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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 EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 0-20231
FIBERMARK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 82-0429330
(State of incorporation) (IRS Employer Identification No.)
161 Wellington Road,
P.O. Box 498
Brattleboro, Vermont 05302
(802) 257-0365
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to be
the best of Registrant's knowledge, in definitive proxy or 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 New York Stock Exchange was $10.00 as of March 23, 1999.
Excluded from this computation were shares held by directors and executive
officers of the Company and their associates as a group. Such exclusion does not
signify that members of this group are "affiliates" of or controlled by the
Company.
The number of shares of Common Stock outstanding was 7,798,822 as of March
23, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's definitive Proxy Statement that will be filed with the
Securities and Exchange Commission in connection with Registrant's 1998 annual
meeting of stockholders to be held on May 19, 1999 is incorporated by reference
into Part III of this Report.
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1
<PAGE>
Item 1. Business
FiberMark is a leading producer of specialty fiber-based materials (paper,
synthetic and composite) with nine production facilities in the United States
and Europe. Formed in 1989 as an independent company, FiberMark subsequently
went public in 1993. The company develops customer-focused solutions for markets
worldwide that value differentiated products and services. Our products,
typically sold to customers who manufacture components or finished products for
industrial and consumer applications, include:
o filter media for automotive, vacuum, water, and industrial filtration
o backing materials for specialty tapes and labels base materials for
o abrasive, graphic arts, and electrical/electronic applications
o cover materials for office, home and school supplies.
With its versatile manufacturing and technical capabilities and strong service
orientation, FiberMark holds leadership positions in its core markets. Using a
wide range of fibers and raw materials, including wood pulp and recovered paper,
glass, rayon and other synthetic fibers, and cotton denim, the company's
manufacturing capabilities comprise papermaking, synthetic web technology
(meltblown), saturating, coating, embossing, laminating and other converting
processes. Our engineered materials are typically sold in roll or sheet form
directly to customers through our internal sales force. In some markets,
products are sold through distributors or paper merchants.
Overview
As a specialty fiber-based materials producer, FiberMark serves a broad range of
markets that stem from four core product families: filter media, durable
specialties (tape and label base materials), technical specialties (base
materials for a multitude of markets) and cover materials for office, home and
school supplies. The company's three operating segments include: FiberMark
Gessner and North American filter products, durable specialties, and technical
and office products. The relationship of FiberMark's operating segments to our
product families is described in Footnote 21, "Segment Information".
An outline of our core product families follows:
- - --------------------------------------------------------------------------------
Filter Media
- - --------------------------------------------------------------------------------
Automotive/Heavy Equipment
Liquid (Fuel/Hydraulic/Lube)
Air
Cabin Air
Home
Vacuum (Air)
Water (Liquid)
Industrial
Industrial Fuels
Beverage Processing
Hot Oil Processing (Fast Food)
Pharmaceutical Processing
- - --------------------------------------------------------------------------------
Tape Base and Label Material
- - --------------------------------------------------------------------------------
Tape Substrates/Backing Materials
Medical
Automotive (Painting)
Home Construction (Painting)
Electronics
Stripping Tapes
Edge Binding and Reinforcing Tapes (Home and Office)
Durable Base Materials
Labels - imitation leather and synthetic
Protective Coverings
2
<PAGE>
- - --------------------------------------------------------------------------------
Technical Specialties
Base Materials
- - --------------------------------------------------------------------------------
Electrical/Electronics
Insulating
Printed Circuit Board Base
Fuel Cell Composite
Abrasive
Sandpaper Backing
Communications/Graphic Arts
Book Cover Base
Archival Materials
Security Paper
Printing Papers
Industrial High Performance
Fire Retardant (Automotive/Industrial Filter)
Wet Strength (Industrial Process)
Friction Materials (Automotive)
Absorbent Materials (Medical)
- - --------------------------------------------------------------------------------
Office/School Products
Cover Materials
- - --------------------------------------------------------------------------------
Heavyweight Cover Materials
Binding
Filing
Lightweight Cover Materials
Filing
Presentation
Business Strategy
The company seeks to maximize the return to our shareholders by pursuing the
following elements of our strategy:
o Gain market leadership by excelling at serving existing and new markets
with high value-added opportunities
o Pursue strategic, accretive acquisitions that build on our core
competencies in existing and new markets
o Forge global, mutually beneficial partnerships with our suppliers
and customers, providing catalysts for innovation and increasing our
knowledge of marketplace needs
o Strengthen product and business development to accelerate our
internal growth rates
o Optimize operations to gain an unparalleled competitive advantage in the
markets we serve
o Enhance our technical, manufacturing, and service capabilities,
aligning them with the product and service needs of our markets
o Add value to customers through continuous improvement of
productivity, including consolidation of operations that will
generate improvements in quality, service or cost
o Broaden our raw materials base
o Enhance responsiveness to customer requirements
o Create new market opportunities
o Reduce costs
o Reduce exposure to supply / demand volatility
3
<PAGE>
OVERVIEW OF MAJOR MARKETS AND FIBERMARK PRODUCT FAMILIES
Filter Media
Filter media now comprises the largest product family for FiberMark, due to the
January 1998 acquisition of Steinbeis Gessner GmbH. FiberMark Gessner's filter
business, together with our North American Filter Products business, accounted
for 32% of 1998 sales. The following chart summarizes the filter materials
produced by the company, the markets they serve, and representative customers.
<TABLE>
<CAPTION>
Type of Media End Products/Markets Representative Customers
- - -------------------------------------------------------------------------------
<S> <C> <C>
Automotive & Heavy Duty Engine Filtration:
o Saturated and o Liquid filters Delphi Automotive
unsaturated paper (Fuel, lube, hydraulic Systems Corp.,
that may be oil) Fleetguard Inc.,
reinforced with Division of Cummings
glass, cotton or o Air filters Engine Co., Knecht
synthetic fibers (engine and vehicle Filterwerke GmbH,
passenger cabin) Filterwerke Mann+Hummel
o Synthetic (non-woven GmbH, Purolator
meltblown) Products
o Composite materials
- - -------------------------------------------------------------------------------
o Paper and synthetic o Vacuum cleaner bags Branofilter GmbH,
(non-woven meltblown) (air filtration) Electrolux Filter AB,
The Eureka Co., Home
Care Industries, Inc.
- - --------------------------------------------------------------------------------
o Carbon-activated paper o Filter for residential Omni Filter &
for removal of taste water filtration (drinking Manufacturing, Met-Pro
and odor water, swimming pools, (Keystone Filter
spas) Division)
o Pleated/saturated paper
for particulate
removal
- - --------------------------------------------------------------------------------
o Hot-oil filter bags o Filter products for Food service
and sheets hot-oil filtration in distributors
fast food restaurants
- - -------------------------------------------------------------------------------
</TABLE>
Competitors
The largest single competitor in the filter business is Ahlstrom Filtration,
Inc., a division of A. Ahlstrom Corp.). Additional competitors include
Hollingsworth and Vose Co. and Devon Valley Industries, a division of Barlow
Paper Ltd. In the vacuum filter media market only, Sorg Paper Co., a division
of Wausau Mosinee Paper Corp., is also a significant competitor.
Manufacturing
Filter media is produced at our Feldkirchen / Westerham facility in Germany, and
our Richmond, Virginia and Rochester, Michigan facilities. We manufacture base
materials, including paper, often with combinations of non-wood pulp sources
such as natural and synthetic fibers, synthetic fiber-based materials, and
composite paper and non-woven materials. In addition to manufacturing these base
materials, we have saturating, creping laminating and other finishing
capabilities.
4
<PAGE>
Durable Specialties
Our durable specialties product lines are produced and marketed by our U.S.
Durable Specialties Division and the durable specialties business from FiberMark
Gessner. Sales for these markets accounted for 25% of FiberMark's 1998 business.
The primary product family representing the company's durable specialties are
tape substrates. The company is one of the leading producers of specialty tape
substrates and a broad range of saturated, coated non-woven and paper materials.
The following chart summarizes the key product lines, their corresponding
finished products and markets, and representative customers within this market:
<TABLE>
<CAPTION>
Materials/Products End Products/Markets Representative Customers
- - --------------------------------------------------------------------------------
<S> <C> <C>
o Backing for masking o Masking tape/pressure o ACCO World Corp.
tape and other sensitive tape for: o Avery Dennison Corp.
pressure sensitive o automotive painting o Beiersdorf (Tesa)
tapes (OEM and repair) o Esselte Corp.
o building construction/ o Intertape Polymer
renovation (painting aid) Corp.
o carrier and bandoliering o Sicad
materials use for o Smead
electronics components Manufacturing Co.
manufacturing
o medical/surgical tapes
and bandages
- - --------------------------------------------------------
o Stripping and edge- o Filing products,
binding tape memo pads checkbooks,
o saturated paper
o coated non-woven
synthetic materials
- - --------------------------------------------------------
o Label base and o Labels for seat belts and
protective covering infant car seats; protective
materials (synthetic covers for air bags
material)
- - --------------------------------------------------------------------------------
</TABLE>
Competitors
The company's competitors include a mix of large integrated manufacturers and
smaller independent companies, including Kimberly Clark Corp., Northeast Paper
Converting Company and Southern Label Company, Inc. In some of its niche
markets, the company competes with various small competitors, none of which has
a dominant market position. In this market, manufacturers of alternate materials
must also be considered competitors.
Manufacturing
The base materials for this market are either manufactured in FiberMark
facilities including Bruckmuhl, Germany and Hughesville, NJ, or are purchased
from outside suppliers. Our Quakertown facility is a converting facility,
relying on supply sources from within and outside of FiberMark. For example, a
substantial portion of the substrate used in making the company's edge binding
and reinforcing tapes is
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Tyvek(R), purchased from DuPont and marketed under the FiberMark trade name
SUPER ARCOFLEX(R). Base materials are typically saturated, coated and embossed
within FiberMark facilities, and in some cases by our customers.
Technical Specialties
Technical Specialties represent the most diverse product families and markets
within the company. Its materials are used in communications, including base or
cover materials for electrical/electronics and graphic arts, as well as other
technical specialties such as abrasive backing materials. As a group, these
products and markets represent 26% of FiberMark's 1998 sales revenue.
<TABLE>
<CAPTION>
FiberMark
Materials/Products End Products/Markets Representative Customers
- - --------------------------------------------------------------------------------
<S> <C> <C>
o Abrasive backing o Abrasives for hand and o 3M
material (wet and dry machine sanding o American Banknote
applications) (sandpaper) Corp
- - ------------------------------------------------------- o Eastman Kodak Corp.
o Security paper o Identity cards (Social o Crescent
Security), ticket stock, Cardboard, Co.
stock certificates o Holyoke Card
- - ------------------------------------------------------- o Nielson and
o High pH (acid free) o Matboard for picture Bainbridge
paper and boards; cover mounting/ framing o C. Klingspor
materials for storing, o Polaroid Corp.
presenting information o Archival filing and o Rexam DSI
or materials storage products o True-Vue/Miller
- - ------------------------------------------------------- o Saint-Gobain
o Base material for o Electrical transformers (Carborundum, Norton)
insulating or (insulating material); o Virginia Abrasives
shielding (may be consumer electronics and Corp.
chemically treated, personal computers: printed
thermally upgraded or circuit board substrate and
saturated); cushioning materials used in the
material, carrier, electronic components
bandoliering and base manufacturing process
material for
electronics components
- - -------------------------------------------------------
o Specialty cover o Publishing: hard-and
materials for soft-cover books (diaries,
presenting, storing, planners, reference books)
and preserving
information or o Graphic arts/printing trade
materials. menus, promotional
literature
- - -------------------------------------------------------
</TABLE>
Competitors
The company's competitors in this market group include a mix of large integrated
manufacturers and smaller independent companies, including Arjo Wiggins Appleton
PLC, International Paper Co., Brownville Specialty Paper Products Inc., Crocker
Technical Papers, Inc., and Crown Vantage Inc. In some of its niche markets, the
company competes with various small competitors, none of which has a dominant
market position. In many of these product lines, manufacturers of alternate
materials such as polyethylene or vinyl must also be considered competitors.
6
<PAGE>
Manufacturing
The base materials for this group of markets are typically manufactured in the
four mills in this Technical and Office Products Segment: Fitchburg,
Massachusetts, Warren Glen and Hughesville, New Jersey, and Brattleboro,
Vermont. In Germany, the Bruckmuhl facility also manufacturers some technical
specialties in the abrasive category. Other FiberMark facilities may, at times,
manufacture materials for this market.
Office Products
Office products cover materials are used in communications applications,
primarily for supplies used in the office, home or school. Marketed by our
Technical and Office Products Division, office products materials comprise 17%
of the company's revenue. The major components of this product family/market,
the end products/markets and representative customers are noted below:
<TABLE>
<CAPTION>
FiberMark
Materials/Products End Products/Markets Representative Customers
- - --------------------------------------------------------------------------------
<S> <C> <C>
o Specialty cover o Office and school supplies: o ACCO World Corp
materials for products document/report covers, o Esselte Corp.
that present that presentation folders, data o Smead Manufacturing
present, bind, store binders, ring binders, Co.
or preserve information notebooks, filing
products, diaries and
planners
- - --------------------------------------------------------------------------------
</TABLE>
Competitors
The company's competitors in this market group include a mix of large
integrated manufacturers and smaller independent companies, including:
International Paper Co., Brownville Specialty Paper Products Inc., Crocker
Technical Papers, Inc. and Merrimac Paper Co., Inc. In many of these product
lines, manufacturers of alternate materials such as polyethylene or vinyl are
also competitors.
Manufacturing
The base materials for this group of markets are largely manufactured in
Brattleboro, Vermont, but are also manufactured or processed further by other
facilities with the Technical and Office Products Segment, notably Warren Glen
and Hughesville, New Jersey.
International Sales
With the combination of the German business acquisition and pre-existing
international sales, the company now sells or manufacturers 29% of its business
outside North America. The majority of these sales are in Europe. A detailed
breakdown of sales revenue and property, plant and equipment by geographic
region is found in the final tables of Footnote 21, Segment Information.
7
<PAGE>
Executive Officers
The company 's executive officers are:
<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
Alex Kwader ............................ 56 President and
Chief Executive Officer
Bruce Moore ............................ 51 Vice President and
Chief Financial Officer
Stephen A. Steidle ..................... 54 Vice President and
General Sales Manager
David C. Bernhard ...................... 51 Vice President and General
Manager, Filter Products
David R. Kruft ......................... 58 Vice President and General
Manager, Durable Specialties
David E. Rousse ........................ 46 Vice President and General
Manager, Office Products
Robert F. Yousey ....................... 52 Vice President and General
Manager, Technical Specialties
Dr. Walter M. Haegler .................. 51 Vice President and General
</TABLE>
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 its predecessor, Boise Cascade
("BCC"), a diversified paper products company. He served as Senior Vice
President of the company from March 1990 to August 1991 and as Vice President
from the company's inception in June 1989 until March 1990. From 1970 until June
1989, Mr. Kwader was employed by BCC, in various managerial positions. Mr.
Kwader was General Manager of the Pressboard Products Division from 1986 until
June 1989. From 1980 to 1985, he served as General Manager of the Latex Fiber
Products Division of BCC. Mr. Kwader holds a B.S. in Mechanical Engineering from
the University of Massachusetts and a M.S. from Carnegie Mellon University and
attended the Harvard Business School Executive Program.
Bruce Moore has served as Vice President of the company since its
inception in June 1989 and as Chief Financial Officer since December 1990. From
1980 to 1989, Mr. Moore was employed by BCC in various management positions,
including Controller and General Manager of the Latex Fiber Products Division.
Mr. Moore holds a B.A. in Business Administration from Siena College and
attended the Stanford University Executive Program.
Stephen A. Steidle has served as Vice President and General Sales Manager
for the office products business since February 1994. He assumed international
sales responsibility for the Company in January 1997. He has held sales
management positions with the Company and BCC for more than 15 years and has
total of 29 years of service with the Company and BCC. Mr. Steidle receive a
B.A. in Psychology from the University of Maine and an M.B.A from the University
of Maine.
David C. Bernhard, Vice President and General Manager, Filter Products
Division, joined FiberMark, Inc. in 1995, and previously served as General
Manager for Endura Products. He initially joined the Company as Technology
Development Manager in Brattleboro. He was employed for over 26 years with
Scott Paper Company in Mobile, Alabama in the S.D. Warren subsidiary, and Fort
Edward, New
8
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York and Chester, Pennsylvania in the Consumer Products business. Mr. Bernhard
received his B.S. degree in Pulp and Paper from the College of Forestry at
Syracuse University.
David R. Kruft has served as Vice President and General Manager, Durable
Specialties since 1996 at the time of the Arcon acquisition, where he held the
position of President since 1993. Prior to joining Arcon in 1990, he was
employed for over 20 years by Esselte Pendaflex Corporation. His most recent
role at Esselte was Senior Vice President and Division Head for the Boorum and
Pease office products line with $66 million in sales. Mr. Kruft received his
B.S. in Mechanical Engineering from Hofstra University.
David E. Rousse has served as Vice President and General Manager, Office
Products, since January 1997, and joined FiberMark in 1996 in the role of Vice
President - Marketing and Business Development. He was previously employed by
International Paper in a number of marketing and general management positions,
primarily in their Strathmore Papers fine printing papers unit, with other
assignments in office papers and envelope products. He was selected for a
Fellowship in the President's Executive Exchange Program working in the U.S.
International Trade Commission in Washington, D.C. He began his career with W.R.
Grace & Company in finance, marketing, and sales / sales management roles. Mr.
Rousse received his B.S. in Engineering from Dartmouth College, and an M.B.A
from the Amos Tuck School of Business at Dartmouth.
Robert F. Yousey has served as Vice President and General Manager,
Technical Specialties, since 1996 at the time of the CPG acquisition, where he
held the position of Executive Vice President of Operations for all CPG
manufacturing sites. He joined James River in 1980 and through various
divestitures was employed as General Manager of the Riegel Fitchburg Division of
James River, and also as General Manager of the Fitchburg mill. He started his
career with Latex Fiber Industries and later Boise Cascade in 1969 and worked
for 11 years in significant mill and corporate roles. Mr. Yousey received a B.S.
in Chemical Engineering from the University of Texas. Mr. Yousey resigned from
the company effective March 31, 1999.
Dr. Walter M. Haegler has served as Vice President and General Manager,
FiberMark Gessner Division since the January 1998 acquisition of Steinbeis
Gessner. With Steinbeis Gessner GmbH since 1987, he served as Managing Director
of Gessner from 1990 until 1997, and as plant manager of the Feldkirchen site
from 1987 until 1990. Before joining Gessner, Dr. Haegler was Research and
Development and Application Technology Manager for VP Schickedanz during 1981 to
1987. Dr. Haegler received a Ph.D. and Masters Degree from the University of
Erlangen in inorganic and analytical chemistry.
9
<PAGE>
Item 2. Properties
The following table depicts all of the company's properties as of December
31, 1998.
<TABLE>
<CAPTION>
Owned/ Sq. Land
Facilities Leased Feet Acres
- - ---------- ------ ---- -----
<S> <C> <C> <C>
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 (closed on January 29, 1999) .. Owned 100,000 167
Owensboro, KY (closed on January 14, 1998) ..... Owned 47,000 15
Rochester, MI .................................. Owned 96,000 17
Richmond, VA ................................... Leased 64,000 --
Quakertown, PA ................................. Owned 165,000 7
Bruckmuhl, Germany ............................. Owned 63,715(1) 39
Feldkirchen/Westerham, Germany ................. Owned 60,019(1) 27
</TABLE>
(1) German building sizes noted are in cubic meters, as German records are
reported and maintained in that unit of measure per governmental regulations.
The corporate headquarters is located at the Brattleboro, VT site. The
company owns a production facility in Lowville, NY that it leases to a customer.
Most facilities offer web production capabilities, largely paper, but often with
the inclusion of synthetic or specialty fibers producing composite materials.
Most of our facilities also combine with some level of finishing or converting
capabilities (eg. laminating, coating, saturating, embossing). Our facility
Quakertown, PA, however, is strictly a converting facility, coating and
saturating base material purchased from other FiberMark facilities and outside
sources. Additionally, Feldkirchen/Westerham contains a meltblown unit for
producing synthetic non-woven materials. International sales offices are
maintained in Kowloon, Hong Kong; Tokyo, Japan; and Annecy, France and in
Brattleboro, VT.
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 1998.
Employees
As of December 31, 1998, the company employed a total of 1,322 employees,
of which 449 were salaried and 873 were hourly.
In the U.S., all of our hourly employees are members of either The Paper,
Allied - Industrial, Chemical and Energy Workers International Union (PACE),
formerly the United Paper Workers
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<PAGE>
International Union (UPIU), or the International Brotherhood of Electrical
Workers, with the exception of our Quakertown, PA facility, where hourly
employees are non-union. In Germany, FiberMark Gessner employees are represented
by the Industriegwerkschaft Bergnau, Chemie, Energie (IG BCE), Mining, Chemicals
and Energy Trade Union. A portion of salaried employees (71%) and all of the
hourly employees are union eligible, but are not necessarily members. Membership
is voluntary and information is not disclosed regarding employee membership by
employees or the union. Employees are represented by a local union working
committee.
The table below sets out the expiration dates of the company's labor contracts:
Facility Expiration Date
- - --------------------------------------------------------------------------------
Fitchburg, MA .................................................. April 30, 2003
Warren Glen, NJ (a) ............................................ May 23, 1999
May 25, 1999
Hughesville, NJ (a) ............................................ May 23, 1999
May 25, 1999
Rochester, MI .................................................. June 26, 1999
Richmond, VA ................................................... April 28, 2000
Brattleboro, VT ................................................ August 31, 2000
Bruckmuhl and Feldkirchen/Westerham, Bavaria, Germany (b) ...... June 30, 2001
(a) Workers at Warren Glen, NJ and Hughesville, NJ are subject to two separate
collective bargaining agreements. Negotiations on these contracts and
Rochester's are expected to commence during the second quarter of 1999.
(b) Expiration dates relate to the main contract. Portions within these
contracts have different expiration dates. Contracts are negotiated with
industry representatives and the union, not by the company.
Relations with the union and with some hourly employees in our Fitchburg,
MA facility were strained during the recent contract negotiation, with some
carry over during implementation of the ratified contract. In general, however,
the company believes that it has good relations with its employees and their
unions.
Cogeneration Project
In 1993, the company entered into an agreement with Kamine, pursuant to
which the company's Beaver Falls facility is the host for a gas-fired,
79-megawatt combined-cycle cogeneration facility developed by Kamine at the
company's Beaver Falls mill. Construction of the facility has been completed.
The company received an initial cash payment of $4.4 million in 1993 and a
series of deferred cash payments from Kamine totaling $7.0 million between May
1995 and May 1997. The present value of these deferred cash payments, in the
amount of $6.5 million, was recorded as income in the first quarter 1995. The
payment received in May 1997 was the last payment due under this agreement. The
company continues to own the land upon which the cogeneration plant is
constructed and in such regard has a ground lease contract with Kamine.
In December 1998, Kamine sold the cogeneration plant and assigned the
ground lease contract to the new owner. The company received a $1.5 million
payment from the new owner relative to the transaction. There are no further
payments due under the ground lease contract.
11
<PAGE>
Environmental Regulation and Compliance
The company and its predecessors have made substantial investments in
pollution control facilities to comply with existing environmental laws and
regulations. The company made expenditures for environmental purposes of $3.3
million in 1998, $2.6 million in 1997, and $1.7 million in 1996. 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 even of such
non-performance, the company may incur material liabilities in connection with
such sites, and no assurance can be given that the company will not receive PRP
notices in connection with these or other sites in the future.
In connection with the acquisition of CPG, the former owners of CPG have
agreed to indemnify (subject to certain limitations) the company for certain
identified and potential environmental liabilities arising from the historical
use of the property acquired in the acquisition of CPG or from CPG's conduct
prior to the acquisition of CPG. Management believes that the amount of the
escrow established as security for these and other indemnity obligations of the
former CPG owners will be sufficient to cover environmental liabilities expected
to be incurred in connection with the acquisition of CPG. However, no assurance
can be given that the limited indemnity provided by the former owners of CPG
will be sufficient to cover all material environmental liabilities associated
with the acquisition of CPG.
Based upon its experience to date, the management of the company believes
that the future cost of compliance with existing environmental laws, and
liability for known environmental claims pursuant to such laws, will not have a
material adverse effect on the company's financial condition and results of
operation. However, future events, such as new information, changes in existing
Environmental Laws or their interpretation, and more vigorous enforcement
policies of regulatory authorities, may give rise to additional expenditures or
liabilities that could be material to the company's financial condition and
results of operations.
12
<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 ("Nasdaq") under the symbol SPBI. As of the close
of business on April 8, 1997, the Common Stock ceased trading on Nasdaq and on
April 9, 1997 was listed on the New York Stock Exchange ("NYSE") under the
symbol "FMK". The following table show the high and low sale prices per share of
the Common Stock as reported on the Nasdaq and on the NYSE Composite
Transactions Tape, as the case may be. The high and low sales prices for the
first and second quarters of 1997 have been adjusted to give effect to a 3-for-2
stock split in the form of a dividend, which was effective May 13, 1997 for
shareholders of record at the close of business on May 6, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 High Low
- - --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter ........................................ $18.00 $13.33
Second Quarter ....................................... $21.38 $15.25
Third Quarter ........................................ $22.50 $19.00
Fourth Quarter ....................................... $22.19 $19.13
<CAPTION>
Year Ended December 31, 1998
- - -------------------------------------------------------
<S> <C> <C>
First Quarter ........................................ $26.31 $19.56
Second Quarter ....................................... $24.63 $15.06
Third Quarter ........................................ $16.06 $12.35
Fourth Quarter ....................................... $17.00 $10.94
</TABLE>
The company had approximately 1,096 stockholders of record of its Common
Stock as of March 23, 1999. The company's transfer agent and registrar has
indicated that the company had approximately 2,318 beneficial owners of its
Common Stock as of March 23, 1999. The company has never paid any cash dividends
on its Common Stock and does not anticipate paying cash dividends in the
foreseeable future.
Item 6. Selected Consolidated Financial Data
The data set forth below should be read in conjunction with the financial
statements and notes included elsewhere in this Annual Report on Form 10-K.
13
<PAGE>
FIBERMARK, INC.
Selected Consolidated Financial Data
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Net sales(1) ............................ $ 307,092 $ 235,358 $ 124,771 $ 117,516 $ 105,416
Cost of sales ........................... 249,337 189,294 101,981 100,106 88
Gross profit ............................ 57,755 46,064 22,790 17,410 17,278
General and administrative expenses ..... 22,684 16,331 9,908 8,397 8,584
Facility closure expense(5) ............. 7,274 10,000 -- -- --
Income from operations .................. 27,797 19,733 12,882 9,013 8,694
Loss on disposition of assets, net ...... -- -- -- 8,302 --
Cogeneration income ..................... (1,451) (215) -- (6,512) --
Other expenses (income), net(2) ......... 152 600 (1,127) (1,198) (658)
Interest expense (net of interest income) 10,495 9,187 1,798 892 1,356
Income before income taxes and
extraordinary items ................ 18,601 10,161 12,211 7,529 7,996
Income tax (benefit) expense(3) ......... 7,092 3,992 4,697 (424) 2,768
Income before extraordinary items ....... $ 11,509 $ 6,169 $ 7,514 $ 7,953 $ 5,228
Extraordinary items(4) .................. -- -- (297) -- (149)
Net income .............................. 11,509 6,169 7,217 7,953 5,079
Net income available to
common shareholders ................ 11,509 6,169 7,217 7,953 5,079
Weighted average shares outstanding ..... 7,751 6,141 6,054 6,050 6,031
Basic earnings per share ................ $ 1.48 $ 1.01 $ 1.19 $ 1.31 $ 0.84
Diluted earnings per share .............. 1.43 0.95 1.14 1.30 0.82
Other Consolidation Operating Data:
Depreciation and amortization ........... $ 8,953 7,393 3,651 3,342 4,006
Capital expenditures .................... 13,943 13,528 8,457 4,865 1,603
<CAPTION>
-------------------------------------------------------------
December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital ......................... $ 80,591 $ 61,983 $ 29,151 $ 17,634 $ 14,296
Total assets ............................ 311,231 248,001 212,008 74,618 87,817
Long-term debt (net of current maturities) 133,583 100,000 100,000 4,625 21,081
Redeemable preferred stock .............. -- -- -- -- --
Stockholders' equity .................... 97,563 82,771 48,093 40,735 32,662
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial data.
14
<PAGE>
(1) The increase in net sales for the year ended December 31, 1997 reflects
the impact of the acquisition of Custom Papers Group and Arcon Coating
Mills on October 31, 1996. Net sales related to these acquisitions were
$127.9 million in 1997 as compared to $20.2 million in 1996. The increase
in net sales for the year ended December 31, 1998 reflects the acquisition
of Steinbeis Gessner GmbH in January 1998. Net sales related to this
acquisition were $81.2 million in 1998.
(2) Other expenses (income) for the 1998, 1997, 1996, 1995 and 1994 periods
include $1,719,000, $1,718,000, $1,719,000, $1,718,000 and $1,146,000,
respectively, of amortized income related to a deferred gain on a
sale-leaseback transaction. On April 29, 1994, the company sold and leased
back certain operating assets at the Brattleboro, Vermont, mill. The sale
of these assets resulted in a book gain of $17,187,000. This gain is being
amortized over the ten-year life of the lease.
(3) For the year ended December 31, 1995, the company generated net income and
recognized an income tax benefit of ($424,000) due primarily to the
release of valuation allowances.
(4) Extraordinary items for 1994 include a $248,000 loss related to the early
extinguishment of debt, net of an income tax benefit of $99,000.
Extraordinary items for 1996 include a $495,000 loss related to the early
extinguishment of debt, net of an income tax benefit of $198,000.
(5) On November 19, 1997, the company announced that it planned to close
operations at its Owensboro, Kentucky, mill and consolidate its production
demands with several of its other mills. Operations continued until a
sufficient level of transition inventory was established to ensure
continued service to customers during the production transfer period. The
Kentucky mill was closed on January 14, 1998. The company booked a $10.0
million charge related to this mill closure in the fourth quarter of 1997.
On November 4, 1998, the company announced that it planned to cease
operations at its Beaver Falls, New York, facility and consolidate its
production demands with several of its other facilities. Operation
continued until a sufficient level of transition inventory was established
to ensure continued service to customers during the transition period. The
New York facility was closed on January 29, 1999. The company took a $7.8
million pre-tax charge related to the closure of this facility in the
fourth quarter of 1998.
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On October 31, 1996, the company acquired all of the outstanding stock of CPG
Investors, Inc. ("CPG"). CPG operated five paper mills and manufactures a
diverse portfolio of specialty fiber-based products for industrial and technical
markets. Annual sales revenue approximated $95.0 million.
On October 31, 1996, the company also acquired all of the outstanding stock of
Arcon Holdings ("Arcon"). Arcon operated 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 approximated $28.0 million.
Both of the 1996 acquisitions were financed with proceeds from the issuance of
$100.0 million in senior notes. These notes are non-amortizing, have a ten-year
term and carry a fixed interest rate of 9.375%. The aggregate purchase price for
both CPG and Arcon, including acquisition costs, was approximately $91.5
million. Additionally, the company incurred approximately $4.5 million in
financing costs. The balance of the proceeds from the senior note offering was
added to the cash reserve of the company.
On November 19, 1997, the company announced that it planned to cease operations
at its Owensboro, Kentucky mill and consolidate its production demands with
several of its other mills. Operations continued until a sufficient level of
transition inventory was established to ensure continued service to customers
during the production transfer period. The Kentucky mill was closed on January
14, 1998. The company took a $10.0 million pre-tax charge related to the closure
of this facility in the fourth quarter of 1997.
On November 19, 1997, the company also announced its intent to acquire Steinbeis
Gessner GmbH for a purchase price of $43.0 million. Steinbeis Gessner,
headquartered near Munich, Germany, is a leading producer of specialty
fiber-based materials sold into the filter products, technical specialties and
durable specialties markets. Sales revenue for 1998 was $81.2 million. Pursuant
to this acquisition, the company sold 1,500,000 shares of common stock on
December 15, 1997 with a customary 30-day over-allotment option granting the
underwriters of the offering the right to purchase up to an additional 225,000
shares. The December 15 sale resulted in gross proceeds of $30.8 million to the
company. On January 15, 1998, the over-allotment was partially exercised through
the sale of an additional 135,000 shares. The shares were sold for a gross price
of $20.50 per share. After expenses, the company realized approximately $31.0
million in total net proceeds. To complete the financing of the Gessner
acquisition, the company also closed on a $29.6 million term loan with
Bayerische Vereinsbank in Munich, Germany on January 12, 1998. This loan
amortizes over seven years with interest rates ranging from 5.8% to 7.0%. The
effective date of ownership transfer on the Steinbeis Gessner business was
January 1, 1998.
On November 4, 1998, the company announced that it planned to cease operations
at its Beaver Falls, New York facility and consolidate its production demands
with several of its other facilities. Operation continued until a sufficient
level of transition inventory was established to ensure continued service to
customers during the transition period. The New York facility was closed on
January 29, 1999. The company took a $7.8 million pre-tax charge related to the
closure of this facility in the fourth quarter of 1998.
Excluding the impact of facility write downs, the company's income from
operations improved from $9.0 million in 1995 (7.7% of sales) to $35.1 million
in 1998 (11.4% of sales). This improvement is largely attributable to the added
sales volume that resulted from the 1996 and 1998 acquisitions. Additionally,
the company is benefiting from improved manufacturing efficiencies due to
equipment upgrades at several of its facilities and from cost reduction related
to consolidation of facilities and administrative staffs.
16
<PAGE>
The following table sets forth, for the periods indicated, certain operating
data as a percentage of net sales.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1998 1997 1996
--------------------------
<S> <C> <C> <C>
Net sales ......................................... 100.0% 100.0% 100.0%
Cost of sales ..................................... 81.2 80.4 81.7
Gross profit ...................................... 18.8 19.6 18.3
General and administrative expenses ............... 7.4 6.9 7.9
Facility closure .................................. 2.3 4.3 --
Income from operations ............................ 9.1 8.4 10.4
Loss on sale of assets, other (income),
expense and cogeneration income, net ............ (.4) .2 (.9)
Interest expense, net of interest
income ............................................ 3.4 3.9 1.5
Income before income taxes ........................ 6.1 4.3 9.8
Net effect of income taxes and extraordinary
tax benefit ..................................... 2.3 1.7 4.0
Net income ........................................ 3.8% 2.6% 5.8%
- - --------------------------------------------------------------------------------
</TABLE>
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997:
Net sales increased 30.5% to $307.1 million in 1998 from $235.4 million in 1997.
The acquisition of FiberMark Gessner, effective on January 1, 1998, added $81.2
million in sales revenue for the full year of 1998.
Within the company's operating segments, technical and office products sales
decreased by 4.9% to $129.3 million from $136.0 million in 1997. This decline
was primarily due to market softness. We also incurred some price reduction
related to lower raw material costs and the economic crisis in the Asian
markets. Sales revenue in our durable specialties operating segment declined by
4.3% to $55.7 million in 1998 from $58.2 million in 1997. This decline was due
to a sharp reduction in demand from Asian customers as well as some softness in
our domestic customer base. Sales within our Gessner and North American filter
products segment increased by 196.4% to $122.1 million in 1998 from $41.2
million in 1997 due to the January 1, 1998 acquisition of the Gessner business
and stable business conditions in the U.S.
Gross profit margin declined to 18.8% in 1998 from 19.6% in 1997. This reduction
was due to the impact of lower demand within our U.S. customer base and also to
a temporary dip in manufacturing efficiencies as we worked through production
transfer trials related to the consolidation of two facilities within our
technical and office products operating segment.
General and administrative expenses increased 39.3% to $22.7 million (7.4% of
sales) in 1998 from $16.3 million (6.9% of sales in 1997). This increase was due
to the impact of the Gessner acquisition.
Income from operations increased 41.1% to $27.8 million (9.1% of sales) in 1998
from $19.7 million (8.4% of sales) in 1997. This improvement was due to the
Gessner acquisition and a reduced level of facility closure expense.
In 1998, we recorded other income of $1.3 million compared with other expense of
$.4 million in 1997. This change was due to a $1.5 million payment received from
a cogeneration developer who leases property from the company. The company
anticipates no further income from this lease.
Net interest expense increased to $10.5 million in 1998 compared with $9.2
million in 1997. This increase was due to the debt incurred to fund the Gessner
acquisition.
17
<PAGE>
Income taxes were $7.1 million or 38.1% of taxable income in 1998 compared with
$4.0 million or 39.3% of taxable income in 1997.
Net income for 1998 was $11.5 million or $1.43 per share compared with $6.2
million or $.95 per share in 1997. Excluding the tax adjusted impact of facility
closure expenses which existed for both years and the non-recurring cogeneration
income in 1998, net income for 1998 would have been $15.4 million, or $1.91 per
share, compared with $12.3 million, or $1.90 per share, in 1997. Per share
earnings are stated on a fully diluted basis.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996:
Net sales increased 88.6% to $235.4 million in 1997 from $124.8 million in 1996.
The company acquired Custom Papers Group and Arcon Coating Mills on October 31,
1996. These acquisitions contributed $127.9 million in sales revenue for the
full year of 1997 compared with $20.2 million for the final two months of 1996.
Within the company's operating segments, sales for technical and office products
increased by 58.1% to $136.0 million in 1997 from $86.0 million in 1996. This
increase was primarily due to the 1996 acquisitions. Moderate growth in demand
for our pressboard, and new business in lightweight filing and cover materials
also contributed to revenue growth in this segment. Sales in our durable
specialties segment increased by 80.8% to $58.2 million in 1997 from $32.2
million in 1996. This increase was primarily due to the impact of the 1996
acquisitions. In addition, sales with a key customer grew due to their expansion
into new geographic markets and new distribution channels in part fueled by a
new product developed with them in 1995. Net sales in North American filter
products increased by 524.2% to $41.2 million from $6.6 million in 1996 due to
the impact of the 1996 acquisitions.
Gross profit margin increased to 19.6% in 1997 from 18.3% in 1996. This
improvement related to lower fiber prices which reduced cost in all of the
company's operating segments, productivity gains within the technical and office
products segment, and early benefits from consolidation of operations within our
durable specialties segment.
General and administrative expenses increased to $16.3 million (6.9% of sales)
in 1997 from $9.9 million (7.9% of sales) in 1996. This increase was due to the
impact of the 1996 acquisitions.
In 1997, the company booked a $10.0 million charge related to the closure of its
Owensboro, Kentucky mill. Operations at this mill permanently closed on January
14, 1998.
Income from operations increased to $19.7 million (8.4% of sales) in 1997 from
$12.9 million (10.4% of sales) in 1996. This improvement was due to the higher
sales volume brought about by the 1996 acquisitions, lower fiber prices, and
improved manufacturing efficiencies. These improvements were offset by the $10.0
million charge related to the closure of the Owensboro, Kentucky mill.
In 1997, the company recorded other expense of $.4 million as compared with
other income of $1.1 million in 1996. This change was due to higher levels of
amortization expense related to the 1996 acquisitions.
Net interest expense increased to $9.2 million in 1997 compared with $1.8
million in 1996. This increase was due to the debt incurred to fund the 1996
acquisitions.
Income taxes were $4.0 million or 39.3% of taxable income in 1997 compared with
$4.7 million or 38.5% of taxable income in 1996.
18
<PAGE>
Net income before extraordinary items for 1997 was $6.2 million or $.95 per
share. Excluding the tax adjusted impact of the Owensboro closure, net income
would have been $12.3 million, or $1.90 per share, compared with $7.2 million,
or $1.14 per share, in 1996. Per share earnings are stated on a fully diluted
basis.
Liquidity and Capital Resources
As of December 31, 1998, the company had outstanding $100.0 million of senior
notes. The notes have a ten-year term, are non-amortizing and carry a fixed
interest rate of 9.375%. Additionally, the company had available to it a $20.0
million revolving credit facility as of December 31, 1998. As of such date, no
advances were outstanding under such credit facility. Effective January 1, 1998
the company acquired Steinbeis Gessner GmbH. A portion of the purchase price was
funded through term loans. As of December 31, 1998, Gessner had a secured term
loan of $32.4 million with Bayerische Bank. This loan amortizes over seven years
with interest rates ranging from 5.8% to 7.0%. As of this same date, Gessner had
an unsecured term loan of $4.8 million with the previous owner. The loan
amortizes over three years and has a fixed interest rate of 5%. As of December
31, 1998, Gessner also has a $9.0 million line of credit and a $9.0 million
capital spending facility with Bayerische Vereinsbank. As of such date no
advances were outstanding under these facilities.
The company's historical requirements for capital have been primarily for
servicing debt, capital expenditures, working capital and acquisitions. Cash
flows from operating activities were $18.6 million in 1998, $7.9 million in 1997
and $17.1 million in 1996. Additions to property, plant and equipment were $13.9
million in 1998, $13.5 million in 1997 and $8.5 million in 1996. In addition,
the company expects to fund certain expenditures related to technology transfer
projects between Gessner and the company, which the company believes will
provide quality improvements, cost reductions, product performance enhancements
and the ability to produce a broader range of products. The company currently
anticipates that the implementation of these projects can be accomplished over a
two to three year period, at a cost of $20 to $25 million. The company believes
that cash reserves on hand, cash flow from operations, plus amounts available
under credit facilities, will be sufficient to fund its capital requirements,
debt service and working capital requirements for the foreseeable future.
The company intends to pursue strategic acquisitions that will enhance its range
of products, complement the company's core markets, provide distribution or
sales and marketing efficiencies or provide opportunities for technology gains
or other operating efficiencies. Any such acquisition could require the company
to secure independent debt or equity financing to complete such transaction.
Disclosures of Certain Financial Market Risks
The company believes it has minimal exposure to financial market risks. All debt
is at a fixed rate. Most of the company's sales transactions have been conducted
in the currency where the shipment originated, limiting our exposure to changes
in currency exchange rates. The company does not use derivative financial
instruments.
Inflation
The company attempts to minimize the effect of inflation on earnings by
controlling operating expenses. During the past several years, the rate of
general inflation has been relatively low and has not had a significant impact
on the company's results of operations. The company purchases raw materials that
are subject to cyclical changes in costs that may not reflect the rate of
general inflation.
19
<PAGE>
Seasonality
The company's business is mildly seasonal, with the third quarter of each year
typically having the lowest level of net sales and operating income. This
seasonality is the result of a lower level of purchasing activity in the third
quarter, since many of our U.S. customers shut down their manufacturing
operations during portions of July and many European manufacturers shut down
during portions of August.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1: Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP is effective for
financial statements issued for fiscal years beginning after December 15, 1998.
The company has yet to analyze in detail the potential impact on its financial
statements upon adoption of this pronouncement.
Year 2000
Readiness
The company expects to complete Year 2000 compliance by the third quarter of
1999. A significant portion of our systems is already compliant due to
implementation of new integrated information systems. In terms of hardware,
management believes the company's inventory of equipment is also compliant.
The company has communicated with its principal customers and suppliers
regarding Year 2000 compliance. Although we have been given assurances by our
customers and suppliers that they will be compliant, no assurances can be given
that they will be ready, or that the company would not suffer any material
adverse effects to its business, operations or financial condition should they
fail to be compliant.
Costs
The costs of achieving Year 2000 compliance are not expected to have a material
impact on the company's business, operations, or financial condition, as system
upgrades were planned for strategic reasons. Anticipated costs are almost
exclusively the cost of installing the company's integrated information systems.
FiberMark Gessner had completed a substantial portion of its system upgrades
prior to the 1998 purchase.
Risks
The company has assessed the risks of Year 2000 problems, and concluded that in
the unlikely event that a small portion of its software might not be in place by
the year 2000, it would need to rely on manual systems.
The company has contacted both our key suppliers and customers to ascertain
their Year 2000 readiness, and have received assurances that they will be ready.
However, the company cannot control supplier or customer Year 2000 readiness, or
even completely assess the risk the company might face should they fail to be
ready. However, our assessments suggest that in the case of customers, potential
problems might include greater difficulties in managing inventories and
forecasting demand, and in placing or receiving orders that could impact
FiberMark. In the case of suppliers, risks seem to relate more to billing and
ordering rather than more significant items that might impact productivity and
profitability.
20
<PAGE>
Contingency Plans
The company is analyzing its contingency planning needs, but at this stage has
chosen not to develop a comprehensive plan, as it is confident that Year 2000
compliance timetables will be met.
Forward-looking Statements
Statements in this report that are not historical are forward-looking statements
subject to risk and uncertainties that could cause actual results to differ
materially. Such risk and uncertainties include fluctuations in economies
worldwide, fluctuations in our customers' demand and inventory levels (including
the loss of certain major customers), the price and availability of raw
materials and of competitive materials, which may preclude passing increases on
or maintaining prices with customers; changes in environmental and other
governmental regulations, changes in terms from lenders, ability to retain key
management and to reach agreement on labor issues, failure to identify or carry
out suitable strategic acquisitions.
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 Shareholders to be held on May 19, 1999 (the "Proxy
Statement"), and is incorporated herein by reference.
The information required by this item concerning compliance with Section 16(a)
of the Exchange Act is presented under the caption entitled "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement,
and is incorporated herein by this reference.
Item 11. Executive Compensation and Other Information
The information required by this item is incorporated herein by reference to the
information presented under the caption entitled "Executive Compensation and
Other Information" of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference to the
information presented under the caption entitled "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
None existed.
22
<PAGE>
Part IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
Form 8-K.
(a)(1) Index to Consolidated Financial Statements
The consolidated financial statements required by this term are submitted
beginning on page 24 of this Form 10-K.
Page
----
Report of Independent Accountants ................................. 24
Consolidated Statements of Income for the years ended
December 31, 1998, 1997, and 1996 ............................... 25
Consolidated Balance Sheets of December 31, 1998 and 1997 ......... 26
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996 ............................... 27
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997, and 1996 ............................... 28
Notes to Consolidated Financial Statements ........................ 29
(a)(2) Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts Reserves ........... 54
Independent Auditor's Report ...................................... 55
(a)(3) Index to Exhibits, beginning on ................................... 56
(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, 1998.
(c) Exhibits
The exhibits required by this item are listed under Item 14(a)(3).. 60
23
<PAGE>
Independent Auditors' Report
Board of Directors & Stockholders
FiberMark, Inc.
We have audited the accompanying consolidated balance sheets of FiberMark, Inc.
as of December 31, 1998 and 1997 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FiberMark, Inc. as
of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
Burlington, Vermont
February 5, 1999
Vt. Reg. No. 92-0000241
24
<PAGE>
FIBERMARK, INC
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 307,092 $ 235,358 $ 124,771
Cost of sales 249,337 189,294 101,981
--------- --------- ---------
Gross profit 57,755 46,064 22,790
Selling, general and administrative expenses 22,684 16,331 9,908
Facility closure expense (note 12) 7,274 10,000 --
--------- --------- ---------
Income from operations 27,797 19,733 12,882
--------- --------- ---------
Other (income) expense, net 152 600 (1,013)
Cogeneration income (note 3) (1,451) (215) (97)
Interest expense 11,675 9,457 1,992
Interest income (1,180) (270) (211)
--------- --------- ---------
Income before income taxes and extraordinary item 18,601 10,161 12,211
Income tax expense (note 9) 7,092 3,992 4,697
--------- --------- ---------
Income before extraordinary item 11,509 6,169 7,514
Extraordinary item:
Loss on early extinguishment of debt (net
of income tax benefit of $198) (Note 6) -- -- (297)
--------- --------- ---------
Net income $ 11,509 $ 6,169 $ 7,217
========= ========= =========
Basic earnings per share:
Income before extraordinary item $ 1.48 $ 1.01 $ 1.24
Extraordinary item 0.00 0.00 (0.05)
--------- --------- ---------
Net income $ 1.48 $ 1.01 $ 1.19
========= ========= =========
Diluted earnings per share $ 1.43 $ 0.95 $ 1.14
========= ========= =========
Average Basic Shares Outstanding 7,751 6,141 6,054
Average Diluted Shares Outstanding 8,070 6,492 6,329
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
FIBERMARK, INC.
Consolidated Balance Sheets
December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 33,804 $ 37,275
Accounts receivable, net of allowances of
$626 in 1998 and $203 in 1997 31,518 23,278
Inventories (note 4) 48,517 37,486
Other 700 210
Prepaid expense (note 7) 204 --
Deferred income taxes (note 9) 4,612 3,769
--------- ---------
Total current assets 119,355 102,018
Property, plant and equipment, net (note 5) 128,375 90,243
Goodwill, net 49,692 45,179
Other intangible assets, net 8,383 8,146
Prepaid expense (note 7) 1,176 1,073
Other long-term assets 1,433 --
Other pension assets (note 14) 2,817 1,342
Total assets $ 311,231 $ 248,001
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt (note 6) 3,598 --
Accounts payable 16,484 18,822
Accrued liabilities (note 16) 15,670 14,455
Accrued income taxes payable 1,440 4,262
Accrued pension liabilities 1,572 2,496
--------- ---------
Total current liabilities 38,764 40,035
--------- ---------
Long-term debt, less current portion (note 6) 133,583 100,000
Deferred gain (note 7) 9,166 10,885
Deferred income taxes (note 9) 12,655 9,308
Other long-term liabilities 19,500 5,002
--------- ---------
Total long-term liabilities 174,904 125,195
--------- ---------
Total liabilities 213,668 165,230
Commitments and contingencies (note 7)
Stockholders' equity (notes 8, 14 and 19):
Preferred stock, par value $.001 per share;
2,000,000 shares authorized and none issued -- --
Common stock, par value $.001 per share;
20,000,000 shares authorized
7,777,822 shares issued and outstanding in 1998 and
7,581,531 shares issued and outstanding in 1997 8 8
Additional paid-in capital 76,554 73,709
Retained earnings 21,034 9,525
Accumulated other comprehensive income (33) (471)
--------- ---------
Total stockholders' equity 97,563 82,771
--------- ---------
Total liabilities and stockholders' equity $ 311,231 $ 248,001
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
FIBERMARK, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,509 $ 6,169 $ 7,217
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,953 7,393 3,651
Amortization of deferred gain (1,719) (1,718) (1,719)
Write-off of deferred debt costs and other deferred charges -- -- 495
Amortization of unearned compensation -- -- 121
Loss on closure of facility 7,274 10,000 --
Loss on sale of property, plant and equipment 125 -- --
Cogeneration income -- (215) (97)
Deferred taxes 3,717 (3,586) 2,406
Changes in operating assets and liabilities:
Accounts receivable 1,555 (2,431) 1,475
Inventories (2,132) (8,535) (1,431)
Other (279) 391 947
Accounts payable (7,542) 3,737 357
Accrued pension and other liabilities (765) (7,965) 3,067
Prepaid expense (307) (306) (255)
Other long-term liabilities 164 1,570 --
Accrued income taxes payable (1,983) 3,422 840
--------- --------- ---------
Net cash provided by operating activities 18,570 7,926 17,074
--------- --------- ---------
Cash flows used for investing activities:
Cogeneration receipt -- 2,000 2,000
Purchase of life insurance (1,207) (1,342) --
Additions to property, plant and equipment (13,943) (13,528) (8,457)
Net proceeds from sale of property, plant and equipment 22 -- --
Payments for businesses acquired (37,337) -- (87,000)
Acquisition costs -- (367) --
Increase in other intangible assets (145) (112) --
--------- --------- ---------
Net cash used in investing activities (52,610) (13,349) (93,457)
Cash flows from financing activities:
Proceeds from issuance of bank debt 29,552 -- --
Proceeds from issuance of common stock 2,628 29,205 --
Cost of stock offering (511) (466) --
Proceeds from exercise of stock options 466 117 20
Increase in revolving credit line 112 2,811 64,159
Payments on revolving credit line (112) (2,811) (64,159)
Repayment of senior term debt -- -- (6,313)
Proceeds from issuance of Series B Senior Notes -- -- 100,000
Debt issue costs -- (500) (4,500)
--------- --------- ---------
Net cash provided by financing activities 32,135 28,356 89,207
--------- --------- ---------
Effect of exchange rate changes on cash (1,566) -- --
Net increase in cash (3,471) 22,933 12,824
Cash at beginning of year 37,275 14,342 1,518
--------- --------- ---------
Cash at end of year $ 33,804 $ 37,275 $ 14,342
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
FIBERMARK, INC.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Accumulated Total
Additional Accumulated Other Stockholders'
Common Stock Paid-In Earnings Comprehensive Equity
Shares Amount Capital (Deficit) Income (Deficit)
------ ------ ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 6,050,148 $ 6 $ 44,711 $ (3,861) $ (121) $ 40,735
Exercise of stock options 8,490 -- 20 -- -- 20
Net income -- -- -- 7,217 -- 7,217
Amortization of unearned compensation -- -- -- -- 121 121
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 6,058,638 6 44,731 3,356 -- 48,093
Issuance of common stock 1,500,000 2 28,717 -- -- 28,719
Issuance of common stock 1,043 -- 20 -- -- 20
Exercise of stock options 21,850 -- 117 -- -- 117
Tax benefit of option exercise -- -- 124 -- -- 124
Comprehensive income:
Net income -- -- -- 6,169 -- 6,169
Minimum pension liability adjustment, net of
tax benefit of $295 -- -- -- -- (471) (471)
--------- --------- --------- --------- --------- ---------
Total comprehensive income 5,698
Balance at December 31, 1997 7,581,531 8 73,709 9,525 (471) 82,771
Issuance of common stock 135,000 -- 2,117 -- -- 2,117
Issuance of common stock 6 -- -- -- -- --
Exercise of stock options 61,285 -- 466 -- -- 466
Tax benefit of option exercise -- -- 262 -- -- 262
Comprehensive income:
Net income -- -- -- 11,509 -- 11,509
Minimum pension liability adjustment, net of
tax benefit of $876 -- -- -- -- (1,128) (1,128)
Currency translation adjustment -- -- -- -- 1,566 1,566
--------- --------- --------- --------- --------- ---------
Total comprehensive income 11,947
Balance at December 31, 1998 7,777,822 $ 8 $ 76,554 $ 21,034 $ (33) $ 97,563
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
FIBERMARK, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(1) Description of Business
FiberMark produces specialty fiber-based materials in three operating segments:
FiberMark Gessner and North American Filter Products, Technical and Office
Products, and Durable Specialties. FiberMark is headquartered in Brattleboro,
Vermont and operates seven facilities located in the eastern and midwestern
regions of the United States and two facilities in Bavaria, Germany.
(2) Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include FiberMark, Inc. and its wholly
owned subsidiaries. All significant intercompany transactions and accounts have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the moving weighted average cost method for raw materials and the first-in,
first-out (FIFO) method for work in process (WIP) and finished goods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation for financial
reporting purposes is provided using the straight-line method based upon the
useful lives of the assets. Buildings and improvements and machinery and
equipment are depreciated over periods not exceeding forty (40) and twenty (20)
years, respectively. When assets are sold or retired, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
income. Improvements are capitalized and included in property, plant and
equipment while expenditures for maintenance and repairs are charged to expense.
Leasehold improvements are amortized over the shorter of the life of the
improvement or the lease term.
29
<PAGE>
OTHER INTANGIBLE ASSETS AND GOODWILL
Intangible assets include primarily organization, debt issue, goodwill, and
intangible assets related to pension plans (see note 14). Organization costs of
$57,000 and $233,000, net of accumulated amortization of $485,000 and $309,000
as of December 31, 1998 and 1997, respectively, arose in conjunction with the
acquisition of the Endura Products Division and are amortized on a straight-line
basis over seven years. During the fourth quarter of 1997, organization costs
amounting to $185,000, net of accumulated amortization of $177,000 were written
off in conjunction with the closing of the Owensboro, Kentucky facility (see
note 12). Debt issue costs of $4,177,000 and $4,517,000, net of accumulated
amortization of $933,000 and $483,000 as of December 31, 1998 and 1997,
respectively, are related to the issuance of the Series B Senior Notes and are
amortized using the interest method over the life of those notes. Steinbeis
Gessner GmbH was acquired effective January 1, 1998. Debt issue cost associated
with Gessner was $413,000 net of accumulated amortization of $75,000 as of
December 31, 1998. Other intangible assets acquired amounted to $526,000 net of
accumulated amortization of $82,000 as of December 31, 1998.
Goodwill of $49,692,000 and $45,179,000, net of accumulated amortization of
$3,609,000 and $1,805,000 as of December 31, 1998 and 1997, respectively,
includes goodwill of $6,397,000 net of accumulated amortization of $220,000
associated with the Gessner acquisition. Goodwill represents the cost in excess
of the fair value of the net assets of acquired companies and is amortized on a
straight-line basis over thirty years. During the fourth quarter of 1997,
goodwill of $186,000 net of accumulated amortization of $24,000 was written off
in conjunction with the closing of the Owensboro, Kentucky facility (see note
12).
Amortization of intangibles, including goodwill, was $2,567,000, $2,542,000 and
$812,000 for the years ended December 31, 1998, 1997 and 1996, 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 $2.4 million, $1.4 million, and $1.2 million for the years ended
December 31, 1998, 1997, and 1996, respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency of all operations outside the U.S. is the respective
local currency. The assets and liabilities of these operations are translated at
the exchange rates in effect at the balance sheet date and income and expense
accounts at average exchange rates during the year. Resulting translation
adjustments are recorded directly to a separate component of other comprehensive
income.
30
<PAGE>
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
SFAS 128 requirements. Weighted average number of common and common equivalent
shares outstanding and earnings per common and common equivalent share have also
been restated to give effect to a 3-for-2 stock split effective May 13, 1997.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Income available to common shareholders
used in basic and diluted earnings per share $ 11,509 $ 6,169 $ 7,217
========== ========== ==========
Denominator:
Denominator for basic earnings per share:
Weighted average shares 7,751,399 6,140,673 6,053,889
Effect of dilutive securities:
Fixed stock options 318,987 351,114 274,684
---------- ---------- ----------
Denominator for diluted earnings per share:
Adjusted weighted average shares 8,070,386 6,491,787 6,328,573
========== ========== ==========
Basic earnings per share $ 1.48 $ 1.01 $ 1.19
Diluted earnings per share $ 1.43 $ .95 $ 1.14
</TABLE>
31
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of the Statement did not have a material impact on the company's
financial position, results of operations, or liquidity in 1996. During the
fourth quarter of 1998 the company decided to close their Beaver Falls, New York
facility. In the fourth quarter of 1997, the company also decided to close its
Owensboro, Kentucky facility. The costs of closing these facilities, including
the costs associated with disposing of the assets, are reflected as a component
of income from operations (see note 12).
COMPREHENSIVE INCOME
In 1998, the company adopted SFAS No. 130, Reporting Comprehensive Income. This
statement establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net income, minimum pension
liability adjustments, and foreign currency translation adjustments and is
presented in the Consolidated Statement of Stockholders' Equity. The adoption of
SFAS 130 had no impact on total shareholders' equity. Prior year financial
statements have been reclassified to conform to the SFAS 130 requirements.
SEGMENT DISCLOSURES
In 1998, the company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas, and major customers.
PENSION AND POST-RETIREMENT DISCLOSURES
In 1998, the company adopted SFAS No. 132, Employers' Disclosures about Pensions
and Other Post-retirement Benefits. This statement revises employers'
disclosures about pension and other post-retirement benefit plans. It does not
change the measurement or recognition of those plans.
COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies, including environmental remediation costs,
arising from claims, assessments, litigation, fines and penalties, and other
sources are recorded when it is probable that a liability has been incurred and
the amount of the assessment and/or remediation can be reasonably estimated.
Recoveries from third parties which are probable of realization are separately
recorded, and are not offset against the related environmental liability, in
accordance with Financial Accounting Standards Board Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts.
32
<PAGE>
Environmental Matters
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 96-1, Environmental Remediation Liabilities. SOP
96-1 was adopted by the company on January 1, 1997 and requires, among other
things, environmental remediation liabilities to be accrued when the criteria of
SFAS No. 5, Accounting for Contingencies, have been met. The guidance provided
by the SOP is consistent with the company's current method of accounting for
environmental remediation costs and, therefore, adoption of this new Statement
does not have a material impact on the company's financial position, results of
operations, or liquidity.
Pursuant to environmental laws and regulations, there are currently pending
investigations at certain of the company's plants relating to the release of
hazardous substances, materials and/or wastes. In addition, various predecessors
of the company have been named as potentially responsible parties ("PRPs") by
the United States Environmental Protection Agency ("EPA") for costs incurred and
to be incurred in responding to the investigation and clean-up of various
third-party sites. The company has not received any notification or inquiry from
EPA or any other agency concerning these sites. Management believes that the
company will have no liability in connection with the clean-up of these sites.
However, no assurance can be given that such predecessors will perform their
responsibilities in connection with such sites and, in the event of such
nonperformance, the company may incur material liabilities in connection with
such sites, and no assurance can be given that the company will not receive PRP
notices in connection with these or other sites in the future.
Other Matters
The company is involved in various legal proceedings in the ordinary course of
business. Management believes that the outcome of these proceedings will not
have a material adverse effect on the company's financial condition, results of
operations or cash flows.
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
had a firm contract with Kamine to receive a series of cash payments totaling
$7.0 million between May 1995 and May 1997. The present value of these cash
payments, in the amount of $6.5 million, was recorded as income in the first
quarter of 1995. Cash payments of $2 million each were received in May 1997 and
1996 and $3 million was received in 1995. The $1.5 million received in 1998
represents a payment received from a cogeneration developer who leases property
from the company.
33
<PAGE>
(4) Inventories
Inventories consist of the following at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $16,328 $13,737
Work in process 11,928 10,365
Finished goods 16,681 10,960
Stores inventory 1,671 1,415
Operating supplies 1,909 1,009
------- -------
Total inventories $48,517 $37,486
======= =======
</TABLE>
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31, 1998 and
1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 13,940 $ 7,347
Buildings and improvements 31,754 17,217
Machinery and equipment 94,294 70,425
Construction in progress 5,660 9,347
--------- --------
145,648 104,336
Less accumulated depreciation and amortization (17,273) (14,093)
--------- --------
Net property, plant and equipment $ 128,375 $ 90,243
========= ========
</TABLE>
Depreciation expense was $6,386,000, $4,852,000 and $2,839,000 for the years
ended December 31, 1998, 1997, and 1996, respectively.
(6) Debt
The company's long-term debt is summarized as follows at December 31, 1998 and
1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Series B senior notes - interest
at 9-3/8%, interest payable
semi-annually in arrears on April
15 and October 15, unsecured, due
October 15, 2006 $ 100,000 $ 100,000
Bank term loan-interest rates
ranging from 5.765% to 7.015%
payable semi-annually in arrears
on January 12 and July 12, secured
by the stock of the Gessner
subsidiary, annual principal
payments commencing January 12,
1999 through the year 2005 32,383 --
Term loan-interest at 5%,
unsecured, interest and principal
payable annually in three
installments commencing March 31, 1999 4,798 --
--------- ---------
Total Debt 137,181 100,000
Less Current Portion (3,598) --
--------- ---------
Long-term Portion $ 133,583 $ 100,000
========= =========
</TABLE>
34
<PAGE>
The Series B senior notes are redeemable at the company's option in whole or in
part, on or after October 15, 2001 at redemption prices ranging from 100% to
104.688% of face value. Up to 35% of the notes are redeemable at the company's
option on or prior to October 15, 1999 using the net proceeds of a public equity
offering at a redemption price equal to 109.375% of the principal amount plus
accrued and unpaid interest thereon subject to certain other conditions as
described in the agreement.
In conjunction with the issuance of the Series B senior notes, (see note 11),
the company repaid the senior term debt from CIT then outstanding. As a result,
the company expensed $297,000 of deferred financing costs, net of income tax
expense of $198,000. The loss has been reflected in the consolidated statements
of income as an extraordinary item.
Approximately, $10,474,000, $9,430,000 and $1,797,000 of interest was paid
during the years ended December 31, 1998, 1997 and 1996, respectively.
The aggregate maturities of long-term debt for each of the five years subsequent
to December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Payments to be made in the years ending December 31:
<S> <C>
1999................................................................ $3,598
2000................................................................ 3,598
2001................................................................ 4,798
2002................................................................ 6,297
2003................................................................ 6,297
- - --------------------------------------------------------------------------------
</TABLE>
The company has $20,000,000 in available funds through a revolving credit line
with the CIT Group, Inc., at December 31, 1998, 1997 and 1996. The interest rate
on the line as of December 31, 1998 is prime plus .5% or LIBOR plus 2%. The
revolving credit line is subject to a commitment fee payable at the rate of 1/2
of 1% per annum on the daily average unused portion of this line. This fee is
payable on a quarterly basis. In addition, the company is required to pay an
annual Collateral Management Fee of $35,000 in connection with periodic
examinations, analyzing and evaluating the collateral.
In connection with the acquisition of Steinbeis Gessner GmbH (see note 11), two
credit facilities were established by Gessner with Bayerische Vereinsbank AG.
Gessner has $8,995,000 in available funds through a line of credit with
Bayerische Vereinsbank AG at December 31, 1998. The interest rate on the line as
of December 31, 1998 is LIBOR plus 1.75%. The credit line is subject to a
commitment fee payable semi-annually at the rate of 1/4 of 1% per annum on the
undisbursed amount.
In addition, Gessner established a loan agreement with Bayerische Vereinsbank AG
for the purposes of financing capital expenditures. Under this agreement,
Gessner has $8,995,000 in available funds at December 31, 1998. The interest
rate as of December 31, 1998 is LIBOR plus 1.75%. The available funds mature as
follows: $2,999,000 matures on June 30, 1999, $2,999,000 matures on December 31,
1999 and the remainder on December 31, 2000. The agreement is subject to a
commitment fee at the rate of 1/4 of 1% per annum on the undisbursed amount at
maturity.
35
<PAGE>
(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 1998, 1997 and 1996 the company amortized $1,719,000, $1,718,000 and
$1,719,000, respectively, of the deferred gain into income. At December 31, 1998
and 1997, the deferred gain amounted to $9,166,000 and $10,885,000 net of
accumulated amortization of $8,021,000 and $6,302,000, respectively.
In connection with the sale-leaseback transaction, CIT leased back the fixed
assets to FiberMark utilizing a ten-year operating lease. The lease requires
quarterly payments of $843,000 for the first five years and quarterly payments
of $690,000 for the remaining five years of the lease.
In December 1995, FiberMark amended the sale-leaseback agreement whereby
FiberMark sold a newly constructed wet end machine ("Kobayashi") for $10
million. No gain or loss was recorded on the transaction. FiberMark received
$5.0 million of the purchase price from CIT in December 1995, the remaining $5.0
million was placed in escrow and paid during 1996 when all specifications were
met. CIT leased back the Kobayashi machine to FiberMark using the remaining 8.5
years of the operating lease discussed above. The amended lease required
additional payments including a first quarter payment of $113,000 and quarterly
payments of $339,901 for the next 33 quarters.
Rental expense associated with these leases is recognized on a straight-line
basis and amounted to $4,426,000, $4,426,000 and $4,426,000 for the years ending
December 31, 1998, 1997 and 1996, respectively. Accumulated deferred rent
expense included in prepaid expense amounted to $1,380,000 and $1,073,000 as of
December 31, 1998 and 1997, respectively.
Total future minimum lease payments under the sale-leaseback agreement are set
forth as follows (in thousands):
Payments to be made in the years ending December 31:
- - ----------------------------------------------------
<TABLE>
<S> <C>
1999 $ 4,426
2000 4,120
2001 4,120
2002 4,120
2003 4,120
Thereafter 2,058
</TABLE>
OTHER LEASES
The company assumed obligations under operating leases for certain machinery,
equipment and facilities with the acquisition of Steinbeis Gessner GmbH in
January 1998, and with facilities purchased from CPG in October 1996.
Rental expense was $869,000, $1,043,000 and $420,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
36
<PAGE>
As of December 31, 1998, obligations to make future minimum lease payments under
these leases were as follows (in thousands):
Payments to be made in the years ending December 31:
- - ----------------------------------------------------
<TABLE>
<S> <C>
1999 $ 985
2000 423
2001 311
2002 311
2003 264
Thereafter 467
</TABLE>
(8) Preferred Stock
At December 31, 1998, 1997 and 1996, the company has 2,000,000 shares of
preferred stock authorized with none issued. The company, without stockholder
approval, can issue preferred stock with voting, conversion, and other rights.
(9) Income Taxes
Income before provision for income taxes, classified by source of income was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. $10,013 $10,161 $11,716
Foreign 8,588 -- --
------- ------- -------
Income before provision for income taxes $18,601 $10,161 $11,716
======= ======= =======
</TABLE>
The components of the provision for income taxes before extraordinary item for
the years ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 2,201 $ 6,137 $ 2,607
State 558 1,439 1,031
Foreign 616 -- --
------- ------- -------
3,375 7,576 3,638
Deferred
Federal and State 296 (3,584) 1,059
Foreign 3,421 -- --
------- ------- -------
3,717 (3,584) 1,059
Income tax expense $ 7,092 $ 3,992 $ 4,697
======= ======= =======
</TABLE>
37
<PAGE>
9) Income Taxes, continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1997 are presented below (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
---------------------------
Deferred Tax Deferred Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Accounts receivable $ 687 $ --
Inventory 513 --
Property, plant and equipment -- 18,627
Payroll related accruals 4,750 --
Intangible assets -- 216
Miscellaneous reserves 546 --
Deferred gain 3,492 --
Facility closure 812 --
--------- ---------
$ 10,800 $ 18,843
========= =========
<CAPTION>
December 31, 1997
---------------------------
Deferred Tax Deferred Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Accounts receivable $ 342 $ --
Inventory 707 --
Property, plant and equipment -- 15,654
Payroll related accruals 2,434 --
Intangible assets 585 --
Miscellaneous reserves 1,279 --
Deferred gain 4,191 --
Facility closure 577 --
--------- ---------
$ 10,115 $ 15,654
========= =========
</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. Although realization is
not assured, management believes it is more likely than not that the deferred
tax assets will be realized through future taxable earnings.
38
<PAGE>
(9) Income Taxes, continued
A reconciliation of income taxes from continuing operations at the United
States statutory rate to the effective rate for the years ended December 31,
1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal rate 34.0% 34.0% 34.0%
State taxes net of federal benefit 4.6% 6.1% 5.8%
Foreign Rate Difference 3.9% -- --
Other (4.4%) (0.8%) (1.4%)
---- ---- ----
Effective tax rate 38.1% 39.3% 38.4%
==== ==== ====
</TABLE>
Income taxes paid during 1998, 1997 and 1996 were $5,399,000, $5,696,000 and
$3,698,000, respectively.
(10) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures About the Fair
Value of Financial Instruments, requires disclosure of information about the
fair value of certain financial instruments for which it is practicable to
estimate that value. For purposes of the following disclosure the fair value of
a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties other than in a forced sale or
liquidation. The fair value of long-term debt is based upon the quoted market
price and amounts to $139,181,000 (carrying value of $137,181,000 at December
31, 1998, and $103,313,000 (carrying value $100,000,000) at December 31, 1997.
Management has determined that the carrying values of its other financial assets
and liabilities approximate fair value at December 31, 1998.
(11) Acquisitions
1998 ACQUISITION
Effective January 1, 1998 the company purchased all of the outstanding shares of
Steinbeis Gessner GmbH (Gessner) for $40.0 million and DM8.08 ($4.4) million in
cash. Gessner manufactures crepe masking and specialty tape materials, wet and
dry abrasives papers, filter media for automotive air, oil and fuel and filter
media for automotive cabins and vacuum cleaner bags. The acquisition was
financed with a portion of the proceeds of the sale of 1,500,000 shares of the
company's common stock for $28.7 million along with borrowings under a DM54.0
($29.6) million bank facility provided by Bayerische Vereinsbank AG and an
unsecured note issued by Gessner and guaranteed by the company to the seller in
the amount of DM8.0 ($4.4) million. The acquisition was accounted for using the
purchase method. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based upon their respective fair values. This
resulted in approximately $6.4 million of cost in excess of net assets acquired,
or goodwill which is being amortized on a straight line basis over thirty years.
The 1998 consolidated results include Gessner's results of operation for the
entire year.
39
<PAGE>
The following summarized unaudited pro forma results of operations for the year
ended December 31, 1997, assumes the Gessner acquisition occurred as of the
beginning of the period (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Unaudited
---------
<S> <C>
Net sales $313,719
Net income 9,851
Basic earnings per share 1.30
</TABLE>
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.
1996 ACQUISITIONS
The company purchased all of the outstanding stock of Arcon Holdings ("Arcon")
as of October 31, 1996. Concurrently with the transfer of the purchase price to
the stockholders of Arcon, the stockholders agreed to repay all amounts owed
under Arcon's revolver and term loans and repurchase and cancel warrants then
outstanding.
The company also purchased all of the issued and outstanding common stock of CPG
Investors Inc. ("CPG") on October 31, 1996. Concurrently with the transfer of
the purchase price to the stockholders of CPG, the stockholders agreed to repay
all amounts owed under CPG's revolving and term loans.
The aggregate purchase price of CPG and Arcon was approximately $91,500,000
which includes costs of the acquisitions. The acquisitions were financed through
the issuance of senior notes in the amount of $100,000,000 and were accounted
for using the purchase method. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based upon their respective fair
values. This treatment resulted in approximately $46,668,000 of cost in excess
of net assets acquired. Such excess, or goodwill, is being amortized on a
straight-line basis over thirty years. The 1996 consolidated results include
Arcon and CPG's results of operations from the date of the acquisitions through
the end of the year.
The following summarized unaudited pro forma results of operations for the year
ended December 31, 1996, assumes the Arcon and CPG acquisitions occurred as of
the beginning of the period (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Unaudited
---------
<S> <C>
Net sales $227,822
Net income 10,709
Basic earnings per share 1.77
</TABLE>
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.
40
<PAGE>
(12) Facility Closure
The company ceased operations at its Beaver Falls, New York facility on January
29, 1999. Part of the historical demand from this facility has been taken
in-house by an integrated customer. The balance of the production demand will be
absorbed by other mills within the company. As of December 31, 1998 the company
recorded a facility closure charge of $7,794,000 to recognize severance and
benefits for the employees to be terminated ($1,427,000) to reflect contract
cancellation costs ($250,000) and to reflect the write off of property, plant
and equipment ($6,117,000). The company expects to terminate 92 administrative
and plant employees. Results of operations of the facility amounted to a $.1
million income for the year ended December 31, 1998.
On January 14, 1998, the company closed the Owensboro, Kentucky facility.
Production at this facility was moved into certain of the company's other
operations. As of December 31, 1997 the company recorded a facility closure
charge of $10,000,000 to recognize severance and benefits for the employees to
be terminated ($450,000) to reflect contract cancellation costs ($325,000), to
reflect the write down to estimated fair market value of the plant and equipment
not expected to be transferred to other facilities ($8,129,000), to write off
goodwill ($186,000) and organization costs ($185,000) and to write off or accrue
for other miscellaneous costs ($725,000). The company terminated 39
administrative and plant employees. The actual termination benefits paid were
$492,000. Results of operations of the facility amounted to a $.3 million loss
for the year ended December 31, 1997.
In 1998 the company adjusted $520,000 of previously accrued expenses related to
its Owensboro, Kentucky mill to facility closure expense.
(13) Related Party Transactions
The company paid a management fee of $250,000 for the years ended December 31,
1997 and 1996 to an equity owner, MDC Management company ("MDC"). The company
had a management agreement with MDC which called for an annual fee of $250,000
through 1997. In 1996 the company also paid MDC $250,000 in conjunction with the
CPG and Arcon acquisitions.
(14) Retirement and Deferred Compensation Plans
QUALIFIED PLANS
The company has a defined contribution plan (salaried and hourly) and a defined
benefit (hourly) retirement plan for FiberMark.
Defined Contribution Plan
The defined contribution plan is a 401(k) ERISA and IRS-qualified plan covering
substantially all employees that permits employee salary deferrals up to 16% of
salary with the company matching 50% of the first 6%. Defined contribution
expense for the company was $1,017,000, $1,102,000 and $487,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
41
<PAGE>
Defined Benefit Plan for Hourly Employees
Effective August 13, 1997 the CPG defined benefit pension plan was merged into
the FiberMark, Inc. pension plan and the assets and liabilities of both plans
were combined. The defined benefit plan is an ERISA and IRS-qualified plan. Plan
assets are invested principally in equity securities, government and corporate
debt securities and other fixed income obligations. The company annually
contributes at least the minimum amount as required by ERISA.
The following table sets forth the accumulated pension obligation (PBO) included
liabilities on the company's consolidated balance sheet (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
PBO at January 1 $ 11,680 $ 9,313
Increase due to Gessner acquisition 10,322 --
Service cost 702 445
Interest cost 1,437 686
Actuarial loss (gain) 2,657 1,487
Benefits paid (967) (251)
--------- ---------
PBO at December 31 $ 25,831 $ 11,680
========= =========
</TABLE>
The funded status at December 31 is (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Projected benefit obligation $ (25,831) $ (11,681)
Fair value of plan assets 11,062 7,832
--------- ---------
Funded status (14,769) (3,849)
Unrecognized net transition asset 16 19
Unrecognized prior service cost 150 162
Unrecognized net (gain) or loss 3,493 2,238
--------- ---------
Accrued pension cost before
adjustment for minimum liability (11,110) (1,430)
Adjustment to recognize minimum liability (3,659) (2,419)
--------- ---------
Accrued pension cost $ (14,769) $ (3,849)
========= =========
</TABLE>
42
<PAGE>
Net periodic pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service cost $ 691 $ 445
Interest cost 1,405 686
Return on assets (2,055) (668)
Net amortization and deferral:
Unrecognized net transition asset 3 3
Unrecognized prior service cost 12 12
Unrecognized loss 83 14
Net asset gain deferred 1,320 40
--------- ---------
Net periodic pension expense $ 1,459 $ 532
========= =========
</TABLE>
The following table reconciles plan assets (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Fair value of plan assets at beginning of year $ 7,832 $ 7,011
Return on plan assets 2,055 668
Employer contributions 2,142 404
Benefits paid (967) (251)
--------- ---------
Fair value of plan assets at end of year $ 11,062 $ 7,832
========= =========
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation at December 31, 1998 and 1997 was 6.5%
and 7.25%, respectively. The expected long-term rate of return on plan assets
was 9% in 1998 and 1997.
As is required by SFAS No. 87, Employers' Accounting for Pensions, for plans
where the accumulated benefit obligation exceeds the fair value of plan assets,
the company has recognized in the accompanying consolidated balance sheets the
minimum liability of the unfunded accumulated benefit obligation as a long-term
liability with an offsetting intangible asset and equity adjustment, net of tax
impact.
The closure of the facility in Owensboro, Kentucky resulted in a curtailment of
the plan. However, since the plan benefit is not salary related, there is no
curtailment gain or loss as a result of the facility closure.
NON-QUALIFIED PLANS
In addition to the benefits provided under the qualified pension plans,
retirement and deferred compensation benefits associated with wages in excess of
the IRS allowable wages are provided to certain employees under non-qualified
plans.
During 1997, the company established a trust pursuant to two executive deferral
plans for the benefit of a select group of management, highly compensated
employees and/or directors who contribute materially to the continued growth,
development and business success of the company. The plans established under the
trust agreement are set forth as follows:
43
<PAGE>
Supplemental Executive Retirement Plan (SERP)
The plan is a defined benefit plan and shall be unfunded for tax purposes and
for purposes of Title I of ERISA. Pension benefits are based upon final average
compensation and years of service. Benefits earned are subject to cliff vesting
after fifteen (15) years or more of service.
The following table sets forth the accumulated pension obligation (PBO) included
in accrued liabilities on the company's consolidated balance sheet (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
PBO at January 1 $ 3,464 $ 2,968
Service cost 182 87
Interest cost 251 104
Actuarial loss (gain) (293) 305
Benefits paid
PBO at December 31 $ 3,604 $ 3,464
========= =========
</TABLE>
The funded status at December 31 is (in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Projected benefit obligation $ (3,604) $ (3,464)
Fair value of plan assets 566 --
--------- ---------
Funded Status (3,038) (3,464)
Unrecognized net transition asset -- --
Unrecognized prior service cost 2,583 2,841
Unrecognized net (gain) or loss 71 304
--------- ---------
Accrued pension cost before
adjustment for minimum liability (384) (319)
Adjustment to recognize minimum liability (2,557) (2,611)
--------- ---------
Accrued pension cost $ (2,941) $ (2,930)
========= =========
</TABLE>
Net periodic pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service cost $ 182 $ 87
Interest cost 251 104
Return on assets 34 --
Net amortization and deferral:
Unrecognized net transition asset -- --
Unrecognized prior service cost 256 128
Net asset gain deferred (58) --
--------- ---------
Net periodic pension expense $ 665 $ 319
========= =========
</TABLE>
The following table reconciles plan assets (in thousands):
44
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Fair value of plan assets at beginning of year $ -- $ --
Return on plan assets (34) --
Employer contributions 600 --
Benefits paid -- --
--------- ---------
Fair value of plan assets at end of year $ 566 $ --
========= =========
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation at December 31, 1998 and 1997 was 6.5%
and 7%, respectively.
As required by SFAS No. 87, Employers' Accounting for Pensions, for plans where
the accumulated benefit obligation exceeds the fair value of plan assets, the
company has recognized in the accompanying consolidated balance sheet the
minimum liability of the unfunded accumulated benefit obligation as a long-term
liability with an offsetting intangible asset.
Deferred Compensation Plan
The company has a deferred compensation plan that permits eligible participants
to defer a specified portion of their compensation. The deferred compensation,
together with certain company contributions, earn a guaranteed rate of return.
As of December 31, 1998 and 1997 the company has accrued $2,809,000 and
$1,494,000, respectively for its obligation under the plan. The company's
expense which includes company contributions and interest expense amounted to
$17,000 and $152,000 for the years ended December 31, 1998 and 1997,
respectively.
To assist in the funding of the plan, the company purchased corporate-owned life
insurance contracts. Proceeds from the insurance policies are payable to the
company upon the death of the participant. The cash surrender value of the
policies, included in other long-term assets, was $2,817,000 and $1,342,000 as
of December 31, 1998 and 1997, respectively.
(15) Post-retirement Benefits Other Than Pensions
The company provides certain health care and life insurance benefits to specific
groups of former CPG employees when they retire. The salaried group of employees
generally become eligible for retiree medical benefits after reaching age 62 and
with 15 years of service or after reaching age 65. The medical plan for salaried
employees provides for an allowance, which must be used towards the purchase of
a Medicare supplemental insurance policy, based on a retiree's length of
service. The allowance may be adjusted to reflect annual changes in the Consumer
Price Index ("CPI"); however, once the initial allowance has doubled, there will
be no further increases. Salaried employees hired after January 1, 1993 are not
eligible to participate in this retiree medical plan. Upon satisfying certain
eligibility requirements, approximately 45% of the hourly employees are eligible
upon retirement to receive a medical benefit, which is an allowance to be used
toward the purchase of a Medicare supplemental insurance policy and cannot
exceed a specified annual amount. The post-retirement benefit obligations
related to employees who retired prior to the acquisition were not assumed by
the company and remain the responsibility of prior owners.
45
<PAGE>
Included in accrued liabilities on the company's consolidated balance sheet (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
APBO at January 1 $ 1,604 $ 1,487
Service cost 35 43
Interest cost 101 109
Actuarial loss (gain) (34) 38
Benefits paid (65) (73)
--------- ---------
APBO at December 31 $ 1,641 $ 1,604
========= =========
</TABLE>
The funded status at December 31 is (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Funded status at December 31 $ 1,641 $ 1,604
Unrecognized net actuarial loss (gain) 71 105
--------- ---------
Accrued post-retirement benefit cost $ 1,712 $ 1,709
========= =========
</TABLE>
Net periodic post-retirement benefits cost included the following components (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service cost $ 35 $ 43
Interest cost on APBO 101 99
--------- ---------
$ 136 $ 142
========= =========
</TABLE>
The assumed health care cost trend rate used in measuring future benefit
costs was 7.5%, gradually declining to 6% by 2001 and remaining at that
level thereafter. A 1% increase in this annual trend rate would increase the
accumulated post-retirement benefit obligation at December 31, 1998 by
$1,546,000 And the aggregate of service and interest cost components of net
periodic post-retirement benefit expense for the year ended December 31,
1997 by $118,000. The assumed discount rate used in determining the
accumulated post-retirement benefit obligation was 6.5% and 7.5% as of
December 31, 1998 and 1997 respectively.
(16) Accrued Liabilities Consist of (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Salaries and related benefits $ 5,642 $ 6,497
Interest 2,003 2,003
Facility closure costs 1,677 775
Post-retirement benefits 1,712 1,709
Interest cost on APBO 4,636 3,471
--------- ---------
$ 15,670 $ 14,455
========= =========
</TABLE>
46
<PAGE>
(17) Supplemental Cash Flow Information
Non-cash investing and financing activities:
During 1998 the company recorded an intangible asset related to the hourly
defined benefit pension plan amounting to $166,000 and a long-term liability of
$1,636,000. The offset resulted in a minimum pension liability adjustment of
$910,000, net of tax benefit.
During 1998 the company recorded an intangible asset related to the SERP in the
amount of $2,622,000 and recorded a long-term liability for the same amount.
During 1997 the company recorded an intangible asset related to the hourly
defined benefit pension plan amounting to $180,000 and a long-term liability of
$946,000. The offset resulted in a minimum pension liability adjustment of
$471,000, net of tax benefit.
During 1997 the company recorded an intangible asset related to the SERP in the
amount of $2,487,000 and recorded a long-term liability for the same amount.
(18) Significant Business Concentrations
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Customer Concentration
Total % sales from top 5 customers 24% 28% 41%
% Sales from largest single customer (a) -- -- 12%
(if greater than 10%)
Foreign sales as % of total sales (b) 29% 8% 10%
Europe 23% 2% 2%
Far East 3% 4% 5%
Other (including Latin America) 3% 2% 3%
</TABLE>
(a) In our office products and technical specialties segment
(b) Excluding Canada
(19) Stock Option and Bonus Plans
The company has three stock option plans which provide for grants of
non-qualified or incentive stock options. The 1992 Amended and Restated Stock
Option Plan ("1992 Plan") is fully granted at 301,422 shares of common stock to
management of the company. Options granted under the 1992 Plan typically vest at
a rate of 20% per year and are exercisable for a period of ten years from the
grant date.
The 1994 Stock Option Plan ("1994 Plan") is fully granted at 300,000 shares of
common stock to selected officers and employees of the company. Options granted
under the Plan vest at a rate of 20% per year commencing on the one year
anniversary of the grant date and 1.66% at the end of each month thereafter. The
options are exercisable for a period of ten years from the grant date.
The 1994 Director Stock Option Plan ("Directors' Plan") authorizes the grant of
up to 225,000 shares
47
<PAGE>
(19) Stock Option and Bonus Plans, continued
of common stock to directors who are not otherwise full-time employees of the
company. The Plan was amended in 1996 to increase the authorized shares from
75,000 to 225,000 shares and to allow for an accelerated vesting schedule not to
exceed five years. Options will vest and become exercisable based upon target
levels set for the fair market value of the common stock or in the event of a
merger or asset sale. The options are exercisable for a period of eight years
from the date of grant.
During 1997 the company authorized the grant of up to 600,000 incentive stock
options under a new plan, the 1997 Stock Option Plan ("1997 Plan") to selected
officers and employees of the company. Options granted under the 1997 Plan vest
at a rate of 20% per year and are exercisable for a period of ten years from the
grant date.
During 1998 the company authorized the grant of up to 200,000 stock options
under a new plan, the 1998 Stock Option Plan ("1998 Plan") to non-employee
Directors. The 1998 Plan contains two types of option grants: (1) a base grant
of an option for 7,500 shares at the grant date fair market value option price
which vests at a rate of 20% for each year of board service and (2) a
performance grant of an option for 15,000 shares at a grant date fair market
value option price which has accelerated vesting if the stock of the company
reaches certain price levels for 20 consecutive trading days and ultimately
vests after eight years of service on the Board of Directors.
The following table sets forth the stock option transactions for the three years
ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
------ -----
<S> <C> <C>
Outstanding, December 31, 1995 412,897 $ 4.77
Granted 381,102 10.99
Exercised (8,490) 4.05
Forfeited (34,275) 6.96
---------
Outstanding, December 31, 1996 751,234 7.83
Granted 182,500 21.87
Exercised (21,850) 5.36
Forfeited (7,500) 9.96
---------
Outstanding, December 31, 1997 904,384 10.70
Granted 335,000 20.88
Exercised (61,285) 7.60
Forfeited (26,715) 13.02
---------
Outstanding, December 31, 1998 1,151,384 $ 13.77
=========
</TABLE>
48
<PAGE>
(19) Stock Option and Bonus Plans, continued
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ----------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 12/31/98 Life Price 12/31/98 Price
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.33 217,380 3.6 $ 3.33 217,380 $ 3.33
6.00 to 7.83 102,700 6.2 6.81 79,864 6.79
9.00 to 9.41 176,000 8.1 9.24 124,756 9.29
13.38 to 13.50 297,804 8.8 13.50 59,740 13.50
19.44 to 25.63 252,500 8.9 21.87 62,500 22.77
30.00 to 38.00 105,000 9.4 33.00 -- --
--------- -------
1,151,384 544,240
========= =======
</TABLE>
The company has adopted the disclosure-only provisions of Statement of Financial
Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no
compensation cost has been recognized for stock options granted under the plans
during 1998, 1997 and 1996 as the options were all granted at exercise prices
which equaled the market value at the date of the grant. Compensation for the
options granted prior to December 31, 1992 at $3.33 per share was measured as of
the grant date based upon a fair market value of $5.33 per share as determined
by the Board of Directors and is being recognized as expense over the vesting
period. Had compensation cost for the company's stock option plans been
determined based on the fair value at the grant date for awards during 1998,
1997 and 1996 consistent with the provisions of SFAS No. 123, the company's net
income would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income, as reported $11,509 $ 6,169 $ 7,217
Net income, pro forma 9,919 5,304 7,075
Basic earnings per share, as reported $ 1.48 $ 1.01 $ 1.19
Basic earnings per share, pro forma 1.28 .86 1.17
Diluted earnings per share, as reported $ 1.43 $ .95 $ 1.14
Diluted earnings per share, pro forma 1.23 .82 1.12
</TABLE>
Pro forma net income reflects only options granted after 1994. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the options' vesting periods and
compensation cost for options granted prior to January 1, 1995 is not
considered.
49
<PAGE>
(19) Stock Option and Bonus Plans, continued
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 1998, 1997 and 1996: 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. Expense recorded under the plan
amounted to $660,000, $1,001,000 and $398,000 in 1998, 1997 and 1996,
respectively.
(20) Unaudited Quarterly Summary Information
The following is a summary of unaudited quarterly summary information for the
years ended December 31, 1998, 1997 and 1996 (in thousands except per share
data).
<TABLE>
<CAPTION>
1998 March 31 June 30 Sept 30 Dec 31(1)
---- -------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $79,951 $78,591 $73,150 $75,400
Gross profit 15,676 14,767 13,383 13,929
Net income (loss) 4,351 3,751 3,318 89
Basic earnings per share 0.56 0.48 0.43 0.01
Diluted earnings per share 0.54 0.46 0.41 0.01
<CAPTION>
1997 March 31 June 30 Sept 30 Dec 31(1)
---- -------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $59,442 $59,415 $57,802 $58,699
Gross profit 11,265 11,318 11,517 11,964
Net income (loss) 2,733 3,054 3,199 (2,817)
Basic earnings per share 0.45 0.50 0.53 (0.44)
Diluted earnings per share 0.43 0.48 0.50 (0.44)
<CAPTION>
1996 March 31 June 30 Sept 30 Dec 31(1)
---- -------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $24,859 $26,086 $26,789 $47,037
Gross profit 3,503 5,011 5,115 9,161
Net income 1,048 1,816 2,093 2,260
Basic earnings per share 0.17 0.30 0.35 0.37
Diluted earnings per share 0.17 0.29 0.33 0.35
</TABLE>
50
<PAGE>
(1) In the fourth quarter of 1998, the company announced its decision to close
the facility located in Beaver Falls, New York. Income from operations
reflects a $7,794,000 charge as a result of this event.
(2) In the fourth quarter of 1997, the company announced its decision to close
the facility located in Owensboro, Kentucky. Income from operations
reflects a $10,000,000 charge as a result of this event.
Equivalent shares of common stock have not been included in the 1997
fourth quarter diluted earnings per share calculation as their effect
would be anti-dilutive.
(3) In the fourth quarter of 1996, the company acquired Arcon Holdings
Corporation and CPG Investors Inc.
(21) Segment Information
On December 31, 1998, the company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131). SFAS 131 established standards for
reporting information about operating segments in annual financial
statements and requires selected information about operating segments in
interim financial reports issued to stockholders. It also established
standards for related disclosures about products and services and
geographic areas.
The company's reportable operating segments include: technical and office
products, durable specialties and FiberMark Gessner and North American
filter products. Each operating segment consists of facilities with common
management, with significant marketing and manufacturing overlap.
The technical and office products segment manufactures a wide range of
specialty fiber-based materials used in communications, including base or
cover materials for electrical/electronics, graphic arts and office
products, as well as other technical specialties. This represents the
combination of our office products and technical specialties markets.
Durable specialties produces specialty tape substrates, using a broad
range of saturated, coated paper and non-woven materials. This represents
our U.S. durable specialties division.
FiberMark Gessner and North American filter products manufactures filter
media used in automotive, vacuum, water and industrial filtration,
including paper, synthetic non-woven materials and composite materials.
FiberMark Gessner also manufactures technical specialties (abrasives) and
durable specialties (tape backing materials). This segment encompasses
FiberMark Gessner GmbH, as well as our North American filter products
business.
The following table details sales and selected financial data by operating
segment (in thousands). Inter-segment sales are accounted for as if the
sales were to third parties.
51
<PAGE>
(21) Segment Information (Continued)
(In Thousands)
<TABLE>
<CAPTION>
FiberMark Gessner
Office Products and
and Durable N. American
Tech. Spec. Specialties Filter Products Other Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 129,315 $ 55,688 $ 122,089 $ -- $ 307,092
Intersegment net sales 918 296 333 (1,547) --
---------- ---------- ---------- ---------- ----------
Total net sales $ 130,233 $ 55,984 $ 122,422 $ (1,547) $ 307,092
========== ========== ========== ========== ==========
EBIT $ 12,729 $ 7,567 $ 14,623 $ (5,823)(1) $ 29,096
========== ========== ========== ========== ==========
Depreciation & Amortization $ 3,714 $ 2,490 $ 2,749 $ -- $ 8,953
Total Assets $ 102,333 $ 57,011 $ 112,917 $ 38,970 (4) $ 311,231
1997
Net sales $ 135,964 $ 58,188 $ 41,206 $ -- $ 235,358
Intersegment net sales 4,749 1,456 21 (6,226) --
---------- ---------- ---------- ---------- ----------
Total net sales $ 140,713 $ 59,644 $ 41,227 $ (6,226) $ 235,358
========== ========== ========== ========== ==========
EBIT $ 15,985 $ 8,396 $ 4,752 $ (9,785)(2) $ 19,348
========== ========== ========== ========== ==========
Depreciation & Amortization $ 4,396 $ 2,144 $ 853 $ -- $ 7,393
Total assets $ 107,478 $ 59,799 $ 30,467 $ 50,257 (4) $ 248,001
1996
Net sales $ 85,971 $ 32,216 $ 6,584 $ -- $ 124,771
Intersegment net sales 4,286 529 -- (4,815) --
---------- ---------- ---------- ---------- ----------
Total net sales $ 90,257 $ 32,745 $ 6,584 $ (4,815) $ 124,771
========== ========== ========== ========== ==========
EBIT $ 10,659 $ 2,601 $ 635 $ 97 (3) $ 13,992
========== ========== ========== ========== ==========
Depreciation & Amortization $ 2,207 $ 1,256 $ 188 $ -- $ 3,651
Total assets $ 109,332 $ 53,678 $ 28,449 $ 20,549 (4) $ 212,008
(1) 1998 Other Includes Facility Closure (Technical and Office Products Segment) $ (7,274)
Cogeneration Income 1,451
----------
$ (5,823)
(2) 1997 Other Includes Facility Closure (Technical and Office Products Segment) $ (10,000)
Cogeneration Income 215
----------
$ (9,785)
(3) 1996 Other Includes Cogeneration Income $ 97
(4) Corporate assets not allocated to operating segments.
</TABLE>
52
<PAGE>
(21) Segment Information (Continued)
Information concerning principal geographic areas is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales (a)
North America $217,664 $216,752 $112,397
Europe 69,202 3,287 2,116
Far East 9,426 9,377 5,970
Other 10,800 5,942 4,288
-------- -------- --------
Total $307,092 $235,358 $124,771
</TABLE>
(a) Revenues are attributed to countries based on product shipment
destination.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Property, plant and equipment, net:
North America $ 87,910 $ 90,243 $ 89,696
Europe 40,465 -- --
-------- -------- --------
Total $128,375 $ 90,243 $ 89,696
</TABLE>
53
<PAGE>
FIBERMARK, INC.
Schedule II - Valuation and Qualifying Accounts and Reserves
(In Thousands)
<TABLE>
<CAPTION>
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, 1998 Allowances for possible
losses on accounts receivable............................. $203 $586(1) $163 $626
Year Ended December 31, 1997 Allowances for possible
losses on accounts receivable............................. $333 ($113) $17 $203
Year Ended December 31, 1996 Allowance for possible
losses on accounts receivable............................. $253 $173 $93 $333
</TABLE>
(1) The increase in the reserve reflects the impact of the acquisition of
Steinbeis Gessner GmbH.
54
<PAGE>
Independent Auditors Report
The Board of Directors and Stockholders
FiberMark, Inc.:
Under date of February 5, 1999, we reported on the consolidated balance sheets
of FiberMark, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1998, as
contained in the annual report on Form 10-K for the year 1998. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG LLP
Burlington, Vermont
February 5, 1999
55
<PAGE>
Item 14 (a) (3) Exhibits
Number Description
- - ------ -----------
2.1(10) Share Purchase Agreement dated as of November 26, 1997, among
Steinbeis Holding GmbH ("Steinbeis"), Zetaphoenicis Beteiligungs
GmbH and Thetaphoenicis Beteiligungs GmbH.
3.1(1) Restated Certificate of Incorporation of the Company as amended
through March 25, 1997.
3.2(10) Certificate of Ownership and Merger of FiberMark, Inc. with and into
Specialty Paperboard, Inc. filed with the Secretary of State of
Delaware on March 26, 1997.
3.3(1) Restated By-laws.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen stock certificate.
4.3(9) Indenture dated as of October 15, 1996 (the "Indenture") among the
Company, CPG Co., Specialty Paperboard/Endura, Inc. ("Endura") and
the Wilmington Trust Company ("Wilmington").
4.4(9) Specimen Certificate of 9 3/8% Series B Senior Note due 2006
(included in Exhibit 4.3 hereof).
4.5(9) Form of Guarantee of Senior Notes issued pursuant to the Indenture
(included in Exhibit 4.3 hereof).
10.1(5) Lease Agreement dated April 29, 1994, between CIT Group/Equipment
Financing Inc. ("CIT/Financing") and the Company.
10.2(5) Grant of Security Interest in Patents, Trademarks and Leases dated
April 29, 1994, between the Company and CIT/Financing.
10.3(5) Bill of Sale dated April 29, 1994, to CIT/Financing.
10.4(1)(3) Form of Indemnity Agreement entered into between the Company and its
directors and executive officers.
10.5(1)(3) The Company's 1992 Amended and Restated Stock Option Plan and
related form of Option Agreement.
10.6(1) Paper Procurement Agreement, between the Company and Acco-U.S.A.
10.7(1) Energy Service Agreement (Latex mill), dated as of November 19,
1992, between Kamine and the Company.
10.8(2) Amendment No. 1 to the Energy Service Agreement (Latex mill), dated
as of May 7, 1993, between Kamine and the Company.
10.9(1) Energy Service Agreement (Lewis mill), dated as of November 19,
1992, between Kamine and the Company.
10.10(2) Amendment No. 1 to the Energy Service Agreement (Lewis mill), dated
as of May 7, 1993, between Kamine and the Company.
10.11(1) Restated Ground Lease, dated as of November 19, 1992, between Kamine
and the Company.
10.12(1) Beaver Falls Cogeneration Buyout Agreement, dated as of November 20,
1992, between Kamine, Kamine Beaver Falls Cogen. Co., Inc. and the
Company.
10.13(2) Consent and Agreement (Energy Services Agreement), dated as of May
7, 1993, by the Company.
10.14(2) First Amendment of Restated Ground Lease, dated as of May 7, 1993,
between Kamine and the Company.
10.15(2) Memorandum of Lease, dated as of May 7, 1993, between Kamine and the
Company.
10.16(7)(3) The Company's 1994 Stock Option Plan and related forms of Option
Agreements.
56
<PAGE>
10.17(7)(3) The Company's 1994 Directors Stock Option Plan and related form of
Option Agreement.
10.18(9)(3) Amendment to the Company's 1994 Directors Stock Option Plan.
10.19(4)(3) The Company's Executive Bonus Plan.
10.20(9) Deed of Lease between James River Paper Company, Inc. and
CPG-Virginia Inc. dated as of October 31, 1993.
10.21(9) Amended and Restated Agreement of Lease, between Arnold Barsky doing
business as A&C Realty and Arcon Mills Inc., dated June 1, 1988.
10.22(9) Lease Agreement dated November 15, 1995, between IFA Incorporated
and Custom Papers Group Inc. ("Custom Papers Group").
10.23(9) Master Lease Agreement dated January 1, 1994, between Meridian
Leasing Corp. and Custom Papers Group.
10.24(9) Master Equipment Lease Agreement dated February 3, 1995, between
Siemens Credit Corp. and CPG Holdings Inc.
10.25(6) Endura Sale Agreement, by and among W.R. Grace & Co. Conn., W.R.
Grace (Hong Kong) Limited, Grace Japan Kabushiki Kaisha
(collectively, the "Sellers"), the Company, Specialty Paperboard
(Hong Kong Limited) and Specialty Paperboard Japan Kabushiki Kaisha
(collectively the "Buyers"), dated May 10, 1994. 10.26 (11) Loan
Agreement dated as of November 24, 1997, between Steinbeis and
Gessner.
10.27(11) Expansion Land Option and Preemption Right Agreement dated as
of November 13, 1997, between Steinbeis and Gessner.
10.28(12) Third Amended and Restated Financing Agreement & Guaranty
10.29(12) Second Amended and Restated Security Agreement dated December
31, 1997, between FiberMark Office Products, LLC and CIT
Group/Equipment Financing, Inc.
10.30(12) Second Amended and Restated Security Agreement dated December
31, 1997, between FiberMark, Inc. FiberMark Durable Specialties,
Inc., and FiberMark Filter and Technical Products
10.31(12) Loan Agreement dated as of January 7, 1988, between
Zetaphoenieis Beteiligungs GmbH and Bayerische Vereinsbank AG
("Bayerische").
10.32(12) Working Credit Facility dated as of January 13, 1998 between
Gessner and Bayerische.
10.33(12) Capex Loan Agreement dated as of January 13, 1998, between
Gessner and Bayerische.
10.34 1998 Amended and Restated Non-Employee Directors Stock Option
Plan
21 List of FiberMark subsidiaries
23.1 Consent of KPMG LLP.
27 Financial Data Schedule
57
<PAGE>
(1) Incorporated by reference to exhibits filed with the company's
Registration Statement on Form S-1 (No. 33-47954), as amended, which
became effective March 10, 1993.
(2) Incorporated by reference to exhibits filed with the company's report on
Form 10-Q for the quarter ended June 30, 1993, filed August 13, 1993.
(3) Indicates management contracts or compensatory arrangements filed pursuant
to Item 601(b)(10) of Regulation S-K.
(4) Incorporated by reference to exhibits filed with the company's report on
Form 10-K for the year ended December 31, 1993 (No. 0-20231).
(5) Incorporated by reference to exhibits filed with the company's report on
Form 10-Q for the quarter ended March 31, 1994, filed May 14, 1994.
(6) Incorporated by reference to exhibits filed with the company's report on
Form 8-K, filed July 14, 1994.
(7) Incorporated by reference to exhibits filed with the company's
Registration Statement on Form S-8 filed, July 18, 1994.
(8) Incorporated by reference to exhibits filed with the company's report on
Form 10-K for the year ended December 31, 1994 (No. 0-20231).
(9) Incorporated by reference to exhibits filed with the company's report on
Form 10-K for the year ended December 31, 1996, filed April 1, 1997.
(10) Previously filed.
(11) Incorporated by reference to exhibits filed with the company's
Registration Statement on Form S-3, filed December 15, 1997.
(12) Incorporated by reference to exhibits filed with the company's report on
Form 10-K for the year ended December 31, 1997, filed March 31, 1998.
58
<PAGE>
FIBERMARK, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Brattleboro,
County of Windham, State of Vermont, on the 31st day of March, 1999.
FiberMark, Inc.
By /s/ ALEX KWADER
---------------------
Alex Kwader
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Alex Kwader and Bruce Moore, or any of them, his or her
attorney-in-fact, each with the power of substitution, for him or her in any and
all capacities, to sign any amendments to this Report, and to file the same,
with exhibits thereto and other documents in connections therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may do
or cause to be done by virtue hereof. This Form 10-K may be executed in multiple
counterparts, each of which shall be an original, but which shall together
constitute but one agreement.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ ALEX KWADER President and March 31, 1999
- - ------------------------ Chief Executive Officer
Alex Kwader
/S/ K. PETER NORRIE Chairman of the Board March 31, 1999
- - ------------------------
K. Peter Norrie
/S/ BRIAN C. KERESTER Director March 31, 1999
- - ------------------------
Brian C. Kerester
/S/ MARION A. KEYES, IV Director March 31, 1999
- - ------------------------
Marion A. Keyes, IV
/S/ GEORGE E. MCCOWN Director March 31, 1999
- - ------------------------
George E. McCown
/S/ JON H. MILLER Director March 31, 1999
- - ------------------------
Jon H. Miller
/S/ ELMAR B. SCHULTE Director March 31, 1999
- - ------------------------
Elmar B. Schulte
/S/ EDWARD P. SWAIN, JR. Director March 31, 1999
- - ------------------------
Edward P. Swain, Jr.
/S/ FRED P. THOMPSON, Director March 31, 1999
JR.
- - ------------------------
Fred P. Thompson, Jr.
/S/ BRUCE MOORE Vice President March 31, 1999
- - ------------------------ Chief Financial Officer
Bruce Moore
FIBERMARK, INC.
AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
ADOPTED ON FEBRUARY 18, 1998
R E C I T A L S :
A. FiberMark, Inc. (the "Company") adopted on February 28, 1994, the
1994 Directors Stock Option Plan (the "Plan") to provide a means to retain the
services of persons serving as Non-employee Directors of the Company (as
hereinafter defined) and to provide incentives for such Directors to exert
maximum efforts for the success of the Company.
B. On May 9, 1996, the stockholders of the Company approved the
Company's Amended 1994 Directors Stock Option Plan to add additional shares to
be awarded to Directors with accelerated vesting based on the Company achieving
certain stock price levels.
C. Pursuant to Section 11 of the Plan, the Board of Directors (the
"Board") has authority to amend and restate the Plan and the Board desires to
amend and restate the Plan to add additional shares to be awarded pursuant to
the FiberMark, Inc. Amended and Restated Non-Employee Directors Stock Option
Plan (the "Directors Plan") subject to stockholder approval.
NOW, THEREFORE, the Directors Plan is as follows:
1. PURPOSE.
(a) The purpose of the Directors Plan is to provide a means by which each
director of the Company who is not otherwise employed on a full-time basis by
the Company (each such person being hereafter referred to as a "Non-employee
Director") will be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Directors Plan, seeks to retain the
services of persons now serving as Non-employee Directors of the Company, to
secure and retain the services of persons capable of serving in such capacity,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
2. ADMINISTRATION.
(a) The Directors Plan shall be administered by the Board of Directors of
the Company (the "Board") unless and until the Board delegates administration to
a committee, as provided in subparagraph 2(b). The Board or any committee to
which the Board delegates administration of the Directors Plan shall have full
power and authority to interpret and implement the Directors Plan, and its
decisions are binding and conclusive.
(b) The Board may delegate administration of the Directors Plan to a
committee composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of
<PAGE>
the Directors Plan, the powers theretofore possessed by the Board, subject,
however, to such resolutions, not inconsistent with the provisions of the
Directors Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Directors Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Directors Plan shall not exceed in the aggregate four hundred twenty five
thousand (425,000) shares of the Company's common stock ("Stock"). If any option
granted under the Directors Plan shall for any reason expire or otherwise
terminate without having been exercised in full, the Stock not purchased under
such option shall again become available for the Directors Plan.
(b) The Stock subject to the Directors Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-employee Directors of the Company.
5. GRANTS.
Subject to the maximum number of shares reserved under the Directors Plan:
Base Grants.
(a) On May 5, 1998, each person who is then a Non-employee Director of the
Company shall be granted an option to purchase 7,500 shares of Stock of the
Company subject to the vesting and other provisions set forth in the Directors
Plan.
(b) Each person who is, after May 5, 1998, elected by the stockholders of
the Company for the first time to be a Non-employee Director shall, upon the
date of his initial election to be a Non-employee Director by the Board or
stockholders of the Company, be granted an option to purchase seven thousand
five hundred (7,500) shares of Stock of the Company on the terms and conditions
set forth herein.
Performance Grants.
(c) On May 5, 1998, each person who is then a Non-employee Director shall
be granted an option to purchase fifteen thousand (15,000) shares of Stock of
the Company on the terms and conditions set forth herein.
(d) Each person who is, after May 5, 1998, elected by the stockholders of
the Company for the first time to be a Non-employee Director shall, upon the
date of his initial election be a Non-employee Director by the Board or
stockholders of the Company, be granted an option to purchase fifteen thousand
(15,000) shares of Stock of the Company on the terms and conditions set forth
herein.
<PAGE>
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) Term.
The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
director of the Company terminates for any reason or for no reason, the option
shall terminate on the earlier of the Expiration Date or the date twelve (12)
months following the date of termination of service; provided, however, that if
such termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or twenty-four (24) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Director of the Company only as to that number of shares as to which it was
exercisable on the date of termination of such service under the provisions of
subparagraph 6(e).
(b) Exercise Price.
The exercise price of each option shall be one hundred percent
(100%) of the Fair Market Value of the Stock subject to such option on the date
such option is granted and shall be stated in the stock option issued to the
director. "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the Stock is listed on any established stock exchange or a
national market system, including without limitation the New York Stock Exchange
("NYSE"), the Fair Market Value of a share of common stock shall be the closing
sales price for such Stock (or the mean between the closing representative bid
and the asked price, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in Stock) on the
last market trading day prior to the day of determination, as reported in The
Wall Street Journal or such other sources as the Board deems reliable;
(2) If the Stock is quoted on the NYSE or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Stock shall be the mean between the closing bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable; or
(3) In the absence of an established market for the Stock, the Fair
Market Value shall be determined in good faith by the Board.
(c) Payment of Exercise Price.
The optionee may elect to make payment of the option exercise price
under one of the following alternatives:
(1) Payment of the exercise price in cash or check at the time
of exercise; or
<PAGE>
(2) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in The Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at fair market value on
the date preceding the date of exercise in accordance with such terms or
conditions as may be established; or
(3) Payment by a combination of the methods of payment
specified in subparagraph 6(c)(1) and 6(c)(2) above.
Notwithstanding the foregoing, an option may be exercised pursuant to a
program, if any established by the Company, under Regulation T as promulgated by
the Federal Reserve Board which results in the receipt of cash (or check) by the
Company prior to the issuance of shares of the Company's common stock.
(d) Transferability.
An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his guardian or
legal representative. The person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) Option Vesting.
Base Grant.
(1) Any option granted pursuant to Section 5a or 5b of this
Directors Plan (the "Base Grant") shall become exercisable at a rate of twenty
percent (20%) per year for five (5) years, commencing on the earlier of the
first anniversary of the date of grant of the option or the following annual
meeting of the Company and continuing thereafter annually to vest at such
earlier date. In order for an optionee's shares to vest, the optionee must have,
during the entire period prior to such vesting date, continuously served as a
Non-employee Director of the Company, whereupon such option shall become
exercisable in accordance with its terms with respect to that portion of the
shares represented by that installment. The Board or the Committee reserves the
right to accelerate vesting of options granted as a Base Grant when, in its
discretion, acceleration of the option is prudent under the circumstances.
Performance Grant.
(2) One hundred percent (100%) of the shares subject to an option granted
under the Performance Grants of this Directors Plan (Section 5(c) or 5(d)) shall
vest and the options shall become exercisable eight (8) years from the option
grant date if the Optionee is still serving as a director of the Company on such
date. Notwithstanding the foregoing, the time of vesting of
<PAGE>
each such option shall be accelerated to the extent and upon the occurrence of
the events described below:
a. Fifty percent (50%) of the shares subject to each such option
shall become exercisable either:
(i) at such time as there is an established public market for
the Stock and the per share fair market value of the Company's stock reaches a
level of at least Thirty Dollars ($30) for a period of at least twenty (20)
consecutive trading days, as reported on any established stock exchange or
national market system identified in Section 6(b)(1) or (2) of the Director
Plan; or
(ii) in the event of a merger or consolidation of the Company
in which the stockholders prior to such event do not hold at least a majority
ownership of the surviving or acquiring corporation following such event, or of
the sale of substantially all of the assets or a similar arrangement where the
shares of the Company are assigned a value (or reasonably can be determined to
have a value) of Thirty Dollars ($30) or more for purposes of such merger,
consolidation or asset sale.
b. An additional twenty-five percent (25%) of the shares subject to
each such option shall become exercisable at such time as there is an
established public market for the Stock and the per share fair market value of
the Company's stock (as described in subparagraph 6e(2)(a)(i) above) reaches
Thirty-four Dollars ($34) for at least twenty (20) consecutive trading days or
is valued at $34 per share in a merger, consolidation or asset sale (as
described in subparagraph 6(e)(2)(a)(ii) above).
c. The remaining twenty-five percent (25%) of the shares of Stock
subject to each such option shall become exercisable at such time as there is an
established public market for the Stock and the per share fair market value of
the Company's stock (as described in subparagraph 6(e)(2)(a)(i) above) reaches
Thirty-eight Dollars ($38) for at least twenty (20) consecutive trading days or
is valued at $38 per share in a merger, consolidation or asset sale (as
described in subparagraph 6(e)(2)(a)(ii) above).
(f) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising any such
option: (i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and (ii)
to give written assurances satisfactory to the Company stating that such person
is acquiring the Stock subject to the option for such person's own account and
not with any present intention of selling or otherwise distributing the Stock.
(g) The Company is not required to issue Stock to the holder of an option
until the Company has determined to its satisfaction that the person exercising
an option is entitled to do so.
(h) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act of 1933 as amended (the "Securities
Act") or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act.
<PAGE>
(i) The Company reserves the right to impose ownership or transfer
restrictions on any shares purchased by exercise of an option and to require
such shares to bear a restrictive legend to comply with the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Directors Plan, the
Company shall keep available at all times the number of shares of Stock required
to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Directors Plan such authority as may be
required to issue and sell shares of Stock upon exercise of the options granted
under the Directors Plan; provided, however, that this undertaking shall not
require the Company to register under the Securities Act either the Directors
Plan, any option granted under the Directors Plan, or any Stock issued or
issuable pursuant to any such option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Stock under the Directors Plan, the Company shall be relieved from any
liability for failure to issue and sell Stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Stock pursuant to options granted under the
Directors Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Directors
Plan, the Company shall make available to the holder of such option, not later
than one hundred twenty (120) days after the close of each of the Company's
fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
stockholders of the Company provided for in the Bylaws of the Company and such
other information regarding the Company as the holder of such option may
reasonably request.
(c) Nothing in the Directors Plan or in any instrument executed pursuant
thereto shall confer upon any Non-employee Director any right to continue in the
service of the Company or shall affect any right of the Company, its Board or
stockholders to terminate the service of any Non-employee Director with or
without cause.
(d) No Non-employee Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Directors Plan except as to such shares of Stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
<PAGE>
(e) In connection with each option granted pursuant to the Directors Plan,
it shall be a condition precedent to the Company's obligation to issue or
transfer shares to a Non-employee Director, or to evidence the removal of any
restrictions on transfer, that such Non-employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer,
or such removal or lapse, is made available to the Company for timely payment of
such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the Stock subject to the Directors Plan, or
subject to any option granted under the Directors Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors Plan and outstanding options will be appropriately adjusted in the
class(es), kind and maximum number of shares subject to the Directors Plan and
the class(es), kind and number of shares and price per share of Stock subject to
outstanding options as determined by the Board in its discretion.
(b) In the event of: (1) a merger or consolidation in which the Company is
not the surviving corporation; (2) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (3) any
other capital reorganization in which more than fifty percent (50%) of the
shares of the Company entitled to vote are exchanged, any surviving corporation,
other than the Company, shall assume any options outstanding under the Directors
Plan or shall substitute similar options for those outstanding under the
Directors Plan or, if the Company is the surviving corporation, such options
shall continue in full force and effect. The Board is granted the discretion to
immediately vest the options granted in such a change of control situation.
11. AMENDMENT OF THE DIRECTORS PLAN.
(a) The Board at any time, and from time to time, may amend the Directors
Plan, provided, however, except as provided in paragraph 10 relating to
adjustments upon changes in Stock, no amendment shall be effective unless
approved by the stockholders of the Company where the amendment will:
(i) Increase the number of shares which may be issued under the
Directors Plan;
(ii) Decrease the exercise price of an option granted; or
(iii) Extend the term of options granted; or
(iv) Modify the requirements as to eligibility for participation in
the Directors Plan (to the extent such modification requires stockholder
approval in order for the Directors Plan to comply with the requirements of Rule
16b-3); or
<PAGE>
(v) Modify the Directors Plan in any other way if such modification
requires stockholder approval in order for the Directors Plan to comply with the
requirements of Rule 16b-3.
(b) Rights and obligations under any option granted before any amendment
of the Directors Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE DIRECTORS PLAN.
(a) The Board may suspend or terminate the Directors Plan at any time.
Unless sooner terminated, the Directors Plan shall terminate on February 18,
2008. No options may be granted under the Directors Plan while the Directors
Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Directors
Plan is in effect shall not be altered or impaired by suspension or termination
of the Directors Plan, except with the written consent of the person to whom the
option was granted.
13. EFFECTIVE DATE OF DIRECTORS PLAN; CONDITIONS OF EXERCISE.
(a) The Directors Plan shall become effective upon adoption by the Board
of Directors, subject to the condition subsequent that the Directors Plan is
approved by the stockholders of the Company at the annual meeting scheduled for
May 5, 1998.
(b) No option granted under the Directors Plan shall be exercised or
exercisable unless and until the condition of subparagraph 13(a) above has been
met.
List of Subsidiaries
FiberMark Durable Specialties, Inc.
FiberMark Filter and Technical Products, Inc.
FiberMark Gessner GmbH
FiberMark (HONG KONG) Limited
FiberMark Japan K.K.
FiberMark Office Products, LLC
FiberMark SARL Thetapoenicis Beteiligungs GmbH
Zetaphoenicis Beteiligungs GmbH
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FiberMark, Inc.
We consent to incorporation by reference in the registration statement (No.
33-81702) on Form S-8 of FiberMark, Inc. of our report dated February 5, 1999,
relating to the consolidated balance sheets of FiberMark, Inc. and subsidiaries
as of December 31, 1998, and 1997, and the related consolidated statements of
earnings, retained earnings, and cash flows for each of the years in the
three-year period ended December 31, 1998, and all related schedules, which
report appears in the December 31, 1996, annual report on Form 10-K of
FiberMark, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE 12 MONTHS ENDED DECEMBER 31,1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 31,518
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0
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