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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 0-20231
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FIBERMARK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 82-0429330
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Brudies Road, Brattleboro, Vermont 05302
(Address of principal executive offices, including zip code)
(802) 257-0365
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained to be the best 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. / /
The approximate aggregate market value of the Common Stock held
by non-affiliates of the Registrant, based upon the last sale price of the
Common Stock reported on the National Association of Securities Dealers
Automated Quotation National Market System was $55,258,616 as of March 24,
1997.*
The number of shares of Common Stock outstanding was 4,043,092 as of
March 24, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
Registrant's definitive Proxy Statement which will be filed with
the Securities and Exchange Commission in connection with Registrant's 1997
annual meeting of stockholders to be held on May 15, 1997 is incorporated by
reference into Part III of this Report.
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* Excludes 1,728,595 shares of Common Stock held by directors and officers and
stockholders whose beneficial ownership exceeds five percent of the shares
outstanding March 24, 1997. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common control with
the Registrant.
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PART I.
Except for historical information contained herein, the following
contains forward-looking statements that involve risks and uncertainties.
The actual results of FiberMark, Inc. ("FiberMark" or the "Company"),
formerly known as Specialty Paperboard, Inc., could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to: failure to sustain future
sales growth; failure to identify or carry out suitable strategic
acquisitions; the loss of certain major customers; increases in the price of
raw materials under market conditions which preclude passing such
increases on to customers; increased competition (especially from
competitors with access to substantially greater resources); failure to
renew certain labor agreements; and overall economic conditions in the United
States. Each of the foregoing factors is discussed in greater detail in this
report.
Item 1. Business
FiberMark believes it is a leading manufacturer and converter of specialty
fiber-based products with a wide range of consumer and industrial end-uses.
Through its ten United States paper mills and converting facilities, the
Company has focused on niche markets where it can provide high value-added
products which meet rigorous technical specifications and customer service
requirements.
The Company's products serve four distinct markets and are sold for worldwide
distribution to customers who manufacture end-use products.
Overview
The Company has four distinctive categories of products. The following table
provides an overview of the Company's product lines and facilities:
<TABLE>
<CAPTION>
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Office Products Technical Specialty Products Durable Specialty Products Filter Products
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<S> <C> <C> <C> <C>
Primary o Pressboard filing, o Electrical transformer paper o Tape substrates o Oil filter paper for
Products cover and binder automobiles and heavy
materials equipment
o Lightweight filing and o Picture mounting art board o Binding tapes o Water filter paper
cover materials
o Premium cover and o Abrasive backing o Hinge and reinforcing o Industrial filter paper
text papers tapes
o Printed circuit board paper o Checkbook tape
o Photographic packaging
o Wet strength tag
o Heavyweight book cover
o Lightweight book cover
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Facilities Brattleboro, VT Fitchburg, MA Quakertown, PA Richmond, VA
Warren Glen, NJ Warren Glen, NJ Oceanside, NY Rochester, MI
Hughesville, NJ Hughesville, NJ Owensboro, KY Fitchburg, MA
Owensboro, KY
Beaver Falls, NY
Richmond, VA
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</TABLE>
Strategy
The Company's strategy is to increase sales and earnings by consolidating and
strengthening core product lines, by rationalizing production capacity and by
pursuing selected strategic acquisitions. The following are the key elements
of this strategy:
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* Consolidate and Strengthen Core Product Lines. In the third quarter of
1996, the Company acquired CPG Investors, Inc. ("CPG") and Arcon Holdings
Corp. ("Arcon"). CPG and Arcon have an array of products which complement
FiberMark's core product lines. By consolidating these products and
streamlining and focusing its marketing efforts, the Company believes
that it will strengthen its core product lines in office products,
technical specialty products, durable specialty products and filter
products.
* Rationalize Overhead and Production Capacity. The Company believes that
the acquisitions completed in 1996 provide opportunities for the Company to
eliminate redundant overhead, rationalize inefficient facilities and
optimize the manufacturing of the Company's products over its existing
capital equipment base.
* Strategic Acquisitions. The Company intends to continue pursuing growth
through the acquisition of complementary businesses which provide
opportunities to enhance the Company's core product lines and create
operating efficiencies.
* Invest in Capital Improvements. The Company seeks to reduce costs,
increase capacity, enhance manufacturing capabilities and improve product
quality through selected capital investments. The Company has invested
approximately $20 million in new equipment, technology and leasehold
improvements at its facilities over the past 12 months and plans to invest
significant additional capital in facilities and equipment over the next 12
to 24 months.
* Increase Utilization of Recycled Fiber. The Company intends to continue
to capitalize on its position as a leading manufacturer of specialty paper
products with recycled fiber content. The Company's office product line
contains between 25% and 100% recycled materials, depending on paper
grades. The Company continually seeks to increase the recycled content of
its products to reduce costs and better service customer demands for
recycled content while still meeting performance expectations. See
"Business ---Manufacturing--- Use of Recycled Fiber."
* Expand International Sales. While FiberMark historically has devoted
increasing resources to its international marketing efforts, the CPG and
Arcon businesses acquired in 1996 have not had a similar focus on these
markets. FiberMark has an established network of international sales
offices and sales agents which sell FiberMark's existing range of products.
FiberMark believes that by using this sales and distribution network it
will be able to generate incremental sales of product lines obtained in
the acquisitions of CPG and Arcon.
Office Products
Market. The Company manufactures a wide range of materials used in the
manufacture of office products. Management believes that the Company is the
largest domestic supplier of pressboard, which is converted into data binders,
notebook covers, report covers, ring binders, and file and index guides. The
Company also pursues niche markets within the office supplies market where its
capabilities and customer relationships give it a competitive advantage.
The total North American market for office supplies at the wholesale level
was approximately $26.6 billion in 1995, as measured by the Business Products
Industry Association. The Company competes in an approximately $3.0 billion
segment of this market comprised primarily of market categories containing
hanging files, expandable folders, date books, ring binders, report covers and
file and index cards. Based on Business Products Industry Association
statistics, the Company estimates that this market has grown at a compound
annual growth rate of approximately 2.0% annually since 1991.
Products. The table below sets forth the primary office product materials
produced by the Company.
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<TABLE>
<CAPTION>
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Office Products
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Product Type Characteristics Typical End Uses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pressboard filing cover High density paperboard Data binders; ring binders;
and binder material designed for strength, report covers; notebook covers
rigidity, durability and
appearance; may be embossed
or acrylic coated; high
recycled content
Lightweight filing and Lighter weight paperboard, Filing products; portfolios;
cover materials designed for decorative report covers; document covers;
embellishments and less presentation covers
demanding end-uses than
pressboard
Premium cover and text Well-formed papers with good Printed report covers;
papers strength, color/texture and promotional and advertising
printable surfaces materials
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</TABLE>
The Company's largest product is a heavyweight paperboard (pressboard) which
is densified through a proprietary manufacturing process developed by the
Company. This densification process provides pressboard with the strength,
rigidity, durability and appearance required for data binders, ring binders,
notebook covers and report covers. The Company offers many pressboard products
in acrylic coated and embossed form, providing additional durability and
moisture and stain resistance. The Company has the capability to custom
manufacture pressboard in a variety of colors and can finish its
pressboard products to customer specifications, including glazing
(densification), coating, embossing, laminating, sheeting, slitting and
rewinding. The Company and its predecessors have offered their pressboard line
of products for over 75 years and believes it has established significant brand
awareness and loyalty among its customers.
The Company produces certain types of lightweight filing and cover materials
for conversion into file folders, expanding wallets, notebook covers and
report covers. The Company is continuing its focus on certain products for the
lightweight filing and cover material market, such as colored file folder and
report covers for the growing on-demand document printing market, with
specific emphasis on products with substantial recycled content. The Company's
lightweight filing and cover materials are generally manufactured using similar
equipment and processes and are sold to many of the same customers as the
Company's heavyweight office products. The Brattleboro paper machine
upgrade, completed in October 1995, expanded the machines ability to use
lower-cost recycled fiber and its capacity to produce lighter weight grades
used in filing and cover applications. The Company is working to build
this lightweight business through the strength of its relationships with office
products converters. These lightweight materials, coupled with the increasing
consumer demand for recycled paper products, provide an opportunity for the
Company to increase its penetration in the office products market.
The Company manufactures a line of premium cover and text papers sold through
paper distributors to commercial printers. These papers have good strength
and may have colored or textured surfaces and are typically used for printed
report covers and promotional and advertising materials.
3
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Customers. The Company sells its office products through its own sales
representatives to major domestic office product converters, including: Acco
World Corporation, a division of American Brands Inc.; Ampad Corp.; Smead
Manufacturing Company; Esselte Pendaflex Corp.; Mead Corp.; and Avery Dennison
Corp. These customers collectively account for the majority of the Company's
sales of office product materials with the remainder of the Company's sales
being accounted for by smaller independent manufacturers. The Company has
long-term relationships with all of its major customers in this market. The
Company's customers produce office products from the Company's paper-based
materials and sell end-use products through contract stationers, office
product wholesalers, buying groups, ware house clubs, catalog sales, office
products superstores, retail office supply stores and other outlets. The
Company also markets its materials through direct sales representatives or
manufacturer's representatives in Asia, Canada, Mexico, Central and South
America and Europe.
Competition. In the office products supply market, the Company competes with a
number of other producers of heavyweight pressboard, colored file folder paper
and lightweight filing and cover materials, including International Paper
Company ("International Paper"), Temple-Inland Inc., Brownville Specialty
Products, Merrimac Paper Co., Inc. ("Merrimac"). The Company believes it holds
a leading position in the domestic market for pressboard and a growing presence
in the lightweight filing and cover materials market. In markets that use
pressboard, the Company also competes with producers of vinyl and plastic
office product materials. In the premium cover and text market, the Company
also competes against divisions of Georgia Pacific Corp., Fox River Paper Co.,
Crown Vantage Inc. and a number of smaller paper manufacturers.
Technical Specialty Products
Market. The Company manufactures specialty paper products with customized
physical performance characteristics which meet the unique requirements of
specific end-use markets. Technical specialty products include paper used as
insulation material in electrical transformer coils, acid-free picture
mounting art board used for archival quality picture mounting and records
storage applications, photographic packaging papers, printed circuit board
papers, wet strength tag used primarily in the laundry and dry-cleaning
industries and paper backings for sandpaper and other abrasives. The Company
has been able to successfully enter niche markets in the technical
specialties area in which it believes its manufacturing flexibility
and technical expertise give it a competitive advantage in meeting rigorous
customer requirements. The Company believes that it is a market leader in many
of its markets, including electrical transformer papers, acid-free picture
mounting art board and photographic packaging papers. Many of the Company's
technical specialty products have been used in their current applications for
many years and have proven to be cost-effective in meeting the performance
requirements for which they are utilized. To supplement these products, the
Company works to develop new products which have the potential to experience
rapid growth due to superior performance, lower cost or both.
The company also believes that it is one of the two leading domestic
producers of latex-reinforced material used in book covers and related
products. These materials are used by customers in applications where
durability and distinctive appearance are important, such as flexible covers
for books, menus, photo albums, desktop calendars, appointment books and
reports.
Products. The table below sets forth the Company's principal technical
specialty products:
<TABLE>
<CAPTION>
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Technical Specialty Products
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Product Type Characteristics End Uses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electrical transformer paper High dielectric strength Power transformer coil insulation
4
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Picture mounting art board High pH (acid-free), exceptional Archival quality picture mounting
cleanliness and document storage
Photographic packaging Totally opaque; high-strength Photographic film protection
papers
Printed circuit board papers Low density; uniform Interior of printed circuit boards
high bulk
Wet strength tag High-strength saturated sheet; Laundry and dry-cleaning labels
moisture and solvent resistant
Backing papers for sandpaper High tear strength, smooth Heavyweight sandpaper and other
and other abrasives surfaces and controlled commercial abrasives
electrostatic properties
Heavyweight book cover Strong cotton fiber base sheets Flexible covers for softbound
latex reinforced and leather- books, menus, photo albums
texture desktop calendars and
accessories, appointment books
and reports.
Lightweight book cover Latex-reinforced base sheets of Exterior cover material for
higher bulk and lower hardbound books; photo
weight albums, report covers
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</TABLE>
The Company is a leading supplier of electrical transformer papers with high
dielectric strength which are wrapped around individual electrical transformer
coils as insulating material. The Company is the major supplier of such paper
to Bedford Materials, Inc., which operates the transformer insulation
business formerly owned by Westinghouse Electrical Corp., and is one of two
major suppliers to the other major U.S. manufacturer of electrical
transformers.
The Company believes that it is a leading provider of acid-free board used
as picture mounting art board and archival storage media. Acid-free
picture mounting art board and storage media are designed to prevent the
degradation and discoloration of artwork and documents caused by acidic
exposure. The Company believes that these superior performance characteristics
have resulted in wide acceptance of the Company's acid-free products.
The Company's photographic packaging papers are primarily dual composition
papers used by Eastman Kodak Company ("Kodak") and Polaroid Corp. ("Polaroid")
to package certain films. Such products must meet demanding standards for
opacity in order to prevent premature exposure of the film. The
Company's strong position in the market for photographic packaging papers
is based in part upon the Company's ability to manufacture multi-ply paper.
The Company also manufactures printed circuit board papers which are used in
the manufacture of circuit boards for remote control devices and other
electrical components. The Company's printed circuit board papers have the
advantage of low density and high bulk, allowing circuit board manufacturers
to lower their costs and increase their output by processing fewer sheets than
they would with competing materials.
5
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The Company's wet strength papers are primarily used as tags in the
laundry and dry cleaning industries to identify clothing as it is processed
through washing machines and dry cleaning equipment. These products, in
addition to withstanding physically and chemically harsh processes, are
manufactured in multiple colors that must not be transferred onto the
clothing to which they are attached. The Company is a major producer of this
paper in the United States and is now exporting to the United Kingdom, with
opportunities to expand into other European markets.
Sandpaper and other abrasive backing papers are used in the manufacture of
heavyweight sandpaper and other commercial abrasives. The Company's sandpaper
and other abrasive backing papers are designed to meet customers' exacting
specifications for tear strength, smooth surfaces and controlled electrostatic
properties.
Using proprietary manufacturing processes, the Company combines pulp, latex,
recycled rag fiber and other materials to produce flexible and durable
specialty materials for use in a variety of book cover applications. The
Company sells its book cover materials directly to customers in this market,
who in turn coat, emboss and decorate the material and sell it to manufacturers
of end-use products. The Company's primary latex product is manufactured using
recycled rag fibers, resulting in increased durability and a leather-like
texture and appearance. These products are used for day books, diaries, menu
covers and soft-cover books. The Company is also a leading supplier of
light-weight materials used in covering hardbound books.
Customers. The Company sells its technical specialty papers through its own
sales force to a variety of customers. Major customers include: Bedford
Materials, Inc. and the TMC division of Avery Dennison Corp. (electrical
transformer paper); the Nielsen and Bainbridge division of Esselte Corp. and
the Crescent Cardboard division of Potomac Corp. (acid free papers); Kodak and
Polaroid (photographic packaging papers). Other clients include the
AlliedSignal Corp. (printed circuit board paper), PermaFiber Corp. (wet
strength tags), 3M (abrasive backings), Coating Technologies, Inc. (book
cover) and various commercial printers. The Company works with its customers
to develop new products and to provide technical support for existing products.
Competition. The Company's competitors in technical specialty papers vary by
product type. Generally, the Company faces competition from both foreign and
domestic specialty manufacturers. The Company's focus is to compete n
products and markets which require manufacturing flexibility, product
properties and quality levels not provided by integrated paper mills. The
Company's key competitors include Kimberly Clark, The Sorg Paper Company, a
subsidiary of Mosinee Paper Company, Arjo Wiggins USA, Inc., Robert Cordier AG
and Merrimac. In the latex-reinforced book cover market, the Company primarily
competes with Rexam DSI, Inc. and, to a lesser degree, with products of
plastic-coated and coated cloth book cover materials.
Durable Specialty Products
Market. The primary markets for the Company's durable specialty products are
tape substrates (primarily industrial and consumer masking tapes), binding
tapes and hinge and reinforcing tapes, and book cover materials. There are
seven major North American producers of pressure sensitive tape, who, together,
account for approximately 80% of the industry's total sales. Most of these
producers have self-saturating capabilities for general purpose tapes and look
to suppliers like the Company for specialty paper backings.
The Company believes it is a leading supplier of binding tapes and hinge and
reinforcing tapes converted from specialty papers and substitutes for the
manufacture of notepads, books, expandable file folders and checkbooks.
6
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The Company has also sought out for its durable specialty products niche
markets in which it believes it can have a competitive advantage. The
Company produces high strength materials used in the apparel industry as blue
jean tags and for various other tag and label applications.
Products. The following table sets forth the Company's principal durable
specialty products.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Durable Specialty Products
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Product Type Characteristics Typical End Uses
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<S> <C> <C>
Tape substrates Enhanced strength, release, Industrial and commercial
impermeability or heat masking tapes; barrier tapes
resistance pressure-sensitive tapes;
bandolier tapes; packaging tapes
Binding tapes Tyvek(R) and latex-impregnated Notepads; composition books;
paper tapes checkbooks
Hinge and reinforcing tapes Durable Tyvek(R) high fold-and Expandable file folders
tear-strength reinforcing
materials.
(R) DuPont Registered Trademark
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</TABLE>
The Company is one of the largest producers of specialty tape substrates and
a broad range of saturated, coated and non-woven papers. The Company's tape
substrates are used in the manufacture of industrial and consumer masking
tapes, barrier tapes, other pressure-sensitive tapes and bandoliering tapes.
The Company's products have the strength and technical properties to meet
various performance demands. These products include barrier-coated and heat
resistant industrial masking tapes for the automotive paint and aircraft
manufacturing industries and packaging tapes which withstand the rigors of the
worldwide shipping. The Company's bandoliering tapes are used by the
electronics industry to carry resistors, capacitators and other items during
high-speed automated assembly of electronic devices.
The Company is a leading producer of high strength binding tapes and hinge and
reinforcing tape using Tyvek(R) as a base material. These products are
primarily used to protect, bind and decorate books and documents, checkbooks
and notepads. The Company's Tyvek(R) tapes, marketed under the trade name Super
ArcoFlex(TM), are used to decorate pad bindings and are able to withstand the
stress incurred during cutting in high volume manufacturing. The Company also
uses Tyvek(R) in the manufacture of supported gussets for red wallet expansion
folders. Gussets are the accordion folder material between the two folder side
sheets that allow the folder to expand. The Company has developed a method to
strengthen the gussets by laminating coated Tyvek(R) to the cardboard forming
the gusset and sells this material under the name Expanlin. The Company also
sells coated Tyvek(R) to converters who laminate it to the cardboard
themselves. The result is a material that is stronger, longer lasting and
more reliable than unsupported gussets and, as a result, the Company believes
that Expanlin has become the preferred material used in supported gussets by
expansion folder manufacturers.
Other durable specialty products include imitation leatherstock which is sold
to garment label manufacturers who cut and print the material with various
brand and product information for use as blue jean tags. This material is
expected to maintain its crisp appearance after repeated washing cycles. The
Company has also developed a tag and label product line for manufacturers who
require tags and labels with the strength of Tyvek(R). These products can be
color-coated and are used as luggage tags by the airline industry, as
flame-retardant labels for the automotive industry and other types of demanding
packaging applications.
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Customers. The Company offers its customers a broad product line with
flexible product development and manufacturing capabilities. This
flexibility has fostered long-term relationships with its client base. The
Company sells its specialty tape substrates to many of the leading tape
manufacturers, including American Tape Company and 3M. The Company
believes that the international customer base for these products may increase
as the Company's sales force is trained to sell these additional product
lines. In the checkbook industry, the Company's major customer is Deluxe
Check Printers, a division of Deluxe Corp. The Company sells blue jean tags and
its other tag and label products to a variety of converters and end-users.
Competition. For tape backing the Company primarily competes against
Kimberly-Clark, Inc. In the binding tape and hinge and reinforcing tape
markets, the Company competes against several smaller competitors including
Rexford Paper Co., Northeast Paper Converting Company and Southern Label
Company, Inc. The Company believes it holds a leading position in the market
for Tyvek(R) based binding tapes and hinge and reinforcing tapes. In other
niche markets, the Company competes with various small competitors, none of
which has a dominant market position.
Filter Products
Market. The Company is a major supplier of saturated and non-saturated filter
papers used in fluid and air filters for the automotive and heavy duty truck
and equipment industries. The Company estimates that the market for both
saturated and non-saturated papers was approximately $160 million in 1995,
of which approximately 90% was utilized in the automotive and heavy duty truck
and equipment markets. The other major market for these products is for filters
used to purify the solvents used in the dry cleaning industry. The five largest
manufacturers account for over 60% of total sales to the U.S. automotive and
heavy truck and equipment filter paper market. The market for automotive and
heavy duty truck and equipment filters has grown at a compound annual
growth rate of approximately 5.7% over the ten-year period from 1985-1995.
The Company also manufactures industrial filter paper used in a variety of
applications and processes.
Products. The table below sets forth the primary materials produced by the
Company for use in filter applications.
<TABLE>
<CAPTION>
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Filter Products
- --------------------------------------------------------------------------------------------------------------
Product Type Characteristics Typical End Uses
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Saturated filter paper Controlled porosity; enhanced Oil, fuel and hydraulic filters for
strength and rigidity; high heavy and light duty trucks
temperature and chemical and passenger cars; fuel,
resistance hydraulic fluid and dry-
cleaning solvent filters
Non-saturated filter paper Controlled porosity; high Oil filters for heavy-duty
density; may be impregnated equipment and diesel trucks;
with activated carbon and home water filters
other fillers
Industrial filter paper Controlled porosity; high Hot oil filters for the fast-foot
temperature resistance; industry; paint and lacquer
cleanliness manufacturing; fruit juice
processing
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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The Company's major filter product is solvent-based saturated filter paper,
which is controlled porosity paper saturated with phenolic and other resins to
increase its strength and rigidity for use in various high temperature
applications. This product is purchased by filter manufacturers who cut, pleat
and cure the paper for use in oil, fuel and hydraulic fluid filters for heavy
and light duty trucks and passenger cars. These filters are sold primarily to
the replacement market but also to original equipment manufacturers. The
Company manufactures many grades of saturated filter paper to specifications
provided by its customers. The Company believes that it is one of the three
largest producers of saturated filter paper in the United States.
The Company also produces non-saturated filter paper. This category includes
non-saturated paper containing activated carbons and other fillers and edge
filter media. Primary uses of non-saturated filter paper include oil filtration
in heavy equipment and diesel trucks and home water filters. In addition, the
Company produces industrial filter papers for various food service and
industrial applications, including filtration of hot oil used in fast-food
preparation, the manufacture of paints and lacquers and the processing of fruit
juices.
The Company is nearing completion of a capital improvement plan that will
increase its annual saturated filter paper capacity at its Richmond mill by
over 50%. In addition, the Company has improved its manufacturing processes at
these facilities to increase productivity and lower its costs.
Customers. The Company sells its filter products primarily through its own
sales staff directly to its customers. Principal customers for the Company's
saturated filter papers include the Fleetguard Filtration Systems division of
Cummins Engine Co., Inc. ("Fleetguard"), the Delphi Automotive Systems division
of General Motors Corp. ("General Motors"), AlliedSignal, Inc. (Fram filters),
Purolator Products, Inc. and Miki Sangyo U.S.A. Inc., a trading company and the
major supplier of filter paper used in filters supplied to the U.S.
manufacturing sites of Nissan Motor Co., Ltd. and Honda Motor Co., Ltd. The
Company's saturated filter paper is used to make filters which are used on
vehicles manufactured by General Motors, Chrysler Corp. and Ford Motor Corp.
Fleetguard is also the Company's primary customer for non-saturated filter
papers. The Company has long-term relationships with its customers and believes
that these relationships with its customers are based on its ability to provide
superior service and technical support.
The Company's major customers for its industrial filter paper products include
National Filters, Inc. and Lubrizol Corp. for commercial manufacturing
applications, Seneca Foods Corp. for food processing applications and the KFC
North America division of PepsiCo Inc. in the hot oil filter market. In
addition, the Company supplies industrial filter papers to various smaller
manufacturers and users.
Competition. The Company's primary competition in solvent-based saturated
filter papers comes from Ahlstrom Filtration, Inc. ("Ahlstrom"), a division of
A. Ahlstrom Corp. In addition, the Hollingsworth & Vose Company is the dominant
manufacturer of water-based saturated filter papers, a
market in which the Company has a smaller presence. To the extent that industry
efforts to develop water-based alternatives to solvent-based saturated filter
papers are successful, the Company's solvent- based filterpapers may face
increased competition from such water-based alternatives.
In the markets for non-saturated filter papers and industrial filter papers,
the Company competes primarily with Ahlstrom, Knowlton Specialty Papers, Inc.
and Lydall, Inc. In each of these markets, producers tend to manufacture custom
designed products on an exclusive basis for their customers.
Manufacturing
Mills and Converting Facilities. The Company operates ten facilities of which
eight are owned and two are leased. The Company intends to close the former
Arcon facility in Oceanside by early 1997 and relocate those operations to the
Company's facility in Quakertown.
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Office Products. The Company's main mill for the production of office products
is located in Brattleboro. Mills located at Warren Glen and Hughesville also
produce office products materials. Recent improvements have included an
upgrade to the Brattleboro mill which is expected to increase its capacity,
and will enable it to utilize a higher percentage of recycled fiber and
produce a new range of lighter weight products. The Company has also recently
completed a series of capital improvements at its Warren Glen mill,
which have increased productivity, reduced costs and waste and increased the
ability of the mill to use recycled fiber.
The cylinder paper machines in use at the Brattleboro and Warren Glen mills
are configured to produce a broad range of highly densified heavyweight
pressboard products of various weights, colors and finishes. The machine in the
Brattleboro mill features computer-controlled monitoring of color, weight,
thickness and moisture content. The configuration of the cylinder machine
allows the production of multiple-ply products, resulting in greater strength
and stiffness than a comparable one-ply product made on a Fourdrinier paper
machine. In addition, this process enables the Company to use lower-cost
recycled fiber pulp in the interior layers and higher-cost virgin pulp layers
on the exterior of a product providing greater strength and the surface
appearance desired by consumers. Finishing capabilities at the Brattleboro mill
include glazing, coating, embossing, rewinding, laminating and sheeting.
Technical Specialty Products. The Company manufactures technical specialty
products at a number of its facilities, including its Hughesville, Warren Glen,
Richmond, Fitchburg, Owensboro and Beaver Falls facilities. The Hughesville
mill manufactures primarily technical specialty papers, including
photographic packaging, electrical transformer paper and wet-strength tag. The
Company's mill located in Beaver Falls specializes in the production of
proprietary latex-impregnated materials for use as book covers and similar
products. The stock preparation process at the Beaver Falls mill allows
blending of latex, cork, cotton fiber, pulp and other materials into a variety
of products with specific performance characteristics. The mill has a fiber
reclamation system enabling it to utilize recycled fiber.
Durable Specialty Products. Durable specialty products are manufactured in the
Company's Owensboro mill and its Quakertown and Oceanside converting
facilities. The Company's main converting facility for durable specialty
products is located at Quakertown. A significant portion of the saturating base
paper used in this facility is provided by the Owensboro mill. In addition,
substantially all capacity currently located in Oceanside will be relocated to
the Quakertown facility.
Filter Products. The Company's filter products are produced primarily at its
Richmond, Rochester and Fitchburg mills. The Richmond mill uses a
methanol-based resin saturating process that allows the saturation of base
paper off the paper machine. The Rochester mill uses an in-line
saturating process. The Company manufactures its non-saturated filter
papers at its Fitchburg mill.
Raw Materials. The Company uses a wide array of raw materials to formulate its
products, including virgin hardwood and softwood pulp, secondary wood fiber
from pre-and post-consumer waste, secondary cotton fiber from the apparel
industry, synthetic fibers (such as nylon and fiberglass), synthetic latex
and a wide variety of chemicals, pigments and dyes. These materials are
procured from numerous suppliers in the United States and Canada. The Company
does not produce pulp. Pulp and secondary fiber prices are subject to
substantial cyclical price fluctuations. The Company experienced a significant
increase in raw material costs during 1994 and 1995, but was able to
partially recover these increases with selling price increases, cost
containment efforts and the early benefits of the paper machine upgrade
performed in 1995. There can be no assurance that the Company will be able
to pass any future increases in the price of pulp through to its customers in
the form of price increases. The Company's sole source of supply of the
Tyvek(R) used in production of certain of its products is DuPont.
The Company has a long-standing relationship with DuPont as an approved
converter of Tyvek(R) and has never experienced a disruption in supply.
Although management believes that it has a good relationship with DuPont, there
can be no assurance that the Company will be able to continually purchase
adequate supplies of Tyvek(R). Any
10
<PAGE>
material interruption in the Company's supply of Tyvek(R) could have a material
adverse effect on the results of operations and financial condition of the
Company.
Use of Recycled Fiber. The Company believes that materials with recycled
content continue to grow in consumer acceptance. The Company has made
significant capital investments in recycling equipment and systems. The use of
the Company's cylinder paper machines in the manufacturing process for
pressboard products allows the use of recycled fiber in the product interior,
while virgin pulp is used on the product exterior providing greater strength as
well as the product appearance desired by customers. In addition to using
recycled fiber, the end-use products manufactured from the Company's pressboard
materials are themselves recyclable.
The Company's office products are manufactured with 25% to 100% recycled
fiber, of which up to 50% may be post-consumer waste. Post-consumer waste
refers to paper waste from end-users of paper products, and is generally
considered the standard by which government agencies and environmentally
conscious consumers evaluate recycled content. In particular, government
agencies have established and are continuing to update standards for recycled
content (both pre- and post-consumer waste) in the procurement of office
supplies. The Company anticipates that demand for office product materials with
recycled content will continue to grow.
Research and Development. The Company's expenditures on research and
development were $1.2 million, $1.0 million, and $1.1 million in 1996, 1995 and
1994, respectively. The Company has a research and development staff with
expertise in chemistry, papermaking and materials science. This staff works
closely with the Company's customers to develop, test and produce new product
formulations designed to meet customer specifications.
Employees
As of December 31, 1996, the Company employed a total of 1,009 employees, of
which 303 were salaried and 706 were hourly. Of the salaried employees 124
were in manufacturing, 57 in sales and marketing, 15 in research and
development and 107 in professional or administrative support.
The hourly employees at the Oceanside and Quakertown locations are all
non-union. The remaining hourly employees are either members of the United
Paperworkers International Union, the International Brotherhood of
Boilermakers, Iron Shipworkers, Blacksmiths, Forgers and Helpers or the
International Brotherhood of Electrical Workers. The table below sets out the
expiration dates of the Company's labor contracts by facility.
Facility Expiration Date
-------- ---------------
Owensboro, KY April 1, 1996
Fitchburg, MA April 30, 1998
Warren Glen, NJ May 23, 1999
Hughesville, NJ May 23, 1999
Rochester, MI June 26, 1999
Richmond, VA April 28, 2000
Beaver Falls, NY (Latex Mill) June 30, 2000
Brattleboro, VT August 31, 2002
TheCompany believes that, in general, it has good relations with its
employees and their unions. The labor contract governing the 30 employees in
the bargaining unit at the Company's Owensboro mill expired on April 1, 1996
and the employees have continued to work under the terms of the expired
contract. The employees at this mill are represented by the International
Brotherhood of Boilermakers, Iron Shipworkers, Blacksmiths, Forgers and
Helpers. The Company has made a final offer which
11
<PAGE>
includes substantial revisions to the work rules at the Owensboro mill which
are intended to bring such work rules more into line with labor agreements in
place throughout the paper industry. The union's representatives have not
accepted this final offer. The employees in the bargaining unit have voted not
to strike. In the event of a work stoppage, management believes that the
Company could continue to operate the Owensboro mill. In any event, the
Company believes that it has sufficient production capacity throughout its
various mill facilities to adequately meet its production requirements.
Cogeneration Project
The Company has entered into agreements with Kamine/Besicorp Beaver Falls
L.P. ("Kamine"), pursuant to which the Company's Latex Fiber Products
Division is the host for a gas-fired, 79- megawatt combined-cycle cogeneration
facility developed by Kamine in Beaver Falls, New York. Construction of the
facility has been completed, although it is not operational. The Company has a
firmcontract with Kamine to receive a series of cash payments totaling $7.0
million between May 1995 and May 1997. The present value of these cash
payments, in the amount of $6.5, was recorded as income in the first quarter
1995. Cash payments of $2.0 million and $3.0 million were received in May
1996 and May 1995, respectively.
Environmental Regulation and Compliance
Like similar companies, the Company's operations and properties are subject to
a wide variety of federal, state and local laws and regulations, including
those governing the use, storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes,
the remediation of contaminated soil and groundwater, and the health and
safety of employees, (collectively, "Environmental Laws"). As such, the
nature of the Company's operations exposes it to the risk of claims with
respect to environmental protection and health and safety matters and there
can be no assurance that material costs or liabilities will not be
incurred in connection with such claims.
The Company and its predecessors have made substantial investments in
pollution control facilities to comply with existing Environmental Laws.
The Company made expenditures for environmental purposes of $1.7million, $2.5
million and $1.3 million in 1996, 1995, and 1994, respectively. While
the Company believes that it has made sufficient capital expenditures to
maintain compliance with existing Environmental Laws, any failure by the
Company to comply with present and future Environmental Laws could subject
it to future liability or require the suspension of operations. In
addition, such Environmental Laws could restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or incur significant expenses to comply with environmental regulations.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA") and similar state laws provide for responses to,
and liability for, releases of certain hazardous substances from a
facility into the environment. These obligations are imposed on the
current owner or operator of a facility from which there has been a release,
the owner or operator of a facility at the time of the disposal of hazardous
substances at the facility, on any person who arranged for the treatment or
disposal of hazardous substances at the facility, and any person who accepted
hazardous substances for transport to a facility selected by such person.
Liability under CERCLA can be strict, joint and several. Pursuant to the
Environmental Laws, there are currently pending investigations at certain of
the Company's plants relating to the release of hazardous substances, materials
and/or wastes. In addition, various predecessors of the Company have been named
as potentially responsible parties ("PRPs") by the United States Environmental
Protection Agency ("EPA") for costs incurred and to be incurred in
responding to the investigation and clean-up of various third-party sites.
The Company has not received any notification or inquiry from EPA or any other
agency concerning these sites. Management believes that the Company will have
no liability in connection with the clean-up of these sites. However, no
assurance can be given that such predecessors will perform their
responsibilities in connection with such sites and, in the event of such
nonperformance, the Company may incur material liabilities in connection
with such sites, and no assurance can be given that the Company will not
receive PRP notices in connection with these or other sites in the future.
12
<PAGE>
In connection with the acquisition of CPG, the former owners of CPG have
agreed to indemnify (subject to certain limitations) the Company for certain
identified and potential environmental liabilities arising from the historical
use of the property acquired in the acquisition of CPG or from CPG's conduct
prior to the acquisition of CPG. Management believes that the amount of the
escrow established as security for these and other indemnity obligations of
the former CPG owners will be sufficient to cover environmental liabilities
expected to be incurred in connection with the acquisition of CPG. However, no
assurance can be given that the limited indemnity provided by the former owners
of CPG will be sufficient to cover all material environmental liabilities
associated with the acquisition of CPG.
Based upon its experience to date, the management of the Company believes
that the future cost of compliance with existing Environmental Laws, and
Liability for known environmental claims pursuant to such laws, will not have a
material adverse effect on the Company's financial condition and results of
operation. However, future events, such as new information, changes in existing
Environmental Laws or their interpretation, and more vigorous enforcement
policies of regulatory authorities, may give rise to additional
expenditures or liabilities that could be material to the Company's financial
condition and results of operations.
Executive Officers
The Company's Executive Officers are:
Name Age Position
---- --- --------
Alex Kwader 54 President and Chief Executive Officer
Bruce P. Moore 49 Vice President and Chief Financial Officer
Stephen A. Steidle 52 Vice President and General Sales Manager
Alex Kwader has been the President and Chief Executive Officer of the
Company since August 1991 and a Director since November 1991. Since 1970, Mr.
Kwader has been employed by the Company and Boise Cascade Corporation ("BCC"),
a diversified paper products corporation, in various management positions. He
served as Senior Vice President of the Company from March 1990 to August 1991
and as Vice President from the Company's inception in June 1989 until March
1990. Mr. Kwader was also General Manager of the Pressboard Division from June
1989 until August 1991, serving in the same capacity for the BCC
Pressboard Division from 1986 until June 1989. From 1980 to 1985, he served as
General Manager of the BCC Latex Fiber Products Division. Mr. Kwader holds a
B.S. in Mechanical Engineering from the University of Massachusetts and a M.S.
from Carnegie Mellon University and attended the Harvard Business School
Executive Program.
Bruce P. Moore has served as Vice President of the Company since its
inception in June 1989 and as Chief Financial Officer since December 1990. From
1980 to 1989, Mr. Moore was employed by BCC in various management positions,
including controller and General Manager of the Latex Fiber Products Division.
Mr. Moore holds a B.A. in Business Administration from Siena College and
attended the Stanford University Executive Program.
Stephen A. Steidle has served as Vice President and General Sales Manager
for the office products and book cover markets since February 1994. He has
held sales management positions with the Company and BCC for more than 10 years
and has a total of 25 years of service with the Company and BCC. Mr. Steidle
began his career as Safety Director of the Personnel Department at BCC's St.
Helens mill in Oregon. Mr. Steidle received a B.A. in Psychology from the
University of Maine and an M.B.A. from the University of Maine.
13
<PAGE>
Item 2. Properties
TheCompany owns and operates seven specialty paper mills and one converting
facility and also leases one specialty paper mill and one converting
facility. The leased converting facility located in Oceanside, NY is scheduled
to be consolidated into the Company's owned converting facility in
Quakertown, PA during 1997. The following table depicts all of the Company's
properties as of December 31, 1996.
Location Owned/Leased Sq. Feet Land Acres
- -------- ------------ -------- ----------
Paper Mills:
Brattleboro, VT Owned 200,000 39
Fitchburg, MA Owned 255,000 161
Warren Glen, NJ Owned 299,000 162
Hughesville, NJ Owned 88,000 166
Beaver Falls, NY Owned 100,000 167
Owensboro, KY Owned 47,000 15
Rochester, MI Leased 96,000 17
Richmond, VA Owned 64,000 --
Converting Facilities:
Quakertown, PA Owned 165,000 7
Oceanside, NY Leased 31,000 --
The Corporate headquarters is located at the Brattleboro, VT site. The
Company owns a production facility in Lowville, NY which it leases to a
customer. Foreign sales offices are maintained in Hong Kong, Taipei, R.O.C.,
Tokyo, Japan, and Annecy, France.
Item 3. Legal Proceedings
The Company is involved in legal proceedings arising in the ordinary
course of business. The Company does not believe that the outcome of any of
these proceedings will have a material adverse effect on the operations or
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter ended December 1996.
14
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's Common Stock was first traded on March 11, 1993 on the NASDAQ
National Market System under the symbol SPBI. The following table shows the high
and low sale prices per share of the Common Stock as reported on the NASDAQ
National Market System.
Year Ended December 31, 1995 High Low
- ---------------------------- ---- ---
First Quarter $12.25 $10.00
Second Quarter $13.50 $11.50
Third Quarter $13.00 $10.00
Fourth Quarter $13.50 $10.75
Year Ended December 31, 1996 High Low
- ---------------------------- ---- ---
First Quarter $15.00 $11.75
Second Quarter $15.25 $12.75
Third Quarter $19.50 $13.00
Fourth Quarter $21.25 $16.25
The Company had approximately 73 stockholders of record of its Common Stock as
of March 6, 1997. The Company's transfer agent and registrar has indicated that
the Company had approximately 1876 beneficial owners of its Common Stock as of
March 6, 1997. The Company has never paid any cash dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
15
<PAGE>
Item 6. Selected Consolidated Financial Data
The data set forth below should be read in conjunction with the financial
statements and notes included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Year Ended December 31,
--------------------------------------------------------------------------------------
1996 (6) 1995 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement
Data
Net Sales (1) $124,771 $117,516 $105,416 $79,982 $84,219
Cost of Sales 101,981 100,106 88,138 66,360 68,614
--------------------------------------------------------------------------------------
Gross Profit 22,790 17,410 17,278 13,622 15,605
General & Administrative Exp. (2) 9,908 8,397 8,584 7,881 5,955
--------------------------------------------------------------------------------------
Income from Operations 12,882 9,013 8,694 5,741 9,650
Loss on Disposition of Assets, Net -- 8,302 -- -- --
Cogeneration Income -- (6,512) -- (4,404) --
Other Expenses(Income), Net (3) (1,127) (1,198) (658) 374 464
Interest Expense 1,798 892 1,356 3,137 7,752
--------------------------------------------------------------------------------------
Income before Income Taxes and
Extraordinary Items 12,211 7,529 7,996 6,634 1,434
Income Tax (Benefit) Expenses (4) 4,697 (424) 2,768 1,921 583
--------------------------------------------------------------------------------------
Income before Extraordinary Items 7,514 7,953 5,228 4,713 851
Extraordinary Items (5) (297) -- (149) (2,103) 573
--------------------------------------------------------------------------------------
Net Income $7,217 $7,953 $5,079 $2,610 $1,424
--------------------------------------------------------------------------------------
Net income Applicable to Common
Shares 7,217 7,953 5,079 2,610 1,424
--------------------------------------------------------------------------------------
Net Income per Common Share $1.79 $1.97 $1.26 $0.68 $0.90
Weighted Average Common Shares
Outstanding 4,036 4,033 4,021 3,323 339
Other Consolidated Operating
Data:
Depreciation and Amortization $3,651 $3,342 $4,006 $3,681 $4,089
Capital Expenditures 7,546 4,865 1,603 900 1,235
Consolidated Balance Sheet Data
--------------------------------------------------------------------------------------
December 31, 1996 1995 1994 1993 1992
--------------------------------------------------------------------------------------
Working Capital 29,918 17,634 14,296 799 983
Total Assets 213,338 74,618 87,817 55,754 63,429
Long Term Debt (Net of Current
Maturities) 100,000 4,625 21,081 14,580 49,525
Redeemable Preferred Stock -- -- -- -- 15,537
Stockholders' Equity (Deficit) 48,093 40,735 32,662 27,390 (18,765)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
1) The increase in net sales for the year ended December 31, 1994 reflects the
impact of the acquisition of the Endura Products Division on June 30, 1994.
The division contributed $18.1 million to the Company's net sales for the
last six months of 1994. For the year ended December 31, 1995, the division
contributed $37.3 million to the Company's net sales.
2) General and administrative expenses for 1992 reflect a $487,000 gain as a
result of reimbursement by BCC to the Company of certain environmental
remediation costs.
3) Other expenses (income) for the 1996, 1995 and 1994 periods include
$1,719,000, $1,718,000 and $1,146,000 respectively, of amortized income
related to a deferred gain on a sale/leaseback transaction. On April 29,
1994, the Company sold and leased back certain operating assets at the
Brattleboro, Vermont mill. The sale of these assets resulted in a book gain
of $17,187,000. This gain is being amortized over the ten-year life of the
lease.
4) From its inception through December 31, 1991, the Company generated net
operating losses. For the year ended December 31, 1992, the Company
generated net income and recognized an income tax provision of $583,000
and a partially offsetting extraordinary tax credit of $573,000 from
partial utilization of net operating loss carry-forwards. For the year
ended December 31, 1993, the Company generated net income and recognized an
income tax provision of $1,921,000. For the year ended December 31, 1994,
the Company generated net income and recognized an income tax provision of
$2,768,000. For the year ended December 31, 1995, the Company generated
net income and recognized an income tax benefit of ($424,000) due
primarily to the release of valuation allowances.
5) Extraordinary items for 1993 include a $3,518,000 loss related to the early
extinguishment of debt and a fee in connection with the termination of an
interest rate collar agreement, net of an income tax benefit of $1,415,000.
Extraordinary items for 1994 include a $248,000 loss related to the early
extinguishment of debt, net of an income tax benefit of $99,000.
Extraordinary items for 1996 include a $495,000 loss related to the early
extinguishment of debt, net of an income tax benefit of $198,000.
6) CPG and Arcon were both acquired on October 31, 1996. These two
acquisitions in aggregate added $20,200,000 in net sales for 1996.
17
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
On April 29, 1994, the Company entered into a financing agreement and lease
agreement with The CIT Group/Business Credit, Inc. and The CIT Group/Equipment
Financing, Inc., respectively (collectively "CIT"). Pursuant to the lease
agreement, the cylinder paper machine and certain related operating assets at
the Company's mill in Brattleboro, Vermont were sold to CIT and leased back to
the Company. The Company received proceeds of $25.0 million from the sale of
such assets, of which $12.7 million and $5.3 million were used to repay in full
the Company's outstanding term loan and revolving line of credit with Wells
Fargo Bank. Pursuant to this financing agreement CIT also provided the Company
with a revolving credit facility of $15.0 million and a term loan of $17.0
million. The term loan was predicated on the completion of an acquisition which
was scheduled to close in June 1994.
On June 30, 1994, the Company acquired the assets of a saturated specialty
business (Endura) from W.R. Grace & Co. for a total purchase price of $26.4
million plus $1.0 million of acquisition expenses paid. Twenty million dollars
of the purchase price was financed by the term loan and revolving loan credit
facility described above. The balance of the purchase price was paid using $7.4
million of cash reserves of the Company.
On March 22, 1995, the Company sold the assets of its Lewis mill and the
Company's gasket business to Armstrong World Industries Inc. ("Armstrong") for
$12,933,000 (the "Sale"). As part of the Sale, inventory in the amount of
$1,080,000 was sold at book value to Armstrong. The net book value of the assets
sold was $19,311,000 and total expenses relating to the Sale were $1,924,000.
This transaction resulted in a loss of $8,302,000 before taxes. The Company used
a substantial portion of the proceeds to retire outstanding indebtedness. The
remaining proceeds were added to working capital.
On October 31, 1996, the Company acquired all of the outstanding stock of CPG.
CPG operates five paper mills and manufactures a diverse portfolio of
specialty fiber-based products for industrial and technical markets.
Annual sales revenue approximates $95.0 million.
On October 31, 1996, the Company also acquired all of the outstanding stock
of Arcon. Arcon operates one converting facility and manufactures
colored binding and stripping tapes and edge cover materials sold primarily
into the office products, checkbook and book binding markets. Annual sales
revenue approximates $28.0 million.
Both of the 1996 acquisitions were financed with proceeds from the issuance of
$100,000 million in senior notes. These notes are non-amortizing, have a ten
year term and carry a fixed interest rate of 9.375%. The aggregate purchase
price for both CPG and Arcon, including acquisition costs, was approximately
$91.5 million. Additionally, the Company incurred approximately $4.5 million in
financing costs. The balance of the proceeds from the senior note offering was
added to the cash reserves of the Company.
The Company's income from operations improved from $5.7 million in 1993 (7.1% of
sales) to $12.9 million in 1996 (10.3% of sales). This improvement is largely
attributable to the added sales volume that resulted from the 1994 and 1996
acquisitions. Additionally, the Company is benefiting from improved
manufacturing efficiencies due to equipment upgrades at several of its
facilities.
The Company's financial results are dependent upon a number of factors,
including the level of orders from key customers, levels of inventory maintained
by such customers, fluctuations in the price of raw materials and actions by
competitors. In addition, the Company's results will continue to be
influenced--as they have been in the past--by the level of growth in the overall
economy and in the markets served by the Company.
18
<PAGE>
Results of Consolidated Operations
The following table sets forth, for the periods indicated, certain operating
data as a percentage of net sales.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 81.7 85.2 83.6
-------------------------------------------------------
Gross Profit 18.3 14.8 16.4
General and Administrative Expenses 7.9 7.1 8.2
-------------------------------------------------------
Income from operations 10.4 7.7 8.2
Loss on Disposition of Assets, other (Income)
Expenses and Cogeneration Income, net (0.9) 0.5 (0.6)
Interest Expense 1.5 0.8 1.2
-------------------------------------------------------
Income Before Income Taxes 9.8 6.4 7.6
Net Effect of Income Taxes and Extraordinary Tax 4.0 (0.4) 2.8
Benefit
-------------------------------------------------------
Net Income 5.8% 6.8% 4.8%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Year Ended December 31, 1996 Compared To Year Ended December 31, 1995
Net sales increased 6.2% to $124.8 million in 1996 from $117.5 million in 1995.
The Company acquired CPG and Arcon on October 31, 1996. These acquisitions
added $20.2 million in sales revenue over the final two months of 1996. In
March 1995 the Company sold its gasket business to Armstrong. This caused
its gasket product revenue to decline by $6.7 million in 1996 as compared to
1995.
For the balance of the Company's markets, office products sales declined by 5.1%
($2.9 million) to $54.4 million in 1996 from $57.3 million in 1995. Sales of
saturated specialties decreased by 9.4% ($3.4 million) to $32.8 million in 1996
from $36.2 million in 1995. Book cover sales declined by .6% ($.1 million) to
$15.7 million in 1996 from $15.8 million in 1995. These sales declines were
primarily due to sluggish economic conditions which existed in the Company's
markets during the first half of 1996.
Gross profit margin increased to 18.3% in 1996 from 14.8% in 1995. This
improvement is primarily due to lower prices for pulp and recycled fiber and to
improved manufacturing efficiencies resulting from equipment upgrades.
General and administrative expenses increased to $9.9 million (7.9% of sales) in
1996 from $8.4 million (7.1% of sales) in 1995. This increase is primarily due
to the acquisition of CP Gand Arcon.
Income from operations increased to $12.9 million (10.4% of sales) in 1996 from
$9.0 million (7.7% of sales) in 1995. This improvement is due to the higher
sales level brought about by the acquisitions, lower raw material prices and
improved manufacturing efficiencies.
Other income was $1.1 million in 1996 as compared to $1.2 million in 1995. On
April 29, 1994 the Company sold and leased back certain operating assets at the
Brattleboro, Vermont mill. The sale of these assets resulted in a deferred gain
of $17.2 million which is being amortized at the rate of $1.7 million per year.
This other income is offset in part by amortization of organizational and
financing costs and goodwill.
19
<PAGE>
Interest expense increased to $1.8 million in 1996 as compared to $.9 million in
1995. This increase is due to the debt incurred to fund the 1996 acquisitions.
Income taxes were $4.7 million or 38.5% of the taxable income in 1996. In 1995
there was an income tax benefit of $40 million which reflects the reversal of a
$3.0 million valuation allowance.
Year Ended December 31, 1995 Compared To Year Ended December 31, 1994
Net sales increased 11.5% to $117.5 million from $105.4 million in 1994. Net
sales for 1995 included the first full year of sales from the Endura Products
Division which was acquired by the Company on June 30, 1994.
Sales of office products materials increased 2.2% ($1.2 million) to $56.1
million in 1995 from $54.9 million in 1994. This increase was primarily due to
strong order levels which the Company believes were principally related to
positive economic conditions during the first half of 1995. Sales of Endura
products were $37.3 million, compared to $18.1 million in sales in 1994. Such
sales commenced upon the acquisition of this product line in June 1994. Sales of
gasket materials decreased 52.3% ($9.1 million) to $8.3 million in 1995 from
$17.4 million in 1994, as a result of our sale of the Lewis mill and gasket
business in March of 1995. Sales of book cover materials increased 5.3% ($0.8
million) to $15.8 million in 1995 from $15.0 million in 1994.
Gross profit margin decreased to 14.8% in 1995 from 16.4% in 1994. This decline
was primarily due to higher purchase prices for pulp and recycled fiber and
higher lease expenses related to sale-leaseback financing entered into in April
1994. These increased costs were offset in part by higher selling prices and the
benefits of an upgrade to the Brattleboro, Vermont paper machine in October 1995
which allowed greater use of lower-cost recycled fiber to manufacture the office
products line. See "Manufacturing-Brattleboro Mill."
General and administrative expenses decreased to $8.4 million (7.1% of net
sales) in 1995 from $8.6 million (8.2% of net sales) in 1994. This decrease
resulted from reduced levels of expenses due to the sale of the Company's gasket
business and lower premiums for Directors and Officers insurance.
Income from operations increased to $9.0 million (7.7% of net sales) in 1995
from $8.7 million (8.2% of net sales) in 1994. This increase resulted primarily
from lower levels of general and administrative expenses described above, offset
in part by higher costs for pulp and secondary fiber.
Other income was $1.2 million in 1995 as compared to $0.7 million in 1994. Other
income in 1995 was positively impacted by the amortization of $1.7 million in
deferred gain on the sale-leaseback transaction. On April 29, 1994, the Company
sold and leased back certain operating assets at the Brattleboro, Vermont mill.
The sale of these assets resulted in a deferred gain of $17.2 million which is
being amortized over the ten-year life of the lease.
Interest expense decreased to $0.9 million in 1995 from $1.4 million in 1994.
This decrease was due to lower levels of debt resulting primarily from debt
repayment using proceeds from the Lewis mill sale.
Income tax benefit was $0.4 million in 1995. This represents an effective tax
rate of (5.6%) and reflects the reversal of a $3.0 million valuation allowance.
Income tax expense was $2.8 million in 1994 which represented an effective tax
rate of 34.6% and reflects utilization of $21.4 million of net operating loss
carry-forwards.
20
<PAGE>
Liquidity And Capital Resources
As of December 31, 1996, the outstanding balance of the Company's senior note
issue was $100 million. These notes have a ten-year term, are non-amortizing,
and carry a fixed interest rate of 9.375%. Additionally, the Company has a $15.0
million revolving credit facility with $0.0 million outstanding as of December
31, 1996. This revolving credit facility is being increased to $20.0 million
during the first quarter of 1997.
The Company's historical requirements for capital have been primarily for
servicing debt, capital expenditures and working capital. Cash flows from
operating activities totaled approximately $17.1 million, $8.1 million and $4.2
million in 1996, 1995 and 1994, respectively. Cash flows from investing
activities include additions to property, plant and equipment of $8.5 million,
$4.9 million and $1.6 million in 1996, 1995 and 1994, respectively. The Company
believes that cash flow from operations, plus amounts available under credit
facilities, will be sufficient to fund its capital requirements, debt service
and working capital requirements for the foreseeable future.
The Company intends to pursue strategic acquisitions, such as those completed in
1994 and 1996, that will enhance its range of products. Any such acquisition
could require the Company to secure independent debt or equity financing to
complete the transaction.
Inflation
The Company attempts to minimize the effect of inflation on earnings by
controlling operating expenses. During the past several years, the rate of
general inflation has been relatively low and has not had a significant impact
on the Company's results of operations. The Company purchases raw materials
which are subject to cyclical changes in costs that may not reflect the rate of
general inflation.
Seasonality
The Company's business is seasonal, with the third quarter of each year
typically having the lowest level of net sales and operating income. This
seasonality is the result of a lower level of purchasing activity in the third
quarter, since many converters shut down their operations during portions of
July.
New Accounting Standards
In 1996, the American Institute of Certified Public Accountants issued Statement
of Position 96-1, "Environmental Remediation Liabilities." This statement is
required to be adopted by the Company in 1997. The Company has yet to analyze in
detail the potential impact on its financial statements upon adoption of this
pronouncement.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This statement
is required to be adopted by the Company in 1997. The Company has yet to
analyze the potential impact on its financial statements upon adoption of this
pronouncement.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data of the Company required by this
item are filed as exhibits hereto, are listed under Item 14(a)(1) and (2), and
are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
21
<PAGE>
PART III
Item 10. Directors and Executive Officers
See the section entitled "Executive Officers" in Part I, Item 1 hereof for
information regarding the Company's executive officers.
The information required by this item with respect to the Company's directors is
presented under the caption entitled "Election of Directors" of the Company's
Definitive Proxy Statement, which will be filed with the Securities and Exchange
Commission in connection with the solicitation of proxies for the Company's
Annual Meeting of Stockholders to be held on May 15, 1997 (the "Proxy
Statement"), and is incorporated herein by reference.
The information required by this item concerning compliance with Section 16(a)
of the Exchange Act is presented under the caption entitled "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement,
and is incorporated herein by this reference.
Item 11. Executive Compensation and Other Information
The information required by this item is incorporated herein by reference to the
information presented under the caption entitled "Executive Compensation and
Other Information" of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference to the
information presented under the caption entitled "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to the
information presented under the caption entitled "Certain Transactions" of the
Proxy Statement.
22
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
Form 8-K
(a)(2) Index to Consolidated Financial Statements
The consolidated financial statements required by this item are
submitted beginning on page 25 of this Form 10-K.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Report of Independent Accountants................................................. 24
Consolidated Balance Sheets as of December 31, 1996 and 1995...................... 25
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994......................................... 26
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994......................................... 27
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994......................................... 28
Notes to Consolidated Financial Statements........................................ 29
(a)(2) Index to Consolidated Financial Statement Schedule
Report of Independent Accounts.................................................... 45
Schedule II - valuation and Qualifying Accounts Reserves.......................... 29
(a)(3) Index to Exhibits
See Index to Exhibits beginning on page ____.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
fourth quarter of the fiscal year ended December 31, 1996.
(c) Exhibits
The exhibits required by this Item are listed under Item 14(a)(3)
(d) Consolidated Financial Statement Schedule
The consolidated financial statement schedule required by this item is
listed under Item 14(a)(2).
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
FiberMark, Inc.
We have audited the accompanying consolidated balance sheet of FiberMark, Inc.
as of December 31, 1996 and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of
FiberMark, Inc. as of December 31, 1995 and 1994 were audited by other auditors
whose report dated January 26, 1996 expressed an unqualified opinion on those
financial statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FiberMark, Inc. as
of December 31, 1996, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
January 31, 1997
Vt. Reg. No. 92-0000241
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FiberMark, Inc.
We have audited the consolidated balance sheets of FiberMark, Inc.
(formerly Specialty Paperboard, Inc.) (the "Company") as of December 31, 1995
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basi, 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 resonable basis for our opinion.
In our opinion, the consolidated Financial statements referred to above
present fairly, in all materail respects, the consolidate financial position
of FiberMark, Inc. (formerly Specialty Paperboard, Inc.) at December 31, 1995
and the consolidated results of its operations and cash flows for each of the
two years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 26, 1996
<PAGE>
FIBERMARK, INC.
Consolidated Balance Sheets
December 31, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash $ 14,342 $ 1,518
Accounts receivable, net of allowances of $333
in 1996 and $253 in 1995 20,847 9,406
Cogen receivable (note 3) 1,785 1,680
Inventories (note 4) 29,293 16,856
Other 1,693 2,948
Deferred income taxes (note 9) 2,090 162
------------- -------------
Total current assets 70,050 32,570
Long-term Cogen receivable (note 3) 0 1,832
Property, plant and equipment, net (note 5) 89,696 33,551
Goodwill, net 46,950 500
Other intangible assets, net 5,642 2,199
Deferred income taxes (note 9) 0 3,966
------------- -------------
Total assets (note 6) $ 212,338 $ 74,618
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 6) 0 1,688
Accounts payable 15,085 7,702
Accrued liabilities 25,047 5,546
------------- -------------
Total current liabilities 40,132 14,936
------------- -------------
Long-term debt, less current portion (note 6) 100,000 4,625
Deferred gain (note 7) 12,603 14,322
Deferred income taxes (note 9) 11,510 0
------------- -------------
Total long-term liabilities 124,113 18,947
------------- -------------
Total liabilities 164,245 33,883
------------- -------------
Commitments and contingencies (note 18) Stockholders' equity (notes 8 and 17):
Preferred stock - par value $.001 per share;
2,000,000 shares authorized and none issued 0 0
Common stock, par value $.001 per share;
20,000,000 shares authorized
4,039,092 shares issued and outstanding in 1996 and
4,033,432 shares issued and outstanding in 1995 4 4
Additional paid-in capital 44,733 44,713
Unearned compensation 0 (121)
Retained earnings (accumulated deficit) 3,356 (3,861)
------------- --------------
Total stockholders' equity 48,093 40,735
------------- -------------
Total liabilities and stockholders' equity $ 212,338 $ 74,618
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
FIBERMARK, INC.
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 124,771 $ 117,516 $ 105,416
Cost of sales 101,981 100,106 88,138
--------------- ------------- -------------
Gross profit 22,790 17,410 17,278
Selling, general and administrative expenses 9,908 8,397 8,584
--------------- ------------- -------------
Income from operations 12,882 9,013 8,694
--------------- ------------- -------------
Other (income) expense, net (1,030) (1,198) (658)
Loss on sale of assets (note 12) 0 8,302 0
Cogeneration income (note 3) (97) (6,512) 0
Interest expense 1,798 892 1,356
--------------- ------------- -------------
Income before income taxes and
extraordinary items 12,211 7,529 7,996
Income tax (benefit) expense (note 9) 4,697 (424) 2,768
--------------- -------------- -------------
Income before extraordinary items 7,514 7,953 5,228
Extraordinary items:
Loss on early extinguishment of debt
(net of income tax benefit of $198 in
1996 and $99 in 1994) (note 6) (297) 0 (149)
---------------- ------------- --------------
Net income $ 7,217 $ 7,953 $ 5,079
=============== ============= =============
Earnings per common share:
Income before extraordinary items $ 1.86 $ 1.97 $ 1.30
Extraordinary items (0.07) 0.00 (0.04)
------------ ----------- ----------
Net income $ 1.79 $ 1.97 $ 1.26
============== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
FIBERMARK, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
Total
Additional Accumulated Stockholders'
Common Stock Paid-In Unearned Earnings Equity
Shares Amount Capital Compensation (Deficit) (Deficit)
------ ------ ------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,018,964 $ 4 $ 44,641 $ (362) $ (16,893) $ 27,390
Exercise of stock options 14,468 0 72 0 0 72
Amortization of unearned compensation 0 0 0 121 0 121
Net income 0 0 0 0 5,079 5,079
---------- ------- ------------ --------- ------------ -----------
Balance at December 31, 1994 4,033,432 4 44,713 (241) (11,814) 32,662
Amortization of unearned compensation 0 0 0 120 0 120
Net income 0 0 0 0 7,953 7,953
---------- ------- ------------ --------- ------------ -----------
Balance at December 31, 1995 4,033,432 4 44,713 (121) (3,861) 40,735
Exercise of stock options 5,660 0 20 0 0 20
Amortization of unearned compensation 0 0 0 121 0 121
Net income 0 0 0 0 7,217 7,217
---------- ------- ------------ --------- ------------ -----------
Balance at December 31, 1996 4,039,092 $ 4 $ 44,733 $ 0 $ 3,356 $ 48,093
---------- ------- ------------ --------- ------------ -----------
---------- ------- ------------ --------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
FIBERMARK, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,217 $ 7,953 $ 5,079
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,651 3,342 4,006
Amortization of deferred gain (1,719) (1,718) (1,146)
Write off of deferred debt costs and other deferred charges 495 27 248
Amortization of unearned compensation 121 120 121
Loss on sale of assets 0 8,302 0
Gain on sale of property, plant and equipment 0 (8) 0
Cogeneration income (97) (6,512) 0
Changes in operating assets and liabilities:
Accounts receivable 1,475 1,821 (1,833)
Inventories (1,431) (301) (3,192)
Other 1,022 1,983 (2,812)
Accounts payable 357 (3,262) 3,907
Accrued liabilities 3,577 96 651
Deferred taxes 2,406 (3,724) (862)
--------------- -------------- --------------
Net cash provided by operating activities 17,074 8,119 4,167
--------------- ------------- -------------
Cash flows used for investing activities:
Cogeneration receipt 2,000 3,000 0
Cogeneration expense paid 0 0 (27)
Additions to property, plant and equipment (8,457) (4,865) (1,603)
Kobayashi payments 0 (5,000) 0
Additions to organization costs 0 (741) 0
Net proceeds from sale of property, plant and equipment 0 17 0
Acquisition of Endura Products Division 0 0 (27,400)
Net proceeds from sale of assets 0 12,933 0
Expenses paid in connection with sale of assets 0 (1,744) 0
Payments for businesses acquired (87,000) 0 0
---------------- ------------- -------------
Net cash provided by (used in) investing activities (93,457) 3,600 (29,030)
---------------- ------------- --------------
Cash flows from financing activities:
Proceeds from sale-leaseback agreement 0 5,000 25,000
Exercise of stock options 20 0 72
Increase in revolving credit line 64,159 133,466 97,861
Payments on revolving credit line (64,159) (140,759) (97,522)
Repayment of senior term debt (6,313) (9,275) (15,038)
Borrowing of senior term debt 0 0 17,000
Refinancing expenses paid 0 0 (1,581)
Proceeds from issuance of Series B Senior Notes 100,000 0 0
Debt issue costs (4,500) 0 0
---------------- ------------- -------------
Net cash provided by (used in) financing activities 89,207 (11,568) 25,792
--------------- -------------- -------------
Net increase in cash 12,824 151 929
Cash at beginning of year 1,518 1,367 438
--------------- ------------- -------------
Cash at end of year $ 14,342 $ 1,518 $ 1,367
=============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Description of Business
Specialty Paperboard, Inc. changed its name to FiberMark, Inc.
("FiberMark"). FiberMark operates in a single segment as a manufacturer
and converter of specialty fiber-based products. The Company's market
focus is in four core product areas: office products, technical
specialties, durable specialties and filter products. FiberMark is
headquartered in Brattleboro, Vermont and operates ten paper mills and
converting facilities located in the eastern and midwestern regions of the
United States.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include FiberMark, Inc. and its
wholly owned subsidiaries, Endura Products Division ("Endura")
beginning July 1994 and Arcon Holdings Corporation ("Arcon") and CPG
Investors Inc. ("CPG") beginning November 1996. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or
less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the average cost method at FiberMark and Endura and
the first-in, first-out (FIFO) method at Arcon and CPG.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation for
financial reporting purposes is provided using the straight-line
method based upon the useful lives of the assets, generally estimated
at 3-40 years. When assets are sold or retired, the cost and
accumulated depreciation are removed from the accounts and any gain or
loss is included in income. Improvements are capitalized and included
in property, plant and equipment while expenditures for maintenance
and repairs are charged to expense. Leasehold improvements are
amortized over the shorter of the life of the improvement or the lease
term.
Other Intangible Assets and Goodwill
Intangible assets include organization and debt issue costs and
goodwill. Organization costs of $593,801 and $725,754, net of
accumulated amortization of $310,168 and $178,213 as of December 31,
1996 and 1995, respectively, arose in conjunction with the acquisition
of the Endura Products Division and are amortized on a straight-line
basis over seven years. Debt issue costs of $4,500,000, net of
accumulated amortization of $33,000 as of December 31, 1996 are
related to the issuance of the Series B Senior Notes and are amortized
using the interest method over the life of those notes.
29
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
Other Intangible Assets and Goodwill, continued
Goodwill of $46,950,000 and $500,000, net of accumulated amortization
of $244,000 and $26,000 as of December 31, 1996 and 1995,
respectively, represents the cost in excess of net assets of acquired
companies and is amortized on a straight-line basis over thirty years.
Amortization of intangibles, including goodwill, amounted to $812,000,
$576,000, and $712,000 as of December 31, 1996, 1995 and 1994,
respectively. The Company periodically evaluates the recoverability of
intangibles resulting from business acquisitions and measures the
amount of impairment, if any, by assessing current and future levels
of income and cash flows as well as other factors, such as business
trends and prospects and market and economic conditions.
Deferred Gain
The deferred gain incurred in connection with the sale-leaseback
transaction is being amortized on a straight-line basis over the life
of the lease (see note 7).
Research and Development
The Company expenses research and development costs as incurred. The
costs amounted to $1.2 million, $1.0 million, and $1.1 million for the
years ended December 31, 1996, 1995, and 1994, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require companies
to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
Net Earnings Per Share
The net earnings per share is computed by dividing earnings available
for common shares by the weighted average number of common shares
outstanding during the year. Common stock equivalents are not included
in this calculation as their inclusion dilutes the computation by less
than 3%.
30
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of the Statement did
not have a material impact on the Company's financial position,
results of operations, or liquidity.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
(3) Cogeneration Project
In 1993, the Company entered into agreements with Kamine/Besicorp Beaver
Falls L.P. ("Kamine") pursuant to which the Company's Latex Fiber Products
Division would host a gas-fired, 79-megawatt combined-cycle cogeneration
facility developed by Kamine in Beaver Falls, New York. Construction of
the facility has been completed. The Company received $4.4 million in cash
in 1993. The Company has a firm contract with Kamine to receive a series
of cash payments totaling $7.0 million between May 1995 and May 1997. The
present value of these cash payments, in the amount of $6.5 million, was
recorded as income in the first quarter of 1995. Cash payments of $2
million and $3 million were received in May 1996 and 1995, respectively.
(4) Inventories
Inventories consist of the following at December 31, 1996 and 1995 ($000):
1996 1995
---- ----
Raw materials $ 11,356 $ 5,248
Work in process 6,667 5,788
Finished goods 8,783 4,937
Stores inventory 1,568 636
Operating supplies 919 247
------------- ----------
Total inventories $ 29,293 $ 16,856
------------- ----------
------------- ----------
31
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31,
1996 and 1995 ($000):
1996 1995
---- ----
Land $ 6,816 $ 1,694
Buildings and improvements 16,666 9,245
Machinery and equipment 65,995 28,208
Construction in progress 11,234 2,620
----------- ----------
100,711 41,767
Less accumulated depreciation
and amortization (11,015) (8,216)
----------- ----------
Net property, plant and equipment $ 89,696 $ 33,551
----------- ----------
----------- ----------
Depreciation expense was $2,839,000, $2,766,000 and $3,294,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
(6) Debt
The Company's long-term debt is summarized as follows at December 31, 1996
and 1995 ($000):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Senior term debt from the CIT Group, Inc. ("CIT"), interest at prime
plus 1.25% or LIBOR plus 3.0%, (9.0% at December 31, 1995),
secured by all tangible and intangible assets of the Company,
due from 1996-2000 $ 0 $ 6,313
Series B senior notes - interest at 9-3/8%, interest payable
semi-annually in arrears on April 15 and
October 15, unsecured, due October 15, 2006 100,000 0
------------- -------------
100,000 6,313
Less current portion 0 1,688
------------- -------------
Long-term debt, excluding current portion $ 100,000 $ 4,625
============= ============
</TABLE>
The Series B Senior notes are redeemable at the Company's option in whole
or in part, on or after October 15, 2001 at redemption prices ranging from
100% to 104.688% of face value. Up to 35% of the notes are redeemable at
the Company's option on or prior to October 15, 1999 using the net
proceeds of a public equity offering at a redemption price equal to
109.375% of the principal amount plus accrued and unpaid interest thereon
subject to certain other conditions as described in the agreement.
In conjunction with the issuance of the Series B Senior Notes, (see note
11), the Company repaid the senior term debt from CIT then outstanding. As
a result, the Company expensed $297,000 of deferred financing costs, net
of income tax expense of $198,000. The loss has been reflected in the
consolidated statements of income as an extraordinary item.
32
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
Approximately, $1,796,807, $1,362,000 and $1,060,000 of interest was paid
during the years ended December 31, 1996, 1995 and 1994, respectively.
The Company has $15,000,000 in available funds through a revolving credit
line with the CIT Group, Inc., at December 31, 1996 and 1995. The
revolving credit line is subject to a commitment fee payable at the rate
of 1/2 of 1% per annum on the daily average unused portion of this line.
This fee is payable on a quarterly basis. In addition, the Company is
required to pay an annual Collateral Management Fee of $35,000 in
connection with periodic examinations, analyzing and evaluating the
collateral.
In April 1994, the Company expensed $248,000 of deferred debt financing
costs, upon early retirement of the Senior term debt. This amount has been
treated as an extraordinary item in the consolidated statement of income
for the year ended December 31, 1994.
(7) Leases
Deferred Gain and Sale-Leaseback
In April 1994, FiberMark entered into a sale-leaseback agreement with the
CIT Group, Inc. ("CIT"). FiberMark sold CIT $7,813,000 in fixed assets for
a purchase price of $25,000,000. As a result FiberMark recorded a deferred
gain of $17,187,000 which is amortized on a straight-line over the life of
the ten year lease. In 1996, 1995 and 1994 the Company amortized
$1,719,000, $1,718,000 and $1,146,000, respectively, of the deferred gain
into income. At December 31, 1996, accumulated amortization of deferred
gain totaled $4,583,000.
In connection with the sale-leaseback transaction, CIT leased back the
fixed assets to FiberMark utilizing a ten-year operating lease. The lease
requires quarterly payments of $843,000 for the first five years and
quarterly payments of $690,000 for the remaining five years of the lease.
Rental expense was $4,426,189, $3,066,585 and $2,044,930 for the years
ending December 31, 1996, 1995 and 1994, respectively.
In December 1995, FiberMark amended the sale-leaseback agreement whereby
FiberMark sold a newly constructed wet end machine ("Kobayashi") for $10
million. No gain or loss was recorded on the transaction. FiberMark
received $5.0 million of the purchase price from CIT in December 1995, the
remaining $5.0 million was placed in escrow and paid during 1996 when all
specifications were met. CIT leased back the Kobayashi machine to
FiberMark using the remaining 8.5 years of the operating lease discussed
above. The amended lease required additional payments including a first
quarter payment of $113,000 and quarterly payments of $339,901 for the
next 33 quarters.
Other Leases
The Company assumed obligations under operating leases for certain
machinery, equipment and facilities purchased from CPG on October 31,
1996. Rental expense was $150,000 for the two months ended December 31,
1996. As of December 31, 1996, obligations to make future minimum lease
payments were as follows:
Payments to be made in the years ending December 31 ($000):
1997 $ 990
1998 735
1999 700
2000 500
2001 300
Thereafter 1,020
--------
$ 4,245
========
33
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(8) Preferred Stock
At December 31, 1996 and 1995, the Company has 2,000,000 shares of
preferred stock authorized with none issued. The Company, without
stockholder approval, can issue preferred stock with voting, conversion,
and other rights.
(9) Income Taxes
The components of the provision for income taxes before extraordinary
items for the years ended December 31, 1996, 1995 and 1994 are as follows
($000):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 2,548 $ 2,557 2,742
State 1,031 743 890
-------------- ------------- -------------
3,638 3,300 3,632
Deferred 1,059 (3,724) (864)
-------------- -------------- --------------
Provision (benefit) for income taxes $ 4,697 $ (424) $ 2,768
============== ============== =============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996
and 1995 are presented below ($000):
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------
Deferred Tax Deferred Tax
Assets Liabilities
---------- ------------
<S> <C> <C>
Accounts receivable $ 308 $ 0
Inventory 758 0
Property, plant and equipment 0 17,684
Payroll related accruals 1,672 0
Intangible assets 282 0
Miscellaneous reserves 808 0
Deferred gain 5,041 0
Cogeneration income 0 605
------------- -------------
$ 8,869 $ 18,289
============= =============
</TABLE>
34
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(9) Income Taxes, continued
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------
Deferred Tax Deferred Tax
Assets Liabilities
------- ------------
<S> <C> <C>
Inventory $ 214 $ 0
Depreciation 0 1,180
Vacation accrual 306 0
Reserves 234 0
Organization costs 0 185
Miscellaneous 80 0
Net operating loss carryforwards 335 0
Deferred gain 5,729 0
Cogeneration income 0 1,405
------------- -------------
$ 6,898 $ 2,770
============= =============
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets
if, based on the weight of available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized. For the
year ended December 31, 1995, the Company reduced the valuation allowance
to $0. Although realization is not assured, management believes it is more
likely than not that the deferred tax assets will be realized through
future taxable earnings.
A reconciliation of income taxes from continuing operations at the United
States statutory rate to the effective rate for the years ended December
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. federal rate 34.0% 34.0% 34.0%
Decrease in valuation allowance 0.0% (49.9%) (7.2%)
State taxes net of federal benefit 5.8% 5.9% 6.9%
Other (1.4%) 4.4% 0.9%
--------- ------------ -------
Effective tax rate 38.4% (5.6%) 34.6%
========= ============= =====
</TABLE>
Income taxes paid during 1996, 1995 and 1994 were $3,698,000, $3,130,000
and $1,728,000, respectively.
(10) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
the Fair Value of Financial Instruments", requires disclosure of
information about the fair value of certain financial instruments for
which it is practicable to estimate that value. For purposes of the
following disclosure the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction
between willing parties other than in a forced sale or liquidation.
Management has determined that the carrying values of its financial assets
and liabilities approximate fair value at December 31, 1996.
35
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(11) Acquisitions
1996 Acquisitions
The Company purchased all of the outstanding stock of Arcon Holdings
("Arcon") as of October 31, 1996. Concurrently with the transfer of the
purchase price to the stockholders of Arcon, the stockholders agreed to
repay all amounts owed under Arcon's revolver and term loans and
repurchase and cancel warrants then outstanding.
The Company also purchased all of the issued and outstanding common stock
of CPG Investors Inc. ("CPG") on October 31, 1996. Concurrently with the
transfer of the purchase price to the stockholders of CPG, the
stockholders agreed to repay all amounts owed under CPG's revolving and
term loans.
The aggregate purchase price of CPG and Arcon was approximately
$91,500,000 which includes costs of the acquisitions. The acquisitions
were financed through the issuance of senior notes in the amount
$100,000,000 and were accounted for using the purchase method.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based upon their respective fair values. This
treatment resulted in approximately $46,668,000 of cost in excess of net
assets acquired. Such excess, or goodwill, is being amortized on a
straight-line basis over thirty years. The 1996 consolidated results
include Arcon and CPG's results of operations from the date of the
acquisitions through the end of the year.
The following summarized unaudited proforma results of operations for the
years ended December 31, 1996 and 1995, assumes the Arcon and CPG
acquisitions occurred as of the beginning of the respective periods
(dollars in thousands except per share amounts):
Unaudited
-------------------------
1996 1995
---- ----
Net sales $ 227,822 $ 239,464
Net income 12,757 10,822
Net income per common share 3.16 2.68
The unaudited pro forma results are not necessarily indicative of actual
results of operations that would have occurred had the acquisitions been
consummated as of the above dates, nor are they necessarily indicative of
future operating results.
1994 Acquisition
On June 30, 1994, the Company acquired through its wholly owned
subsidiaries, substantially all of the assets and liabilities of the
Endura Products Division of W.R. Grace ("Endura"). Endura is engaged in
the manufacture, conversion, saturation and coating of specialty papers at
facilities located in Quakertown, Pennsylvania and Ownesboro, Kentucky.
The results of operations for Endura have been included in the
consolidated results of operation since the acquisition date. Under the
terms of the purchase agreement, the total purchase price was
approximately $26,400,000 plus $1,000,000 of acquisition expenses paid. A
portion of the purchase price was financed by CIT pursuant to a
$17,000,000 term loan. The balance of the purchase price was paid using
$3,000,000 provided by CIT to the Company under a revolving line of credit
and using cash reserves of the Company.
36
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(11) Acquisitions, continued
1994 Acquisition, continued
The acquisition was accounted for using the purchase method. Accordingly,
the purchase price was allocated to the net assets acquired based on the
fair values resulting in goodwill of approximately $526,000 which is being
amortized over 30 years.
The following summarized unaudited pro forma results of operations for the
year ended December 31, 1994, assumes the Endura acquisition occurred as
of the beginning of the respective period (dollars in thousands except per
share amounts):
Unaudited
---------
Net sales $ 124,656
Net income 5,510
Net income per common share 1.37
The unaudited pro forma results are not necessarily indicative of actual
results of operations that would have occurred had the acquisition been
consummated as of the above dates, nor are they necessarily indicative of
future operating results.
(12) Sale of Assets
On March 22, 1995, the Company sold the assets of its Lewis Mill and the
Company's gasket business to Armstrong World Industries Inc. ("Armstrong")
for $12,933,000 (the "Sale"). As part of the sale, inventory in the amount
of $1,080,000 was sold at book value to Armstrong. The net book value of
the assets sold was $19,311,000 and total expenses relating to sale are
estimated at $1,924,000. At December 31, 1995, $1,744,000 of these
expenses had been paid; the remaining expenses were accrued in 1995 and
paid in 1996. This transaction resulted in a loss of $8,302,000 before
taxes. Approximately $160,000 of the purchase price was held by Armstrong
pending the receipt of a New York State tax clearance certificate. This
payment was received by the Company in May 1995. The Lewis mill was part
of a two-mill division located at the Company's Latex Fiber Products
Division in Beaver Falls, New York.
(13) Related Party Transactions
The Company paid a management fee of $250,000 for the years ended December
31, 1996, 1995 and 1994, to an equity owner, MDC Management Company
("MDC"). The Company has a management agreement with MDC which calls for
an annual fee of $250,000 through 1996. In 1996 the Company also paid MDC
$250,000 in conjunction with the CPG and Arcon acquisitions.
37
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(14) Retirement Plans
The Company has a defined contribution plan (salaried and hourly) and a
defined benefit (hourly) retirement plan for FiberMark employees
(excluding Arcon and CPG employees).
Defined Contribution Plan
The defined contribution plan is a 401(k) ERISA and IRS-qualified plan
covering substantially all employees that permits employee salary
deferrals up to 16% of salary with the Company matching 50% of the first
6%. Defined contribution expense for the Company was $229,000, $193,000,
and $163,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Defined Benefit Plan
The defined benefit plan is an ERISA and IRS-qualified plan based upon the
negotiated benefit and years of service in the collective bargaining
agreement between the Unions and the Company. Plan assets are invested in
an insurance company general account. The Company annually contributes at
least the minimum amount as required by ERISA.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
($000)
1996 1995
<S> <C> <C>
Actuarial present value of accumulated and projected benefit obligations:
Vested $ (1,411) $ (1,127)
Nonvested (134) (219)
-------------- --------------
(1,545) (1,346)
Plan assets at fair value 1,360 869
------------- -------------
Projected benefit obligation in excess of plan assets (185) (477)
Unrecognized net loss 0 49
Unrecognized transition obligation 21 24
Unrecognized prior service costs 90 96
Adjustment required to recognize minimum liability (111) (169)
------------ ---------
Accrued pension cost $ (185) $ (477)
============== ==============
Total pension expense includes the following components:
Years ended December 31
-----------------------------
($000)
1996 1995
Service cost - benefits earned during the period $ 126 $ 111
Interest cost on projected benefit obligation 101 86
Actual return on plan assets (133) (103)
Net amortization and deferral 69 40
------------- -------------
Net periodic pension expense $ 163 $ 134
============= =============
</TABLE>
38
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(14) Retirement Plans, continued
Pension expense was approximately $116,000 for the year ended December 31,
1994. The benefit obligations as of December 31, 1996 and 1995 were
calculated using an average discount rate of 7.5% and 7.0%, respectively.
A long-term rate of return of 9% was used to calculate the 1996 and 1995
net periodic pension expense.
CPG employees are covered by a noncontributory defined benefit plan. This
is an ERISA and IRS-qualified plan which has benefits based on stated
amounts for each year of credited service. The plan's assets consist
principally of equity securities, government and corporate debt securities
and other fixed income obligations.
The following table presents the funded status of the Company's pension
plan and the net pension liability included in the consolidated balance
sheet (in thousands):
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (6,827)
Nonvested benefits (517)
--------------
Projected benefit obligation (7,344)
Fair value of plan assets 5,651
Funded status (1,693)
Unrecognized net gain 102
Additional minimum liability (102)
Net pension liability $ (1,693)
==============
Net periodic pension expense for the two months ended December 31, 1996
included the following components (in thousands):
Service cost $ 42
Interest cost on projected benefit obligation 83
Actual return on plan assets (80)
Net amortization and deferral (7)
--------------
Net periodic pension expense $ 38
=============
</TABLE>
The benefit obligation as of December 31, 1996 was calculated using a
discount rate of 7.5%. A long-term rate of return of 9% was used to
calculate the net periodic pension expense.
39
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(15) Postretirement Benefits Other Than Pensions
CPG has benefit plans which provide certain health care and life insurance
benefits to eligible employees when they retire. Salaried employees
generally become eligible for retiree medical benefits after reaching age
62 and with 15 years of service or after reaching age 65. The medical plan
for salaried employees provides for an allowance, which must be used
towards the purchase of a Medicare supplemental insurance policy, based on
a retiree's length of service. The allowance may be adjusted to reflect
annual changes in the Consumer Price Index ("CPI"); however, once the
initial allowance has doubled, there will be no further increases.
Salaried employees hired after January 1, 1993 are not eligible to
participate in this retiree medical plan. Upon satisfying certain
eligibility requirements, approximately 45% of the hourly employees are
eligible upon retirement to receive a medical benefit, which is an
allowance to be used toward the purchase of a Medicare supplemental
insurance policy and cannot exceed a specified annual amount. The
postretirement benefit obligations related to employees who retired prior
to the Acquisition were not assumed by the Company and remain the
responsibility of prior owners.
Net periodic postretirement benefits cost for the two months ended
December 31, 1996 included the following components (in thousands):
<TABLE>
<S> <C>
Service cost $ 14
Interest cost on accumulated postretirement benefit obligation 23
Net amortizations and deferral (1)
--------------
Postretirement benefits cost $ 36
=============
</TABLE>
The following table sets forth the accumulated postretirement benefit
obligation included in other liabilities on the Company's consolidated
balance sheet (in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Fully eligible participants $ (181)
Retirees (208)
Other active plan participants (938)
--------------
Accumulated postretirement benefit obligation (1,327)
Unrecognized net loss 74
-------------
Accrued postretirement benefit liability $ (1,253)
==============
</TABLE>
The assumed health care cost trend rate used in measuring future benefit
costs was 9%, gradually declining to 6% by 1999 and remaining at that
level thereafter. A 1% increase in this annual trend rate would increase
the accumulated postretirement benefit obligation at December 31, 1996 by
$81,368 and the postretirement benefits expense for the two months ended
December 31, 1996 by less than $11,000. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 7.5%.
The assumed annual increase in the CPI was 3%.
40
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(16) Significant Business Concentrations
Approximately 41%, 47%, and 47% of the Company's total 1996, 1995 and 1994
sales, respectively, were concentrated in five customers. In 1996, 1995
and 1994 revenue from a single customer was $15,425,000 (12% of total
sales), $18,933,000 (16% of total sales), and $18,905,000 (18% of total
sales), respectively. Sales to a second customer accounted for 10%, 10%,
and 11% of total sales in 1996, 1995 and 1994, respectively.
Approximately 12%, 13%, and 11% of the Company's products were sold to
foreign customers (excluding Canada) in 1996, 1995 and 1994, respectively.
The principal international markets served by the Company include
Asia/Pacific Rim, Latin America, Mexico and Europe.
(17) Stock Option and Bonus Plans
The Company has three stock option plans which provide for grants of
nonqualified or incentive stock options. The 1992 Amended and Restated
Stock Option Plan ("1992 Plan") is fully granted at 200,948 shares of
common stock to management of the Company. Options granted under the 1992
Plan typically vest at a rate of 20% per year and are exercisable for a
period of ten years from the grant date.
The 1994 Stock Option Plan ("1994 Plan") is fully granted at 200,000
shares of common stock to selected officers and employees of the Company.
Options granted under the Plan vest at a rate of 20% per year commencing
on the one year anniversary of the grant date and 1.66% at the end of each
month thereafter. The options are exercisable for a period of ten years
from the grant date.
The 1994 Director Stock Option Plan ("Directors' Plan") authorizes the
grant of up to 150,000 shares of common stock to directors who are not
otherwise full-time employees of the Company. The Plan was amended in 1996
to increase the authorized shares from 50,000 to 150,000 shares and to
allow for an accelerated vesting schedule not to exceed five years.
Options will vest and become exercisable based upon target levels set for
the fair market value of the common stock or in the event of a merger or
asset sale. The options are exercisable for a period of eight years from
the date of grant.
41
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(17) Stock Option and Bonus Plans, continued
The following table sets forth the stock option transactions for the three
years ended December 31, 1996:
<TABLE>
<CAPTION>
1992 Plan 1994 Plan Directors' Plan
------------------------- ------------------------ ---------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, December 31, 1993 200,948 $ 5.00
Granted 40,000 $ 9.50 35,000 $ 9.00
Exercised (14,468) 5.00 0 0
------------ ----------- ------------
Outstanding, December 31, 1994 186,480 5.00 40,000 9.50 35,000 9.00
Granted 44,100 11.75 0 0.00
Forfeited (24,918) 5.00 (5,400) 9.50 0 0.00
------------ ----------- ------------
Outstanding, December 31, 1995 161,562 5.00 78,700 10.76 35,000 9.00
Granted 24,918 20.25 139,150 17.34 90,000 14.12
Exercised (4,310) 5.00 (1,350) 9.50
Forfeited 0 0.00 (17,850) 10.85 (3,000) 9.00
------------ ------ --------- ----- ------------ ------
Outstanding, December 31, 1996 182,170 $ 7.09 198,650 $15.40 122,000 $ 12.78
============ ======= =========== ====== ============ =======
Exercisable, December 31, 1996 157,252 $ 5.00 22,646 $ 10.44 62,000 $ 12.47
Weighted average remaining
contractual life 5.7 years 9.3 years 8.7 years
</TABLE>
The Corporation has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation".
Accordingly, no compensation cost has been recognized for stock options
granted under the plans during 1996 and 1995 as the options were all
granted at exercise prices which equaled the market value at the date of
the grant. Compensation for the options granted prior to December 31, 1992
at $5.00 per share was measured as of the grant date based upon a fair
market value of $8.00 per share as determined by the Board of Directors
and is being recognized as expense over the vesting period. Had
compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards during 1996 and 1995
consistent with the provisions of SFAS No. 123, the Company's net income
would have been reduced to the proforma amounts indicated below:
1996 1995
---- ----
Net income, as reported $ 7,217 $ 7,953
Net income, pro forma 7,075 7,918
42
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(17) Stock Option and Bonus Plans, continued
1996 1995
---- ----
Earnings per share, as reported $ 1.79 $ 1.97
Earnings per share, pro forma 1.75 1.96
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting periods and compensation cost for options granted prior
to January 1, 1995 is not considered.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: risk-free
interest rate of 6%; dividend yield of $0; expected volatility of 45; and
expected lives of ten (10) years.
Effective January 1, 1994, the Compensation Committee adopted the
Executive Bonus Plan, which provides for bonus payments of a percentage of
base salary based upon achievement by the Company of certain levels of
earnings per share. The Executive Bonus Plan utilizes a sliding scale so
that the percentage of base salary paid as bonus compensation increases as
the earnings per share of the Company increase. The Executive Bonus Plan
is designed to directly align the interests of the executive officers and
the stockholders. Although the Executive Bonus Plan is subject to annual
review by the Committee, the Committee expects it to remain in place for a
five-year term.
(18) Commitments and Contingencies
Environmental Matters
The Company is subject to various federal, state and local environmental
requirements, particularly relating to air and water quality. The Company
and its predecessors have spent substantial sums for pollution control
facilities to comply with existing regulations. While the Company believes
it has made sufficient capital expenditures to maintain compliance with
existing laws and regulations, any failure by the Company to comply with
present and future regulations could subject it to future liability or
require the suspension of operations.
Other Matters
The Company is involved in various legal proceedings in the ordinary
course of business. Management believes that the outcome of these
proceedings will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
43
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
(19) Unaudited Quarterly Summary Information
The following is a summary of unaudited quarterly summary information for
the years ended December 31, 1996 and 1995 ($000 except per share data).
<TABLE>
<CAPTION>
Net Earnings
--------------------------
Net Gross
1996 Quarters Sales Profit Income Per Share
------------- ----- ------ ------ ---------
<S> <C> <C> <C> <C>
First $ 24,859 $ 3,503 $ 1,048 $ 0.26
Second 26,086 5,011 1,816 0.45
Third 26,789 5,115 2,093 0.52
Fourth (1) 47,037 9,161 2,260 0.56
--------- ---------- ------------- ---------
Total $ 124,771 $ 22,790 $ 7,217 $ 1.79
========= ========== ============= =========
1995 Quarters
First (2) $ 35,198 $ 4,837 $ 465 $ 0.12
Second 31,879 4,369 1,572 0.39
Third (3) 24,480 3,750 4,418 1.10
Fourth 25,959 4,454 1,498 0.36
--------- --------- ------------ --------
Total $ 117,516 $ 17,410 $ 7,953 $ 1.97
Total $ 124,771 $ 22,790 $ 7,217 $ 1.79
========= ========== ============= =========
</TABLE>
(1) In the fourth quarter of 1996 the Company acquired Arcon Holdings
Corporation and CPG Investors, Inc. Net income before extraordinary
items for the fourth quarter of 1996 was $2,557,000; per share net
income before extraordinary items was $0.63.
(2) The first quarter of 1995 includes the present value of the
Cogeneration receivable of $6,512,000 booked as other income and a net
book loss of $8,159,000 resulting from the sale of the Lewis mill. An
additional loss of $143,000 was booked in the fourth quarter of 1995.
(3) In the third quarter of 1995, the Company recognized a tax benefit
related to the release of tax valuation allowances.
44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of FiberMark, Inc.:
Under date of January 31, 1997, we reported on the consolidated balance
sheet of FiberMark, Inc. as of December 31, 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended, which are included in the Annual Report on Form 10-K. In connection with
our audit of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedules in item (14(a)(2)
herein. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audit.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARKWICK LLP
Burlington, Vermont
January 31, 1997
45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FiberMark, Inc.
In connection with our audits of the consolidated financial statements of
FiberMark, Inc. (formerly Specialty Paperboard, Inc.) as of December 31, 1995
and 1994 and for each of the two years in the period ended December 31, 1995,
which consolidated financial statements are included in the Annual Report on
Form 10-K, we have also audited the consolidated financial statement schedule
listed in Item 14(a)(2) herein.
In our opinion, this consolidated financial statements schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 26, 1996
<PAGE>
FIBERMARK, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. E Col. F.
------ ------ ------ ------ -------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowances for possible losses
on accounts receivable $253 $173 $93 $333
---- ---- --- ----
Year Ended December 31, 1995
Allowances for possible losses
on accounts receivable $258 $104 $109 $253
---- ---- ---- ----
Year Ended December 31, 1994
Allowances for possible losses
on accounts receivable $171 $100 $13 $258
---- ---- --- ----
</TABLE>
<PAGE>
Item 14(a)(3) Exhibits
Number
2.1(9) Merger Agreement dated as of August 28, 1996
by and among the Registrant (the "Company"),
CPG Acquisition Co. ("Acquisition") and CPG
Investors Inc. ("Investors").
2.2(9) Stock Purchase Agreement dated as of August
28, 1996 by and among the Company, Arcon
Coating Mills, Inc. ("Arcon Mills"), Arcon
Holdings Corp. ("Holdings"), the stock-
holders of Holdings and various other
parties.
2.3(9) Certificate of Merger merging Acquisition
with and into Investors filed with the
Secretary of State of Delaware on October 31, 1996.
3.1(1) Restated Certificate of Incorporation of the
Company as amended through March 25, 1997.
3.2 Certificate of Ownership and Merger of
Fibermark, Inc. with and into Specialty
Paperboard, Inc. filed with the Secretary of
State of Delaware on March 26, 1997.
3.3(1) Restated By-laws.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and
3.3.
4.2(1) Specimen stock certificate.
4.3(9) Indenture dated as of October 15, 1996 (the
"Indenture") among the Company, Acquisition,
Specialty Paperboard/Endura, Inc. ("Endura")
and the Wilmington Trust Company
("Wilmington").
4.4 Intentionally Omitted
4.5(9) Specimen Certificate of 9 3/8% Series A Senior
Note due 2006 (included in Exhibit 4.3
hereof).
-1-
<PAGE>
4.6(9) Specimen Certificate of 93/8% Series B Senior
Note due 2006 (included in Exhibit 4.3
hereof).
4.7(9) Form of Guarantee of Senior Notes issued
pursuant to the Indenture (included in
Exhibit 4.3 hereof).
10.1(5) Lease Agreement dated April 29, 1994,
between CIT Group/Equipment Financing Inc.
("CIT/Financing") and the Company.
10.2(5) Security Agreement dated April 29, 1994,
between CIT/Financing and the Company.
10.3(5) Grant of Security Interest in Patents, Trademarks and
Leases dated April 29, 1994, between the Company and
CIT/Financing.
10.4(5) Bill of Sale dated April 29, 1994, to
CIT/Financing.
10.5(9) Amended and Restated Financing Agreement
dated December 31, 1996, between The CIT
Group/Business Credit, Inc. ("CIT/Credit")
and the Company.
10.6(1)(3) Form of Indemnity Agreement entered into
between the Company and its directors and
executive officers.
10.7(1)(3) The Company's 1992 Amended and Restated
Stock Option Plan and related form of Option
Agreement.
10.08(1) Paper Procurement Agreement, between the
Company and Acco-U.S.A.
10.09(8) Paper Procurement Agreement, between the
Company and Pajco/Holliston, dated February
23, 1995.
10.10(1) Energy Service Agreement (Latex mill), dated
as of November 19, 1992, between Kamine and
the Company.
10.11(1) Restated Ground Lease, dated as of November
19, 1992, between Kamine and the Company.
-2-
<PAGE>
10.12(1) Beaver Falls Cogeneration Buyout Agreement,
dated as of November 20, 1992, between
Kamine, Kamine Beaver Falls Cogen. Co., Inc.
and the Company.
10.13(2) Amendment No. 1 to the Energy Service
Agreement (Latex mill), dated as of May 7,
1993, between Kamine and the Company.
10.14(2) Consent and Agreement (Energy Services
Agreement), dated as of May 7, 1993, by the
Company.
10.15(2) First Amendment of Restated Ground Lease,
dated as of May 7, 1993, between Kamine and
the Company.
10.16(2) Memorandum of Lease, dated as of May 7,
1993, between Kamine and the Company.
10.17(2) Lessor Consent and Estoppel Certificate,
dated as of May 7, 1993, between the Company
and Deutsche Bank AG, New York Branch,
Ansaldo Industria of America, Inc. and SV
Beavers Falls, Inc.
10.18(7)(3) The Company's 1994 Stock Option Plan and
related forms of Option Agreements.
10.19(7)(3) The Company's 1994 Directors Stock Option
Plan and related form of Option Agreement.
10.20(9)(3) Amendment to the Company's 1994 Directors
Stock Option Plan.
10.21(4)(3) The Company's Executive Bonus Plan.
10.22(9) Deed of Lease between James River Paper
Company, Inc. and CPG-Virginia Inc. dated as
of October 31, 1993.
10.23(9) Amended and Restated Agreement of Lease
between Arnold Barsky doing business as A&C
Realty and Arcon Mills Inc. dated June 1,
1988.
10.24(9) Lease Agreement dated November 15, 1995
between IFA Incorporated and Custom Papers
Group Inc. ("Custom Papers Group").
-3-
<PAGE>
10.25(9) Master Lease Agreement dated January 1, 1994
between Meridian Leasing Corp. and Custom
Papers Group
10.26(9) Master Equipment Lease Agreement dated
February 3, 1995 between Siemens Credit
Corp. and CPG Holdings Inc.
11.1 Calculation of per share earnings.
21.1 List of subsidiaries of the Company.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney. Reference is made to the
signature page.
(1) Incorporated by reference to exhibits filed
with the Company's Registration Statement on
Form S-1 (No. 33-47954), which became
effective March 10, 1993.
(2) Incorporated by reference to exhibits filed with the
Company's report on Form 10-Q for the quarter ended
June 30, 1993, filed August 13, 1993.
(3) Indicates management contracts or
compensatory arrangements filed pursuant to
Item 601(b)(10) of Regulation S-K.
(4) Incorporated by reference to exhibits filed with the
Company's report on Form 10-K for the year ended
December 31, 1993 (No.
0-20231).
(5) Incorporated by reference to exhibits filed
with the Company's report on Form 10-Q for
the quarter ended March 31, 1994, filed May
14, 1994.
(6) Incorporated by reference to exhibits filed
with the Company's report on Form 8-K, filed
July 14, 1994.
-4-
<PAGE>
(7) Incorporated by reference to exhibits filed with the
Company's Registration Statement on Form S-8 filed
July 18, 1994.
(8) Incorporated by reference to exhibits filed
with the Company's report on Form 10-K for
the year ended December 31, 1994 (No. 0-
20231).
(9) Incorporated by reference to exhibits filed
with the Company's Registration Statement on
Form S-4 (No. 333-17471) which became
effective on February 11, 1997.
-5-
<PAGE>
SPECIALTY PAPERBOARD, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Brattleboro, County of Windham, State of Vermont, on the 25th day of March,
1996.
SPECIALTY PAPERBOARD, INC.
By /s/ Alex Kwader
Alex Kwader
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alex Kwader and Bruce P. Moore, or any of
them, his or her attorney-in-fact, each with the power of substitution, for him
or her in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connections
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof. This Form 10-K may be
executed in multiple counterparts, each of which shall be an original, but which
shall together constitute but one agreement.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ------- ------
<S> <C> <C>
/s/ Alex Kwader President and Chief Executive Officer March 25, 1997
- --------------------------------------------------
Alex Kwader (Principal Executive Officer)
/s/ Bruce P. Moore Vice President and Chief Financial Officer March 25, 1997
-------------------------------------------------
Bruce P. Moore (Principal Financial and Accounting Officer)
/s/ K. Peter Norrie Chairman of the Board March 25, 1997
-------------------------------------------------
K. Peter Norrie
/s/ George E. McCown Director March 25, 1997
-------------------------------------------------
George E. McCown
/s/ John D. Weil Director March 25, 1997
- --------------------------------------------------
John D. Weil
/s/ Jon H. Miller Director March 25, 1997
-------------------------------------------------
Jon H. Miller
/s/ Brian Kerester Director March 8, 1996
-------------------------------------------------
Brian Kerester
/s/ Fred P. Thompson, Jr. Director March 11, 1996
-------------------------------------------------
Fred P. Thompson, Jr.
/s/ Glenn S. McKenzie Director March 25, 1997
- --------------------------------------------------
Glenn S. McKenzie
</TABLE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
FIBERMARK, INC.
WITH AND INTO
SPECIALTY PAPERBOARD, INC.
1. Annexed hereto is a true and correct copy of resolutions
(the "Resolutions") adopted by the Board of Directors of Specialty Paperboard,
Inc., a Delaware corporation incorporated on June 15, 1989, approving the merger
of Fibermark, Inc., a Delaware corporation incorporated on March 25, 1997, a
wholly owned subsidiary of Specialty Paperboard, Inc., with and into Specialty
Paperboard, Inc. Specialty Paperboard, Inc. will assume all of the obligations
of Fibermark, Inc.
2. The date of adoption of the Resolution was February
20, 1997.
3. The surviving corporation is Specialty Paperboard, Inc.,
which, in accordance with Section 253(b) of the Delaware General Corporation
Law, hereby changes its name to "Fibermark, Inc." as of the effective date of
the merger.
4. The merger shall be effective March 27, 1997.
The undersigned, being the Vice President and Secretary,
respectively, of Specialty Paperboard, Inc., the parent corporation and owner of
all the outstanding stock of Fibermark, Inc., for the purpose of merging
FiberMark, Inc. with and into Specialty Paperboard, Inc., and upon the effective
date of the merger to change the name of Specialty Paperboard, Inc., as the
surviving corporation, to "Fibermark, Inc.", hereby declare and certify that
this is our act and deed and the facts herein stated are true, and we do
hereunto set our hands and seal this 26th day of March, 1997.
SPECIALTY PAPERBOARD, INC.
(SEAL) By:/s/ Bruce Moore
Bruce Moore, Vice President
ATTEST:
/s/ Paul Street
Paul S. Street, Secretary
<PAGE>
STATE OF VERMONT )
) ss:
County of Windham )
Be it remembered that on this 26th day of March, 1997,
personally came before me, a notary public in and for the county and state
aforesaid, Bruce Moore, vice president of a corporation of the State of
Delaware, the corporation described in and which executed the foregoing
certificate, known to me personally to be such, and he the said vice president
as such vice president, duly executed the said certificate before me and
acknowledged the said certificate to be his act and deed and the act and deed of
said corporation and the facts stated therein are true; that the signature of
the said vice president of said corporation to said foregoing certificate is in
the handwriting of the said vice president of said corporation, and that the
seal affixed to said certificate is the common or corporate seal of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of
office the day and year aforesaid.
/s/ Mary Larsen
Notary Public
Mary Larsen
Notary Public, State of Vermont
Commission Expires February 10, 1999
<PAGE>
CERTIFICATE OF CORPORATE RESOLUTION
I, Paul S. Street, do hereby certify that I am the duly
elected and qualified Secretary and custodian of the official records of
Specialty Paperboard, Inc., a corporation organized and existing under the laws
of the State of Delaware.
That the following is a true and correct copy of resolutions
of the Board of Directors adopted on the 20th day of February, 1997 and that
said resolutions have not been amended, altered or repealed and remain in full
force and effect on the date hereof:
RESOLVED, that the corporation form a wholly owned subsidiary
corporation in the State of Delaware by the name of FiberMark,
Inc.
RESOLVED, that the Board of Directors of Specialty Paperboard,
Inc. ("Company"), as the parent of FiberMark, Inc., hereby
authorizes and approves the merger of FiberMark, Inc., a
wholly owned subsidiary of the Company, with and into the
Company, pursuant to the State of Delaware short-term merger
statute, Del. Code Ann., Title 8, Section 253, and that upon
the effective date of the merger Specialty Paperboard Inc.
will assume all of the obligations of FiberMark, Inc., and the
name of Specialty Paperboard, Inc. shall be changed to
FiberMark, Inc., and be it
FURTHER RESOLVED, that the President and the Secretary of the
Company are hereby authorized to execute and file a
Certificate of Ownership and Merger with the appropriate
indication that the name of the surviving corporation will be
FiberMark, Inc., and be it
FURTHER RESOLVED, that the officers of the Company are
directed and empowered to execute and deliver on behalf of the
Company, and over its seal, any and all instruments necessary
to effect this transaction, including, but not limited to, any
required filings with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc.
DATED this 26th day of March, 1997.
/s/ Paul Street
Secretary
</Text
FIBERMARK, INC.
<TABLE>
<CAPTION>
Net Income Per Common Share
for Each of the Three Years ended December 31, 1996
(In Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Shares of common stock outstanding
at beginning of year 4,033,432 4,033,432 4,018,964
- -------------------------------------------------------------------------------------------------
Plus weighted shares of common stock
issued in the period 2,459 - 1,669
- -------------------------------------------------------------------------------------------------
Weighted average shares outstanding
at end of year 4,035,891 4,033,432 4,020,633
- -------------------------------------------------------------------------------------------------
Net income for the period 7,217,000 7,953,000 5,079,000
- -------------------------------------------------------------------------------------------------
Net income per common share 1.79 1.97 1.26
=================================================================================================
</TABLE>
In 1996, 1995 and 1994, Stock Options wee not included in the weighted average
shares because they were less than 3%
Exhibit 21
List of Subsidiaries
Specialty Paperboard/Endura, Inc.
CPG Investors, Inc.
CPG Holdings, Inc.
Custom Papers Group, Inc.
CPG Warren Glen Inc.
Arcon Coating Mills, Inc.
Arcon Holdings Corp.
Specialty Paperboard Japan Co. Ltd.
Specialty Paperboard FSC Inc.
Specialty Paperboard (Hong Kong) Limited
SPI Specialty Paperboard AG
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(No. 33-67088) and Form S-8 (File No. 33-81702) of our report dated January 31,
1997, with respect to the consolidated balance sheet of FiberMark, Inc. as of
December 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended, and all related
schedules, which report appears in the December 31, 1996, annual report on Form
10-K of FiberMark, Inc.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Burlington, Vermont
March 27, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
of FiberMark, Inc. (formerly Specialty Paperboard, Inc.) on Form S-8 (File
No. 33-67088) and Form S-8 (File No. 33-81702 of our report dated January 26,
1996, on our audits of the consolidated financial statements and financial
statement schedule of Specialty Paperboard, Inc. as of December 31, 1995 and
1994, and for the years ended December 31, 1995 and 1994, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT FOR THE 12 MONTHS ENDED DEC 31, 1996 FIBERMARK,
INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000887591
<NAME> FiberMark, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,342
<SECURITIES> 0
<RECEIVABLES> 20,847
<ALLOWANCES> 333
<INVENTORY> 29,293
<CURRENT-ASSETS> 70,050
<PP&E> 100,711
<DEPRECIATION> 11,015
<TOTAL-ASSETS> 212,338
<CURRENT-LIABILITIES> 40,132
<BONDS> 124,113
0
0
<COMMON> 4
<OTHER-SE> 48,089
<TOTAL-LIABILITY-AND-EQUITY> 212,338
<SALES> 124,771
<TOTAL-REVENUES> 124,771
<CGS> 101,981
<TOTAL-COSTS> 111,889
<OTHER-EXPENSES> (1,127)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,789
<INCOME-PRETAX> 12,211
<INCOME-TAX> 4,697
<INCOME-CONTINUING> 7,514
<DISCONTINUED> 0
<EXTRAORDINARY> 297
<CHANGES> 0
<NET-INCOME> 7,217
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
</TABLE>
