<PAGE>
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
<PAGE>
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-
<PAGE>
<TABLE>
FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 18, January 1,
In thousands 1994 1994
<S> <C> <C>
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
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
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
<S> <C> <C> <C> <C>
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
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
-4-
<PAGE>
<TABLE>
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
<S> <C> <C>
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
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
-5-
<PAGE>
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-
<PAGE>
<TABLE>
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
<S> <C> <C> <C> <C>
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
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
11 Computation of Earnings per Common Share 12-13
-11-
<PAGE>
<TABLE>
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
<S> <C> <C> <C> <C>
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
</TABLE>
-12-
<PAGE>
<TABLE>
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
<S> <C> <C> <C> <C>
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
<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
applicable to common shares are the same as in the calculation
assuming no dilution.
</TABLE>
-13-
