<PAGE>
UNITED STATES
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 Thirty-Six Weeks Ended September 9, 1995
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 OCTOBER 7, 1995
Common stock, par value $5 share 47,182,707
<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 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II OTHER INFORMATION *
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
* Item numbers which are inapplicable or to which the answer is
negative have been omitted.
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<TABLE>
FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 9, December 31,
In thousands 1995 1994
<S> <C> <C>
ASSETS
Cash $ 290 $ 293
Receivables - net 123,458 73,856
Inventories:
Raw materials 103,778 74,489
Work in process 23,642 18,365
Finished goods 109,392 90,316
Supplies 54,837 52,533
Subtotal 291,649 235,703
Lifo reserve (13,449) ( 5,156)
Total inventories 278,200 230,547
Other current assets 35,561 52,545
Total Current Assets 437,509 357,241
Property, plant and equipment 2,871,668 2,794,716
Accumulated depreciation (969,210) (897,077)
Property, plant and equipment - net 1,902,458 1,897,639
Timber and timberlands 187,942 188,896
Other assets 157,465 165,873
Total Assets $2,685,374 $2,609,649
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt $ 72,649 $ 74,544
Short-term bank debt 16,300 24,242
Accrued interest 27,612 19,443
Other current liabilities 220,086 219,526
Total Current Liabilities 336,647 337,755
Long-term debt 816,220 921,227
Other liabilities 82,073 78,832
Deferred tax liability 394,174 353,643
Capital stock 235,865 215,304
Other capital 242,010 250,183
Retained earnings 579,942 453,977
Treasury stock, at cost (1,557) (1,272)
Total Shareholders' Equity 1,056,260 918,192
Total Liabilities and Shareholders'
Eqiuty $2,685,374 $2,609,649
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the For the
Twelve Weeks Ended Thirty-Six Weeks Ended
Sept. 9, Sept. 10, Sept. 9, Sept. 10,
In thousands, except 1995 1994 1995 1994
per share amounts
<S> <C> <C> <C> <C>
Net sales $457,884 $373,871 $1,357,055 $1,041,301
Costs and expenses:
Cost of products sold 295,345 272,140 879,216 779,054
Depreciation, amortization
and cost of timber harvested 35,089 34,389 106,365 100,206
Selling and administrative
expenses 21,485 15,954 63,448 47,304
Interest expense 20,775 20,259 63,367 59,097
Other - net 1,637 6,476 (4,858) 21,712
Total costs and expenses 374,331 349,218 1,107,538 1,007,373
Income before taxes 83,553 24,653 249,517 33,928
Provision for income taxes 28,253 9,453 89,317 10,028
Net income 55,300 15,200 160,200 23,900
Preferred dividend requirements 166 1,524 2,943 4,573
Net income applicable to common
shares $ 55,134 $ 13,676 $ 157,257 $ 19,327
Average Common Shares Outstanding:
Assuming no dilution 46,042 42,265 43,822 42,216
Assuming full dilution 49,165 43,293 48,367 43,225
Earnings Per Common Share:
Assuming no dilution $1.20 $.32 $3.59 $.46
Assuming full dilution $1.12 $.32 $3.31 $.45
Dividends Per Common Share $.40 $.25 $1.10 $.75
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Thirty-Six Weeks Ended
Sept. 9, Sept. 10,
In thousands 1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 160,200 $ 23,900
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation, amortization and
cost of timber harvested 106,365 100,206
Deferred income tax provision 38,981 3,920
Other - net 9,896 24,439
Net changes in current assets and liabilities (65,132) 1,643
NET CASH PROVIDED BY OPERATIONS 250,310 154,108
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (101,393) (93,976)
Other - net (993) (14,923)
NET CASH USED FOR INVESTING ACTIVITIES (102,386) (108,899)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (47,008) (34,954)
Increase in long-term debt 10,271 25,758
Payments on long-term debt (117,166) (39,232)
Other - net 5,976 3,243
NET CASH USED FOR FINANCING ACTIVITIES (147,927) (45,185)
(DECREASE) INCREASE IN CASH (3) 24
Cash: Beginning of year 293 271
End of period $ 290 $ 295
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
In the opinion of management, the accompanying unaudited interim
condensed consolidated financial statements reflect all adjustments,
of a normal and recurring nature, necessary to present fairly the
results for the interim periods presented.
Certain reclassifications have been made to the prior interim periods'
financial statements in order to conform to the current period
presentation.
The third quarter 1995 and 1994 dividends were declared on September
19, 1995 and September 20, 1994, respectively, and are presented in
the accompanying Condensed Consolidated Statement of Income for
presentation purposes only.
Earnings Per Common Share
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 the third quarter
and year-to-date periods of 1995 is based on the weighted number of
common shares outstanding during the period, including the dilutive
effects of stock options outstanding and the conversion of the
Company's preferred stocks. Earnings per common share assuming full
dilution for the third quarter and year-to-date periods of 1994 does
not assume the conversion of the Company's $2.875 preferred stock as
the effect is antidilutive.
Redemption of Preferred Stock
During the third quarter of 1995, the Company gave notice of its
election to redeem its $2.875 cumulative convertible preferred stock.
Under this election, the Company redeemed all shares of the $2.875
cumulative convertible preferred stock not submitted for conversion
into common stock by August 9, 1995. The redemption price was $51.00
per share which included accrued and unpaid dividends to the redemption
date. As a result, all of the shares were converted into common stock
or redeemed at $51.00 per share.
Financial Instruments
In managing interest rate sensitivity, the Company utilizes certain
financial instruments. At September 9, 1995 and September 10, 1994,
the Company was a party to both hedged and nonhedged interest rate
swap agreements.
-6-
<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(Unaudited)
At September 9, 1995 and September 10, 1994, the nonhedged interest
rate swap agreements outstanding had notional principal amounts of $175
million and $340 million, respectively. During the first quarter of
1995, the Company amended the $175 million interest rate swap
agreements to eliminate the leveraged coupon rate that was based on
various interest rate spreads. The Company's market risk under these
agreements is primarily subject to the differential between the London
Inter Bank Offered Rate (LIBOR) and LIBOR in arrears during a six month
period. The Company does not believe a possible change in LIBOR, during
a six month period, would have a material impact on its financial
position or results of operations. The estimated fair value of all
nonhedged interest rate swap agreements was a loss of $9.0 million and
$17.8 million at September 9, 1995 and September 10,1994, respectively.
The hedged interest rate swap agreements outstanding had notional
principal amounts of $160 million and $175 million at September 9,
1995 and September 10, 1994, respectively. During the first quarter
of 1995, the Company also amended these agreements to limit its
exposure to fluctuations in LIBOR.
Income Taxes
The overall effective income tax rate for 1995 and 1994 was 35.8% and
29.5%, respectively. The provision for income taxes for the year-to-
date period of 1994 includes a favorable adjustment of $3.2 million
due to the settlement of prior year tax audits. The 1995 effective
income tax rate includes tax benefits provided by the Company's
foreign sales corporation and a reduction in the State effective
income tax rate.
Other-net
Other-net in the accompanying Condensed Consolidated Statement of
Income for the thirty-six weeks ended September 9, 1995, includes a net
pre-tax gain of $5.5 million associated with the sale of assets and the
cost of the Imperial Bondware cup restructuring program. Other-net for
the third quarter and year-to-date periods includes pre-tax charges of
$0.1 million and $0.6 million for 1995, and $3.7 million and $19.4
million for 1994, respectively, associated with certain financial
instrument transactions.
Subsequent Event
During the fourth quarter of 1995, the Company announced further
restructuring of its Imperial Bondware cup operations. The
restructuring will result in a pre-tax charge of approximately $73
million, of which approximately $69 million is non-cash related.
This charge includes the write-off of approximately $57 million
associated with the impairment of goodwill and long-lived assets and a
charge related to plant closures of approximately $12 million for
fixed asset write-downs and approximately $4 million for employee
severance and facility costs.
-7-
<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(Unaudited)
The Company entered the cup market in 1989 with the acquisition of
Imperial Cup Corp. and further invested in this business with the
acquisition of Continental Bondware, Inc. in 1990. The Company's
decision to enter the cup market was based on two major factors: (1)
there appeared to be the potential of high returns on this investment,
since the cup industry had double digit sales growth for most of the
prior decade, with profit margins averaging about 20% of sales and
(2) the acquisition assured Federal an outlet for a portion of its
primary product, bleached paperboard. The expected results for this
business were not reached due to the downturn in the U.S. economy
along with the addition of new competitors in the marketplace and,
more recently, the sharp increase in the cost of the operations'
primary raw material, paperboard.
In 1993, the Company began instituting a cost reduction program to
streamline the cup operations and increase efficiencies. This program
included the closing of the acquired Continental Bondware, Inc.
corporate office in 1993 and the closing of the Salisbury, MD facility
in the fourth quarter of 1994, transferring its business to the
remaining cup plants which were larger and more cost efficient. It also
included the construction of a new distribution center and an overall
reduction in personnel. This program did generate cost savings,
however the cup operations continued to be unprofitable. At that time,
the Company evaluated the recoverability of long-lived assets and
related goodwill and determined they were recoverable.
During the first quarter of 1995, the Company recorded a charge of
approximately $4 million in accordance with management's decision to
further restructure the cup business by closing the Chicago,IL plant
and exiting the wax cup business. The Company expected that its wax
cup customers would convert to poly coated cups which would be supplied
from the remaining four cup facilities. As a result of this
restructuring, the Company expected to substantially increase operating
profits for the remaining facilities through increased volume and
reduced costs; however, the impact of these efforts was ultimately not
enough to offset raw material price increases in order to achieve
anticipated or acceptable levels of gross margin at the Imperial Cup
Corp. plants acquired in 1989.
-8-
<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(Unaudited)
During the fourth quarter of 1995, the Company announced the closure
or sale of its Lafayette, GA cup plant, consolidating the cup business
into three core plants: Shelbyville, IL, Kenton, OH and Visalia, CA.
With the closure of the Lafayette, GA plant, the Company again
evaluated the recoverability of its long-lived assets and related
goodwill associated with the remaining three plants. The Company,
in accordance with Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", tested for impairment by
comparing the projected future cash flows at the plant level, on an
undiscounted basis without interest, to the carrying amount of the
assets at each remaining plant. The projected future cash flows were
management's best estimate of future operations and were calculated
using the Company's projected budget for fiscal year 1996 and carrying
that amount forward over the remaining lives of the fixed assets at an
inflation rate to sales of 2% per year. Based upon these comparisons,
the Company concluded that the goodwill and a portion of its long-lived
assets associated with its Kenton, OH and Visalia, CA plants were
impaired and therefore will record a charge of approximately $57
million during the fourth quarter of 1995.
This charge represents the excess of the carrying amount of the Kenton,
OH and Visalia, CA assets compared to their estimated fair values. The
Company's engineers determined the fair value of these assets by
estimating the amount that would be received in a sale of individual
assets to willing buyers. The determination of the fair value of these
assets approximates the present value of estimated expected future cash
flows using a discount rate commensurate with the Company's expected
rate of return and risk involved in the business.
The write-off of goodwill is expected to significantly increase our
fourth quarter and year-to-date effective income tax rate due to the
fact that it is a permanent difference in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes".
-9-
<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 Thirty-Six Weeks Ended
Sept. 9, Sept. 10, Sept. 9 Sept. 10,
In thousands 1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES:
Paper, Paperboard and Pulp $332,865 $244,080 $1,020,214 $ 697,487
Wood Products 58,797 65,315 176,793 184,267
Converting Operations 95,413 89,477 252,618 237,665
Intersegment Eliminations (29,191) (25,001) (92,570) (78,118)
Total $457,884 $373,871 $1,357,055 $1,041,301
INCOME BEFORE TAXES:
Paper, Paperboard and Pulp $108,282 $ 34,231 $ 316,679 $ 70,025
Wood Products 5,191 16,791 20,330 53,275
Converting Operations 3,129 5,629 2,239 7,955
Intersegment Eliminations (1,180) (154) (6,963) 277
General Corporate Items - Net (11,094) (11,585) (19,401) (38,507)
Interest Expense (20,775) (20,259) (63,367) (59,097)
Total $ 83,553 $ 24,653 $ 249,517 $ 33,928
</TABLE>
RESULTS OF OPERATIONS:
Paper, Paperboard and Pulp
Net sales of paper, paperboard and pulp increased approximately 36% and 46%
compared to the prior year for the third quarter and year-to-date periods,
respectively. Factors contributing to the continued improvement during the
third quarter include higher market pulp sales due to favorable selling prices
and market conditions, an increase in uncoated free-sheet paper sales resulting
from increased volume coupled with higher average selling prices and an
increase in bleached paperboard sales, due primarily to higher average selling
prices and increased demand. The year-to-date period was influenced by these
same factors, with sales increases in uncoated free-sheet paper and bleached
paperboard.
Operating profits for this segment improved markedly, compared to the prior
year for the third quarter and year-to-date periods. The improved results were
achieved through an increase in selling prices, compared to the prior year
periods reported, for all products produced by this group.
Market pulp has experienced strong market demand which has allowed the Company
to benefit from improved selling prices. During the third quarter and
year-to-date periods production and shipments increased slightly compared to
the prior year period.
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
The bleached paperboard operations continued to perform well in the third
quarter of this year, with operating profits significantly improved compared
to the third quarter of the prior year. Average selling prices for this
product increased compared to the third quarter of last year. On a year-to-
date basis operating profits are substantially higher as a result of an
increase in average selling prices, slightly offset by a small decrease
in shipments.
Operating profits for the Company's uncoated free-sheet paper operation
improved significantly compared to the prior year for the third quarter and
year-to-date periods. The increase in operating profits for the third quarter
is primarily attributable to an increase in average selling prices. The
increase in operating profits for the year-to-date period is primarily
attributable to an increase in average selling prices coupled with a 6%
increase in shipments compared to the prior year. Continued improvement is
expected throughout the remainder of the year, due to favorable market
conditions and strengthening demand. Production costs for the year-to-date
period have increased, as a result of higher pulp costs, slightly offset by
reductions of other operating costs reflecting greater efficiency.
Operating profits for recycled paperboard declined considerably compared to the
prior year for both the quarter and year-to-date periods. During 1995, this
segment has been adversely affected by sharply higher raw material costs,
particularly for old corrugated containers, a primary resource in the
manufacture of recycled paperboard. In the third quarter, production and
shipments were down compared to the prior year due to softening market
conditions. On a year-to-date basis, average selling prices increased, while
shipments decreased compared to the prior year.
The Company achieved record third quarter net sales and net income in spite of
a major annual maintenance shutdown at the Riegelwood, NC mill and scheduled
maintenance shutdowns at the Inverurie, Scotland uncoated free-sheet paper mill
and the Sprague, CT recycled paperboard mill.
Wood Products
The wood products segment includes the results of the Company's lumber plants
and land management activities. Net sales for the wood products group declined
10% and 4% compared to the prior year for the quarter and year-to-date periods,
respectively. The decline in net sales of lumber reflects lower average
selling prices marginally offset by increased shipments. Average prices for
the third quarter of this year have improved and are expected to remain
constant throughout the remainder of the year. Operating profits for the year
- -to-date period of 1995 have been affected by increased wood costs due to
substantially reduced availability. In the West, environmental restraints
have had a negative impact on supply and the U.S. Forest Service has restricted
the use of its land for logging; while in the East, pine forests are being
depleted. Nevertheless, production and shipments have increased for the
quarter and year-to-date periods compared to the prior year.
-11-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Converting Operations
Net sales for the converting operations increased approximately 7% and 6% for
the third quarter and year-to-date periods of 1995 compared to the prior year.
These increases in sales are attributable to increased shipments of folding
cartons and increased average selling prices for cup products partially offset
by reduced shipments of cup products. In the year-to-date period the carton
operations experienced a sales increase of 13% while the cup operations
experienced an increase of 4%. During the third quarter, carton operations'
sales increased 4% while cup operations' sales increased 8%.
Operating profits for this segment declined for both periods presented
compared to the prior year despite increased sales. These operations continue
to experience increased raw material costs. The cup operations have
experienced the sharper increase in these costs due to the grade of paperboard
used in the manufacturing process. As a result of these increased costs, an
adjustment has been recorded to properly reflect the value of the inventory
under the Last-in, First-out (LIFO) inventory method. The LIFO adjustment was
a charge of $3.9 million for the year-to-date period of 1995 compared to a
benefit of $0.5 million for the same period of the prior year. The
year-to-date results include a charge of $4.0 million associated with the
restructuring of these operations.
Interest Expense
Interest expense for the third quarter and year-to-date was $20.8 million and
$63.4 million, respectively, representing increases of 3% and 7% over the
comparable prior year periods. The higher level of interest expense in the
current year is attributable to a decrease in capitalized interest, higher
borrowing rates for the Company's short-term bank debt and borrowings under the
revolving credit agreement coupled with increased interest expense on the
Company's interest rate swap agreements. During 1995, capitalized interest
decreased due to the fact that this year capital spending has been concentrated
on projects not qualifying for interest capitalization.
Income Taxes
The Company's effective income tax rate for the year-to-date periods of 1995
and 1994 was 35.8% and 29.5%, respectively. The 1994 effective income tax
rate included the benefit of the settlement of prior year tax audits. The 1995
effective income tax rate includes tax benefits provided by the Company's
foreign sales corporation and a reduction in the State effective income tax
rate.
-12-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Other Items
The Company is a party to nonhedged interest rate swap agreements. During the
third quarter of 1994, the Company was also a party to nonhedged foreign
currency option contracts. At September 9, 1995, the Company was not a party
to any foreign currency option contracts. In the quarters ending September 9,
1995 and September 10, 1994, pre-tax charges were recorded associated with
financial instrument transactions of $0.1 million and $3.7 million,
respectively. In the year-to-date periods of 1995 and 1994, pre-tax charges
were recorded associated with nonhedged financial instrument transactions of
$0.6 million and $19.4 million, respectively. During the nine periods
ended September 9, 1995, the Company recorded a net gain of $5.5 million
associated with the sale of assets and the Imperial Bondware cup restructuring
program. The effects of these transactions are included in Other-net in the
accompanying Condensed Consolidated Statement of Income.
The Company's employees at the Riegelwood, NC paperboard and pulp mill are
covered by a collective bargaining agreement, which expired in September 1995.
The parties have agreed to extend the terms of this contract until such time
that a new agreement is reached between the parties. Negotiations are ongoing
and preliminary discussions have been encouraging.
CAPITAL RESOURCES AND LIQUIDITY:
Cash provided by operations rose 62% in comparison to the prior year period.
The increase was primarily attributable to the improved level of earnings
partially offset by increases in accounts receivable and inventories in the
current year. The growth in receivable levels during the three quarters of
1995 is a result of improved sales over the prior year. Increased
production and raw material purchases have caused inventory levels to rise
approximately 21% compared to the year end 1994 levels.
Cash used for investing activities decreased approximately 6% compared to the
prior year, due to a decrease in net payments made for nonhedged financial
instrument transactions. Capital expenditures were $101.4 million in the three
quarters of 1995 compared to $94.0 million in the three quarters of 1994.
During the first thirty-six weeks of 1995, capital expenditures were
predominantly related to Phase I of the modernization program at the Riegelwood
mill and a program to rebuild the No. 2 paperboard machine at the Augusta mill.
Capital expenditures for the full year are expected to increase compared to
the prior year due to the projected spending for the two major aforementioned
programs. In the first thirty-six weeks of 1994, capital expenditures
were predominantly related to a program to expand and modernize the No. 18
paper machine at the Riegelwood mill. It also included amounts related to the
construction of a new warehouse for the Company's cup operations.
-13-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Cash used for financing activities increased significantly compared to the
prior year, principally due to increased payments on long-term debt and an
increase in cash dividends paid due to the Board of Directors increasing the
quarterly dividend on the Company's common stock to $.40 per share from $.30
per share. During the first thirty-six weeks of 1995, the Company retired a
$25 million bank note and reduced long-term borrowings by $92.2 million. Also
during the third quarter, the Company issued $9.0 million of Industrial Revenue
Bonds due in 2020.
In managing interest rate sensitivity, the Company utilizes certain financial
instruments. At September 9, 1995 and September 10, 1994, the Company was a
party to both hedged and nonhedged interest rate swap agreements. At September
9, 1995 and September 10, 1994, the nonhedged agreements outstanding had
notional principal amounts of $175 million and $340 million, respectively. The
estimated fair value at September 9, 1995 and September 10, 1994 was a loss of
$9.0 million and $17.8 million, respectively. During the first quarter of 1995,
the Company amended the nonhedged agreements to eliminate the leveraged coupon
rate that was based on various interest rate spreads. As consideration for
these amendments, the Company paid $2.1 million and has accounted for this
transaction in Other-net in the accompanying Condensed Consolidated Statement
of Income. The cash payment is included in investing activities in the
accompanying Condensed Consolidated Statement of Cash Flows.
The hedged interest rate swap agreements outstanding had notional principal
amounts of $160 million and $175 million at September 9, 1995 and September 10,
1994, respectively. The Company also amended these agreements during the
first quarter of the current year to limit exposure to fluctuations in LIBOR.
These agreements are currently based on the differential between LIBOR and
LIBOR in arrears over a six month period. As consideration for these
amendments, the Company recorded a receivable of $8.2 million, which was
received in the second quarter of this year. These proceeds were deferred
and will be amortized over the life of the agreement. At September 9, 1995
and September 10, 1994, the Company had deferred net losses of $0.2 million
and $1.1 million, respectively and deferred net gains of $12.3 million and
$9.5 million, respectively.
The Company is a party to a revolving credit agreement with a total commitment
of $250 million. At September 9, 1995, no amount was outstanding under this
agreement. In addition, $75 million remains available for future debt
financings, under a previously filed shelf registration statement. The
Company believes it has adequate resources to finance its operations and
future capital spending programs.
-14-
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Future Outlook:
The Company has decided during the fourth quarter of fiscal year 1995 to adopt
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
which will result in the Company recording a charge of approximately $57
million in the fourth quarter of 1995. The Company simultaneously announced a
further restructuring of its cup operations, which will include the closure of
its LaFayette, GA plant and a charge for plant closing costs of approximately
$16 million. The cup operations restructuring will consolidate the cup business
into three core plants: Shelbyville, IL, Kenton, OH and Visalia, CA. The
Company will exit the plastic cup business and cease the production of waxed
cups. The Company expects most of its wax customers will convert to poly coated
cups, which are higher in quality and offer superior graphics capabilities.
The restructuring and write-off of goodwill and impaired assets is expected to
substantially increase operating income from the remaining core plants by
increasing volume at these locations and reducing costs. The three remaining
core plants are modern and cost efficient and have the capacity to have
business transferred from the closed facilities (see Subsequent Event note in
the Notes to the Condensed Consolidated Financial Statements).
Excluding the restructuring charge to be taken in the fourth quarter of this
year, the outlook for the remainder of the year is optimistic. Growth in our
markets and our continued investment in our operations will increase sales and
enhance earnings potential. Furthermore, the Company will continue benefiting
from capital spending programs that have reduced costs by increasing
efficiency, production and quality.
-15-
<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
thirty-six weeks ended September 9, 1995.
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: October 23, 1995
/S/QUENTIN J. KENNEDY
Quentin J. Kennedy, Executive Vice
President, Secretary and Treasurer
Date: October 23, 1995
/S/ROGER L. SANDERS, II
Roger L. Sanders, II, Vice President
and Controller
(Principal Accounting Officer)
-16-
<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
EXHIBIT INDEX
Exhibit No. Description
11 Computation of Earnings per Common Share 18 - 19
27 Financial Data Schedule -
-17-
<PAGE>
<TABLE>
EXHIBIT 11
FEDERAL PAPER BOARD COMPANY, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
For the For the
Twelve Weeks Ended Thirty-Six Weeks Ended
Sept. 9, Sept. 10, Sept. 9, Sept. 10,
In thousands, except 1995 1994 1995 1994
per share amounts
<S> <C> <C> <C> <C>
Assuming No Dilution:
Net Income $55,300 $15,200 $160,200 $ 23,900
Preferred Dividend Requirements (166) (1,524) (2,943) (4,573)
Net Income Applicable to
Common Shares $55,134 $13,676 $157,257 $ 19,327
Actual Weighted Average Number
of Common Shares Outstanding 46,042 42,265 43,822 42,216
Earnings Per Common Share
Assuming No Dilution $ 1.20 $ .32 $ 3.59 $ .46
Assuming Full Dilution:
Net Income $55,300 $15,200 $160,200 $ 23,900
Preferred Dividend
Requirements - (1,509) - (4,527)
Net Income Applicable to
Common Shares, Common
Equivalent Shares and
Dilutive Securities $55,300 $13,691 $160,200 $ 19,373
Shares:
Adjusted Weighted Average
Number of Common Shares
Outstanding 44,678 42,259 42,824 42,208
Dilutive Common Equivalent
Shares Issuable Under Stock
Option Plans 1,255 755 1,358 728
Common Shares Issuable Assuming
Conversion of $1.20 Convertible
Preferred Stock 253 279 262 289
Common Shares Issuable Assuming
Conversion of $2.875 Convertible
Preferred Stock 2,979 (a) 3,923 (a)
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares and Dilutive
Securities 49,165 43,293 48,367 43,225
Earnings Per Common Share
Assuming Full Dilution $ 1.12 $ .32 $ 3.31 $ .45
-18-
<PAGE>
</TABLE>
<TABLE>
EXHIBIT 11
(Continued)
FEDERAL PAPER BOARD COMPANY, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
For the For the
Twelve Weeks Ended Thirty-Six Weeks Ended
Sept. 9, Sept. 10, Sept. 9, Sept. 10,
In thousands, except 1995 1994 1995 1994
per share amounts
<S> <C> <C> <C> <C>
Primary Earnings Per Share (b):
Shares:
Weighted Average Number of
Common Shares Outstanding 46,042 42,265 43,822 42,216
Dilutive Common Equivalent
Shares Issuable Under
Stock Option Plans 1,062 513 844 381
Weighted Average Number
of Common and Dilutive
Common Equivalent Shares 47,104 42,778 44,666 42,597
Primary Earnings Per
Common Share $1.17 $.32 $3.52 $.45
<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.
</FN>
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the fiscal quarter ended September 9, 1995.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-30-1995 DEC-30-1995
<PERIOD-END> SEP-09-1995 SEP-09-1995
<CASH> 290 290
<SECURITIES> 0 0
<RECEIVABLES> 125209 125209
<ALLOWANCES> 0 0
<INVENTORY> 278200 278200
<CURRENT-ASSETS> 437509 437509
<PP&E> 2871668 2871668
<DEPRECIATION> 969210 969210
<TOTAL-ASSETS> 2685374 2685374
<CURRENT-LIABILITIES> 336647 336647
<BONDS> 816220 816220
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 1056260 1056260
<TOTAL-LIABILITY-AND-EQUITY> 2685374 2685374
<SALES> 457884 1357055
<TOTAL-REVENUES> 457884 1357055
<CGS> 295345 879216
<TOTAL-COSTS> 351919 1049029
<OTHER-EXPENSES> 1637 (4858)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20775 63367
<INCOME-PRETAX> 83553 249517
<INCOME-TAX> 28253 89317
<INCOME-CONTINUING> 55300 160200
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 55300 160200
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 1.12 3.31
</TABLE>
