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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Twelve Weeks Ended March 26, 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
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Report on Form 10-Q for
the twelve weeks ended March 26, 1994 as set forth in the pages attached
hereto:
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Exhibit 11 Computation of Earnings (Loss) Per Common Share
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by
the undersigned, thereunto duly authorized.
FEDERAL PAPER BOARD COMPANY, INC.
BY: /s/ QUENTIN J. KENNEDY
Quentin J. Kennedy
Director, Executive Vice President
and Secretary
Date: October 19, 1994
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FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
Restated Restated
March 26, January 1,
In thousands 1994 1994
<S> <C> <C>
ASSETS
Cash $ 267 $ 271
Receivables - net 71,345 52,062
Inventories:
Raw materials 65,045 58,720
Work in process 15,434 15,469
Finished goods 95,139 99,329
Supplies 51,265 51,701
Subtotal 226,883 225,219
Lifo Reserve (2,900) (2,819)
Total inventories 223,983 222,400
Other current assets 35,054 32,392
Total Current Assets 330,649 307,125
Property, plant and equipment 2,694,924 2,666,423
Accumulated depreciation (799,418) (769,869)
Property, plant and equipment-net 1,895,506 1,896,554
Timber and timberlands 188,655 189,674
Goodwill and other intangibles 117,045 118,418
Other assets 48,986 50,132
Total Assets $2,580,841 $2,561,903
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable $ 91,143 $ 90,356
Current portion of long-term debt 54,529 56,148
Short-term bank debt 26,590 25,304
Accrued interest 30,862 18,885
Other current liabilities 98,427 83,450
Total Current Liabilities 301,551 274,143
Long-term debt 983,437 973,825
Other liabilities 77,660 78,872
Deferred tax liability 340,046 342,757
Capital stock 214,115 214,111
Other capital 250,373 249,800
Retained earnings 417,459 432,961
Treasury stock, at cost (3,800) (4,566)
Total Shareholders' Equity 878,147 892,306
Total Liabilities and Shareholders'
Equity $2,580,841 $2,561,903
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
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FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For The Twelve Weeks Ended
Restated
March 26, March 27,
In thousands, except per share amounts 1994 1993
<S> <C> <C>
Net sales $319,454 $319,844
Costs and expenses:
Cost of products sold 246,523 235,674
Depreciation, amortization and cost
of timber harvested 32,885 33,839
Selling and administrative expenses 14,999 15,232
Interest expense 19,842 19,794
Other - net 10,644 189
Total costs and expenses 324,893 304,728
Income (loss) before taxes (5,439) 15,116
Provision for income taxes (2,139) 6,016
Net income (loss) (3,300) 9,100
Preferred dividend requirements 1,525 1,526
Net income (loss) available to common shares $ (4,825) $ 7,574
Average Common Shares Outstanding:
Assuming no dilution 42,174 41,958
Assuming full dilution 42,174 42,527
Earnings (Loss) Per Common Share:
Assuming no dilution $(.11) $.18
Assuming full dilution $(.11) $.18
Dividends Per Common Share $.25 $.25
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
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FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Twelve Weeks Ended
Restated
March 26, March 27,
In thousands 1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss) $ (3,300) $ 9,100
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation, amortization and
cost of timber harvested 32,885 33,839
Deferred income tax provision (3,205) 5,234
Net loss on financial
instrument transactions 10,625 140
Other - net 365 2,249
Net changes in current assets and
liabilities (6,196) (4,753)
NET CASH PROVIDED BY OPERATIONS 31,174 45,809
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (28,162) (22,201)
Net (payments) proceeds for financial
instrument transactions (992) 410
Other (144) 112
NET CASH USED FOR INVESTING ACTIVITIES (29,298) (21,679)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (12,189) (12,141)
Increase in long-term debt 10,267 125
Payments on long-term debt (2,313) (12,294)
Issuance of equity capital 1,113 289
Change in short-term bank debt 1,242 (106)
NET CASH USED FOR FINANCING ACTIVITIES (1,880) (24,127)
INCREASE (DECREASE) IN CASH (4) 3
Cash: Beginning of year 271 280
End of period $ 267 $ 283
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
(Unaudited)
1. The accompanying unaudited interim financial statements have
been restated to reflect revisions in the market valuation of certain
financial instruments at March 26, 1994. The Company previously
accounted for certain interest rate swap agreements based on settlement
accounting but has now determined that settlement accounting was not an
appropriate accounting method. As a result, these instruments have
been marked to market at the end of each quarter. In addition, the
restatement includes a revision in the market valuation previously
recorded for certain foreign currency instruments. Further information
on this restatement can be obtained from the Company's Annual Report
on Form 10-K, as amended, the fiscal year ended January 1, 1994.
The effect of the restatement on the Company's financial results is as
follows (in thousands, except per share amounts):
For the Twelve Weeks Ended
March 26, 1994
[S] [C]
Net income as previously reported $ 3,100
Adjustment (6,400)
Restated net income (loss) $(3,300)
Restated earnings (loss) per common share:
Assuming no dilution:
As reported $ .04
Adjustment (.15)
Restated earnings (loss) per common share $ (.11)
Assuming full dilution:
As reported $ .04
Adjustment (.15)
Restated earnings (loss) per common share $ (.11)
2. 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.
3. Net income (loss) used in the computation of earnings (loss) per common
share assuming no dilution is reduced by preferred dividend requirements.
Earnings (loss) per common share assuming full dilution for the first
quarter of 1994 excludes the conversion of the Company's preferred stocks
and other common stock equivalents as the effects are antidilutive.
Earnings per common share assuming full dilution for the first quarter
of 1993 excludes the conversion of the Company's $2.875 convertible
preferred stock as the effect is antidilutive.
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FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (RESTATED)
(Unaudited)
4. 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 in the event of
non-performance by any party under these agreements is not significant.
The Company sold certain foreign exchange contracts.
The sold nonhedged contracts outstanding at March 26, 1994 were
foreign currency call option contracts with notional amounts of 80.0
million U.S. dollars, 35.0 million British pounds and 8.5 million
German marks and foreign currency put option contracts with notional
amounts of 50.3 million U.S. dollars and 5.0 million British pounds.
The Company purchased certain foreign exchange contracts. The purchased
nonhedged contracts outstanding at March 26, 1994 were foreign currency
call option contracts with notional amounts of 79.0 million U.S. dollars
and 5.0 million British pounds and foreign currency put option contracts
with notional amounts of 45.0 million U.S. dollars and 5.0 million
British pounds. In addition, at March 26, 1994, the Company had
nonhedged forward foreign exchange contracts outstanding which it had
sold with notional amounts of 15.0 million U.S. dollars in which the
Company's market risk is subject to currency rate changes of the British
pound sterling and the German mark, along with changes in U.S. and German
interest rates. The estimated fair value of all nonhedged foreign
exchange instruments at March 26, 1994 was a loss of $9.7 million.
The Company does not believe any reasonably likely change in the
estimated fair value of these contracts would be material to its
financial condition and results of operations.
The Company has entered into a variety of interest rate swap agreements
to manage the impact of interest rate fluctuations. At March 26, 1994,
the Company had nonhedged interest rate swap agreements outstanding
with notional principal amounts of $390 million. The Company's
market risk under these agreements is primarily subject to changes
in the London Interbank Offered Rate (LIBOR) and various interest rate
spreads. The Company does not believe a reasonably likely change in
LIBOR rates would have a material impact on its financial position and
results of operations. The estimated fair value of all nonhedged
interest rate swap agreementsat March 26, 1994 was a loss of $14.5
million.
5. 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 interim period presented.
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FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
(Unaudited)
6. Certain loan agreements the Company is party to contain various
restrictive covenants. At March 26, 1994, as restated, the Company
was unable to comply with the cash flow coverage test in the revolving
credit agreements. The Company had $50.0 million outstanding under
these agreements at March 26, 1994. The Company has obtained waivers
from the syndicate of banks related to this item of default through
June 18, 1994, at which time the Company was in compliance with all
restrictive covenants.
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FEDERAL PAPER BOARD COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
For the Twelve Weeks Ended
March 26, March 27,
In thousands 1994 1993
<S> <C> <C>
NET SALES:
Paper, Paperboard and Pulp $220,424 $221,066
Wood Products 58,835 56,110
Converting Operations 67,491 68,925
Intersegment Eliminations (27,296) (26,257)
Total $319,454 $319,844
INCOME (LOSS) BEFORE TAXES: Restated
Paper, Paperboard and Pulp $ 10,606 $ 23,007
Wood Products 20,105 18,916
Converting Operations 1,236 (44)
Intersegment Eliminations 13 (963)
General Corporate Items - Net (17,557) (6,006)
Interest Expense (19,842) (19,794)
Total $ (5,439) $ 15,116
</TABLE>
RESULTS OF OPERATIONS :
Paper, Paperboard and Pulp
Net sales of paper, paperboard and pulp remained virtually unchanged
compared to the first quarter of the prior year. Market pulp sales
increased 30% compared to the prior year due to increased volume.
Uncoated free-sheet paper sales remained virtually unchanged compared
to the prior year as increased volume was offset by decreased average
selling prices. Bleached paperboard sales decreased 6% compared to
the prior year primarily due to lower average selling prices while
recycled paperboard sales increased 4% compared to the prior year as
increased demand for this product offset decreased average selling
prices.
Operating profits for this segment declined 54% from the prior year.
The decline in operating profits for this segment is primarily
attributable to weather related factors, weaknesses in certain
segments of the bleached paperboard market and operating problems
which resulted in lost production and higher costs at the Company's
major mills. During the quarter, operations at the Augusta and
Riegelwood mills were adversely affected by unscheduled shutdowns.
Operating results were also negatively impacted by higher wood and
energy costs in the first quarter of 1994 resulting from the harsh
winter weather.
The bleached paperboard market showed continued weakness in certain
segments. Average selling prices for this product were lower than
in the first quarter of last year mainly due to an increase in
lower priced commodity grade business. Despite this decline, demand
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Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
has remained strong, with shipments of this product increasing slightly
compared to the first quarter of the prior year. Slightly offsetting the
decrease in bleached paperboard operating profits was improved results for
market pulp. Operating results increased approximately 40% in the first
quarter of 1994 as compared to the first quarter of 1993. Although this
product line remained unprofitable in the first quarter, results improved
significantly due to increasing demand. A December 1993 pulp price increase
was fully implemented during the first quarter, an April price increase is
now being implemented and another increase is scheduled to take effect in
the second quarter.
Operating profits for the Company's uncoated free-sheet paper operation
improved from the comparable period of the prior year. Market conditions
began to improve during the first quarter, allowing a price increase to be
fully implemented with further increases in selling prices expected in the
second quarter. Despite this price increase, average selling prices for
this product remained below last year's level by approximately 6%. Demand
has remained strong with adequate order backlogs and increased shipments of
this product compared to the prior year. Profits were also positively
impacted by slightly lower operating costs in the first quarter of 1994,
resulting from capital improvements completed in 1993 which enhanced
production efficiencies.
Operating profits for recycled paperboard increased 40% compared to the same
quarter of the prior year. The recycled paperboard market remained strong
during the first quarter. The Company's mill in Sprague, CT operated
efficiently with strong order backlogs and relatively stable pricing.
Production and shipments of this product increased 4% and 10% respectively,
compared to the first quarter of 1993, while average selling prices
decreased 5% compared to the first quarter of the prior year. Improved
operating efficiencies and increased demand for this product positively
impacted operating profits compared to last year's first quarter.
Wood Products
The wood products segment recorded higher operating profits in the first
quarter of 1994 compared to the prior year. Market conditions for lumber
have continued to be favorable with average selling prices increasing
approximately 17% compared to the first quarter of last year. However,
shipments for lumber declined approximately 8% compared to the first quarter
of 1993. The increase in selling price is primarily attributable to the
reduced availability of timber from government-owned lands in the Pacific
Northwest and from harsh weather conditions. The decline in shipments was
primarily caused by poor weather conditions during the first quarter of 1994.
Converting Operations
Operating profits for this segment were improved while sales declined
slightly compared to the first quarter of the prior year. The Company's
cup operations experienced improved sales and operating profits compared to
the prior year. A strengthening in demand and reduced costs, as a result
of cost savings programs which were implemented at each location, are
primarily responsible for the improvements. The Company's packaging
operations experienced decreased sales and operating profits compared to the
prior year.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Interest Expense
Interest expense for the first quarter of 1994 was virtually unchanged
compared to the prior year. During the first quarter of 1994, capitalized
interest increased while interest savings from the Company's interest rate
swap agreements decreased compared to the prior year. The increase in
capitalized interest is attributable to higher capital spending on projects
qualifying for interest capitalization. Interest expense for the first
quarters of 1994 and 1993 includes approximately $.1 million and $1.9
million of savings, respectively, related to the Company's interest rate
swap agreements.
Other Items
The Company enters into nonhedged off-balance-sheet financial instrument
transactions. The value of these instruments change as currency markets
and interest rates fluctuate, therefore and adjustment of the market
value is recorded each quarter. In the first quarter of 1994 and 1993,
a pre-tax charge was recorded associated to nonhedged financial instrument
transactions of $10.6 million and $.1 million, respectively. These
charges are included in Other-net in the accompanying Condensed
Consolidated Statement of Income.
Accounting Matters
Effective January 2, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". The impact of adopting this
Statement, for the first quarter of 1994, was not material to the Company's
financial position and results of operations.
CAPITAL RESOURCES AND LIQUIDITY :
Cash provided by operations declined 32% compared to the comparable period
of the prior year. The decline was primarily attributable to the lower
level of earnings and changes in accounts receivable and inventories in the
current year. The increase in receivable levels during the first quarter of
1994 is due to an increase in the average collection period along with a
reduction in the amount of receivables sold under an existing agreement.
Under this agreement, $83 million and $88 million were sold at March 26,
1994 and January 1, 1994, respectively. Improving market conditions for
most of our product lines have caused inventory levels to remain relatively
unchanged from the fourth quarter of 1993. However, inventory levels in the
first quarter of 1993 increased significantly from the fourth quarter of 1992.
Cash used for investing activities increased approximately 35% compared to
the prior year. In both periods presented, the majority of cash used for
investing activities was related to capital expenditures, predominantly
related to a program to expand and modernize the No. 18 paperboard machine
at the Riegelwood mill. This program is expected to be completed by
mid-year 1994. Capital expenditures for the full year are expected to be
consistent with last year's level.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
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
April 23, 1994, $75 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.
Certain loan agreements the Company is party to contain various restrictive
covenants. At March 26, 1994, as restated, the Company was unable to
comply with the cash flow coverage test in the revolving credit agreements.
The Company has obtained waivers from the syndicate of banks related to
this item of default through June 18, 1994, at which time the Company was
in compliance with all restrictive covenants.
Future Outlook:
The outlook for the remainder of the year is for gradual improvement in
market conditions for our major product lines. Demand is expected to
improve in the second quarter and throughout the year, which should allow
further pricing improvements. Operating problems which occurred in the
first quarter are not anticipated to recur and therefore improved operating
efficiencies are expected.
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FEDERAL PAPER BOARD COMPANY, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
11 Computation of Earnings (Loss) per Common Share 13-14
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EXHIBIT 11
FEDERAL PAPER BOARD COMPANY, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Unaudited)
For the Twelve Weeks Ended
Restated
March 26, March 27,
In thousands, except per share amounts 1994 1993
share amounts
<S> <C> <C>
Assuming No Dilution:
Net Income (Loss) $(3,300) $ 9,100
(Deduct) Dividends on
Convertible Preferred Stock (1,525) (1,526)
Net Income (Loss) Available to
Common Shares $(4,825) $ 7,574
Actual Weighted Average Number of
Common Shares Outstanding 42,174 41,958
Earnings (Loss) Per Common Share
Assuming No Dilution $(.11) $.18
Assuming Full Dilution:
Net Income (Loss) $(3,300) $ 9,100
(Deduct) Dividends on
Convertible Preferred Stock (1,525) (1,509)
Net Income (Loss) Applicable to Common
Shares, Common Equivalent Shares
and Dilutive Securities $(4,825) $ 7,591
Shares:
Adjusted Weighted Average Number of
Common Shares Outstanding 42,174 41,959
Dilutive Common Equivalent Shares
Issuable Under Stock Option Plans (a) 264
Common Shares Issuable Upon Conversion
of $1.20 Convertible Preferred Stock (a) 304
Common Shares Issuable Upon Conversion
of $2.875 Convertible Preferred Stock (a) (a)
Weighted Average Number of Common and
Diluted Common Equivalent Shares
and Dilutive Securities 42,174 42,527
Earnings (Loss) Per Common Share
Assuming Full Dilution $(.11) $.18
</TABLE>
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EXHIBIT 11
(Continued)
FEDERAL PAPER BOARD COMPANY, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Unaudited)
For the Twelve Weeks Ended
Restated
March 26, March 27,
In thousands, except per 1994 1993
share amounts
<S> <C> <C>
Primary Earnings Per Share (b):
Shares:
Weighted Average Number of Common
Shares Outstanding 42,174 41,958
Dilutive Common Equivalent Shares
Issuable Under Stock Option Plans (a) 237
Weighted Average Number of Common
and Dilutive Common Equivalent Shares 42,174 42,195
Primary Earnings (Loss) Per Common Share
Assuming No Dilution from Common
Equivalent Shares $(.11) $.18
<FN>
(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 (loss) applicable to
common shares are the same as in the calculation assuming no dilution.
</FN>
</TABLE>
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