-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqUOpOGO13HCyIxRSLSquZl9p3c9dLby+6KN9vCF7pP37ni5hw1f74i25lSs19ql LYboOucFAEZAU35YqqhKlQ== 0000912057-00-013298.txt : 20000327 0000912057-00-013298.hdr.sgml : 20000327 ACCESSION NUMBER: 0000912057-00-013298 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIBERMARK INC CENTRAL INDEX KEY: 0000887591 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 820429330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12865 FILM NUMBER: 577234 BUSINESS ADDRESS: STREET 1: 161 WELLINGTON RD STREET 2: PO BOX 498 CITY: BRATTLEBORO STATE: VT ZIP: 05302 BUSINESS PHONE: 8022570365 MAIL ADDRESS: STREET 1: 161 WELLINGTON RD STREET 2: PO BOX 498 CITY: BRATTLEBORO STATE: VT ZIP: 05302 FORMER COMPANY: FORMER CONFORMED NAME: SPECIALTY PAPERBOARD INC DATE OF NAME CHANGE: 19940527 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission file number 0-20231 FIBERMARK, INC. (Exact name of Registrant as specified in its charter) DELAWARE 82-0429330 (State of incorporation) (IRS Employer Identification No.) 161 WELLINGTON ROAD, P.O. BOX 498 BRATTLEBORO, VERMONT 05302 (802) 257-0365 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001 PAR VALUE Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to be the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes / / No /X/ The approximate aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the last sale price of the Common Stock reported on the New York Stock Exchange was $11.50 as of March 13, 2000. Excluded from this computation were shares held by directors and executive officers of the Company and their associates as a group. Such exclusion does not signify that members of this group are "affiliates" of or controlled by the Company. The number of shares of Common Stock outstanding was 6,830,483 as of March 13, 2000. DOCUMENTS INCORPORATED BY REFERENCE REGISTRANT'S DEFINITIVE PROXY STATEMENT THAT WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH REGISTRANT'S 1999 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 24, 2000 IS INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT. ================================================================================ PART I ITEM 1. BUSINESS FiberMark is a leading producer of specialty fiber-based materials (paper, synthetic and composite) with ten production facilities in the United States and Europe. Formed in 1989 as an independent company, FiberMark subsequently went public in 1993. The company develops customer-focused solutions for markets worldwide that value differentiated products and services. Our products, typically used by customers who manufacture components or finished products for industrial and consumer applications, include base materials or media for: o filtration (transportation, vacuum, water, and industrial) o specialty tapes and labels o wallcovering, table cloths and flooring, abrasive and electrical/electronic applications o communication/graphic arts materials in the office, home, school or commercial settings With its versatile manufacturing and technical capabilities and strong service orientation, FiberMark holds leadership positions in its core markets. Using a wide range of fibers and raw materials, including wood pulp and recovered paper, glass, rayon and other synthetic fibers, and cotton denim, the company's manufacturing capabilities comprise papermaking, synthetic web technology (meltblown), saturating, coating, embossing, laminating and other converting processes. Our engineered materials are typically sold in roll or sheet form directly to customers through our internal sales force. In some markets, products are sold through distributors or paper merchants. OVERVIEW As a specialty fiber-based materials producer, FiberMark serves a broad range of markets that stem from four core product families: filter media, durable specialties (tape and label base materials), technical specialties (base materials for a multitude of markets) and cover materials for office, home and school supplies. The company's three operating segments include: German Operations and Filter Media North America, Durable Specialties, and Technical & Office Products. The relationship of FiberMark's operating segments to our product families is described in Footnote 21, "Segment Information". An outline of our core product families follows:
- ------------------------------------------------------- ----------------------------------------------------- FILTER MEDIA TAPE BASE AND LABEL MATERIAL - ------------------------------------------------------- ----------------------------------------------------- TRANSPORTATION TAPE SUBSTRATES/BASE MATERIALS Liquid (Fuel/Hydraulic/Lube) Medical Air Automotive (Painting) Cabin Air Home Construction (Painting) HOME Electronics Vacuum (Air) Graphic Arts (Application Tape) Water (Liquid) Photographic INDUSTRIAL BINDING TAPES Industrial Fuels Edge Binding and Reinforcing Tapes Beverage Processing (Home and Office) Hot Oil Processing (Fast Food) Pharmaceutical Processing DURABLE BASE MATERIALS Labels - imitation leather and synthetic Protective Coverings
2
- ------------------------------------------------------- ----------------------------------------------------- TECHNICAL SPECIALTIES OFFICE/SCHOOL PRODUCTS BASE MATERIALS COVER MATERIALS - ------------------------------------------------------- ----------------------------------------------------- ELECTRICAL/ELECTRONICS HEAVYWEIGHT COVER MATERIALS Insulating Base for Transformers Binding Printed Circuit Board Base Filing Fuel Cell Composite COMMUNICATIONS/GRAPHIC ARTS LIGHTWEIGHT COVER MATERIALS Book Cover Base Filing Archival Materials Presentation Security Paper Printing Papers Label Base INDUSTRIAL HIGH PERFORMANCE Fire Retardant Material (Automotive/Industrial Filter) Wet Strength (Industrial Process) Friction Materials (Automotive) Absorbent Materials (Medical) HOME/COMMERCIAL Abrasive Base (Sandpaper) Wallcovering Flooring Table Cloth
BUSINESS STRATEGY The company seeks to maximize the return to our shareholders by pursuing the following elements of our strategy: o Gain market leadership by excelling at serving existing and new markets with high value-added opportunities o Pursue strategic, accretive acquisitions that build on our core competencies in existing and new markets o Forge global, mutually beneficial partnerships with our suppliers and customers, providing catalysts for innovation and increasing our knowledge of marketplace needs o Strengthen product and business development to accelerate our internal growth rates o Optimize operations to gain an unparalleled competitive advantage in the markets we serve o Enhance our technical, manufacturing, and service capabilities, aligning them with the product and service needs of our markets o Add value to customers through continuous improvement of productivity, including consolidation of operations that will generate improvements in quality, service or cost o Broaden our raw materials base o Enhance responsiveness to customer requirements o Create new market opportunities o Reduce costs o Reduce exposure to supply/demand volatility 3 OVERVIEW OF MAJOR MARKETS AND FIBERMARK PRODUCT FAMILIES FILTER MEDIA Filter media now comprises the largest product family for FiberMark, due to the January 1998 acquisition of Steinbeis Gessner GmbH. FiberMark Gessner's filter business, together with our North American Filter Media business, accounted for 31% of 1999 sales. The following chart summarizes the filter materials produced by the company, the markets they serve, and representative customers.
TYPE OF MEDIA END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS - -------------------------------------------------------------------------------------------------------------------- TRANSPORTATION FILTRATION: o Saturated and unsaturated o Liquid filters Delphi Automotive Systems Corp., paper that may be reinforced (Fuel, lube, hydraulic oil) Eurofilters N.V., Filterwerke with glass, cotton or synthetic Mann+Hummel GmbH, Fleetguard Inc., fibers o Air filters Division of Cummings Engine Co., o Synthetic (non-woven (engine and vehicle passenger Mahle Filterwerke GmbH, Purolator meltblown) cabin) Products o Composite materials - -------------------------------------------------------------------------------------------------------------------- o Paper and synthetic o Vacuum cleaner Branofilter GmbH, Electrolux Filter (non-woven meltblown) bags (air filtration) AB, The Eureka Co., Home Care Industries, Inc. - -------------------------------------------------------------------------------------------------------------------- o Carbon-activated paper for o Filters for residential water Met-Pro (Keystone Filter Division), removal of taste and odor filtration (drinking water, Omni Filter & Manufacturing o Pleated/saturated paper for swimming pools, spas) particulate removal - -------------------------------------------------------------------------------------------------------------------- o Hot-oil filter bags and o Filter products for hot-oil Food service distributors sheets filtration in fast food restaurants - --------------------------------------------------------------------------------------------------------------------
COMPETITORS The largest single competitor in the filter business is Ahlstrom Filtration, Inc., (a division of A. Ahlstrom Corp.). Additional competitors include Hollingsworth and Vose Co. and Devon Valley Industries, a division of Mead Corp. In the vacuum filter media market only, Monadnock Paper Mills, Inc., is also a competitor. MANUFACTURING Filter media is produced at our Feldkirchen/Westerham facility in Germany, and our Richmond, Virginia, and Rochester, Michigan, facilities. We manufacture base materials, including paper, often with combinations of non-wood pulp sources such as natural and synthetic fibers, synthetic fiber-based materials, and composite paper and non-woven materials. In addition to manufacturing these base materials, we have saturating, creping, laminating and other finishing capabilities. 4 DURABLE SPECIALTIES Our durable specialties product lines are produced and marketed by our U.S. Durable Specialties Division and the durable specialties business from FiberMark Gessner, accounting for 28% of FiberMark's 1999 business. Tape substrates represent the company's primary product family within durable specialties. The company is one of the leading producers of specialty tape substrates and a broad range of saturated, coated non-woven and paper materials. The following chart summarizes the key product lines, their corresponding finished products and markets, and representative customers within this market:
MATERIALS/PRODUCTS END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS - -------------------------------------------------------------------------------------------------------------------- o Base for masking tape and o Masking tape/pressure other pressure sensitive tapes sensitive tape for: o automotive painting (OEM and repair) o building construction/ renovation (painting aid) o 3M o carrier and bandoliering o Avery Dennison Corp. materials use for electronics o Beiersdorf (Tesa) components manufacturing o Eagle OPG, Inc. o medical/surgical tapes and o Esselte Corp. bandages o Intertape Polymer Group o Nitto Denko Corp. o Sicad o Smead Manufacturing Co. - -------------------------------------------------------------------------------------------------------------------- o Stripping and o Filing products, checkbooks, edge-binding tape memo pads o saturated paper o coated non-woven synthetic materials - -------------------------------------------------------------------------------------------------------------------- o Label base and protective o Labels for seat belts and covering materials (synthetic infant car seats; protective material) covers for air bags - --------------------------------------------------------------------------------------------------------------------
COMPETITORS The company's competitors include a mix of large integrated manufacturers and smaller independent companies, including Kimberly Clark Corp., Northeast Paper Converting Company and Southern Label Company, Inc. In some of its niche markets, the company competes with various small competitors, none of which has a dominant market position. Manufacturers of alternate materials must also be considered competitors. MANUFACTURING The base materials for this market are either manufactured in FiberMark facilities including Bruckmuhl, Germany, and Hughesville, New Jersey, or are purchased from outside suppliers. Our Quakertown facility is a converting facility, relying on supply sources from within and outside of FiberMark. For example, a substantial portion of the substrate used in making the company's edge binding and reinforcing tapes is Tyvek-Registered Trademark-, purchased from DuPont and marketed under the FiberMark trade name SUPER ARCOFLEX-Registered Trademark-. Base materials are typically saturated, coated and embossed within FiberMark facilities, and in some cases, by our customers. 5 TECHNICAL SPECIALTIES Technical Specialties represent the most diverse product families and markets within the company. Its materials are used in communications, including base or cover materials for electrical/electronics and graphic arts, as well as other technical specialties such as abrasive backing materials. As a group, these products and markets represent 25% of FiberMark's 1999 sales revenue.
FIBERMARK MATERIALS/PRODUCTS END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS - -------------------------------------------------------------------------------------------------------------------- o Abrasive backing material o Abrasives for hand and machine (wet and dry applications) sanding (sandpaper) o 3M - ------------------------------------------------------------------------------------o Automotive Composites Co. o Security paper o Identity cards (Social Security), o Bedford Materials Co., Inc. ticket stock, stock certificates, o Eastman Kodak Corp. drivers' licenses and car o Crescent Cardboard, Co. registrations, passports o Holyoke Card - ------------------------------------------------------------------------------------o Nielson and Bainbridge o Archival quality (acid free) o Matboard for picture mounting/ o C. Klingspor paper and boards; cover materials framing o Isola for storing, presenting o Archival filing and storage o Permafiber, Corp. information or materials products o Rexam DSI - ------------------------------------------------------------------------------------o True-Vue/Miller o Base material for insulating o Electrical transformers o Saint-Gobain (Carborundum, Norton) or shielding; carrier, (insulating material); consumer o Virginia Abrasives Corp. bandoliering and cushioning base electronics and personal computers: material for electronics printed circuit board substrate and components materials used in the electronic components manufacturing process - ------------------------------------------------------------------------------------ o Base materials for o Wallcovering, flooring home/commercial use - ------------------------------------------------------------------------------------ o Specialty cover materials for o Publishing: hard- and soft-cover presenting, storing, and diaries, planners, reference books preserving information or o Graphic arts/printing trade: materials menus, promotional literature, maps, durable documents, labels, flock - ------------------------------------------------------------------------------------ o Disposable wetlaid nonwovens o Disposable medical products (drapes, garments) and table cloths - --------------------------------------------------------------------------------------------------------------------
COMPETITORS The company's competitors in this market group include a mix of large integrated manufacturers and smaller independent companies, including Arjo Wiggins Appleton PLC, International Paper Co., Brownville Specialty Paper Products Inc., Crocker Technical Papers, Inc., Ahlstrom Lystil SA, (a division of A. Ahlstrom Corp.), Dexter Corp. and Crown Vantage Inc. In some of its niche markets, the company competes with various small competitors, none of which has a dominant market position. In many of these product lines, manufacturers of alternate materials such as polyethylene or vinyl must also be considered competitors. 6 MANUFACTURING The base materials for this group of markets are typically manufactured in the four mills in this Technical & Office Products Division: Fitchburg, Massachusetts; Warren Glen and Hughesville, New Jersey; and Brattleboro, Vermont. Additionally, the Bruckmuhl, Germany, facility also manufacturers some technical specialties in the abrasive category. All of FiberMark Lahnstein's product lines are counted among technical specialties. Other FiberMark facilities may, at times, manufacture materials for this market. OFFICE PRODUCTS Office products cover materials are used in communications applications, primarily for supplies used in the office, home or school. Marketed by our Technical & Office Products Division, office products materials comprise 16% of the company's revenue. The major components of this product family/market, the end products/markets and representative customers are noted below:
FIBERMARK MATERIALS/PRODUCTS END PRODUCTS/MARKETS REPRESENTATIVE CUSTOMERS - -------------------------------------------------------------------------------------------------------------------- o Specialty cover materials for o Office and school supplies: o ACCO World Corp. products that present, bind, document/report covers, presentation o Esselte Corp. store or preserve information folders, data binders, ring binders, o Smead Manufacturing Co. notebooks, filing products, diaries and planners - --------------------------------------------------------------------------------------------------------------------
COMPETITORS The company's competitors in this market group include a mix of large integrated manufacturers and smaller independent companies, including: International Paper Co., Brownville Specialty Paper Products Inc., Crocker Technical Papers, Inc. and Merrimac Paper Co., Inc. In many of these product lines, manufacturers of alternate materials such as polyethylene or vinyl are also competitors. MANUFACTURING The base materials for this group of markets are largely manufactured in Brattleboro, Vermont, but are also manufactured or processed further by other facilities within the Technical & Office Products Division, notably Warren Glen and Hughesville, New Jersey. INTERNATIONAL SALES With the combination of the German business acquisitions and pre-existing international sales, the company now sells or manufacturers 34.0% of its business outside North America. The majority of these sales are in Europe. A detailed breakdown of sales revenue and property, plant and equipment by geographic region is found in the final tables of Footnote 21, Segment Information. 7 EXECUTIVE OFFICERS The company's executive officers are:
NAME AGE POSITION - ---- --- -------- Alex Kwader ............................................. 57 President and Chief Executive Officer Bruce Moore.............................................. 52 Vice President and Chief Financial Officer David R. Kruft............................................ 59 Vice President and General Manager, Durable Specialties David E. Rousse........................................... 47 Vice President and General Manager, Technical & Office Products Dr. Walter M. Haegler..................................... 52 Vice President and General Manager, FiberMark Gessner and Filter Media
Alex Kwader has been the President and Chief Executive Officer of FiberMark since August 1991 and a director since November 1991. He is a member of the Executive Committee of the Board. Since 1970, Mr. Kwader has been employed by the company and its predecessor, Boise Cascade ("BCC"), a diversified paper products company. He served as Senior Vice President of the company from March 1990 to August 1991 and as Vice President from the company's inception in June 1989 until March 1990. From 1970 until June 1989, Mr. Kwader was employed by BCC, in various managerial positions. Mr. Kwader was General Manager of the Pressboard Products Division from 1986 until June 1989. From 1980 to 1985, he served as General Manager of the Latex Fiber Products Division of BCC. Mr. Kwader holds a B.S. in Mechanical Engineering from the University of Massachusetts and a M.S. from Carnegie Mellon University and attended the Harvard Business School Executive Program. Bruce Moore has served as Vice President of the Company since its inception in June 1989 and as Chief Financial Officer since December 1990. From 1980 to 1989, Mr. Moore was employed by BCC in various management positions, including Controller and General Manager of the Latex Fiber Products Division. Mr. Moore holds a B.A. in Business Administration from Siena College and attended the Stanford University Executive Program. David R. Kruft has served as Vice President and General Manager, Durable Specialties Division, since joining FiberMark in 1996 at the time of the Arcon acquisition. He held the position of President of Arcon since 1993, having joined Arcon in 1990. Employed for over 20 years by Esselte Pendaflex Corporation, his most recent role at Esselte was Senior Vice President and Division Head for the Boorum and Pease office products line with $66 million in sales. Mr. Kruft received his B.S. in Mechanical Engineering from Hofstra University. David E. Rousse has served as Vice President and General Manager, Technical & Office Products Division, since April 1999. Mr. Rousse served in the same capacity for Office Products since January 1997, and joined FiberMark in 1996 in the role of Vice President, Marketing and Business Development. He was previously employed by International Paper in a number of marketing and general management positions, primarily in their Strathmore Papers fine printing papers unit, with other assignments in office papers and envelope products. He was selected for a Fellowship in the President's Executive Exchange Program working in the U.S. International Trade Commission in Washington, D.C. He began his career with W.R. Grace & Company in finance, marketing, and sales/sales management roles. Mr. Rousse received his B.S. in Engineering from Dartmouth College, and an M.B.A from the Amos Tuck School of Business at Dartmouth. 8 Dr. Walter M. Haegler has served as Vice President and General Manager, FiberMark Gessner GmbH, since the January 1998 acquisition of Steinbeis Gessner GmbH. Since May 1999, he also assumed responsibility for Filter Media worldwide, and in September 1999, for FiberMark Lahnstein GmbH. With Gessner since 1987, he served as Managing Director of Steinbeis Gessner from 1990 until 1997, and as plant manager of the Feldkirchen site from 1987 until 1990. Before joining Gessner, Dr. Haegler was Research and Development and Application Technology Manager for VP Schickedanz during 1981 to 1987. Dr. Haegler received a Ph.D. and Masters Degree from the University of Erlangen in inorganic and analytical chemistry. 9 ITEM 2. PROPERTIES The following table depicts all of the company's properties as of December 31, 1999.
FACILITIES OWNED/ SQ. LAND - ---------- LEASED FEET ACRES ------ ------- ----- Brattleboro, Vt. .................................................... Owned 200,000 39 Fitchburg, Mass. .................................................... Owned 255,000 161 Warren Glen, N.J. ................................................... Owned 299,000 162 Hughesville, N.J..................................................... Owned 88,000 166 Beaver Falls, N.Y. (closed on January 29, 1999) ..................... Owned 100,000 167 Owensboro, Ky. (closed on January 14, 1998) ......................... Owned 47,000 15 Rochester, Mich. .................................................... Owned 96,000 17 Richmond, Va. ....................................................... Leased 112,000 -- Quakertown, Pa. ..................................................... Owned 165,000 7 Bruckmuhl, Germany .................................................. Owned 275,698 39 Feldkirchen/Westerham, Germany ...................................... Owned 223,396 27 Lahnstein, Germany .................................................. Owned 188,585 12
The corporate headquarters is located at the Brattleboro, Vermont, site. The company owns a production facility in Lowville, New York, that it leases to a customer. Most facilities offer web production capabilities, largely paper, but often with the inclusion of synthetic or specialty fibers producing composite materials. Most of our facilities also combine with some level of finishing or converting capabilities (eg. laminating, coating, saturating, embossing). Our facility in Quakertown, Pennsylvania, however, is strictly a converting facility, coating and saturating base material purchased from other FiberMark facilities and outside sources. Additionally, Feldkirchen/Westerham contains a meltblown unit for producing synthetic non-woven materials. International sales offices are maintained in Kowloon, Hong Kong; and Annecy, France, as well as at corporate headquarters and all three German facilities. ITEM 3. LEGAL PROCEEDINGS The company is involved in legal proceedings arising in the ordinary course of business. The company does not believe that the outcome of any of these proceedings will have a material adverse effect on the operations or financial condition of the company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter ended December 1999. EMPLOYEES As of December 31, 1999, the company employed a total of 1,562 employees, of which 513 were salaried and 1,049 were hourly. In the U.S., all of our hourly employees are members of either the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE), formerly the United Paper Workers International Union (UPIU), or the International Brotherhood of Electrical Workers, with the exception of the Quakertown, Pennsylvania, facility, where hourly employees are non-union. In Germany, employees 10 are represented by the Mining, Chemicals and Energy Trade Union, INDUSTRIEGEWERKSCHAFT BERGBAU, CHEMIE AND ENERGIE (IG BCE). A portion of salaried employees (71%) and all of the hourly employees are union eligible, but are not necessarily members. Membership is voluntary and information is not disclosed regarding employee membership by employees or the union. Employees are represented by a local union working committee. The table below sets out the expiration dates of the company's labor contracts:
FACILITY EXPIRATION DATE -------- --------------- Warren Glen, N.J. (a) ...................................................... May 23, 2004 May 25, 2004 Hughesville, N.J. (a) ...................................................... May 23, 2004 May 25, 2004 Rochester, Mich. ........................................................... June 26, 2004 Fitchburg, Mass. ............................................................ April 30, 2003 Brattleboro, Vt. ........................................................... August 31, 2002 Bruckmuhl and Feldkirchen/Westerham, Bavaria, Germany (b)................... February 29, 2000 Lahnstein, Germany (b)...................................................... February 29, 2000 Richmond, Va. .............................................................. April 28, 2000
(a) Workers at Warren Glen, N.J. and Hughesville, N.J. are subject to two separate collective bargaining agreements. (b) Expiration dates relate to the main labor agreement. Portions within these contracts have different expiration dates. German contracts are negotiated with industry representatives and the union, not by the company. As is typical, we will continue to operate under the old contract until the new contract is finalized. In general, the company believes that it has good relations with its employees and their unions. RAW MATERIALS The company uses a wide array of raw materials to formulate its products, including virgin hardwood and softwood pulp, secondary wood fiber from pre-and post-consumer waste, secondary cotton fiber from the apparel industry, synthetic fibers (such as nylon, polyester and fiberglass), synthetic latex, chemicals, pigments and dyes. These materials are purchased from numerous suppliers worldwide. The company does not produce pulp. Pulp and secondary fiber prices are subject to substantial cyclical price fluctuations. The company experienced a significant increase in raw material costs during 1999. The company has been able to recover a significant portion of these cost increases through selling price increases. The company will attempt to continue to increase its prices to its customers, but no assurances can be made that the company will continue to be successful in recovering a significant portion of these increases. A portion of the company's business is cost-indexed, providing some insulation from raw material cost variability. The company has a long-standing relationship with DuPont as an approved converter of Tyvek-Registered Trademark- and Dacron-Registered Trademark- and has never experienced a disruption in supply. Although management believes that it has a good relationship with DuPont, there can be no assurance that the company will be able to continually purchase adequate supplies of Tyvek-Registered Trademark-. Any material interruption in the company's supply of Tyvek-Registered Trademark- could have a material adverse effect on the results of operations and financial condition of the company. 11 ENVIRONMENTAL REGULATION AND COMPLIANCE The company and its predecessors have made substantial investments in pollution control facilities to comply with existing environmental laws and regulations. The company made expenditures for environmental purposes of $5.3 million in 1999, $3.3 million in 1998 and $2.6 million in 1997. While the company believes that it has made sufficient capital expenditures to maintain compliance with existing environmental laws, any failure by the company to comply with present and future environmental laws could subject it to future liability or require the suspension of operations. In addition, such environmental laws could restrict the company's ability to expand its facilities or could require the company to acquire costly equipment or incur significant expenses to comply with environmental regulations. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") and similar state laws provide for responses to, and liability for, releases of certain hazardous substances from a facility into the environment. These obligations are imposed on the current owner or operator of a facility from which there has been a release, the owner or operator of a facility at the time of the disposal of hazardous substances at the facility, on any person who arranged for the treatment or disposal of hazardous substances at the facility, and any person who accepted hazardous substances for transport to a facility selected by such person. Liability under CERCLA can be strict, joint and several. Pursuant to the environmental laws, there are currently pending investigations at the company's New Jersey facilities relating to the release of hazardous substances, materials and/or wastes. In addition, various predecessors of the company have been named as potentially responsible parties ("PRPs") by the United States Environmental Protection Agency ("EPA") for costs incurred and to be incurred in responding to the investigation and clean-up of various third-party sites. The company has not received any notification or inquiry from EPA or any other agency concerning these sites. Management believes that the company will have no liability in connection with the clean-up of these sites. However, no assurance can be given that such predecessors will perform their responsibilities in connection with such sites and, in the even of such non-performance, the company may incur material liabilities in connection with such sites, and no assurance can be given that the company will not receive PRP notices in connection with these or other sites in the future. In connection with the acquisition of CPG, the former owners of CPG have agreed to indemnify (subject to certain limitations) the company for certain identified and potential environmental liabilities arising from the historical use of the property acquired in the acquisition of CPG or from CPG's conduct prior to the acquisition of CPG. Management believes that the amount of the escrow established as security for these and other indemnity obligations of the former CPG owners will be sufficient to cover environmental liabilities expected to be incurred in connection with the acquisition of CPG. However, no assurance can be given that the limited indemnity provided by the former owners of CPG will be sufficient to cover all material environmental liabilities associated with the acquisition of CPG. Based upon its experience to date, the management of the company believes that the future cost of compliance with existing environmental laws, and liability for known environmental claims pursuant to such laws, will not have a material adverse effect on the company's financial condition and results of operation. However, future events, such as new information, changes in existing Environmental Laws or their interpretation, and more vigorous enforcement policies of regulatory authorities, may give rise to additional expenditures or liabilities that could be material to the company's financial condition and results of operations. 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The company's Common Stock was first traded on March 11, 1993, on the NASDAQ National Market System ("Nasdaq") under the symbol SPBI. As of the close of business on April 8, 1997, the Common Stock ceased trading on Nasdaq and on April 9, 1997, was listed on the New York Stock Exchange ("NYSE") under the symbol "FMK". The following table shows the high and low sale prices per share of the Common Stock as reported on the NYSE Composite Transactions Tape.
Year Ended December 31, 1998 High Low - ---------------------------- ---- --- First Quarter.................................................................... $26.31 $19.56 Second Quarter................................................................... $24.63 $15.06 Third Quarter.................................................................... $16.06 $12.38 Fourth Quarter................................................................... $17.00 $10.94 Year Ended December 31, 1999 - ---------------------------- First Quarter.................................................................... $13.50 $ 9.69 Second Quarter................................................................... $15.00 $11.50 Third Quarter.................................................................... $13.94 $12.56 Fourth Quarter................................................................... $13.50 $10.94
The company had approximately 1,107 stockholders of record of its Common Stock as of March 13, 2000. The company's transfer agent and registrar have indicated that the company had approximately 2,376 beneficial owners of its Common Stock as of March 13, 2000. The company has never paid any cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The data set forth below should be read in conjunction with the financial statements and notes included elsewhere in this Annual Report on Form 10-K. 13 FIBERMARK, INC. SELECTED CONSOLIDATED FINANCIAL DATA (In Thousands, Except Per Share Data)
Year Ended December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- CONSOLIDATED INCOME STATEMENT DATA: Net sales(1) ............................. $ 325,308 $ 307,092 $ 235,358 $ 124,771 $ 117,516 Cost of sales ............................ 263,385 249,337 189,294 101,981 100,106 --------- --------- --------- --------- --------- Gross profit ............................. 61,923 57,755 46,064 22,790 17,410 General and administrative expenses ...... 24,088 22,684 16,331 9,908 8,397 Facility closure expense(2) .............. 9,818 7,274 10,000 -- -- --------- --------- --------- --------- --------- Income from operations ................... 28,017 27,797 19,733 12,882 9,013 Loss on disposition of assets, net ....... -- -- -- -- 8,302 Cogeneration income(3) ................... -- (1,451) (215) -- (6,512) Other expenses (income), net(4) .......... 469 152 600 (1,127) (1,198) Interest expense (net of interest income) 11,079 10,495 9,187 1,798 892 --------- --------- --------- --------- --------- Income before income taxes and extraordinary items ................. 16,469 18,601 10,161 12,211 7,529 Income tax (benefit) expense(5) .......... 7,486 7,092 3,992 4,697 (424) --------- --------- --------- --------- --------- Income before extraordinary items ........ 8,983 11,509 6,169 7,514 7,953 Extraordinary items(6) ................... -- -- -- (297) -- --------- --------- --------- --------- --------- Net income ............................... $ 8,983 $ 11,509 $ 6,169 $ 7,217 $ 7,953 --------- --------- --------- --------- --------- Weighted average shares outstanding ...... 7,659 7,751 6,141 6,054 6,050 Basic earnings per share ................. $ 1.17 $ 1.48 $ 1.01 $ 1.19 $ 1.31 Diluted earnings per share ............... 1.15 1.43 0.95 1.14 1.30 OTHER CONSOLIDATION OPERATING DATA: Depreciation and amortization ............ $ 9,290 $ 8,953 $ 7,393 $ 3,651 $ 3,342 Capital expenditures ..................... 15,736 13,943 13,528 8,457 4,865
---------------------------------------------------------- December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- CONSOLIDATED BALANCE SHEET DATA: Working capital .......................... $ 69,085 $ 80,591 $ 61,983 $ 29,151 $ 17,634 Total assets ............................. 346,946 311,231 248,001 212,008 74,618 Long-term debt (net of current maturities) 168,974 133,583 100,000 100,000 4,625 Stockholders' equity ..................... 91,777 97,563 82,771 48,093 40,735 - ----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL DATA. 14 NOTES TO CONSOLIDATED FINANCIAL DATA (1) The increase in net sales for the year ended December 31, 1997, reflects the impact of the acquisition of Custom Papers Group and Arcon Coating Mills on October 31, 1996. Net sales related to these acquisitions were $127.9 million in 1997 as compared to $20.2 million in 1996. The increase in net sales for the year ended December 31, 1998 reflects the acquisition of Steinbeis Gessner GmbH in January 1998. Net sales related to this acquisition were $81.2 million in 1998. The increase in net sales for the year ended December 31, 1999 reflects the acquisition of Papierfabrik Lahnstein on August 1, 1999. Net sales related to this acquisition were $15.9 million in 1999. (2) On November 19, 1997, the company announced that it planned to close operations at its Owensboro, Kentucky, mill and consolidate its production demands with several of its other mills. Operations continued until a sufficient level of transition inventory was established to ensure continued service to customers during the production transfer period. The Kentucky mill was closed on January 14, 1998. The company booked a $10.0 million charge related to this mill closure in the fourth quarter of 1997. On November 4, 1998, the company announced that it planned to cease operations at its Beaver Falls, New York, facility and consolidate its production demands with several of its other facilities. Operations continued until a sufficient level of transition inventory was established to ensure continued service to customers during the transition period. The New York facility was closed on January 29, 1999. The company booked a $7.8 million pre-tax charge related to the closure of this facility in the fourth quarter of 1998. On August 31, 1999, the company initiated a project to install a new paper machine at its Warren Glen, New Jersey, facility and to consolidate operations from the neighboring Hughesville, New Jersey, mill. The company plans to cease operations at Hughesville by December 31, 2000, and the book value of the mill has been written down by $7.2 million accordingly. Additionally, the company increased closure expenses for its previously closed Beaver Falls and Owensboro facilities by $.1 million and $2.5 million, respectively. (3) In 1993 the company entered into an agreement with Kamine, pursuant to which the company was the host for a cogeneration facility developed by Kamine at the company's Beaver Falls mill. In December 1998, Kamine sold the cogeneration plant and assigned the ground lease contract to the new owner. The company received a $1.5 million payment from the new owner relative to the transaction. There are no further payments due under the ground lease contract. (4) Other expenses (income) for the 1999, 1998, 1997, 1996 and 1995 periods include $1,289,000, $1,719,000, $1,718,000, $1,719,000 and $1,718,000, respectively, of amortized income related to a deferred gain on a sale-leaseback transaction. On April 29, 1994, the company sold and leased back certain operating assets at the Brattleboro, Vermont, mill. The sale of these assets resulted in a book gain of $17,187,000. This gain was amortized over the ten-year life of the lease. The assets relative to this lease were repurchased on September 30, 1999. (5) For the year ended December 31, 1995, the company generated net income and recognized an income tax benefit of ($424,000) due primarily to the release of valuation allowances. (6) Extraordinary items for 1996 include a $495,000 loss related to the early extinguishment of debt, net of an income tax benefit of $198,000. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On November 19, 1997, the company announced that it planned to cease operations at its Owensboro, Kentucky, mill and consolidate its production demands with several of its other mills. Operations continued until a sufficient level of transition inventory was established to ensure continued service to customers during the production transfer period. The Kentucky mill was closed on January 14, 1998. The company took a $10.0 million pre-tax charge related to the closure of this facility in the fourth quarter of 1997. Effective January 1, 1998, the company acquired Steinbeis Gessner GmbH for a purchase price of $43.0 million. Steinbeis Gessner, headquartered near Munich, Germany, is a leading producer of specialty fiber-based materials sold into the filter products, technical specialties and durable specialties markets. Sales revenue for 1998 was $81.2 million. Pursuant to this acquisition, the company sold 1,500,000 shares of common stock on December 15, 1997 with a customary 30-day over-allotment option granting the underwriters of the offering the right to purchase up to an additional 225,000 shares. The December 15 sale resulted in gross proceeds of $30.8 million to the company. On January 15, 1998, the over-allotment was partially exercised through the sale of an additional 135,000 shares. The shares were sold for a gross price of $20.50 per share. After expenses, the company realized approximately $31.0 million in total net proceeds. To complete the financing of the Gessner acquisition, the company also closed on a $29.6 million term loan with Bayerische Vereinsbank in Munich, Germany on January 12, 1998. This loan amortizes over seven years with interest rates ranging from 5.8% to 7.0%. On November 4, 1998, the company announced that it planned to cease operations at its Beaver Falls, New York, facility and consolidate its production demands with several of its other facilities. Operations continued until a sufficient level of transition inventory was established to ensure continued service to customers during the transition period. The New York facility was closed on January 29, 1999. The company booked a $7.8 million pre-tax charge related to the closure of this facility in the fourth quarter of 1998. Effective August 1, 1999, the company acquired Papierfabrik Lahnstein GmbH, a leading European manufacturer of specialty papers and nonwoven materials used for wallcoverings, security papers, self-adhesive labels and flooring overlay. Annual revenues at that time were approximately $36 million. The acquisition, with a purchase price of approximately $22 million was financed with $7.0 million of cash reserves and $15.0 million in German bank debt. This debt amortizes over 6 years and carries a fixed interest rate of 6.5 percent. On August 31, 1999, the company initiated a project to install a new paper machine at its Warren Glen, New Jersey, facility and to consolidate operations from the neighboring Hughesville, New Jersey, mill. The company plans to cease manufacturing operations at Hughesville by December 31, 2000, and the book value of the mill has been written down by $7.2 million accordingly. Additionally, the company increased closure expenses for its previously closed Beaver Falls and Owensboro facilities by $.1 million and $2.5 million, respectively. On September 30, 1999, the company terminated the sale/leaseback facility with The CIT Group, and repurchased the assets at its Brattleboro mill. Concurrently, the company expanded its revolving credit facility with CIT from $20 million to $50 million. On an annualized basis, this transaction will reduce lease expense by $4.5 million and increase depreciation expense by $1.2 million. Due to this cost structure reduction, inventory valuation was reduced by $751,000. The company also incurred refinancing fees of $266,000. 16 Excluding the impact of facility write downs, the company's income from operations improved from $12.9 million in 1996 (10.34% of sales) to $37.8 million in 1999 (11.6% of sales). This improvement is largely attributable to the added sales volume that resulted from the 1996, 1998 and 1999 acquisitions. Additionally, the company is benefiting from improved manufacturing efficiencies due to equipment upgrades at several of its facilities and from cost reduction related to consolidation of facilities and administrative staffs. The following table sets forth, for the periods indicated, certain operating data as a percentage of net sales.
- --------------------------------------------------------------------------------------------------------- 1999 1998 1997 ------- ------ ------- Net sales ................................................................. 100.0% 100.0% 100.0% Cost of sales ............................................................. 81.0 81.2 80.4 Gross profit .............................................................. 19.0 18.8 19.6 General and administrative expenses ....................................... 7.4 7.4 6.9 Facility closure .......................................................... 3.0 2.3 4.3 Income from operations .................................................... 8.6 9.1 8.4 Other (income) expense, net ............................................... .1 (.4) .2 Interest expense, net of interest income .................................. 3.4 3.4 3.9 Income before income taxes ................................................ 5.1 6.1 4.3 Net effect of income taxes ................................................ 2.3 2.3 1.7 Net income ................................................................ 2.8% 3.8% 2.6% - ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 Net sales increased 5.9% to $325.3 million in 1999 from $307.1 million in 1998. The acquisition of FiberMark Lahnstein, effective August 1, 1999, added $15.9 million in sales revenue for the full year of 1999. Within the company's operating segments, sales in the German operations and filter media segment increased by 16.7% to $142.5 million from $122.1 million in 1998. This growth was due to the August 1, 1999, acquisition of FiberMark Lahnstein which contributed $15.9 million to 1999 revenues and to stronger business conditions in the European filter and tape markets. Softness in the U.S. filter market partially offset these gains. Sales in the technical and office products segment declined by 9.2% to $117.4 million from $129.3 million in 1998. This decline was due to market softness and the loss of some business when a book cover customer established in-house production capabilities that replaced some of the company's sales. Sales in the durable specialties segment increased by 17.4% to $65.4 million from $55.7 million in 1998. This increase reflects successful business development efforts, strong business conditions in the U.S. and a resurgence of demand from the Far East. Gross margin increased to 19.0% in 1999 from 18.8% in 1998. This increase is primarily due to fixed cost savings related to the January 1999 closure of the Beaver Falls, New York, facility. General and administrative expenses increased by 6.2% to $24.1 million (7.4% sales) from $22.7 million (7.4% sales) in 1998, primarily due to the Lahnstein acquisition. Income from operations increased .7% to $28.0 (8.6% sales) million from $27.8 million (9.1% sales) in 1998. This increase is due to the higher sales volume and higher gross margin, offset in part by a $2.5 million increase in facility closure expenses. 17 Other expenses increased to $.5 million in 1999 from $.2 million in 1998. This is primarily due to the termination of the sale-leaseback credit facility on September 30, 1999 which reduced the amortization of a deferred gain from $1.7 million in 1998 to $1.3 million in 1999. Net interest expense increased by 5.7% to $11.1 million from $10.5 million in 1998 due to the Lahnstein acquisition, the September 30, 1999 repurchase of sale-leaseback assets and funds used for the company's share repurchase program. Income taxes were $7.5 million or 45.5% of taxable income in 1999 compared with $7.1 million or 38.1% of taxable income in 1998. This increased tax rate is primarily due to a higher mix of income from German operations which have tax rates higher than the U.S. Net income for 1999 was $9.0 million or $1.15 per share compared with $11.5 million or $1.43 per share in 1998. Excluding the tax adjusted impact of facility closure expenses, which existed for both years, and the non-recurring cogeneration income in 1998, net income for 1999 would have been $16.1 million or $2.05 per share compared with $15.4 million or $1.91 per share in 1998. Per share earnings are stated on a fully diluted basis. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 Net sales increased 30.5% to $307.1 million in 1998 from $235.4 million in 1997. The acquisition of FiberMark Gessner, effective on January 1, 1998, added $81.2 million in sales revenue for the full year of 1998. Within the company's operating segments, technical and office products sales decreased by 4.9% to $129.3 million from $136.0 million in 1997. This decline was primarily due to market softness. We also incurred some price reduction related to lower raw material costs and the economic crisis in the Asian markets. Sales revenue in our durable specialties operating segment declined by 4.3% to $55.7 million in 1998 from $58.2 million in 1997. This decline was due to a sharp reduction in demand from Asian customers as well as some softness in our domestic customer base. Sales within our Gessner and North American filter media segment increased by 196.4% to $122.1 million in 1998 from $41.2 million in 1997 due to the January 1, 1998 acquisition of the Gessner business and stable business conditions in the U.S. Gross profit margin declined to 18.8% in 1998 from 19.6% in 1997. This reduction was due to the impact of lower demand within our U.S. customer base and also to a temporary dip in manufacturing efficiencies as we worked through production transfer trials related to the consolidation of two facilities within our technical and office products operating segment. General and administrative expenses increased 39.3% to $22.7 million (7.4% of sales) in 1998 from $16.3 million (6.9% of sales) in 1997. This increase was due to the impact of the Gessner acquisition. Income from operations increased 41.1% to $27.8 million (9.1% of sales) in 1998 from $19.7 million (8.4% of sales) in 1997. This improvement was due to the Gessner acquisition and a reduced level of facility closure expense. In 1998 we recorded other income of $1.3 million compared with other expense of $.4 million in 1997. This change was due to a $1.5 million payment received from a cogeneration developer who leases property from the company. The company anticipates no further income from this lease. 18 Net interest expense increased to $10.5 million in 1998 compared with $9.2 million in 1997. This increase was due to the debt incurred to fund the Gessner acquisition. Income taxes were $7.1 million or 38.1% of taxable income in 1998 compared with $4.0 million or 39.3% of taxable income in 1997. Net income for 1998 was $11.5 million or $1.43 per share compared with $6.2 million or $.95 per share in 1997. Excluding the tax adjusted impact of facility closure expenses which existed for both years and the non-recurring cogeneration income in 1998, net income for 1998 would have been $15.4 million, or $1.91 per share, compared with $12.3 million, or $1.90 per share, in 1997. Per share earnings are stated on a fully diluted basis. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, the company had outstanding $100.0 million of senior notes. The notes have a ten-year term beginning October 16, 1996, are non-amortizing and carry a fixed interest rate of 9.375%. Additionally, the company had available to it a $50.0 million revolving credit facility as of December 31, 1999. As of such date, $28.0 million was outstanding under this credit facility. A portion of the balance was at an interest rate of LIBOR plus 2.0% and the remainder was at an interest rate of prime plus .5%. Effective January 1, 1998 the company acquired Steinbeis Gessner GmbH. A portion of the purchase price was funded through term loans. As of December 31, 1999, Gessner had a secured term loan of $25.8 million with Bayerische Bank. The balance of this loan amortizes over six years with interest rates ranging from 6.125% to 7.015%. As of this same date, Gessner had an unsecured term loan of $3.1 million with the previous owner. The balance of this loan amortizes over two years and has a fixed interest rate of 5%. As of December 31, 1999, Gessner also has a $7.2 million capital spending facility with Bayerische Vereinsbank. As of such date $4.6 million was outstanding under this facility. The interest rate on this loan balance is LIBOR plus 1.75% and the balance amortizes over five years. As of December 31, 1999, Gessner also has a $7.7 million line of credit. As of such date, no advances are outstanding under this facility. Effective August 1, 1999, the company acquired Papierfabrik Lahnstein GmbH. A portion of the purchase price was funded through a term loan. As of December 31, 1999, Lahnstein had a $14.7 secured term loan with Bayerische Bank. This loan amortizes over six years with interest rates ranging from 5.4% to 7.1% . The company's historical requirements for capital have been primarily for servicing debt, capital expenditures, working capital and acquisitions. Cash flows from operating activities were $18.5 million in 1999, $18.6 million in 1998 and $7.9 million in 1997. Net cash used in investing activities was $39.7 million in 1999 compared with $52.6 million in 1998 and $13.3 million in 1997. The increase is primarily attributable to acquisitions and capital expenditures. In addition, the company is currently in the process of installing a new paper machine at its Warren Glen, New Jersey, facility, which the company believes will provide quality improvements, cost reductions, product performance enhancements and the ability to produce a broader range of products. This project is expected to cost $19.0 million in total, of which $1.6 million has been spent in 1999. The company has arranged a $15.0 million capital spending facility with Jules & Associates to partially fund this project. This facility will have a fixed interest rate of approximately 8.5% and will amortize over seven years. As of December 31, 1999, there were no outstanding advances under this facility. The company expects to fully utilize this facility during the year 2000. Net cash provided by financing activities was $1.9 million in 1999 compared with $32.1 million in 1998 and $28.4 million in 1997. The decrease is primarily attributable to the termination of the CIT sale/leaseback facility, which was paid with borrowings under the revolving credit facility, and the stock repurchase program. The company believes that cash reserves on hand, cash flow from operations, plus 19 amounts available under credit facilities, will be sufficient to fund its capital requirements, debt service and working capital requirements for the foreseeable future. The company intends to pursue strategic acquisitions that will enhance its range of products, complement the company's core markets, provide distribution or sales and marketing efficiencies or provide opportunities for technology gains or other operating efficiencies. Any such acquisition could require the company to secure independent debt or equity financing to complete such transaction. DISCLOSURES OF CERTAIN FINANCIAL MARKET RISKS The company believes it has minimal exposure to financial market risks. All debt is at a fixed rate. Most of the company's sales transactions have been conducted in the currency where the shipment originated, limiting its exposure to changes in currency exchange rates. The company does not use derivative financial instruments. INFLATION The company attempts to minimize the effect of inflation on earnings by controlling operating expenses. During the past several years, the rate of general inflation has been relatively low and has not had a significant impact on the company's results of operations. The company purchases raw materials that are subject to cyclical changes in costs that may not reflect the rate of general inflation. SEASONALITY The company's business is mildly seasonal, with the third quarter of each year typically having the lowest level of net sales and operating income. Lower December revenues tend to reduce fourth quarter revenues relative to the first two quarters. This seasonality is the result of a lower level of purchasing activity, since many of our U.S. customers shut down their manufacturing operations during portions of July and many European manufacturers shut down during portions of August and December. NEW ACCOUNTING PRONOUNCEMENTS There are no new accounting pronouncements applicable to the company. YEAR 2000 READINESS The company completed all Year 2000 readiness projects successfully in 1999, and experienced no material problems as the new year began. The company has not been informed by any of its suppliers or customers of any material problems experienced by them since the new year began. COSTS The costs for gaining Year 2000 compliance were not material for the company's business, operations, or financial condition. The implementation of new integrated information systems was completed for strategic reasons, and associated costs were not incremental expenditures tied to Year 2000 compliance. 20 RISKS The transition into the Year 2000 was uneventful. The company makes no assurance that problems, however unlikely, might not emerge at a later date. FORWARD-LOOKING STATEMENTS Statements in this report that are not historical are forward-looking statements subject to risk and uncertainties that could cause actual results to differ materially. Such risk and uncertainties include fluctuations in economies worldwide, fluctuations in our customers' demand and inventory levels (including the loss of certain major customers); the price and availability of raw materials and of competitive materials, which may preclude passing increases on or maintaining prices with customers; changes in environmental and other governmental regulations; changes in terms from lenders; ability to retain key management and to reach agreement on labor issues; or the failure to identify or carry out suitable strategic acquisitions. 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS See the section entitled "Executive Officers" in Part I, Item 1 hereof for information regarding the company's executive officers. The information required by this item with respect to the company's directors is presented under the caption entitled "Election of Directors" of the company's Definitive Proxy Statement, which will be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the company's Annual Meeting of Shareholders to be held on May 24, 2000 (the "Proxy Statement"), and is incorporated herein by reference. The information required by this item concerning compliance with Section 16(a) of the Exchange Act is presented under the caption entitled "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement, and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION The information required by this item is incorporated herein by reference to the information presented under the caption entitled "Executive Compensation and Other Information" of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the information presented under the caption entitled "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None existed. 22 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Index to Consolidated Financial Statements The consolidated financial statements required by this term are submitted beginning on page 24 of this Form 10-K.
PAGE ---- Independent Auditors' Report .........................................................24 Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997................................................25 Consolidated Balance Sheets of December 31, 1999 and 1998.............................26 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997................................................27 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 1999, 1998, and 1997............................28 Notes to Consolidated Financial Statements ...........................................29 (a)(2) Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts Reserves...............................56 Independent Auditors' Report..........................................................57 (a)(3) Index to Exhibits, beginning on ......................................................58 (b) Reports on Form 8-K There were no reports on Form 8-K filed by the Registrant during the fourth quarter of the fiscal year ended December 31, 1999. (c) Exhibits The exhibits required by this item are listed under Item 14(a)(3).....................61
23 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders FiberMark, Inc.: We have audited the accompanying consolidated balance sheets of FiberMark, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FiberMark, Inc. as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period then ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP - -------------------------- Burlington, Vermont February 3, 2000 Vt. Reg. No. 92-0000241 24 FIBERMARK, INC CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1999, 1998 and 1997 (In thousands, except per share amounts)
1999 1998 1997 -------- -------- -------- Net sales .................................. $ 325,308 $ 307,092 $ 235,358 Cost of sales .............................. 263,385 249,337 189,294 --------- --------- --------- Gross profit ....................... 61,923 57,755 46,064 Selling, general and administrative expenses 24,088 22,684 16,331 Facility closure expense (note 12) ......... 9,818 7,274 10,000 --------- --------- --------- Income from operations ............. 28,017 27,797 19,733 --------- --------- --------- Other (income) expense, net ................ 469 152 600 Cogeneration income (note 3) ............... -- (1,451) (215) Interest expense ........................... 11,938 11,675 9,457 Interest income ............................ (859) (1,180) (270) --------- --------- --------- Income before income taxes ......... 16,469 18,601 10,161 Income tax expense (note 9) ................ 7,486 7,092 3,992 --------- --------- --------- Net income ......................... $ 8,983 $ 11,509 $ 6,169 ========= ========= ========= Basic earnings per share: .................. $ 1.17 $ 1.48 $ 1.01 ========= ========= ========= Diluted earnings per share ................. $ 1.15 $ 1.43 $ 0.95 ========= ========= ========= Average Basic Shares Outstanding ... 7,659 7,751 6,141 Average Diluted Shares Outstanding . 7,843 8,070 6,492
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 25 FIBERMARK, INC. CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (In Thousands)
1999 1998 -------- --------- ASSETS Current assets: Cash ............................................................... $ 12,466 $ 33,804 Accounts receivable, net of allowances of $1,023 in 1999 and $626 in 1998 ............................. 41,880 31,518 Inventories (note 4) ............................................... 57,928 48,517 Other .............................................................. 717 700 Prepaid expense (note 7) ........................................... -- 204 Deferred income taxes (note 9) ..................................... 3,982 4,612 --------- --------- Total current assets ....................................... 116,973 119,355 Property, plant and equipment, net (note 5) ................................ 171,423 128,375 Goodwill, net .............................................................. 47,038 49,692 Other intangible assets, net ............................................... 6,268 8,383 Prepaid expense (note 7) ................................................... -- 1,176 Other long-term assets ..................................................... 1,602 1,433 Other pension assets (note 14) ............................................. 3,642 2,817 --------- --------- Total assets ............................................... $ 346,946 $ 311,231 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion long-term debt (note 6) ............................ 7,221 3,598 Accounts payable ................................................... 17,954 16,484 Accrued liabilities (notes 14 and 16) .............................. 19,898 15,670 Accrued income taxes payable ....................................... 2,815 1,440 Accrued pension liabilities ........................................ -- 1,572 --------- --------- Total current liabilities .................................. 47,888 38,764 --------- --------- Revolving credit line (note 6) ............................................. 27,968 -- Long-term debt, less current portion (note 6) .............................. 141,006 133,583 Deferred gain (note 7) ..................................................... -- 9,166 Deferred income taxes (note 9) ............................................. 16,087 12,655 Other long-term liabilities (note 14) ...................................... 22,220 19,500 --------- --------- Total long-term liabilities ................................ 207,281 174,904 --------- --------- Total liabilities .......................................... 255,169 213,668 Commitments and contingencies (note 7) Stockholders' equity (notes 8, 14 and 19): Preferred stock, par value $.001 per share; 2,000,000 shares authorized and none issued ........................ -- -- Common stock, par value $.001 per share; 20,000,000 shares authorized 7,830,483 and 6,830,483 shares issued and outstanding, respectively, in 1999 and 7,777,822 shares issued and outstanding in 1998 ........ 8 8 Additional paid-in capital ......................................... 77,052 76,554 Retained earnings .................................................. 30,017 21,034 Accumulated other comprehensive loss ............................... (2,646) (33) Less treasury stock, 1,000,000 shares at cost ...................... (12,654) -- --------- --------- Total stockholders' equity ................................. 91,777 97,563 --------- --------- Total liabilities and stockholders' equity ................. $ 346,946 $ 311,231 ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 26 FIBERMARK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997 (In Thousands)
1999 1998 1997 ------- ------- -------- Cash flows from operating activities: Net income ................................................. $ 8,983 $ 11,509 $ 6,169 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...................... 9,290 8,953 7,393 Amortization of deferred gain ...................... (1,289) (1,719) (1,718) Loss on closure of facility ........................ 9,818 7,274 10,000 Loss (gain) on sale of property, plant and equipment (2) 125 Cogeneration income ................................ -- -- (215) Deferred taxes ..................................... 4,643 3,717 (3,586) Changes in operating assets and liabilities: Accounts receivable ........................ (8,967) 1,555 (2,431) Inventories ................................ (6,596) (2,132) (8,535) Other ...................................... 736 (279) 391 Accounts payable ........................... 1,197 (7,542) 3,737 Accrued pension and other liabilities ...... (1,820) (765) (7,965) Prepaid expense ............................ (204) (307) (306) Other long-term liabilities ................ 297 164 1,570 Accrued income taxes payable ............... 2,369 (1,983) 3,422 -------- -------- -------- Net cash provided by operating activities .. 18,455 18,570 7,926 -------- -------- -------- Cash flows used for investing activities: Cogeneration receipt ....................................... -- -- 2,000 Purchase of life insurance ................................. (806) (1,207) (1,342) Additions to property, plant and equipment ................. (15,736) (13,943) (13,528) Net proceeds from sale of property, plant and equipment .... 38 22 -- Payments for businesses acquired ........................... (22,935) (37,337) (367) Increase in other intangible assets ........................ (254) (145) (112) -------- -------- -------- Net cash used in investing activities ...... (39,693) (52,610) (13,349) -------- -------- -------- Cash flows from financing activities: CIT Sale/Leaseback Buyout .................................. (30,651) -- -- Proceeds from issuance of bank debt ........................ 20,957 29,552 -- Proceeds from issuance of common stock ..................... -- 2,628 29,205 Cost of stock offering ..................................... -- (511) (466) Net proceeds from exercise of stock options ................ 498 466 117 Stock repurchase ........................................... (12,654) -- -- Net borrowings under revolving credit line ................. 27,968 -- -- Repayment of debt .......................................... (3,810) -- -- Debt issuance costs ........................................ (366) -- (500) -------- -------- -------- Net cash provided by financing activities .. 1,942 32,135 28,356 -------- -------- -------- Effect of exchange rate changes on cash ............................ (2,042) (1,566) -- Net increase (decrease) in cash ............ (21,338) (3,471) 22,933 Cash at beginning of year ......................................... 33,804 37,275 14,342 -------- -------- -------- Cash at end of year ................................................ $ 12,466 $ 33,804 $ 37,275 ======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 27 FIBERMARK, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years Ended December 31, 1999, 1998 and 1997 (In thousands, except share amounts)
Additional Accumulated Common Stock Paid-In Earnings Shares Amount Capital (Deficit) -------- -------- ------------ ------------ Balance at December 31, 1996 ................... 6,058,638 $ 6 $ 44,731 $ 3,356 Issuance of common stock ..................... 1,500,000 2 28,717 -- Issuance of common stock ..................... 1,043 -- 20 -- Exercise of stock options .................... 21,850 -- 117 -- Tax benefit of option exercise ............... -- -- 124 -- Comprehensive income: Net income ................................. -- -- -- 6,169 Minimum pension liability adjustment, net of tax benefit of $295 ....................... -- -- -- -- --------- ---------- ---------- ---------- Total comprehensive income ................. Balance at December 31, 1997 ................... 7,581,531 8 73,709 9,525 Issuance of common stock ..................... 135,000 -- 2,117 -- Issuance of common stock ..................... 6 -- -- -- Exercise of stock options .................... 61,285 -- 466 -- Tax benefit of option exercise ............... -- -- 262 -- Comprehensive income: Net income .................................. -- -- -- 11,509 Minimum pension liability adjustment, net of tax benefit of $876 ........................ -- -- -- -- Currency translation adjustment ............. -- -- -- -- --------- ---------- ---------- ---------- Total comprehensive income .................. Balance at December 31, 1998 ................... 7,777,822 8 76,554 21,034 Exercise of stock options .................... 52,661 -- 403 -- Tax benefit of option exercise ............... -- -- 95 -- Purchase of Treasury Stock ................... (1,000,000) -- -- -- Comprehensive income: Net income .................................. -- -- -- 8,983 Minimum pension liability adjustment, net of tax provision of $577 ...................... -- -- -- -- Currency translation adjustment ............. -- -- -- -- --------- ---------- ---------- ---------- Total comprehensive income .................. Balance at December 31, 1999 ................... 6,830,483 $ 8 $ 77,052 $ 30,017 ========= ========== ========== ==========
Accumulated Total Other Stockholders' Comprehensive Treasury Equity Income (loss) Stock (Deficit) ------------- --------- ------------- Balance at December 31, 1996 ................... -- -- $ 48,093 Issuance of common stock ..................... -- -- 28,719 Issuance of common stock ..................... -- -- 20 Exercise of stock options .................... -- -- 117 Tax benefit of option exercise ............... -- -- 124 Comprehensive income: Net income ................................. -- -- 6,169 Minimum pension liability adjustment, net of tax benefit of $295 ....................... (471) -- (471) ---------- ------- ---------- Total comprehensive income ................. 5,698 ---------- Balance at December 31, 1997 ................... (471) -- 82,771 Issuance of common stock ..................... -- -- 2,117 Issuance of common stock ..................... -- -- -- Exercise of stock options .................... -- -- 466 Tax benefit of option exercise ............... -- -- 262 Comprehensive income: Net income .................................. -- -- 11,509 Minimum pension liability adjustment, net of tax benefit of $876 ........................ (1,128) -- (1,128) Currency translation adjustment ............. 1,566 -- 1,566 ---------- ------- ---------- Total comprehensive income .................. 11,947 ---------- Balance at December 31, 1998 ................... (33) -- 97,563 Exercise of stock options .................... -- -- 403 Tax benefit of option exercise ............... -- -- 95 Purchase of Treasury Stock ................... -- (12,654) (12,654) Comprehensive income: Net income .................................. -- -- 8,983 Minimum pension liability adjustment, net of tax provision of $577 ...................... 843 -- 843 Currency translation adjustment ............. (3,456) -- (3,456) ---------- ------- ---------- Total comprehensive income .................. 6,370 ---------- Balance at December 31, 1999 ................... $ (2,646) (12,654) $ 91,777 ========== ======= ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 28 FIBERMARK, INC. Notes to Consolidated Financial Statements December 31, 1999, 1998 and 1997 (1) DESCRIPTION OF BUSINESS FiberMark produces specialty fiber-based materials in three operating segments: German operations and filter media, technical and office products, and durable specialties. FiberMark is headquartered in Brattleboro, Vermont, and operates seven facilities located in the eastern and midwestern regions of the United States and three facilities in Germany. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include FiberMark, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. CASH EQUIVALENTS For purposes of the statement of cash flows, the company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the moving weighted average cost method for raw materials and the first-in, first-out (FIFO) method for work in process and finished goods. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation for financial reporting purposes is provided using the straight-line method based upon the useful lives of the assets. Buildings and improvements and machinery and equipment are depreciated over periods not exceeding forty (40) and twenty (20) years, respectively. When assets are sold or retired, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Improvements are capitalized and included in property, plant and equipment while expenditures for maintenance and repairs are charged to expense. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term. 29 OTHER INTANGIBLE ASSETS AND GOODWILL Other intangible assets and goodwill is summarized as follows at December 31, 1999 and 1998 (in thousands):
1999 1998 ------ ------- Goodwill, net of accumulated amortization of $5,338 in 1999 and $3,609 in 1998 .............. $47,038 $49,692 ======= ======= Debt issue costs, net of accumulated amortization of $1,619 in 1999 and $1,008 in 1998 ........... 4,268 4,590 Intangible pension assets (see note 14) ........ 768 2,788 Organization costs, net of accumulated amortization of $485 in 1998 ................................ -- 57 Other, net of accumulated amortization of $133 in 1999 and $55 in 1998 ........... 1,232 948 ------- ------- Other intangible assets, net ............... $ 6,268 $ 8,383 ======= =======
Goodwill represents the cost in excess of the fair value of the net assets of acquired companies and is amortized on a straight-line basis over thirty years. The company periodically evaluates the recoverability of goodwill triggered by such factors as business trends and prospects and market and economic conditions. The company measures the amount of impairment, if any, by using the discounted cash flow method. The significant aspects considered in the assessment, such as interest charges and the discount rate, would be selected based on current market conditions. Debt issue costs related to the Series B Senior Notes are amortized using the interest method over the life of those notes. Other debt issue costs are amortized on a straight-line basis over the life of the related debt. The remaining net book value of organization costs of $57,000 were written off in the first quarter of 1999 in accordance with the American Institute of Certified Public Accountants Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES. Other intangible assets are stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets. Amortization expense for other intangibles and goodwill was $2,454,000, $2,567,000 and $2,542,000 in 1999, 1998 and 1997, respectively. DEFERRED GAIN The deferred gain incurred in connection with the sale-leaseback transaction was amortized on a straight-line basis over the life of the lease until termination (see note 7). RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred and are reflected in cost of sales. The costs amounted to $2.4 million, $2.4 million and $1.4 million for the years ended December 31, 1999, 1998, and 1997, respectively. 30 FOREIGN CURRENCY TRANSLATION The functional currency of all operations outside the U.S. is the respective local currency. The assets and liabilities of these operations are translated at the exchange rates in effect at the balance sheet date and income and expense accounts at average exchange rates during the year. Resulting translation adjustments are recorded directly to a separate component of accumulated other comprehensive income (loss). INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the company's stock at the date of the grant over the amount an employee must pay to acquire the stock. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. The following table sets forth the computation of basic and diluted earnings per share:
1999 1998 1997 ---- ---- ---- Numerator: Income available to common shareholders used in basic and diluted earnings per share $ 8,983 $ 11,509 $ 6,169 ========== ========== ========== Denominator: Denominator for basic earnings per share: Weighted average shares ............... 7,659,420 7,751,399 6,140,673 Effect of dilutive securities: Fixed stock options ................... 183,233 318,987 351,114 ---------- ---------- ---------- Denominator for diluted earnings per share: Adjusted weighted average shares ...... 7,842,653 8,070,386 6,491,787 ========== ========== ==========
31
1999 1998 1997 ---- ---- ---- Basic earnings per share . $ 1.17 $ 1.48 $ 1.01 Diluted earnings per share $ 1.15 $ 1.43 $ .95
Stock options that could potentially dilute earnings per share in the future of 693,681, 303,130 and 69,534 in 1999, 1998 and 1997, respectively, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The company follows the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the third quarter of 1999, the company decided to discontinue manufacturing at its Hughesville, New Jersey, facility. During the fourth quarter of 1998, the company decided to close their Beaver Falls, New York, facility. In the fourth quarter of 1997, the company also decided to close its Owensboro, Kentucky, facility. The costs of closing these facilities, including the costs associated with disposing of the assets, are reflected as a component of income from operations (see note 12). COMPREHENSIVE INCOME In 1998, the company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME. This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income, minimum pension liability adjustments, and foreign currency translation adjustments and is presented in the Consolidated Statement of Stockholders' Equity. The adoption of SFAS 130 had no impact on total shareholders' equity. Prior year financial statements have been reclassified to conform to the SFAS 130 requirements. SEGMENT DISCLOSURES In 1998, the company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas, and major customers. PENSION AND POST-RETIREMENT DISCLOSURES In 1998, the company adopted SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT BENEFITS. This statement revises employers' disclosures about pension and other post-retirement benefit plans. It does not change the measurement or recognition of those plans. COMMITMENTS AND CONTINGENCIES Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a 32 liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties which are probable of realization are separately recorded, and are not offset against the related environmental liability, in accordance with Financial Accounting Standards Board Interpretation No. 39, OFFSETTING OF AMOUNTS RELATED TO CERTAIN CONTRACTS. ENVIRONMENTAL MATTERS Pursuant to environmental laws and regulations, there are currently pending investigations at certain of the company's plants relating to the release of hazardous substances, materials and/or wastes. In addition, various predecessors of the company have been named as potentially responsible parties ("PRPs") by the United States Environmental Protection Agency ("EPA") for costs incurred and to be incurred in responding to the investigation and clean-up of various third-party sites. The company has not received any notification or inquiry from EPA or any other agency concerning these sites. Management believes that the company will have no material liability in connection with the clean-up of these sites. However, no assurance can be given that such predecessors will perform their responsibilities in connection with such sites and, in the event of such nonperformance, the company may incur material liabilities in connection with such sites, and no assurance can be given that the company will not receive PRP notices in connection with these or other sites in the future. OTHER MATTERS The company is involved in various legal proceedings in the ordinary course of business. Management believes that the outcome of these proceedings will not have a material adverse effect on the company's financial condition, results of operations or cash flows. REVENUE RECOGNITION The company recognizes revenue from product sales upon shipment to customers. CONCENTRATION RISK The company's hourly employees and 71% of the company's German salaried employees are union eligible under various collective bargaining agreements expiring through 2004. As union membership is voluntary and membership does not need to be disclosed per German law, the percentage of employees covered by the agreement that expires on February 29, 2000 at the three German facilities cannot be determined. The agreement that will expire April 28, 2000, covers 6% of the company's hourly employees at the Richmond, Virginia, facility. (3) COGENERATION PROJECT In 1993, the company entered into agreements with Kamine/Besicorp Beaver Falls L.P. ("Kamine") pursuant to which the company's Latex Fiber Products Division would host a gas-fired, 79-megawatt combined-cycle cogeneration facility developed by Kamine in Beaver Falls, New York. Construction of the facility has been completed. The company received $4.4 million in cash in 1993. The company had a firm contract with Kamine to receive a series of cash payments totaling $7.0 million between May 1995 and May 1997. The present value of these cash payments, in the amount of $6.5 million, was recorded as income in the first quarter of 1995. Cash payments of $2 million each were received in May 1997 and 1996 and $3 million was received in 1995. In December 1998, the owner of the cogeneration facility sold the business and related equipment to another party. The company received a one-time payment of approximately $1.5 million as consideration for its consent to the assignment of the related ground lease to the new owner. 33 (4) INVENTORIES Inventories consist of the following at December 31, 1999 and 1998 (in thousands):
1999 1998 ---- ---- Raw materials .............. $21,232 $16,328 Work in process ............ 14,774 11,928 Finished goods ............. 17,561 16,681 Stores inventory ........... 2,386 1,671 Operating supplies ......... 1,975 1,909 ------- ------- Total inventories $57,928 $48,517 ======= =======
(5) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following at December 31, 1999 and 1998 (in thousands):
1999 1998 ---- ---- Land ......................................... $ 14,332 $ 13,940 Buildings and improvements ................... 36,950 31,754 Machinery and equipment ...................... 133,000 94,294 Construction in progress ..................... 6,626 5,660 --------- --------- 190,908 145,648 Less accumulated depreciation and amortization (19,485) (17,273) --------- --------- Net property, plant and equipment ............ $ 171,423 $ 128,375 ========= =========
Depreciation expense was $6,836,000, $6,386,000 and $4,852,000 for the years ended December 31, 1999, 1998, and 1997, respectively. (6) DEBT The company's long-term debt is summarized as follows at December 31, 1999 and 1998 (in thousands):
1999 1998 ---- ---- Series B senior notes - interest at 9.375%, interest payable semi-annually in arrears on April 15 and October 15, unsecured, due October 15, 2006 ............................. $ 100,000 $ 100,000 Bank term loan - interest rates ranging from 5.765% to 7.015% payable semi-annually in arrears on January 12 and July 12, secured by the stock of the Gessner subsidiary, annual principal payments commencing January 12, 1999 through the year 2005 ................................ 25,790 32,383 Term loan - interest at 5%, unsecured, interest and principal payable annually in three installments commencing March 31, 1999 .............. 3,095 4,798 Bank term loan - interest rates ranging from 5.40% to 7.10%, payable semi-annually in arrears on March 17 and September 17, secured by the stock of the Lahnstein subsidiary, annual principal payments commencing September 17, 2000 through the year 2005 .............................. 14,700 --
34 Bank term loan - interest rate ranging from 4.35% to 5.35%, payable semi-annually in arrears on June 30 and December 30, secured by the stock of the Lahnstein subsidiary, annual principal payments commencing December 31, 1999 through the year 2004 .................................................. 4,642 -- --------- --------- Total Debt ................................................................ 148,227 137,181 Less Current Portion ...................................................... (7,221) (3,598) --------- --------- Long-term Portion ......................................................... $ 141,006 $ 133,583 ========= =========
The Series B senior notes are redeemable at the company's option in whole or in part, on or after October 15, 2001 at redemption prices ranging from 100% to 104.688% of face value. Approximately, $11,650,000, $10,474,000 and $9,430,000 of interest was paid during the years ended December 31, 1999, 1998 and 1997, respectively. The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 1999 and thereafter are as follows (in thousands): 2000 ......................................... $ 7,221 2001 ......................................... 8,253 2002 ......................................... 8,575 2003 ......................................... 8,575 2004 ......................................... 8,059 Thereafter.................................... 107,544
The company expanded its revolving credit facility with CIT from $20.0 million to $50.0 million. The interest rate on the line as of December 31, 1999 is prime plus .5% or LIBOR plus 2%. The revolving credit line is subject to a commitment fee payable at the rate of 3/8 of 1% per annum on the daily average unused portion of this line. This fee is payable on a quarterly basis. In addition, the company is required to pay an annual Collateral Management Fee of $35,000 in connection with periodic examination, analysis and evaluation of the collateral. As of December 31, 1999, $28.0 million was outstanding under such credit facility. There are no balances due under this facility until its final maturity on September 30, 2002. In connection with the acquisition of Steinbeis Gessner GmbH (see note 11), two credit facilities were established by Gessner with Bayerische Vereinsbank AG. Gessner has $7,740,000 in available funds through a line of credit with Bayerische Vereinsbank AG at December 31, 1999. The interest rate on the line as of December 31, 1999 is LIBOR plus 1.75%. The credit line is subject to a commitment fee payable semi-annually at the rate of 1/4 of 1% per annum on the undisbursed amount. As of December 31, 1999, no advances were outstanding under this facility. In addition, Gessner established a loan agreement with Bayerische Vereinsbank AG for the purposes of financing capital expenditures. Under this agreement, Gessner has $2,579,000 remaining in available funds at December 31, 1999. The interest rate as of December 31, 1999 is LIBOR plus 1.75%. The available funds mature on December 31, 2000. The agreement is subject to a 35 commitment fee at the rate of 1/4 of 1% per annum on the undisbursed amount at maturity. As of December 31, 1999, $4,642,000 was outstanding under such credit facility. The company arranged a $15 million capital spending facility with Jules & Associates to partially fund the installation of a new paper machine at its Warren Glen, New Jersey, facility. The facility has a fixed interest rate of approximately 8.5% and will amortize over seven years. As of December 31, 1999, no advances were outstanding under this facility. (7) LEASES DEFERRED GAIN AND SALE-LEASEBACK In April 1994, FiberMark entered into a sale-leaseback agreement with The CIT Group, Inc. ("CIT"). FiberMark sold CIT $7,813,000 in fixed assets for a purchase price of $25,000,000. As a result FiberMark recorded a deferred gain of $17,187,000 which is amortized on a straight-line basis over the life of the ten year lease. In 1999, 1998 and 1997 the company amortized $1,289,000, $1,719,000 and $1,718,000, respectively, of the deferred gain into income. At December 31, 1998, the deferred gain amounted to $9,166,000, net of accumulated amortization of $8,021,000. In connection with the sale-leaseback transaction, CIT leased back the fixed assets to FiberMark utilizing a ten-year operating lease. The lease requires quarterly payments of $843,000 for the first five years and quarterly payments of $690,000 for the remaining five years of the lease. In December 1995 FiberMark amended the sale-leaseback agreement whereby FiberMark sold a newly constructed wet end machine ("Kobayashi") for $10 million. No gain or loss was recorded on the transaction. FiberMark received $5.0 million of the purchase price from CIT in December 1995, the remaining $5.0 million was placed in escrow and paid during 1996 when all specifications were met. CIT leased back the Kobayashi machine to FiberMark using the remaining 8.5 years of the operating lease discussed above. The amended lease required additional payments including a first quarter payment of $113,000 and quarterly payments of $339,901 for the next 33 quarters. Rental expense associated with these leases is recognized on a straight-line basis and amounted to $3,320,000, $4,426,000 and $4,426,000 for the years ending December 31, 1999, 1998 and 1997, respectively. Accumulated deferred rent expense included in prepaid expense amounted to $1,380,000 as of December 31, 1998. On September 30, 1999, the company terminated the sale/leaseback facility with The CIT Group, and repurchased the assets at its Brattleboro mill. Concurrently, the company expanded its revolving credit facility with CIT from $20.0 million to $50.0 million (see note 6). The remaining unamortized balance of the deferred gain, net of the accumulated deferred rent expense ($7,158,000) was offset against the asset purchase price. OTHER LEASES The company assumed obligations under operating leases for certain machinery, equipment and facilities with the acquisitions of Steinbeis Gessner GmbH in January 1998 and Papierfabrik Lahnstein GmbH in August 1999, and with facilities purchased from CPG in October 1996. Rental expense was $1,287,000, $869,000 and $420,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 36 As of December 31, 1999, obligations to make future minimum lease payments under these leases were as follows (in thousands):
PAYMENTS TO BE MADE IN THE YEARS ENDING DECEMBER 31: ---------------------------------------------------- 2000 $1,230 2001 1,043 2002 961 2003 855 2004 748 Thereafter 267 ------ $5,104 ------
(8) PREFERRED STOCK At December 31, 1999 and 1998, the company has 2,000,000 shares of preferred stock authorized with none issued. The company, without stockholder approval, can issue preferred stock with voting, conversion, and other rights. (9) INCOME TAXES Income before provision for income taxes, classified by source of income was as follows:
1999 1998 1997 ------ ------ ------ U.S .................................... $ 4,134 $10,013 $10,161 Foreign ................................ 12,335 8,588 -- ------- ------- ------- Income before provision for income taxes $16,469 $18,601 $10,161 ======= ======= =======
The components of the provision for income taxes for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 ----- ------ ------ Current Federal ......... $ 1,449 $ 2,201 $ 6,137 State ........... 406 558 1,439 Foreign ......... 1,796 616 -- ------- ------- ------- 3,651 3,375 7,576 Deferred Federal and State (222) 296 (3,584) Foreign ......... 4,057 3,421 -- ------- ------- ------- 3,835 3,717 (3,584) Income tax expense ... $ 7,486 $ 7,092 $ 3,992 ======= ======= =======
37 9) INCOME TAXES, (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1999 and 1998 are presented below (in thousands):
December 31, 1999 ---------------------------- Deferred Tax Deferred Tax Assets Liabilities ------------ ------------ Accounts receivable ......... $ 1,062 $ -- Inventory ................... 1,075 -- Property, plant and equipment -- 20,068 Payroll related accruals .... 5,218 -- Intangible assets ........... -- 252 Miscellaneous reserves ...... 600 -- Facility closure ............ 260 -- ------- ------- $ 8,215 $20,320 ======= =======
December 31, 1998 ---------------------------- Deferred Tax Deferred Tax Assets Liabilities ------------ ------------ Accounts receivable ......... $ 687 $ -- Inventory ................... 513 -- Property, plant and equipment -- 18,627 Payroll related accruals .... 4,750 -- Intangible assets ........... -- 216 Miscellaneous reserves ...... 546 -- Deferred gain ............... 3,492 -- Facility closure ............ 812 -- ------- ------- $10,800 $18,843 ======= =======
SFAS No. 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized through future taxable earnings. 38 (9) INCOME TAXES, (CONTINUED) A reconciliation of income taxes from continuing operations at the United States statutory rate to the effective rate for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ---- ---- ---- U.S. federal rate ................ 34.0% 34.0% 34.0% State taxes net of federal benefit 7.6% 4.6% 6.1% Foreign rate difference .......... 6.0% 3.9% -- Other ............................ (2.1%) (4.4%) (0.8%) ---- ---- ---- Effective tax rate ............... 45.5% 38.1% 39.3% ==== ==== ====
Income taxes paid during 1999, 1998 and 1997 were $2,831,000, $5,399,000 and $5,696,000, respectively. (10) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of information about the fair value of certain financial instruments for which it is practicable to estimate that value. For purposes of the following disclosure the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation. The fair value of long-term debt is based upon the quoted market price and amounts to $175,695,000 (carrying value of $176,195,000) at December 31, 1999, and $139,181,000 (carrying value $137,181,000) at December 31, 1998. Management has determined that the carrying values of its other financial assets and liabilities approximated fair value at December 31, 1999 and 1998. (11) ACQUISITIONS 1999 ACQUISITION Effective August 1, 1999, the company acquired Papierfabrik Lahnstein GmbH for a purchase price of $22.1 million. FiberMark Lahnstein manufactures specialty papers and nonwoven materials. The operation's coating substrates are used for wallcoverings, security papers, self-adhesive labels and flooring overlay; printing substrates for graphic arts applications, specialty tags and labels; and disposable nonwovens for medical products and tablecloths. This acquisition was financed with $6.9 million of cash reserves along with borrowings under a DM 28.5 ($15.2) million bank facility with Bayerische Vereinsbank. The acquisition was accounted for using the purchase method. Accordingly, the full purchase price was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The 1999 consolidated results include Lahnstein's results of operations for five months. 39 The following summarized unaudited pro forma results of operations for the years ended December 31, 1999 and 1998, assumes the Lahnstein acquisition occurred as of the beginning of the periods presented (dollars in thousands, except per share amounts):
Unaudited Unaudited 1999 1998 --------- --------- Net sales .............. $348,384 340,723 Net income ............. 9,875 12,277 Basic earnings per share 1.29 1.58
The unaudited pro forma results are not necessarily indicative of actual results of operations that would have occurred had the acquisitions been consummated as of the above dates, nor are they necessarily indicative of future operating results. 1998 ACQUISITION Effective January 1, 1998, the company purchased all of the outstanding shares of Steinbeis Gessner GmbH (Gessner) for $40.0 million and DM 8.08 ($4.4) million in cash. Gessner manufactures crepe masking and specialty tape materials, wet and dry abrasives papers, filter media for automotive air, oil and fuel and filter media for automotive cabins and vacuum cleaner bags. The acquisition was financed with a portion of the proceeds of the sale of 1,500,000 shares of the company's common stock for $28.7 million along with borrowings under a DM 54.0 ($29.6) million bank facility provided by Bayerische Vereinsbank AG and an unsecured note issued by Gessner and guaranteed by the company to the seller in the amount of DM 8.0 ($4.4) million. The acquisition was accounted for using the purchase method. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their respective fair values. This resulted in approximately $6.4 million of cost in excess of net assets acquired, or goodwill which is being amortized on a straight line basis over thirty years. The 1998 consolidated results include Gessner's results of operation for the entire year. The following summarized unaudited pro forma results of operations for the year ended December 31, 1997, assumes the Gessner acquisition occurred as of the beginning of the periods presented (dollars in thousands, except per share amounts):
Unaudited --------- Net sales .............. $313,719 Net income ............. 9,851 Basic earnings per share 1.30
The unaudited pro forma results are not necessarily indicative of actual results of operations that would have occurred had the acquisitions been consummated as of the above dates, nor are they necessarily indicative of future operating results. (12) FACILITY CLOSURE On January 14, 1998, the company closed the Owensboro, Kentucky, facility. Production at this facility was moved into certain of the company's other operations. As of December 31, 1997, the company recorded a facility closure charge of $10,000,000 to recognize severance and benefits for the employees to be terminated ($450,000) to reflect contract cancellation costs ($325,000), to reflect the 40 write down to estimated fair market value of the plant and equipment not expected to be transferred to other facilities ($8,129,000), to write off goodwill ($186,000) and organization costs ($185,000) and to write off or accrue for other miscellaneous costs ($725,000). The company terminated 39 administrative and plant employees. The actual termination benefits paid were $492,000. Results of operations of the facility amounted to a $.3 million loss for the year ended December 31, 1997. In 1998 the company added $520,000 to previously accrued expenses related to its Owensboro, Kentucky, mill to facility closure expense. The company also added $2,468,000 to previously accrued facility closure expenses in 1999 for its Owensboro, Kentucky, mill to reflect a full write off of property, plant and equipment value for that facility. The company ceased operations at its Beaver Falls, New York, facility on January 29, 1999. Part of the historical demand from this facility has been taken in-house by an integrated customer. The balance of the production demand will be absorbed by other mills within the company. As of December 31, 1998, the company recorded a facility closure charge of $7,794,000 to recognize severance and benefits for the employees to be terminated ($1,427,000) to reflect contract cancellation costs ($250,000) and to reflect the write off of property, plant and equipment ($6,117,000). The company terminated 87 administrative and plant employees. Actual termination benefits paid were $1,449,000. Results of operations of the facility amounted to a $.1 million income for the year ended December 31, 1998. In 1999 the company added approximately $120,000 to previously accrued facility closure expenses for its Beaver Falls, New York, mill to reflect additional severance and benefits for terminated employees. On August 31, 1999, the company initiated a project to install a new paper machine at its Warren Glen, New Jersey, facility and to consolidate operations from the neighboring Hughesville, New Jersey, mill. The company plans to cease operations at Hughesville in December 2000. As of December 31, 1999, the company recorded a facility closure charge of $7,230,000 to recognize severance and benefits for employees to be terminated ($523,000), and to reflect the write off of property, plant and equipment ($6,707,000). The company expects to terminate 33 administrative and plant employees. Results of operations of the facility amounted to a $135,000 loss for the year ended December 31, 1999. (13) RELATED PARTY TRANSACTIONS The company paid a management fee of $250,000 for the year ended December 31, 1997 to an equity owner, MDC Management company ("MDC"), pursuant to a management agreement with MDC which called for an annual fee of $250,000 through 1997. (14) RETIREMENT AND DEFERRED COMPENSATION PLANS QUALIFIED PLANS The company has a defined contribution plan (salaried and hourly) and a defined benefit (hourly) retirement plan for FiberMark. DEFINED CONTRIBUTION PLAN The defined contribution plan is a 401(k) ERISA and IRS-qualified plan covering substantially all employees that permits employee salary deferrals up to 16% of salary with the company matching 50% of the first 6%. Defined contribution expense for the company was $1,022,000, $1,017,000 and $1,102,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 41 DEFINED BENEFIT PLAN FOR HOURLY EMPLOYEES Effective August 13, 1997, the CPG defined benefit pension plan was merged into the FiberMark, Inc. pension plan and the assets and liabilities of both plans were combined. The defined benefit plan is an ERISA and IRS-qualified plan. Plan assets are invested principally in equity securities, government and corporate debt securities and other fixed income obligations. The company annually contributes at least the minimum amount as required by ERISA. The following table sets forth the accumulated pension benefit obligation (APBO) (in thousands):
1999 1998 ---- ---- APBO at January 1 ................... $ 25,831 $ 11,680 Increase due to Gessner acquisition . -- 10,322 Increase due to Lahnstein acquisition 6,634 -- Service cost ........................ 743 702 Interest cost ....................... 1,702 1,437 Actuarial loss (gain) ............... (1,337) 2,657 Benefits paid ....................... (1,319) (967) Plan amendments ..................... 435 -- Foreign currency impact ............. (1,663) -- -------- -------- APBO at December 31 ................. $ 31,026 $ 25,831 ======== ========
The funded status at December 31 is (in thousands):
1999 1998 ---- ---- Projected benefit obligation ............ $(31,026) $(25,831) Fair value of plan assets ............... 13,631 11,062 -------- Funded status ........................... (17,395) (14,769) Unrecognized net transition obligation .. 13 16 Unrecognized prior service cost ......... 539 150 Unrecognized net loss ................... 1,417 3,493 -------- -------- Accrued pension cost before adjustment for minimum liability .... (15,426) (11,110) Adjustment to recognize minimum liability (1,010) (3,659) -------- -------- Accrued pension cost included in other long-term liabilities ............... $(16,436) $(14,769) ======== ========
42 Net periodic pension expense included the following components (in thousands):
1999 1998 1997 ---- ---- ---- Service cost ............................. $ 753 $ 691 $ 445 Interest cost ............................ 1,744 1,405 686 Return on assets ......................... (1,417) (2,055) (668) Net amortization and deferral: Unrecognized net transition obligation 3 3 3 Unrecognized prior service cost ...... 46 12 12 Unrecognized loss .................... 81 83 14 Net asset gain deferred .............. 382 1,320 40 Recognized net loss .................. 101 -- -- ------- ------- ------- Net periodic pension expense ............. $ 1,693 $ 1,459 $ 532 ======= ======= =======
The following table reconciles plan assets (in thousands):
1999 1998 ---- ---- Fair value of plan assets at beginning of year $ 11,062 $ 7,832 Return on plan assets ........................ 1,417 2,055 Employer contributions ....................... 2,471 2,142 Benefits paid ................................ (1,319) (967) -------- -------- Fair value of plan assets at end of year ..... $ 13,631 $ 11,062 ======== ========
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 1999 and 1998 was 7.25% and 6.5%, respectively. The expected long-term rate of return on plan assets was 9% in 1999 and 1998. As is required by SFAS No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, for plans where the accumulated pension benefit obligation exceeds the fair value of plan assets, the company has recognized in the accompanying consolidated balance sheets the minimum liability of the unfunded accumulated pension benefit obligation as a long-term liability with an offsetting intangible asset ($552,000 and $166,000 at December 31, 1999 and 1998, respectively, included in other intangible assets, net) and equity adjustment, net of tax impact. NON-QUALIFIED PLANS In addition to the benefits provided under the qualified pension plans, retirement and deferred compensation benefits associated with wages in excess of the IRS allowable wages are provided to certain employees under non-qualified plans. During 1997 the company established a trust pursuant to two executive deferral plans for the benefit of a select group of management, highly compensated employees and/or directors who contribute materially to the continued growth, development and business success of the company. The plans established under the trust agreement are set forth as follows: 43 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) The plan is a defined benefit plan and shall be unfunded for tax purposes and for purposes of Title I of ERISA. Pension benefits are based upon final average compensation and years of service. Benefits earned are subject to cliff vesting after fifteen (15) years or more of service. The following table sets forth the accumulated pension benefit obligation (APBO) (in thousands):
1999 1998 ---- ---- APBO at January 1 ................. $ 3,604 $ 3,464 Service cost ...................... 136 182 Interest cost ..................... 230 251 Actuarial gain .................... (481) (293) Plan Amendments ................... (64) -- Benefits paid ..................... -- -- ------- ------- APBO at December 31................ $ 3,425 $ 3,604 ======= =======
The funded status at December 31 is (in thousands):
1999 1998 ---- ---- Projected benefit obligation ................... $(3,425) $(3,604) Fair value of plan assets ...................... 1,895 566 ------- ------- Funded Status .................................. (1,530) (3,038) Unrecognized prior service cost ................ 2,269 2,583 Unrecognized net (gain) or loss ................ (1,078) 71 ------- ------- Accrued pension cost before adjustment for minimum liability ........... (339) (384) Adjustment to recognize minimum liability ...... (939) (2,557) ------- ------- Accrued pension cost included in other long-term liabilities ................................ $(1,278) $(2,941) ======= =======
Net periodic pension expense included the following components (in thousands):
1999 1998 1997 ---- ---- ---- Service cost ...................... $ 136 $ 182 $ 87 Interest cost ..................... 230 251 104 Return on assets .................. (735) 34 -- Net amortization and deferral: Unrecognized prior service cost 250 256 128 Net asset gain (loss) deferred 668 (58) -- ----- ----- ----- Net periodic pension expense ...... $ 549 $ 665 $ 319 ===== ===== =====
44 The following table reconciles plan assets (in thousands):
1999 1998 ---- ---- Fair value of plan assets at beginning of year $ 566 $ -- Return on plan assets ........................ 735 (34) Employer contributions ....................... 594 600 Benefits paid ................................ -- -- ------ ------ Fair value of plan assets at end of year ..... $1,895 $ 566 ====== ======
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 1999 and 1998 was 7.25% and 6.5%, respectively. The expected long-term rate of return on plan assets was 7% in 1999 and 1998. As required by SFAS No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS, for plans where the accumulated pension benefit obligation exceeds the fair value of plan assets, the company has recognized in the accompanying consolidated balance sheets the minimum liability of the unfunded accumulated pension benefit obligation as a long-term liability with an offsetting intangible asset of $216,000 and $2,622,000 at December 31, 1999 and 1998, respectively, included in other intangible assets, net. DEFERRED COMPENSATION PLAN The company has a deferred compensation plan that permits eligible participants to defer a specified portion of their compensation. The deferred compensation, together with certain company contributions, earn a guaranteed rate of return. As of December 31, 1999 and 1998, the company has accrued $3,642,000 and $2,809,000, respectively, for its obligation under the plan included in other long-term liabilities. The company's expense, which includes company contributions and interest expense, amounted to $28,000, $17,000 and $152,000 for the years ended December 31, 1999, 1998 and 1997, respectively. To assist in the funding of the plan, the company purchased corporate-owned life insurance contracts. Proceeds from the insurance policies are payable to the company upon the death of the participant. The cash surrender value of the policies, included in other long-term assets, was $3,642,000 and $2,817,000 as of December 31, 1999 and 1998, respectively. (15) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS The company provides certain health care and life insurance benefits to specific groups of former CPG employees when they retire. The salaried group of employees generally become eligible for retiree medical benefits after reaching age 62 and with 15 years of service or after reaching age 65. The medical plan for salaried employees provides for an allowance, which must be used towards the purchase of a Medicare supplemental insurance policy, based on a retiree's length of service. The allowance may be adjusted to reflect annual changes in the Consumer Price Index ("CPI"); however, once the initial allowance has doubled, there will be no further increases. Salaried employees hired after January 1, 1993 are not eligible to participate in this retiree medical plan. Upon satisfying certain eligibility requirements, approximately 45% of the hourly employees are eligible upon retirement to receive a medical benefit, which is an allowance to be used toward the purchase of a Medicare supplemental insurance policy and cannot exceed a specified annual amount. The post-retirement benefit obligations related to employees who retired prior to the acquisition were not assumed by the company and remain the responsibility of prior owners. 45 The following table sets forth the accumulated pension benefit obligation (APBO) (in thousands):
1999 1998 ---- ---- APBO at January 1 ............... $ 1,641 $ 1,604 Service cost .................... 30 35 Interest cost ................... 93 101 Actuarial gain .................. (257) (34) Benefits paid ................... (66) (65) ------- ------- APBO at December 31.............. $ 1,441 $ 1,641 ======= =======
The funded status at December 31 is (in thousands):
1999 1998 ---- ---- Funded status at December 31 ................... $(1,441) $(1,641) Unamortized prior cost ......................... 23 -- Unrecognized net actuarial loss (gain) ......... (205) 71 ------- ------- Accrued post-retirement benefit cost included in other long-term liabilities ............... $(1,623) $(1,570) ======= =======
Net periodic post-retirement benefits cost included the following components (in thousands):
1999 1998 1997 ---- ---- ---- Service cost ........ $ 30 $ 35 $ 43 Interest cost on APBO 93 101 99 Prior service cost .. 3 -- -- Actuarial gain ...... (7) -- -- ----- ----- ----- $ 119 $ 136 $ 142 ===== ===== =====
The assumed health care cost trend rate used in measuring future benefit costs was 7.5%, gradually declining to 6% by 2001 and remaining at that level thereafter. A 1% increase in this annual trend rate would result in an accumulated post-retirement benefit obligation of $1,327,000 and the aggregate of service and interest cost components of net periodic post-retirement benefit expense for the year ended December 31, 1999 of $118,000. Conversely, a 1% decrease in the annual trend rate would result in an accumulated post-retirement benefit obligation of $1,245,000 and the aggregate of service and interest cost components of net periodic post-retirement benefit expense of $108,000 for the year ended December 31, 1999. The assumed discount rate used in determining the accumulated post-retirement benefit obligation was 7.25% and 6.5% as of December 31, 1999 and 1998, respectively.
(16) ACCRUED LIABILITIES CONSIST OF (IN THOUSANDS): 1999 1998 ---------------------------------------------- ---- ---- Salaries and related benefits $ 9,858 $ 7,170 Interest 2,003 2,003 Facility closure costs 684 1,670 Post-retirement benefits 1,623 1,570 Other 5,730 3,257 ----- ----- $ 19,898 $ 15,670 ======== ========
46 (17) SUPPLEMENTAL CASH FLOW INFORMATION Non-cash disclosures related to the acquisitions:
1999 1998 ---- ---- Assets acquired ........... $ 36,046 $ 54,656 Liabilities assumed........ (12,977) (16,270) -------- -------- Cash paid ................. 23,069 38,386 Less cash acquired......... (134) (1,049) -------- -------- $ 22,935 $ 37,337 ======== ========
During 1999 the company recorded an intangible asset related to the hourly defined benefit pension plan of $386,000 and a long-term liability of $1,806,000. The offset resulted in a minimum pension liability adjustment of $843,000, net of tax provision. During 1999 the company reduced its intangible asset related to the SERP in the amount of $2,406,000 and reduced the related long-term liability for the same amount. Non-cash investing and financing activities: During 1998 the company recorded an intangible asset related to the hourly defined benefit pension plan amounting to $166,000 and a long-term liability of $2,170,000. The offset resulted in a minimum pension liability adjustment of $1,128,000, net of tax benefit. During 1998 the company increased its intangible asset related to the SERP in the amount of $135,000 and a related long-term liability for the same amount. During 1997 the company recorded an intangible asset related to the hourly defined benefit pension plan amounting to $180,000 and a long-term liability of $946,000. The offset resulted in a minimum pension liability adjustment of $471,000, net of tax benefit. During 1997 the company recorded an intangible asset related to the SERP in the amount of $2,487,000 and recorded a long-term liability for the same amount. (18) SIGNIFICANT BUSINESS CONCENTRATIONS
1999 1998 1997 ---- ---- ---- CUSTOMER CONCENTRATION Total % sales from top 5 customers . 24% 24% 28% Foreign sales as % of total sales(a) 34% 29% 8% Europe ......................... 27% 23% 2% Far East ....................... 4% 3% 4% Other (including Latin America) 3% 3% 2%
(a)Excluding Canada 47 (19) STOCK OPTION AND BONUS PLANS The company has several stock option plans which provide for grants of non-qualified or incentive stock options. The 1992 Amended and Restated Stock Option Plan ("1992 Plan") is fully granted at 301,425 shares of common stock to management of the company. Options granted under the 1992 Plan typically vest at a rate of 20% per year and are exercisable for a period of ten years from the grant date. The 1994 Stock Option Plan ("1994 Plan") is fully granted at 300,000 shares of common stock to selected officers and employees of the company. Options granted under the Plan vest at a rate of 20% per year commencing on the one year anniversary of the grant date and 1.66% at the end of each month thereafter. The options are exercisable for a period of ten years from the grant date. The 1994 Director Stock Option Plan ("Directors' Plan") authorizes the grant of up to 225,000 shares of common stock to directors who are not otherwise full-time employees of the company. The Plan was amended in 1996 to increase the authorized shares from 75,000 to 225,000 shares and to allow for an accelerated vesting schedule not to exceed five years. Options will vest and become exercisable based upon target levels set for the fair market value of the common stock or in the event of a merger or asset sale. The options are exercisable for a period of eight years from the date of grant. During 1997 the company authorized the grant of up to 600,000 incentive stock options under a new plan, the 1997 Stock Option Plan ("1997 Plan") to selected officers and employees of the company. Options granted under the 1997 Plan vest at a rate of 20% per year and are exercisable for a period of ten years from the grant date. During 1998 the company authorized the grant of up to 200,000 stock options under a new plan, the 1998 Stock Option Plan ("1998 Plan") to non-employee Directors. The 1998 Plan contains two types of option grants: (1) a base grant of an option for 7,500 shares which vests at a rate of 20% for each year of board service and (2) a performance grant of an option for 15,000 shares which has accelerated vesting if the stock of the company reaches certain price levels for 20 consecutive trading days and ultimately vests after eight years of service on the Board of Directors. The following table sets forth the stock option transactions for the three years ended December 31, 1999:
Weighted Number Average of Exercise Shares Price -------- ------------ Outstanding, December 31, 1996 751,234 $ 7.83 1997: Granted 182,500 21.87 Exercised (21,850) 5.36 Forfeited (7,500) 9.96 ------- Outstanding, December 31, 1997 904,384 10.70 1998: Granted 335,000 20.88 Exercised (61,285) 7.60 Forfeited (26,715) 13.02 ------- Outstanding, December 31, 1998 1,151,384 13.77
48 (19) STOCK OPTION AND BONUS PLANS, (CONTINUED) 1999: Granted 196,500 13.75 Exercised (52,661) 7.67 Forfeited (126,828) 14.83 --------- Outstanding, December 31, 1999 1,168,395 $ 13.93 =========
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable ------------------------------------------- --------------------------- Weighted Number Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise at Contractual Exercise at Exercise Prices 12/31/99 Life Price 12/31/99 Price -------- ----------- ----------- --------- ----------- --------- $ 3.33 207,380 2.6 $ 3.33 207,380 $ 3.33 6.00 to 7.83 93,100 5.1 7.00 87,884 6.95 9.00 to 9.41 133,913 6.5 9.21 112,882 9.25 13.38 to 13.75 420,002 8.6 13.58 90,041 13.47 19.44 to 25.63 209,000 7.9 21.66 89,600 22.28 30.00 to 38.00 105,000 8.4 33.00 -- -- --------- ------- 1,168,395 587,787 ========= =======
The company has adopted the disclosure-only provisions of Statement of Financial Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no compensation cost has been recognized for stock options granted under the plans during 1999, 1998 and 1997 as the options were all granted at exercise prices which equaled the market value at the date of the grant. Compensation for the options granted prior to December 31, 1992, at $3.33 per share was measured as of the grant date based upon a fair market value of $5.33 per share as determined by the Board of Directors and is being recognized as expense over the vesting period. Had compensation cost for the company's stock option plans been determined based on the fair value at the grant date for awards during 1999, 1998 and 1997 consistent with the provisions of SFAS No. 123, the company's net income would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ---- ---- ---- Net income, as reported ............... $ 8,983 $ 11,509 $ 6,169 Net income, pro forma ................. 7,265 9,919 5,304 Basic earnings per share, as reported . $ 1.17 $ 1.48 $ 1.01 Basic earnings per share, pro forma ... .95 1.28 .86 Diluted earnings per share, as reported $ 1.15 $ 1.43 $ .95 Diluted earnings per share, pro forma . .93 1.23 .82
49 (19) STOCK OPTION AND BONUS PLANS, (CONTINUED) Pro forma net income reflects only options granted after 1994. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting periods and compensation cost for options granted prior to January 1, 1995 is not considered. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free interest rate of 6%; dividend yield of $0; expected volatility of 33%, 51% and 31%; and expected lives per the plan agreement. Effective January 1, 1994, the Compensation Committee adopted the Executive Bonus Plan, which provides for bonus payments of a percentage of base salary based upon achievement by the company of certain levels of earnings per share. The Executive Bonus Plan utilizes a sliding scale so that the percentage of base salary paid as bonus compensation increases as the earnings per share of the company increase. The Executive Bonus Plan is designed to directly align the interests of the executive officers and the stockholders. Although the Executive Bonus Plan is subject to annual review by the Committee, the Committee expects it to remain in place for a five-year term. Expense recorded under the plan amounted to $652,000, $660,000 and $1,001,000 in 1999, 1998 and 1997, respectively. (20) UNAUDITED QUARTERLY SUMMARY INFORMATION The following is a summary of unaudited quarterly summary information for the years ended December 31, 1999, 1998 and 1997 (in thousands, except per share data).
1999(a) March 31 June 30 Sept 30(1) Dec 31 ------- -------- ------- ---------- ------ Net sales ................ $ 75,906 $ 75,982 $ 81,866 $ 91,554 Gross profit ............. 15,276 15,599 13,831 17,217 Net income (loss) ........ 4,054 4,210 (1,533) 2,252 Basic earnings per share . 0.52 0.54 (0.20) 0.30 Diluted earnings per share 0.51 0.53 (0.20) 0.30
1998(a) March 31 June 30 Sept 30 Dec 31(2) ------- -------- ------- ------- --------- Net sales ................ $ 79,951 $ 78,591 $ 73,150 $ 75,400 Gross profit ............. 15,676 14,767 13,383 13,929 Net income ............... 4,351 3,751 3,318 89 Basic earnings per share . 0.56 0.48 0.43 0.01 Diluted earnings per share 0.54 0.46 0.41 0.01
1997 March 31 June 30 Sept 30(1) Dec 31(3) ---- -------- ------- ---------- --------- Net sales ................ $ 59,442 $ 59,415 $ 57,802 $ 58,699 Gross profit ............. 11,265 11,318 11,517 11,964 Net income (loss) ........ 2,733 3,054 3,199 (2,817) Basic earnings per share . 0.45 0.50 0.53 (0.44) Diluted earnings per share 0.43 0.48 0.50 (0.44)
50 (a) Effective August 1, 1999, the company acquired Lahnstein Papierfabrik GmbH at a purchase price of approximately $22 million. Effective January 1, 1998, the company acquired Steinbeis Gessner GmbH for a purchase price of approximately $43 million. (1) On August 31, 1999, the company initiated a project to install a new paper machine at its Warren Glen, New Jersey, facility and to consolidate operations from the neighboring Hughesville, New Jersey, mill. The company plans to cease manufacturing operations at Hughesville by December 31, 2000, and the book value of the mill has been written down by $7.2 million accordingly. Additionally, the company incurred closure expenses for its previously closed Beaver Falls and Owensboro facilities of $.1 million and $2.5 million respectively. (2) In the fourth quarter of 1998, the company announced its decision to close the facility located in Beaver Falls, New York. Income from operations reflects a $7,794,000 charge as a result of this event. (3) In the fourth quarter of 1997, the company announced its decision to close the facility located in Owensboro, Kentucky. Income from operations reflects a $10,000,000 charge as a result of this event. Note: Equivalent shares of common stock have not been included in the 1999 third quarter and 1997 fourth quarters diluted earnings per share calculation as their effect would be anti-dilutive. (21) SEGMENT INFORMATION On December 31, 1998, the company adopted Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS 131). SFAS 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. The company's reportable operating segments include: technical and office products, durable specialties and German operations and filter media. Each operating segment consists of facilities with common management, with significant marketing and manufacturing overlap. The technical and office products segment manufactures a wide range of specialty fiber-based materials used in communications, including base or cover materials for electrical/electronics, graphic arts and office products, as well as other technical specialties. This represents our Technical & Office Products Division. Durable specialties produces specialty tape substrates, using a broad range of saturated, coated paper and non-woven materials. This represents our U.S. Durable Specialties Division. German operations and filter media manufactures filter media used in automotive, vacuum, water and industrial filtration, including paper, synthetic non-woven materials and composite materials. FiberMark Gessner also manufactures technical specialties (abrasives) and durable specialties (tape backing materials). This segment encompasses FiberMark Gessner GmbH, Filter Media North America, and FiberMark Lahnstein (technical specialties). The following table details sales and selected financial data by operating segment (in thousands). Inter-segment sales are accounted for as if the sales were to third parties. 51 21. Segment Information, (continued) The following table categorizes net sales in each market segment into the appropriate operating segment:
(In Thousands) Operating Segment ------------------------------------------------------------------------------ German Operations Technical and and Office Durable Filter Media Products Specialties Other Total ----------------- ---------- ----------- ----- ----- 3 months ended December 31, 1999 Net sales Market Segment Filter Media ............... 24,690 1,234 -- -- 25,924 Technical Specialties ...... 11,394 14,111 -- -- 25,505 Durable Specialties ........ 7,209 -- 18,113 -- 25,322 Office Products ............ -- 14,803 -- -- 14,803 -------- -------- -------- --- -------- Total .............. $ 43,293 $ 30,148 $ 18,113 $-- $ 91,554 ======== ======== ======== === ======== 3 months ended December 31, 1998 Net sales Market Segment Filter Media ............ 23,368 188 -- -- 23,556 Technical Specialties ... 669 18,207 -- -- 18,876 Durable Specialties ..... 4,739 -- 14,081 -- 18,820 Office Products ......... -- 14,148 -- -- 14,148 -------- -------- -------- --- -------- Total ........... $ 28,776 $ 32,543 $ 14,081 $-- $ 75,400 ======== ======== ======== === ========
(In Thousands) Operating Segment ------------------------------------------------------------------------------ German Operations Technical and and Office Durable Filter Media Products Specialties Other Total ----------------- ---------- ----------- ----- ----- 12 months ended December 31, 1999 Net sales Market Segment Filter Media ............ 95,231 5,237 -- -- 100,468 Technical Specialties ... 22,448 58,019 -- -- 80,467 Durable Specialties ..... 24,846 -- 65,382 -- 90,228 Office Products ......... -- 54,145 -- -- 54,145 -------- -------- -------- --- -------- Total ........... $142,525 $117,401 $ 65,382 $-- $325,308 ======== ======== ======== === ======== 12 months ended December 31, 1998 Net sales Market Segment Filter Media ............ 94,692 4,065 -- -- 98,757 Technical Specialties ... 7,181 72,717 -- -- 79,898 Durable Specialties ..... 20,216 -- 55,688 -- 75,904 Office Products ......... -- 52,533 -- -- 52,533 -------- -------- -------- --- -------- Total ........... $122,089 $129,315 $ 55,688 $-- $307,092 ======== ======== ======== === ========
52 21. Segment Information, (continued)
(In Thousands) Operating Segment ------------------------------------------------------------------------------- German Operations Technical and and Office Durable Filter Media Products Specialties Other Total --------------- ---------- ----------- ----- ----- 3 MONTHS ENDED DECEMBER 31, 1999 Net sales ...................... $ 43,293 $ 30,148 $ 18,113 -- $ 91,554 Inter-segment net sales ........ 296 551 -- (847) -- -------- -------- -------- -------- -------- Total net sales ................ $ 43,589 $ 30,699 $ 18,113 $ (847) $ 91,554 ======== ======== ======== ======== ======== EBIT ........................... $ 5,209 $ 2,781 $ 2,807 $ (2,588)(1) $ 8,209 ======== ======== ======== ======== ======== Depreciation and amortization .. $ 797 $ 1,252 $ 611 -- $ 2,660 (Excl. Def. Gain) Total assets ................... $144,107 $121,587 $ 31,175 $ 50,077 $346,946 3 MONTHS ENDED DECEMBER 31, 1998 Net sales ...................... $ 28,776 $ 32,543 $ 14,081 -- $ 75,400 Inter-segment net sales ........ 284 419 95 (798) -- -------- -------- -------- -------- -------- Total net sales ................ $ 29,060 $ 32,962 $ 14,176 $ (798) $ 75,400 ======== ======== ======== ======== ======== EBIT ........................... $ 2,784 $ 3,282 $ 1,763 $ (5,823)(2) $ 2,006 ======== ======== ======== ======== ======== Depreciation and amortization .. $ 734 $ 979 $ 630 -- $ 2,343 Total assets ................... $112,917 $102,333 $ 57,011 $ 38,970 $311,231 (1) 1999 Other Includes Facility closure (Technical & Office Products Segment) $ (2,588) -------- $ (2,588) (2) 1998 Other Includes Facility closure (Technical & Office Products Segment) $ (7,274) Cogeneration Income 1,451 -------- $ (5,823)
53 (21) Segment Information, (continued)
(In Thousands) Operating Segment ------------------------------------------------------------------------------- German Operations Technical and and Office Durable Filter Media Products Specialties Other Total ----------------- ---------- ----------- ----- ----- 1999 Net sales ................. $142,525 $117,401 $ 65,382 $ -- $325,308 Inter-segment net sales ... 320 3,566 120 (4,006) -- -------- -------- -------- ---------- -------- Total net sales ........... $142,845 $120,967 $ 65,502 $ (4,006) $325,308 ======== ======== ======== ========== ======== EBIT ...................... $ 17,030 $ 11,876 $ 9,477 $(10,835)(1) $ 27,548 ======== ======== ======== ========== ======== Depreciation & Amortization $ 2,979 $ 3,921 $ 2,390 $ -- $ 9,290 Total Assets .............. $144,107 $121,587 $ 31,175 $ 50,077(4) $346,946 1998 Net sales ................. $122,089 $129,315 $ 55,688 $ -- $307,092 Inter-segment net sales ... 333 918 296 (1,547) -- -------- -------- -------- ---------- -------- Total net sales ........... $122,422 $130,233 $ 55,984 $ (1,547) $307,092 ======== ======== ======== ========== ======== EBIT ...................... $ 14,623 $ 12,729 $ 7,567 $ (5,823)(2) $ 29,096 ======== ======== ======== ========== ======== Depreciation & Amortization $ 2,649 $ 3,814 $ 2,490 $ -- $ 8,953 Total Assets .............. $112,917 $102,333 $ 57,011 $ 38,970(4) $311,231 1997 Net sales ................. $ 41,206 $135,964 $ 58,188 $ -- $235,358 Inter-segment net sales ... 21 4,749 1,456 (6,226) -- -------- -------- -------- ---------- -------- Total net sales ........... $ 41,227 $140,713 $ 59,644 $ (6,226) $235,358 ======== ======== ======== ========== ======== EBIT ...................... $ 4,752 $ 15,985 $ 8,396 $ (9,785)(3) $ 19,348 ======== ======== ======== ========== ======== Depreciation & Amortization $ 853 $ 4,396 $ 2,144 $ -- $ 7,393 Total assets .............. $ 30,467 $107,478 $ 59,799 $ 50,257(4) $248,001 (1) 1999 Other Includes Sale/Leaseback Buyout (Technical & Office Products Segment) $ (1,017) Facility Closure (Technical & Office Products Segment) (9,818) -------- $(10,835) (2) 1998 Other Includes Facility Closure (Technical & Office Products Segment) $ (7,274) Cogeneration Income 1,451 -------- $ (5,823) (3) 1997 Other Includes Facility Closure (Technical & Office Products Segment) $(10,000) Cogeneration Income 215 -------- $ (9,785) (4) Corporate assets not allocated to operating segments.
54 (21) Segment Information, (continued) Information concerning principal geographic areas is as follows (in thousands):
1999 1998 1997 ---- ---- ---- NET SALES(a) North America $214,703 $217,664 $216,752 Europe ...... 87,833 69,202 3,287 Far East .... 13,013 9,426 9,377 Other ....... 9,759 10,800 5,942 -------- -------- -------- Total .. $325,308 $307,092 $235,358
(a) Revenues are attributed to countries based on product shipment destination.
1999 1998 ---- ---- PROPERTY, PLANT AND EQUIPMENT, NET North America .... $108,112 $ 87,910 Europe ........... 63,311 40,465 -------- -------- Total ....... $171,423 $128,375
1999 1998 ---- ---- NET ASSETS North America ........... $ 62,168 $ 77,401 Europe .................. 29,609 20,162 -------- -------- Total .............. $ 91,777 $ 97,563
55 FIBERMARK, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In Thousands)
Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions of Period - ----------- ---------- ---------- ---------- --------- Year Ended December 31, 1999 Allowances for possible losses on accounts receivable............................. 626 694 297 1,023 Year Ended December 31, 1998 Allowances for possible losses on accounts receivable............................. $203 $ 586 $163 $626 Year Ended December 31, 1997 Allowances for possible losses on accounts receivable............................. $333 $(113) $17 $203
56 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders FiberMark, Inc.: Under date of February 3, 2000, we reported on the consolidated balance sheets of FiberMark, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999, as contained in the annual report on Form 10-K for the year 1999. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG LLP - ------------------- Burlington, Vermont February 3, 2000 Vt. Reg. No. 92-0000241 57 ITEM 14 (a) (3) EXHIBITS
Number Description - ------ ----------- 2.1(10) Share Purchase Agreement dated as of November 26, 1997, among Steinbeis Holding GmbH ("Steinbeis"), Zetaphoenicis Beteiligungs GmbH and Thetaphoenicis Beteiligungs GmbH 2.2(10) Acquisition Agreement dated September 15, 1999 by and between SIHL Beteiligungsgesellschaft GmbH and FiberMark GmbH and FiberMark Beteiligungs GmbH 3.1(1) Restated Certificate of Incorporation of the Company as amended through March 25, 1997 3.2(10) Certificate of Ownership and Merger of FiberMark, Inc. with and into Specialty Paperboard, Inc. filed with the Secretary of State of Delaware on March 26, 1997 3.3(1) Restated By-laws 4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3 4.2(1) Specimen stock certificate 4.3(9) Indenture dated as of October 15, 1996 (the "Indenture") among the Company, CPG Co., Specialty Paperboard/Endura, Inc. ("Endura") and the Wilmington Trust Company ("Wilmington") 4.4(9) Specimen Certificate of 9 3/8% Series B Senior Note due 2006 (included in Exhibit 4.3 hereof) 4.5(9) Form of Guarantee of Senior Notes issued pursuant to the Indenture (included in Exhibit 4.3 hereof) 10.1(5) Lease Agreement dated April 29, 1994, between CIT Group/Equipment Financing Inc. ("CIT/Financing") and the Company 10.2(5) Grant of Security Interest in Patents, Trademarks and Leases dated April 29, 1994, between the Company and CIT/Financing 10.3(5) Bill of Sale dated April 29, 1994, to CIT/Financing 10.4(1)(3) Form of Indemnity Agreement entered into between the Company and its directors and executive officers 10.5(1)(3) The Company's 1992 Amended and Restated Stock Option Plan and related form of Option Agreement 10.6(1) Paper Procurement Agreement, between the Company and Acco-U.S.A 10.7(1) Energy Service Agreement (Latex mill), dated as of November 19, 1992, between Kamine and the Company 10.8(2) Amendment No. 1 to the Energy Service Agreement (Latex mill), dated as of May 7, 1993, between Kamine and the Company 10.9(1) Energy Service Agreement (Lewis mill), dated as of November 19, 1992, between Kamine and the Company 10.10(2) Amendment No. 1 to the Energy Service Agreement (Lewis mill), dated as of May 7, 1993, between Kamine and the Company 10.11(1) Restated Ground Lease, dated as of November 19, 1992, between Kamine and the Company 10.12(1) Beaver Falls Cogeneration Buyout Agreement, dated as of November 20, 1992, between Kamine, Kamine Beaver Falls Cogen. Co., Inc. and the Company 10.13(2) Consent and Agreement (Energy Services Agreement), dated as of May 7, 1993, by the Company 10.14(2) First Amendment of Restated Ground Lease, dated as of May 7, 1993, between Kamine and the Company
58 10.15(2) Memorandum of Lease, dated as of May 7, 1993, between Kamine and the Company 10.16(7)(3) The Company's 1994 Stock Option Plan and related forms of Option Agreements 10.17(7)(3) The Company's 1994 Directors Stock Option Plan and related form of Option Agreement 10.18(9)(3) Amendment to the Company's 1994 Directors Stock Option Plan 10.19(4)(3) The Company's Executive Bonus Plan 10.20(9) Deed of Lease between James River Paper Company, Inc. and CPG-Virginia Inc. dated as of October 31, 1993 10.21(9) Amended and Restated Agreement of Lease, between Arnold Barsky doing business as A&C Realty and Arcon Mills Inc., dated June 1, 1988 10.22(9) Lease Agreement dated November 15, 1995, between IFA Incorporated and Custom Papers Group Inc. ("Custom Papers Group") 10.23(9) Master Lease Agreement dated January 1, 1994, between Meridian Leasing Corp. and Custom Papers Group 10.24(9) Master Equipment Lease Agreement dated February 3, 1995, between Siemens Credit Corp. and CPG Holdings Inc. 10.25(6) Endura Sale Agreement, by and among W.R. Grace & Co. Conn., W.R. Grace (Hong Kong) Limited, Grace Japan Kabushiki Kaisha (collectively, the "Sellers"), the Company, Specialty Paperboard (Hong Kong Limited) and Specialty Paperboard Japan Kabushiki Kaisha (collectively the "Buyers"), dated May 10, 1994 10.26(11) Loan Agreement dated as of November 24, 1997, between Steinbeis and Gessner 10.27(11) Expansion Land Option and Preemption Right Agreement dated as of November 13, 1997, between Steinbeis and Gessner 10.28(12) Third Amended and Restated Financing Agreement & Guaranty 10.29(12) Second Amended and Restated Security Agreement dated December 31, 1997, between FiberMark Office Products, LLC and CIT Group/Equipment Financing, Inc. 10.30(12) Second Amended and Restated Security Agreement dated December 31, 1997, between FiberMark, Inc. FiberMark Durable Specialties, Inc., and FiberMark Filter and Technical Products 10.31(12) Loan Agreement dated as of January 7, 1988, between Zetaphoenicis Beteiligungs GmbH and Bayerische Vereinsbank AG ("Bayerische") 10.32(12) Working Credit Facility dated as of January 13, 1998 between Gessner and Bayerische 10.33(12) Capex Loan Agreement dated as of January 13, 1998, between Gessner and Bayerische 10.34 1998 Amended and Restated Non-Employee Directors Stock Option Plan 10.35(10) Loan Agreement dated September 15, 1999 between FiberMark GmbH (the "Borrower") and Bayerische Hypo- und Vereinsbank Aktiengesellschaft (Lender) 10.36(10) Loan Amendment Agreement dated September 15, 1999 between FiberMark GmbH (the "Borrower") and Bayerische Hypo- und Vereinsbank Aktiengesellschaft (Lender) 10.37(10) Share Pledge Agreement dated September 15, 1999 between FiberMark Beteiligungs GmbH and FiberMark GmbH (the "Pledgors") and Bayerische Hypo- und Vereinsbank AG (the "Pledgee")
59 10.38(10) Pledge Amendment Agreement dated September 15, 1999 between FiberMark Beteiligungs GmbH and FiberMark GmbH (the "Pledgors") and Bayerische Hypo- und Vereinsbank AG (the "Pledgee") 10.39(10) Third Amended and Restated Financing Agreement and Guaranty dated September 30, 1999 among FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc. and FiberMark Office Products, LLC (as "Borrowers and Guarantors") and The CIT Group/Business Credit, Inc., The CIT Group/Equipment Financing, Inc. (as "Lenders") 10.40(10) Termination and Release Agreement among FiberMark Office Products, LLC; FiberMark, Inc.; FiberMark Durable Specialties, Inc.; FiberMark Filter and Technical Products, Inc., and The CIT Group/Equipment Financing, Inc. 21 List of FiberMark subsidiaries 23.1 Consent of KPMG LLP 27 Financial Data Schedule
60 NOTES TO EXHIBITS (1) Incorporated by reference to exhibits filed with the company's Registration Statement on Form S-1 (No. 33-47954), as amended, which became effective March 10, 1993. (2) Incorporated by reference to exhibits filed with the company's report on Form 10-Q for the quarter ended June 30, 1993, filed August 13, 1993. (3) Indicates management contracts or compensatory arrangements filed pursuant to Item 601(b)(10) of Regulation S-K. (4) Incorporated by reference to exhibits filed with the company's report on Form 10-K for the year ended December 31, 1993 (No. 0-20231). (5) Incorporated by reference to exhibits filed with the company's report on Form 10-Q for the quarter ended March 31, 1994, filed May 14, 1994. (6) Incorporated by reference to exhibits filed with the company's report on Form 8-K, filed July 14, 1994. (7) Incorporated by reference to exhibits filed with the company's Registration Statement on Form S-8 filed, July 18, 1994. (8) Incorporated by reference to exhibits filed with the company's report on Form 10-K for the year ended December 31, 1994 (No. 0-20231). (9) Incorporated by reference to exhibits filed with the company's report on Form 10-K for the year ended December 31, 1996, filed April 1, 1997. (10) Previously filed. (11) Incorporated by reference to exhibits filed with the company's Registration Statement on Form S-3, filed December 15, 1997. (12) Incorporated by reference to exhibits filed with the company's report on Form 10-K for the year ended December 31, 1997, filed March 31, 1998. 61 FIBERMARK, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brattleboro, County of Windham, State of Vermont, on the 20th day of March, 2000. FiberMark, Inc. By /s/ Alex Kwader --------------------------- Alex Kwader President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alex Kwader and Bruce Moore, or any of them, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connections therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. This Form 10-K may be executed in multiple counterparts, each of which shall be an original, but which shall together constitute but one agreement. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Alex Kwader President and March 20, 2000 - ---------------------------------- Chief Executive Officer Alex Kwader /s/ K. Peter Norrie Chairman of the Board March 20, 2000 - ---------------------------------- K. Peter Norrie /s/ Brian C. Kerester Director March 20, 2000 - ---------------------------------- Brian C. Kerester /s/ Marion A. Keyes, IV Director March 20, 2000 - ---------------------------------- Marion A. Keyes, IV /s/ George E. McCown Director March 20, 2000 - ---------------------------------- George E. McCown /s/ Glenn S. McKenzie Director March 20, 2000 - ---------------------------------- Glenn S. McKenzie /s/ Jon H. Miller Director March 20, 2000 - ---------------------------------- Jon H. Miller /s/ Elmar B. Schulte Director March 20, 2000 - ---------------------------------- Elmar B. Schulte /s/ Edward P. Swain, Jr. Director March 20, 2000 - ---------------------------------- Edward P. Swain, Jr. /s/ Bruce Moore Vice President March 20, 2000 - ---------------------------------- Chief Financial Officer Bruce Moore
62 EX-21 2 EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARIES FiberMark Durable Specialties, Inc. FiberMark Filter and Technical Products, Inc. FiberMark (HONG KONG) Limited FiberMark Japan K.K. FiberMark Office Products, LLC FiberMark SARL Thetapoenicis Beteiligungs GmbH Zetaphoenicis Beteiligungs GmbH EX-23.1 3 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS FIBERMARK, INC. The audits referred to in our report dated February 3, 2000, included the related financial statement schedule as of December 31, 1999, and for each of the years in the three-year period ended December 31, 1999. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the 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. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the annual report on Form 10-K. /s/ KPMG LLP - -------------------- Burlington, Vt. March 17, 2000 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE 12 MONTHS ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 DEC-31-1999 12,456 0 41,880 0 57,928 116,973 171,423 6,836 346,946 47,888 141,006 0 0 8 91,769 346,946 325,308 325,308 263,385 297,291 469 0 11,079 16,469 7,486 8,983 0 0 0 8,983 1.17 1.15
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