-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bjhBFgpX24fdod/ee1JudoYHCd1Uh1OsbMvvlB1aT+RwD3p9bNmsKbE8M5nIAZWZ gTAy9c7pAQHsz/i0x0lwGQ== 0000034891-94-000004.txt : 19940801 0000034891-94-000004.hdr.sgml : 19940801 ACCESSION NUMBER: 0000034891-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940618 FILED AS OF DATE: 19940729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERAL PAPER BOARD CO INC CENTRAL INDEX KEY: 0000034891 STANDARD INDUSTRIAL CLASSIFICATION: 2631 IRS NUMBER: 220904830 STATE OF INCORPORATION: NY FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03838 FILM NUMBER: 94540644 BUSINESS ADDRESS: STREET 1: 75 CHESTNUT RIDGE RD CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2013911776 10-Q 1 FEDERAL PAPER BOARD COMPANY, INC FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Twenty-Four Weeks Ended June 18, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-3838 FEDERAL PAPER BOARD COMPANY, INC. (Exact name of Registrant as specified in its charter) NORTH CAROLINA 22-0904830 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 75 CHESTNUT RIDGE ROAD, MONTVALE, NEW JERSEY 07645 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (201) 391-1776 Indicate by check mark ("X") whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT JULY 16, 1994 Common stock, par value $5 share 42,252,705 FEDERAL PAPER BOARD COMPANY, INC. INDEX PAGE PART I FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheet 3 Condensed Consolidated Statement of Income 4 Condensed Consolidated Statement of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II OTHER INFORMATION * Item 6. Exhibits and Reports on Form 8-K 10 Signatures 10 Exhibit Index 11 * Item numbers which are inapplicable or to which the answer is negative have been omitted. -2- FEDERAL PAPER BOARD COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) June 18, January 1, In thousands 1994 1994 ASSETS Cash $ 297 $ 271 Receivables - net 83,706 52,062 Inventories: Raw materials 59,973 58,720 Work in process 14,725 15,469 Finished goods 93,622 99,329 Supplies 51,082 51,701 Subtotal 219,402 225,219 Lifo Reserve (2,845) ( 2,819) Total inventories 216,557 222,400 Other current assets 31,022 34,960 Total Current Assets 331,582 309,693 Property, plant and equipment 2,731,903 2,666,423 Accumulated depreciation (831,142) (769,869) Property, plant and equipment - net 1,900,761 1,896,554 Timber and timberlands 189,073 189,674 Goodwill and other intangibles 115,672 118,418 Other assets 74,882 55,955 Total Assets $2,611,970 $2,570,294 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 101,827 $ 90,356 Current portion of long-term debt 54,528 56,148 Short-term bank debt 20,687 25,304 Other current liabilities 104,953 105,743 Total Current Liabilities 281,995 277,551 Long-term debt 991,526 973,825 Other liabilities 85,354 63,086 Deferred tax liability 347,077 349,126 Capital stock 214,162 214,111 Other capital 250,840 249,800 Retained earnings 444,823 447,361 Treasury stock, at cost (3,807) (4,566) Total Shareholders' Equity 906,018 906,706 Total Liabilities and Shareholders' Equity $2,611,970 $2,570,294 See accompanying notes to condensed consolidated financial statements.
-3- FEDERAL PAPER BOARD COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) For the For the Twelve Weeks Ended Twenty-Four Weeks Ended June 18, June 19, June 18, June 19, In thousands except per share amounts 1994 1993 1994 1993 Net sales $347,976 $329,579 $667,430 $649,423 Costs and expenses: Cost of products sold 260,391 244,634 506,914 480,308 Depreciation, amortization and cost of timber harvested 32,932 33,217 65,817 67,056 Selling and administrative expenses 16,351 13,465 31,350 28,697 Interest expense 18,464 20,038 38,324 39,832 Other - net 11,295 2,953 11,377 3,142 Total costs and expenses 339,433 314,307 653,782 619,035 Income before taxes 8,543 15,272 13,648 30,388 Provision for income taxes 343 5,472 2,348 11,488 Net income 8,200 9,800 11,300 18,900 Preferred dividend requirements 1,524 1,525 3,049 3,051 Net income available to common shares $ 6,676 $ 8,275 $ 8,251 $ 15,849 Average Common Shares Outstanding: Assuming no dilution 42,210 41,982 42,192 41,970 Assuming full dilution 42,771 42,436 42,810 42,456 Earnings Per Common Share: Assuming no dilution $.16 $.20 $.20 $.38 Assuming full dilution $.16 $.20 $.19 $.37 Dividends Per Common Share $.25 $.25 $.50 $.50 See accompanying notes to condensed consolidated financial statements.
-4- FEDERAL PAPER BOARD COMPANY, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) For the Twenty-Four Weeks Ended June 18, June 19, In thousands 1994 1993 CASH FLOWS FROM OPERATIONS: Net income $11,300 $18,900 Adjustments to reconcile net income to net cash provided by operations: Depreciation, amortization and cost of timber harvested 65,817 67,056 Other - net 8,039 13,561 Net changes in current assets and liabilities (10,332) (1,336) NET CASH PROVIDED BY OPERATIONS 74,824 98,181 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (62,538) (57,960) Other (253) 779 NET CASH USED FOR INVESTING ACTIVITIES (62,791) (57,181) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (24,393) (24,288) Increase in long-term debt 18,471 640 Payments on long-term debt (2,498) (16,013) Issuance of equity capital 1,143 458 Change in short-term bank debt (4,730) (1,800) NET CASH USED FOR FINANCING ACTIVITIES (12,007) (41,003) INCREASE (DECREASE) IN CASH 26 (3) Cash: Beginning of year 271 280 End of period $ 297 $ 277 See accompanying notes to condensed consolidated financial statements.
-5- FEDERAL PAPER BOARD COMPANY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of management, the accompanying unaudited interim financial statements reflect all adjustments, of a normal and recurring nature, necessary to present fairly the results for the interim periods presented. 2. Net income used in the computation of earnings per common share assuming no dilution is reduced by preferred dividend requirements. Earnings per common share assuming full dilution for all periods presented excludes the conversion of the Company's $2.875 convertible preferred stock as the effect is antidilutive. 3. The second quarter 1994 dividend was declared on June 21,1994 and is presented in the accompanying Condensed Consolidated Statement of Income for presentation purposes only. 4. The provision for income taxes in the Condensed Consolidated Statement of Income includes a favorable adjustment of $3.2 million due to the settlement of prior year tax audits. The overall effective tax rate for the twenty-four weeks ended June 18, 1994 and June 19, 1993 was 17.2% and 37.8%, respectively. The overall effective tax rate for the full year 1994 is estimated to be approximately 36.3%. 5. The Company manages certain portions of its exposure to foreign currency fluctuations through a variety of financial instruments with off-balance-sheet market risk including foreign currency option and foreign currency forward contracts. The risk of loss to the Company in the event of non-performance by any party under these agreements is not significant. However, the Company's market risk under these agreements is subject to currency rate differentials therefore, the value of the Company's instruments change as currency markets fluctuate. The Company marks all financial instruments to market until expiration. In the second quarter of 1994, a charge of $11.0 million was recorded to reflect a decline, during the quarter, in the value of certain foreign currency instruments. This charge is included in Other-net in the accompanying Condensed Consolidated Statement of Income. At June 18, 1994, the accompanying Condensed Consolidated Balance Sheet includes a mark to market reserve of $11.3 million. At June 18, 1994, the Company had outstanding foreign currency call option contracts with notional amounts of 63.5 million U.S. dollars, 15.0 million British pounds and 51.4 million German marks; foreign currency put option contracts with notional amounts of 42.0 million U.S. dollars, 10.0 million British pounds and 56.3 million German marks and forward foreign exchange contracts with notional amounts of 15.0 million U.S. dollars and 2.5 million British pounds. 6. At June 18, 1994, the Company had interest rate swap agreements outstanding with a notional principal amount of $175 million. These swap agreements terminate on various dates through the year 1998. 7. Effective January 2, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires the Company to accrue for postemployment benefits provided to former or inactive employees, their beneficiaries and covered dependents after employment but before retirement. The impact of adopting this Statement was not material to the Company's financial position and results of operations for the twenty-four weeks ended June 18, 1994. -6- FEDERAL PAPER BOARD COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) For the For the Twelve Weeks Ended Twenty-Four Weeks Ended June 18, June 19, June 18, June 19, In thousands 1994 1993 1994 1993 NET SALES: Paper, Paperboard and Pulp $232,983 $228,574 $453,407 $449,640 Wood Products 60,117 51,329 118,952 107,439 Converting Operations 80,697 76,894 148,188 145,819 Intersegment Eliminations (25,821) (27,218) (53,117) (53,475) Total $347,976 $329,579 $667,430 $649,423 INCOME BEFORE TAXES: Paper, Paperboard and Pulp $ 25,188 $ 25,829 $ 35,794 $ 48,836 Wood Products 16,379 15,991 36,484 34,907 Converting Operations 1,090 113 2,326 69 Intersegment Eliminations 418 523 431 (440) General Corporate Items - Net (16,068) (7,146) (23,063) (13,152) Interest Expense (18,464) (20,038) (38,324) (39,832) Total $ 8,543 $ 15,272 $ 13,648 $ 30,388
RESULTS OF OPERATIONS : Paper, Paperboard and Pulp Overall, results for this segment were mixed with sales increasing and operating profits decreasing, compared to the prior year. Net sales of paper, paperboard and pulp increased approximately 2% and 1% compared to the prior year for the second quarter and year-to-date periods, respectively. Although sales increased slightly compared to the prior year, significant changes occurred in most of the product lines which make up this segment. The increase in sales during the second quarter was primarily due to an increase in the average selling prices of market pulp and uncoated free-sheet paper and an increase in shipments of uncoated free-sheet paper partially offset by a decline in shipments and average selling prices of paperboard. The year-to-date period was influenced by the same factors along with a significant increase in shipments of market pulp compared to the prior year. Operating profits for paper, paperboard and pulp decreased approximately 2% and 27% compared to the prior year for the second quarter and year-to-date periods, respectively. The Company's mills operated extremely well during the second quarter. Production records were set at the Riegelwood, Inverurie, Sprague and Augusta mills during the second quarter. Most of the factors which affected first quarter 1994 operating profits have improved significantly during the most recent quarter. However, the year-to-date decline in operating profits is primarily attributable to factors which occurred during the first quarter of this year including weaknesses in certain segments of the bleached paperboard market, weather related factors and operating problems which resulted in lost production and higher costs at our major mills. -7- Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) Operating results for market pulp increased substantially over both periods of the prior year reflecting price increases which were implemented during the first half of this year. This product line returned to marginal profitability during the quarter and another price increase is scheduled to be implemented during the third quarter. Demand for this product has been improving with shipments through the second quarter of 1994 increasing 20% over the comparable period of the prior year. The bleached paperboard market strengthened during the quarter with an improvement in order backlogs. Due to improving market conditions, the Company has announced a price increase on most of its bleached paperboard grades. For the year-to-date period, the grade mix has begun to change towards higher margin paperboard. Operating results, despite these improving market conditions, remained below the prior year but the outlook for the remainder of 1994 is favorable. Operating profits for the Company's uncoated free-sheet operation improved significantly compared to the prior year for the second quarter and year-to-date periods. A combination of improved average selling prices and increased shipments in 1994 has increased profits for this product. Improved market conditions for this product have enabled the Company to implement three price increases through the second quarter, with a fourth price increase scheduled for the third quarter. Operating profits for recycled paperboard increased 4% and decreased 25% for the year-to-date period and second quarter, respectively. The increase in operating profits for the year-to-date period is primarily attributable to increased margins due to improved production efficiencies partially offset by a 6% decline in the average selling price of recycled paperboard. Operating profits for the second quarter were negatively affected by scheduled and unscheduled downtime along with lower average selling prices compared to the prior year. Wood Products The wood products segment achieved higher net sales and operating profits for the second quarter and year-to-date periods. Market conditions for lumber have continued to be favorable in 1994, with average selling prices increasing approximately 4% and 11% compared to the prior year for the second quarter and year-to-date periods, respectively. The increase in selling price is primarily attributable to the reduced availability of timber from government-owned lands in the Pacific Northwest and from unfavorable weather conditions experienced throughout the country. Shipments of this product have increased approximately 15% and 3% compared to the prior year for the second quarter and year-to-date periods, respectively. Demand for this product is expected to remain favorable for the remainder of the year. Converting Operations Net sales for the converting operations increased 5% and 2% compared to the prior year for the second quarter and year-to-date periods, respectively. The increase is attributable to an increase in sales by the Company's cup operations. Shipments of cups increased 13% and 16% for the year-to-date period and second quarter, respectively, compared to the prior year, however, lower average selling prices for cups partially offset this increase. Further offsetting the increase in cup sales is a decrease in sales by the Company's packaging operations, caused by reduced shipments for the year-to-date period. Operating profits for this segment are substantially above the prior year for both periods presented. The major factor contributing to the increase is improved earnings from the cup operations. Improved sales coupled with reduced costs, as a result of cost savings programs which were implemented throughout the Company's cup operations, were responsible for the increase. Slightly offsetting the increase was a decrease in earnings at the Company's packaging operations compared to last year. Interest Expense Interest expense for both the second quarter and year-to-date period were lower than the prior year. The major factors contributing to the decreased costs were a higher level of capitalized interest partially offset by decreased savings from the Company's interest rate swap agreements. Capitalized interest increased significantly compared to the prior year due to higher capital spending on projects qualifying for interest capitalization. Interest expense for the second quarter of 1994 and 1993 includes $1.2 million and $1.6 million of savings, respectively, from the Company's interest rate swap agreements. Year-to-date, the interest savings from the Company's interest rate swap agreements were $1.3 million and $3.5 million, respectively. -8- Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) Other Items The Company enters into nonhedged off-balance-sheet financial instrument transactions. As a result of events that occurred during the second quarter of 1994, a market value adjustment of $11.0 million was recorded. This charge is included in Other-net in the accompanying Condensed Consolidated Statement of Income. At June 18, 1994, the Company has a mark to market reserve of $11.3 million which is included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet. Income Taxes The Company's overall effective tax rate for the year-to-date periods of 1994 and 1993 was 17.2% and 37.8%, respectively. During the current quarter, a favorable tax provision adjustment of $3.2 million was recorded due to the settlement of prior year tax audits. The overall effective tax rate for the full year 1994 is expected to be approximately 36.3%. Accounting Matters Effective January 2 ,1994, the Company adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits". The impact of adopting this Statement, in 1994, was not material to the Company's financial position and results of operations. CAPITAL RESOURCES AND LIQUIDITY : Cash provided by operations declined 24% compared to the comparable period of the prior year. The reasons for this decline were lower operating earnings in 1994, a lower deferred income tax provision due to lower forecasted earnings and a favorable adjustment of $3.2 million related to the settlement of prior year tax audits partially offset by an increase in working capital in the current year. The major changes within the components of working capital were an increase in receivable levels during the first half of 1994 slightly offset by a decrease in inventory levels. The increase in receivables during the first half of 1994 is due to an increase in the average collection period along with increased sales. During the quarter, the Company sold an additional $5 million of trade accounts receivable under an existing agreement bringing the amount sold to $88 million at both June 18, 1994 and January 1, 1994. Improving market conditions for most of the Company's product lines has caused a reduction in inventory levels from the end of the prior year. Cash used for investing activities increased approximately 10% compared to the prior year. In both periods presented, the majority of cash used for investing activities was related to capital expenditures. Capital spending in 1994 and 1993 was predominantly related to a program to expand and modernize the No. 18 paperboard machine at the Riegelwood mill. Capital spending in 1994 also includes amounts related to the construction of a new warehouse for the Company's cup operations. The Company expects capital expenditures to total approximately $160 million for the year. The Company believes it has adequate resources to finance its operations and future capital spending programs. The Company is a party to two revolving credit agreements with total commitments of $300 million. At June 18, 1994, $113 million was outstanding under these agreements. In addition, the Company has $75 million remaining under a previously filed shelf registration statement which can be used for future debt financings. Future Outlook: The outlook for the remainder of 1994 is for continued improvement in market conditions for our major product lines. Selling price increases that have been implemented for our market pulp and uncoated free-sheet paper products have enabled the Company to improve profitability in the second quarter. Future price increases scheduled for the third quarter for bleached paperboard, market pulp and uncoated free-sheet paper should improve profitability further for the Company. Demand is expected to improve in the third quarter and throughout the remainder of the year. -9- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. A list of the exhibits required to be filed as part of this Report on Form 10-Q is set forth in the "Exhibit Index", which immediately precedes such exhibits, and is incorporated herein by reference. (b) There were no reports on Form 8-K filed for the twelve weeks ended June 18, 1994. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FEDERAL PAPER BOARD COMPANY, INC. (Registrant) Date: /S/ JOHN R. KENNEDY July 27, 1994 John R. Kennedy, President and Chief Executive Officer Date: /S/ ROGER L. SANDERS, II July 27, 1994 Roger L. SANDERS, II (Principal Accounting Officer) -10- FEDERAL PAPER BOARD COMPANY, INC. EXHIBIT INDEX Exhibit No. Description Page No. 11 Computation of Earnings per Common Share 12-13 -11- EX-11 2 FEDERAL PAPER BOARD COMPANY, INC EXHIBIT 11 EXHIBIT 11 FEDERAL PAPER BOARD COMPANY, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (Unaudited) For the For the Twelve Weeks Ended Twenty-Four Weeks Ended June 18, June 19, June 18, June 19, In thousands, except per share amounts 1994 1993 1994 1993 Assuming No Dilution: Net Income $ 8,200 $ 9,800 $11,300 $18,900 (Deduct) Dividends on Convertible Preferred Stock (1,524) (1,525) (3,049) (3,051) Net Income Available to Common Shares $ 6,676 $ 8,275 $ 8,251 $15,849 Actual Weighted Average Number of Common Shares Outstanding 42,210 41,982 42,192 41,970 Earnings Per Common Share Assuming No Dilution $.16 $.20 $.20 $.38 Assuming Full Dilution: Net Income $ 8,200 $ 9,800 $11,300 $18,900 (Deduct) Dividends on Convertible Preferred Stock (1,509) (1,509) (3,018) (3,018) Net Income Applicable to Common Shares, Common Equivalent Shares and Dilutive Securities $ 6,691 $ 8,291 $ 8,282 $15,882 Shares: Adjusted Weighted Average Number of Common Shares Outstanding 42,202 41,978 42,187 41,968 Dilutive Common Equivalent Shares Issuable Under Stock Option Plans 281 155 334 184 Common Shares Issuable Upon Conversion of $1.20 Convertible Preferred Stock 288 303 289 304 Common Shares Issuable Upon Conversion of $2.875 Convertible Preferred Stock (a) (a) (a) (a) Weighted Average Number of Common and Diluted Common Equivalent Shares and Dilutive Securities 42,771 42,436 42,810 42,456 Earnings Per Common Share Assuming Full Dilution $.16 $.20 $.19 $.37
-12- EXHIBIT 11 (Continued) FEDERAL PAPER BOARD COMPANY, INC. COMPUTATION OF EARNINGS PER COMMON SHARE (Unaudited) For the For the Twelve Weeks Ended Twenty-Four Weeks Ended June 18, June 19, June 18, June 19, In thousands, except per share amounts 1994 1993 1994 1993 Primary Earnings Per Share (b): Shares: Weighted Average Number of Common Shares Outstanding 42,202 41,982 42,192 41,970 Dilutive Common Equivalent Shares Issuable Under Stock Option Plans 164 155 334 184 Weighted Average Number of Common and Dilutive Common Equivalent Shares 42,366 42,137 42,526 42,154 Primary Earnings Per Common Share Assuming No Dilution from Common Equivalent Shares $.16 $.20 $.19 $.38 (a) Antidilutive issue. (b) The calculation of primary earnings per share is presented in accordance with Securities Exchange Act of 1934 Release No. 9083 although not required by footnote 3 paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. Earnings applicable to common shares are the same as in the calculation assuming no dilution.
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