset Purchase Agreement dated February 22, 1988, between Fibreboard Corporation and Gaylord
Container Corporation (incorporated by reference from Fibreboard Corporation's Registration
Statement on Form 10 dated May 23, 1988, as amended on June 28, 1988).
* 10.3 Fibreboard Corporation Restated 1988 Employee Stock Option and Rights Plan (incorporated herein
by reference from Fibreboard Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992).
* 10.4 Form of Fibreboard Corporation Profit Sharing 401(k) Plan (incorporated herein by reference from
Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31, 1992).
* 10.5 Fibreboard Corporation 1988 Employee Stock Purchase Plan (incorporated herein by reference from
Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31, 1988).
* 10.5.1 Prospectus Supplement (Appendix) to Registration Statement on Form S-8 No. 33-26449 for Shares
issuable under the Fibreboard Corporation 1988 Employee Stock Purchase Plan (incorporated
herein by reference from Fibreboard Corporation's Annual Report on Form 10-K for the year ended
December 31, 1989).
</TABLE>
* INCORPORATED HEREIN BY REFERENCE.
62
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-----------
<C> <S> <C>
* 10.6 Agreement of Compromise, Settlement and Release dated May 27, 1987, between Fibreboard
Corporation and The Home Insurance Company (incorporated herein by reference from Fibreboard
Corporation's Registration Statement on Form 10 dated May 23, 1988, as amended on June 28,
1988).
* 10.7 Fibreboard Corporation Structured Settlement Program Description dated November 8, 1988
(incorporated herein by reference from Fibreboard's Current Report on Form 8-K dated November
8, 1988).
* 10.8 Form of Structured Settlement Agreement (incorporated herein by reference from Fibreboard's
Current Report on Form 8-K dated November 8, 1988).
* 10.9 Form of Stipulation Regarding Settlement Negotiations and Right to Alternative Dispute
Resolution (incorporated herein by reference from Fibreboard's Current Report on Form 8-K dated
November 8, 1988).
* 10.10 Amended and Restated Trust Agreement dated September 29, 1989 by and among Fibreboard
Corporation, the Trustees and the Directors and Officers of Fibreboard (incorporated herein by
reference from Fibreboard Corporation's Annual Report on Form 10-K for the year ended December
31, 1989).
* 10.11 Consulting/Sales Representation Agreement dated February 20, 1989 between Distribution
International and Pabco Metals Corporation, a wholly-owned subsidiary of Fibreboard Corporation
(incorporated herein by reference from Fibreboard Corporation's Current Report on Form 8-K
dated February 20, 1989).
10.12 Summary description of Fibreboard Corporation incentive compensation arrangements.
* 10.13 Employment Agreement dated July 2, 1991 between Fibreboard Corporation and John D. Roach
(incorporated herein by reference from Fibreboard Corporation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991).
* 10.14 Second Amended and Restated Credit Agreement dated February 14, 1992 between Snider Lumber
Products Co., Inc. and Wells Fargo Bank, National Association (incorporated herein by reference
from Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31, 1991).
* 10.15 Accounts Financing Agreement and related documents dated August 23, 1991 between Congress
Financial Corporation (Western) and Fibreboard Corporation (incorporated herein by reference
from Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31, 1991).
* 10.16 Form of Severance Agreement dated January 1, 1992 between Fibreboard Corporation and Messrs.
Donohue, Costello, Douglas, DeMaria, Elliott and Swan (incorporated herein by reference from
Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31, 1991).
* 10.17 Agreement and related documents dated March 27, 1992 between Fibreboard Corporation and Pacific
Indemnity Company (incorporated herein by reference from Fibreboard Corporation's Annual Report
on Form 10-K for the year ended December 31, 1991).
</TABLE>
* INCORPORATED HEREIN BY REFERENCE.
63
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-----------
<C> <S> <C>
* 10.18 Rescission of Insurance Policies dated March 27, 1992 between Fibreboard Corporation and Pacific
Indemnity Company (incorporated herein by reference from Fibreboard Corporation's Annual Report
on Form 10-K for the year ended December 31, 1991).
* 10.19 Fibreboard Corporation Supplemental Retirement Plan (incorporated herein by reference from
Fibreboard Corporation's Annual Report on Form 10-K for the year ended December 31, 1992).
* 10.20 Settlement Agreement dated January 1, 1993 between Fibreboard Corporation and Continental
Casualty Company (incorporated herein by reference from Fibreboard Corporation's Annual Report
on Form 10-K for the year ended December 31, 1992).
* 10.21 Settlement Agreement dated January 1, 1993 between Fibreboard Corporation and Fireman's Fund
Insurance Company, Insurance Company of North America and Royal Insurance Company (incorporated
herein by reference from Fibreboard Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992).
* 10.22 Settlement Agreement between Fibreboard Corporation and American Home Assurance Company, et al
(incorporated herein by reference from Fibreboard Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992).
* 10.23 Agreement of Purchase and Sale between Fibreboard Corporation and Sierra Ski Ranch, Inc. dated
as of June 11, 1993 (incorporated herein by reference from Fibreboard Corporation's Quarterly
Report on Form 10-Q for the period ended June 30, 1993).
* 10.24 Settlement Agreement among Fibreboard Corporation, Continental Casualty Company and Ness,
Motley, Loadholt, Richardson & Poole and certain affiliated law firms dated as of August 5,
1993 (incorporated herein by reference from Fibreboard Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 1993).
* 10.25 Agreement between Fibreboard Corporation and Continental Casualty company dated April 9, 1993
(incorporated herein by reference from Fibreboard Corporation's Current Report on Form 8-K
dated April 9, 1993).
* 10.26 Loan Agreement dated May 3, 1993 between First Interstate Bank of Nevada, N.A. and Trimont Land
Company (incorporated herein by reference from Fibreboard Corporation's Quarterly Report on
Form 10-Q for the period ended September 30, 1993).
* 10.27 Loan Agreement dated September 17, 1993 between First Interstate Bank of Nevada, N.A. and
Sierra-at-Tahoe and Trimont Land Company (incorporated herein by reference from Fibreboard
Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1993).
* 10.28 Settlement Agreement dated October 12, 1993 among Fibreboard Corporation, Continental Casualty
Company, CNA Casualty Company of California, Columbia Casualty Company and Pacific Indemnity
Company (incorporated herein by reference from Fibreboard Corporation's Quarterly Report on
Form 10-Q for the period ended September 30, 1993).
</TABLE>
* INCORPORATED HEREIN BY REFERENCE.
64
<PAGE>
<TABLE>
<CAPTION>
PAGE EXHIBIT
NUMBER NUMBER
- ----------- -----------
<C> <S> <C>
10.29 Supplemental Agreement dated October 12, 1993 between Fibreboard Corporation and Continental
Casualty Company (pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934,
as amended, confidential treatment has been requested for this exhibit. This agreement has been
placed under court seal.).
* 10.30 Global Settlement Agreement among Fibreboard Corporation, Continental Casualty Company, CNA
Casualty Company of California, Columbia Casualty Company, Pacific Indemnity Company and The
Settlement Class, together with Exhibits A-E (incorporated herein by reference from Fibreboard
Corporation's Current Report on Form 8-K dated December 23, 1993).
10.31 Fibreboard Corporation Long-Term Equity Incentive Plan.
22. Fibreboard Corporation Subsidiaries.
24. Consent of Arthur Andersen & Co.
</TABLE>
* INCORPORATED HEREIN BY REFERENCE.
65
<PAGE>
EXHIBIT 10.12
FIRBREBOARD CORPORATION
SUMMARY DESCRIPTION OF CASH INCENTIVE PROGRAMS
ANNUAL CASH INCENTIVE PROGRAM
The Annual Cash Incentive Program is a pay-for-performance plan designed to
motivate and reward the accomplishment of corporate and operating unit annual
financial objectives and to reinforce a strong performance orientation within
the Company. Fibreboard's executive officers, managers and certain other key
employees are eligible to participate in this Program.
Cash bonus awards are paid based upon (i) achievement of annual earnings
targets set by the Compensation Committee (the "Committee"), and (ii)
evaluation of a participant's personal performance during the year.
Performance criteria include: (a) Company and/or business unit financial
performance, with threshold, financial and maximum challenge earnings targets
established at the beginning of the year to reflect the Company's objectives
set forth in its business plan for that year, and (b) the achievement of
individual performance goals, which reflect business objectives set for each
participant for that year. Target award amounts for each participant are set
by the Committee based upon a percentage of that participant's base salary.
LONG-TERM CASH INCENTIVE PROGRAM
The Long-Term Cash Incentive Program in effect during 1992-1993 was a
pay-for-performance plan designed to provide incentive to Fibreboard's
executive officers to achieve improved financial performance of the Company
over a longer period. The award of cash bonuses was contingent on achievement
of cumulative operating earnings targets set by the Committee over a 36-month
performance cycle. The maximum bonus potential that could be achieved was
based on a designated percentage of an executive's three-year cumulative base
salary.
In December 1993, the Long-Term Cash Incentive Program was terminated.
Participants were awarded the proportionate bonus amounts accrued to date under
this program based on the achievement of financial performance objectives for
the 1992-1993 fiscal period.
LONG-TERM EQUITY INCENTIVE PLAN
In place of the Long-Term Cash Incentive Program described above, the
Committee implemented the Long-Term Equity Incentive Plan in December 1993.
This Plan provides for annual grants of phantom stock units vesting over the
term of multi-year performance cycles set by the Committee. The value of each
phantom stock unit is determined based on the appreciation, if any, in the
value of the Company's stock over the applicable performance cycle, measured
by the difference between the grant price and the price at the maturity date.
No award is earned if the stock price at maturity is the same as or lower than
the price at the grant date. Vested phantom stock units are payable only in
cash, with the Board determining the timing of the payout. Since the plan is
cash-based, it will not have any dilutive effect on the number of outstanding
shares of Common Stock.
<PAGE>
EXHIBIT 10.29
Supplemental Agreement dated October 12, 1993 between Fibreboard
Corporation and Continental Casualty Company.
[Confidential treatment has been requested for this exhibit.
This agreement has been placed under court seal.]
<PAGE>
EXHIBIT 10.31
FIBREBOARD CORPORATION
LONG-TERM EQUITY INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. INTRODUCTION................................................. A-1
ARTICLE 2. ADMINISTRATION............................................... A-1
2.1 Committee Composition........................................ A-1
2.2 Committee Responsibilities................................... A-1
ARTICLE 3. PHANTOM STOCK UNITS AVAILABLE FOR GRANTS..................... A-1
ARTICLE 4. ELIGIBILITY.................................................. A-1
ARTICLE 5. PHANTOM STOCK UNITS.......................................... A-1
5.1 Phantom Stock Unit Agreement................................. A-1
5.2 Terms of Awards.............................................. A-2
5.3 Settlement................................................... A-2
5.4 Termination of Service Without Cause..........................A-2
5.5 Termination of Service for Cause............................. A-2
5.6 Change in Control............................................ A-2
ARTICLE 6. REORGANIZATIONS AND STOCK ADJUSTMENTS........................ A-2
ARTICLE 7. LIMITATION ON RIGHTS......................................... A-3
7.1 Retention Rights............................................. A-3
7.2 Shareholders' Rights......................................... A-3
7.3 Regulatory Requirements...................................... A-3
ARTICLE 8. WITHHOLDING TAXES............................................ A-3
ARTICLE 9. NO TRANSFER OR FUNDING OF AWARDS............................. A-3
ARTICLE 10. FUTURE OF THE PLAN........................................... A-3
10.1 Term of the Plan............................................. A-3
10.2 Amendment or Termination..................................... A-3
ARTICLE 11. DEFINITIONS.................................................. A-3
ARTICLE 12. EXECUTION.................................................... A-6
<PAGE>
FIBREBOARD CORPORATION
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board of Directors effective as of December 1,
1993. The purpose of the Plan is to promote the long-term success of the
Company by (a) encouraging Management Employees to focus on critical long-range
objectives and (b) encouraging the attraction and retention of Management
Employees with exceptional qualifications. The Plan seeks to achieve this
purpose by providing for Awards in the form of Phantom Stock Units.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of California (except for choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Compensation Committee of the Board of Directors.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Management Employees who are to receive Phantom Stock Unit Awards under the
Plan, (b) determine the number, vesting requirements and other features and
conditions of such Phantom Stock Unit Awards, within the limitations of the
Plan, (c) interpret the Plan and (d) make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
ARTICLE 3. PHANTOM STOCK UNITS AVAILABLE FOR GRANTS.
The number of Phantom Stock Units that may be awarded under the Plan in any
fiscal year of the Company shall not exceed 150,000, and any available Phantom
Stock Units that were not used in a fiscal year shall be carried over and be
available for additional Awards in any subsequent fiscal year. The limitation
of this Article 3 shall be subject to adjustment pursuant to Article 6. If
Phantom Stock Units are forfeited or terminate for any other reason, then such
Phantom Stock Units shall again become available for Awards under the Plan.
ARTICLE 4. ELIGIBILITY.
Only Management Employees shall be eligible for designation as participants
by the Committee.
ARTICLE 5. PHANTOM STOCK UNITS.
5.1 PHANTOM STOCK UNIT AGREEMENT. Each Award of a Phantom Stock Unit
under the Plan shall be evidenced by a Phantom Stock Unit Agreement between the
Participant and the Company. Such Phantom Stock Unit Agreement shall be subject
to all applicable terms of the Plan and may be subject to any other terms that
are not inconsistent with the Plan. The provisions of the various Phantom Stock
Unit Agreements entered into under the Plan need not be identical.
5.2 TERMS OF AWARDS. Each Phantom Stock Unit Agreement shall specify the
Date of Grant, the number of Phantom Stock Units awarded (which shall be
subject to adjustment in accordance with Article 6), the Exercise Price, the
Maturity Date, the applicable Valuation Period(s) and any other terms and
conditions applicable to the Award.
5.3. SETTLEMENT. Subject to Sections 5.4 and 5.6, a Phantom Stock Unit
shall be settled after its Maturity Date, either in the same year or in the
next following year (as determined by the Committee in its sole discretion).
Upon settlement of a Phantom Stock Unit under this Section 5.3, the
Participant shall
A-1
<PAGE>
LONG-TERM EQUITY INCENTIVE PLAN
receive from the Company cash in an amount equal to the excess of (a) the
arithmetic mean of the Closing Prices of a Common Share on all trading days in
the Valuation Period selected by the Committee for purposes of valuing an Award
as its Maturity Date over (b) the Exercise Price.
5.4 TERMINATION OF SERVICE WITHOUT CAUSE. If a Participant's Service
terminates for any reason other than Cause (including death) prior to the
Maturity Date of his Phantom Stock Units, then the vested percentage of such
Phantom Stock Units shall mature as of the first day of the month in which his
Service terminates. The vested percentage shall be equal to (a) the number of
the Participant's completed full years of Service since the Date of Grant
divided by (b) the number of full years between the Date of Grant and the
Maturity Date.
A vested Phantom Stock Unit shall be settled as soon as reasonably
practicable after the termination of the Participant's Service. Upon settlement
of a vested Phantom Stock Unit under this Section 5.4, the Participant (or any
person holding the Phantom Stock Unit after his death) shall receive from the
Company cash in an amount equal to the excess of (a) the arithmetic mean of the
Closing Prices of a Common Share on all trading days in the Termination of
Service Valuation Period determined by the Committee over (b) the Exercise
Price.
5.5 TERMINATION OF SERVICE FOR CAUSE. If a Participant's Service is
terminated for Cause prior to the Maturity Date of his Phantom Stock Units,
then such Phantom Stock Units shall be forfeited in their entirety.
5.6 CHANGE IN CONTROL. In the event of a Change in Control with respect
to the Company, all Phantom Stock Units shall mature as of the date of such
Change in Control. The Phantom Stock Units shall be settled effective as of
the date of the Change in Control. Upon settlement of a Phantom Stock Unit
under this Section 5.6, the Participant shall receive from the Company cash in
an amount equal to the excess of (a) the arithmetic mean of the Closing Prices
of a Common Share for the 10 trading days preceding the date of the Change in
Control over (b) the Exercise Price.
ARTICLE 6. REORGANIZATIONS AND STOCK ADJUSTMENTS.
In the event of a subdivision of the outstanding Common Shares, a
declaration of a dividend payable in Common Shares, a declaration of a dividend
payable in a form other than Common Shares in an amount that has a material
effect on the price of Common Shares, a combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Phantom Stock Units available
for future Awards under Article 3, (b) the number of Phantom Stock Units
included in each outstanding Award, (c) the Exercise Price of each outstanding
Phantom Stock Unit or (d) any other aspect of Awards granted under the Plan.
Except as provided in this Article 6, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
ARTICLE 7. LIMITATION ON RIGHTS
7.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee of
the Company. The Company reserves the right to terminate the service of any
employee at any time, with or without Cause, subject to applicable laws and a
written employment agreement (if any).
A-2
<PAGE>
LONG-TERM EQUITY INCENTIVE PLAN
7.2 SHAREHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a shareholder with respect to any Phantom
Stock Units covered by his or her Award. No adjustment shall be made for cash
dividends or other rights, except as expressly provided in Article 6.
7.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, Phantom Stock Units shall be subject to all applicable laws,
rules and regulations and such approval by any regulatory body as may be
required. The Company reserves the right to restrict, in whole or in part, the
issuance or settlement of Phantom Stock Units prior to the satisfaction of all
applicable legal requirements.
ARTICLE 8. WITHHOLDING TAXES.
To the extent required by applicable federal, state, local or foreign law,
the Company shall make any required tax withholdings from the amounts payable
upon settlement of Awards under this Plan.
ARTICLE 9. NO TRANSFER OR FUNDING OF AWARDS.
An Award granted under the Plan shall not be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any creditor's
process, whether voluntarily, involuntarily or by operation of law. A Phantom
Stock Unit may be held during the lifetime of the Participant only by him or by
his guardian or legal representative. Any act in violation of this Article 9
shall be void. However, this Article 9 shall not preclude a Participant from
designating a beneficiary who will receive the settlement of any outstanding
Awards in the event of the Participant's death, nor shall it preclude a
transfer of Awards by will or by the laws of descent and distribution. The
obligation to pay cash upon settlement of Phantom Stock Units shall be an
unfunded and unsecured obligation of the Company.
ARTICLE 10. FUTURE OF THE PLAN.
10.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective as of December 1, 1993. The Plan shall remain in effect until it is
terminated under Section 10.2.
10.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 11. DEFINITIONS.
11.1 "AWARD" means any award of a Phantom Stock Unit under the Plan.
11.2 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
11.3 "CAUSE" shall mean:
(a) Any act of fraud in the performance of duties as an employee
of the Company,
(b) Conviction of any felony,
(c) Engaging in any action with the intention of causing serious
detriment to any of the operations of the Company or any of its subsidiaries,
or
(d) Willful and continued failure to substantially perform duties
as an employee of the Company, other than as a result of total or partial
incapacity due to physical or mental illness. (Habitual drunkenness or abuse of
drugs or controlled substances shall not be considered a physical or mental
illness for purposes of this Subsection (d).)
11.4 "CHANGE IN CONTROL" means:
(a) The holders of the voting securities of the Company shall have
approved a merger or consolidation of the Company with any other entity, unless
(i) the proposed merger or consolidation would
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LONG-TERM EQUITY INCENTIVE PLAN
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 75% of the
total voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
(ii) prior to the effective date of such merger or consolidation, the Board of
Directors (as constituted immediately prior to such effective date) adopts a
resolution that for purposes of this Plan no Change in Control shall have
occurred; or
(b) A plan of complete liquidation of the Company shall have been
adopted or the holders of voting securities of the Company shall have approved
an agreement for the sale or disposition by the Company (in one transaction or
a series of transactions) of all or substantially all of the Company's assets;
or
(c) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 ("1934 Act")) shall become the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, of 15% or more of the combined voting power of the Company's then
outstanding shares, unless, within 30 business days after notice to the Company
of such event, the Board of Directors (as constituted immediately prior to such
event) adopts a resolution that for purposes of this Plan no Change in Control
shall have occurred (which resolution may be revoked by the Board of Directors
at any time, in which case a Change in Control will be deemed to have occurred
as of the date such revocation becomes effective); or
(d) During any period of two consecutive years, members who at the
beginning of such period constituted the Board of Directors shall have ceased
for any reason to constitute a majority thereof, unless the election, or
nomination for election by the Company's stockholders, of each director shall
have been approved by the vote of at least two-thirds of the directors then
still in office and who were directors at the beginning of such period; or
(e) he occurrence of any other change of control of a nature that
would be required to be reported in accordance with Item 1(a) of Form 8-K
pursuant to Sections 13 or 15(d) of the 1934 Act or in the Company's proxy
statement in accordance with Schedule 14A of Regulation 14A promulgated under
the 1934 Act, or in any successor forms or regulations to the same effect;
unless, within 30 business days after notice to the Company of such events, the
Board of Directors (as constituted immediately prior to such event) adopts a
resolution that for purposes of this Plan no Change in Control has occurred
(which resolution may be revoked at any time, in which case a Change in Control
will be deemed to have occurred on the date such revocation becomes effective.)
11.5 "CLOSING PRICE" means the market price of Common Shares, determined
by the Committee as follows:
(a) If the Common Shares are traded on the American Stock Exchange
or other stock exchange on the date in question, then the Closing Price shall
be equal to the closing price reported by the applicable composite transactions
report for such date; and
(b) If the foregoing provision is not applicable, then the Closing
Price shall be determined by the Committee in good faith on such basis as it
deems appropriate. Such determination shall be conclusive and binding on all
parties.
11.6 "COMMITTEE" means the Compensation Committee of the Board, as
described in Article 2.
11.7 "COMMON SHARE" means one share of the common stock of the Company.
11.8 "COMPANY" means Fibreboard Corporation, a Delaware corporation.
11.9 "DATE OF GRANT" means the date as of which an Award is granted.
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LONG-TERM EQUITY INCENTIVE PLAN
11.10 "EXERCISE PRICE" means the amount described in Section 5.2 and
specified in the applicable Phantom Stock Unit Agreement.
11.11 "MANAGEMENT EMPLOYEE" means an officer or key management employee
of the Company or a subsidiary of the Company.
11.12 "MATURITY DATE" means the date as of which a Phantom Stock Unit is
scheduled to mature as determined by the Committee, subject to Sections 5.4 and
5.6.
11.13 "PARTICIPANT" means an individual or estate who holds an Award.
11.14 "PHANTOM STOCK UNIT" means a contractual right granted under the
Plan which pertains to increases in the value of a Common Share.
11.15 "PHANTOM STOCK UNIT AGREEMENT" means the agreement between the
Company and a Participant which contains the terms, conditions and restrictions
pertaining to his Phantom Stock Units.
11.16 "PLAN" means this Fibreboard Corporation Long-Term Equity Incentive
Plan, as it may be amended from time to time.
11.17 "SERVICE" means continuous employment as an employee of the Company
or a subsidiary of the Company.
11.18 "TERMINATION OF SERVICE VALUATION PERIOD" means the Valuation
Period selected by the Committee for purposes of settling an Award upon
termination of a Participant's Service as provided for under Section 5.4 of
the Plan.
11.19 "VALUATION PERIOD" means a period of one or more trading days (used
for the valuation of Common Shares), as determined by the Committee.
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LONG-TERM EQUITY INCENTIVE PLAN
ARTICLE 12. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officers to affix its name hereto.
FIBREBOARD CORPORATION
By
------------------------------------
Title
---------------------------------
By
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Title
---------------------------------
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EXHIBIT 22
FIBREBOARD CORPORATION SUBSIDIARIES
AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
Trimont Land Company, doing business as Northstar-at-Tahoe.................................. California
Snider Lumber Products Co., Inc............................................................. Delaware
Pabco Metals Corporation.................................................................... Delaware
Fibreboard Box & Millwork Corporation....................................................... Delaware
Sierra-at-Tahoe, Inc........................................................................ Delaware
</TABLE>
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into Fibreboard Corporation's previously
filed Registration Statements on Form S-8, File No. 33-26449 and No. 33-26450.
ARTHUR ANDERSEN & CO.
San Francisco, California,
March 25, 1994.
