<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from______________
to____________________
Commission file no. 0-016951
FIBREBOARD CORPORATION
-------------------------
(exact name of registrant as specified in charter)
Delaware 94-0751580
-----------------------------------------------------
(State or other juris- (I.R.S Employer Iden-
diction of incorporation) tification No.)
2121 North California Blvd., Suite 560, Walnut Creek, CA 94596
---------------------------------------------------------------
(Address of principal executive offices)
(510) 274-0700
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address or former fiscal year,
if changed since last report)
Indicate by check mark 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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XXX . No .
-------- ------
As of the close of business on May 6, 1994, the registrant had outstanding
4,204,420 shares of common stock.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited financial statements are filed as part of this
report:
Financial Statement Title Page
- - ------------------------- ----
Consolidated statements of income for the three months
ended March 31, 1994 and 1993 3
Consolidated balance sheets as of March 31, 1994
and December 31, 1993 4
Consolidated statements of cash flows for the three
months ended March 31, 1994 and 1993 6
Notes to consolidated financial statements 7
2
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
----------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $86,300 $74,894
Cost of sales 66,774 58,153
------- -------
Gross margin 19,526 16,741
Selling and administrative expenses 6,779 6,812
------- -------
Income from operations 12,747 9,929
Interest expense (980) (881)
Interest and other income 767 1,833
------- -------
Income before income taxes 12,534 10,881
Income taxes (5,076) (4,461)
------- -------
Net income $ 7,458 $ 6,420
------- -------
------- -------
Earnings per share:
Primary $ 1.66 $ 1.49
Fully diluted 1.66 1.47
Common equivalent shares (thousands)
(Weighted average)
Primary 4,491 4,317
Fully diluted 4,491 4,371
</TABLE>
3
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1994 1993
-------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,391 $ 5,322
Receivables 18,801 16,268
Income tax refund receivable -- 3,500
Current portion of notes receivable 1,539 988
Inventories 65,208 80,158
Prepaid expenses 2,185 1,373
Deferred income taxes 6,898 6,898
------- -------
Total current assets 105,022 114,507
Timber and timberlands, net 32,215 35,564
Property, plant and equipment, at cost:
Land and improvements 21,015 21,079
Buildings 25,295 25,569
Machinery and equipment 109,253 110,771
Construction in progress 590 1,198
------- -------
156,153 158,617
Accumulated depreciation (71,424) (69,121)
------- -------
Net property, plant and equipment 84,729 89,496
Notes receivable 12,971 11,432
Other assets 10,104 10,360
------- -------
Total operating assets 245,041 261,359
Cash restricted for asbestos costs 3,413 827
Asbestos costs to be reimbursed 1,000,926 968,309
--------- -------
Total assets $1,249,380 $1,230,495
---------- ----------
---------- ----------
</TABLE>
4
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1994 1993
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 4,501 $ 17,657
Current portion of long-term debt 3,334 4,764
Accounts payable and accrued liabilities 29,126 29,858
Reserve for asbestos-related costs 2,700 2,700
---------- -----------
Total current liabilities 39,661 54,979
Long-term debt 14,989 23,539
Reserve for asbestos-related costs 16,371 16,795
Other long-term liabilities 19,197 18,790
Deferred income taxes 22,013 21,935
---------- -----------
Total operating liabilities 112,231 136,038
Asbestos claims settlements:
Current 11,199 11,048
Long-term 976,729 941,880
---------- -----------
Total asbestos claims settlements 987,928 952,928
Asbestos-related long-term debt 21,558 21,361
---------- -----------
Total liabilities 1,121,717 1,110,327
Commitments & contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 3,000,000
shares authorized; none issued -- --
Common stock, $.01 par value, 15,000,000
shares authorized; 4,201,420 and
4,201,420 shares issued 42 42
Additional paid-in capital 75,873 75,836
Retained earnings 54,175 46,717
Minimum pension liability adjustment (2,427) (2,427)
---------- -----------
Total stockholders' equity 127,663 120,168
---------- -----------
Total liabilities and stockholders' equity $1,249,380 $1,230,495
---------- -----------
---------- -----------
</TABLE>
5
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended March 31
----------------------
1994 1993
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 7,458 $ 6,420
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation, amortization, and depletion 3,728 3,378
Deferred income taxes 78 6
Deferred long term benefits 437 359
Compensation for stock grants 37 390
Gain on sale of assets (502) (1,388)
Change in working capital 12,377 7,002
-------- --------
Net cash provided by operations 23,613 16,167
Cash Flows From Investing Activities:
Proceeds from asset sales 2,430 2,489
Property, plant and equipment changes (809) (710)
Timber & timberland changes, net 3,335 (475)
Change in other assets 16 123
-------- --------
Net cash provided by investing activities 4,972 1,427
Cash Flows From Financing Activities:
Repayment of debt (23,136) (23,093)
Employee stock plan transactions -- 18
-------- --------
Net cash used for financing activities (23,136) (23,075)
Net cash provided (used) by business activities 5,449 (5,481)
Cash Flows From Asbestos Related Activities:
Receipts from insurers 3,927 11,824
Structured settlement program payments 330 (1,314)
Other asbestos-related cash transactions (2,051) (5,961)
Change in cash restricted for asbestos costs (2,586) (5,253)
-------- --------
Net cash used by asbestos-related activities (380) (704)
-------- --------
Net increase (decrease) in cash 5,069 (6,185)
Cash at beginning of period 5,322 16,011
-------- --------
Cash at end of period $ 10,391 $ 9,826
-------- --------
-------- --------
Cash Paid During the Period For:
Interest $ 913 $ 637
Income taxes 5 49
Non-Cash Items:
Increase in asbestos claims settlements 90,966 13,314
Payments made to asbestos claimants on Fibreboard's behalf 56,296 --
Increase in receivables from sales of surplus real estate 2,247 --
</TABLE>
6
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands)
(Unaudited)
1. The interim financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although Fibreboard management believes that
the disclosures are adequate to make the information presented not
misleading. These interim financial statements and notes should be read in
conjunction with the financial statements and the notes thereto included in
Fibreboard's 1993 Annual Report and Form 10-K.
Interim financial statements are by necessity somewhat tentative. Judgments
are used to estimate the amounts recorded each quarter for items that are
normally determinable only on an annual basis. For example, numerous items
relating to employee benefits are determined annually, with hours worked
determining pension plan contribution for the year, eligibility for
vacations, etc. Further, all inventory quantities are verified by
physically counting the units on hand at least once a year. For those
inventories not counted at the end of the quarter, quantities are
determined using measured sales and production data for the period.
The interim period financial information included herein reflects all
adjustments of a normal and recurring nature which are, in the opinion of
Fibreboard management, necessary for a fair statement of the results of the
respective interim periods. Results of operations for interim periods are
not necessarily indicative of results to be expected for an entire year.
2. Net earnings per common and common equivalent share are calculated using
the weighted average number of common shares outstanding during the period
plus the net additional number of shares which would be issuable upon the
exercise of stock options, assuming Fibreboard used the proceeds received
to purchase additional shares at market value.
3. Effective January 1, 1993, Fibreboard adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). The
adoption of SFAS 109 had no effect on reported net income.
SFAS 109 utilizes the liability method and deferred taxes are determined
based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities under the
provisions of the enacted tax laws. The effective income tax rate, which
is based on such estimates, is updated quarterly.
7
<PAGE>
4. Inventories are valued at the lower of cost (first in, first out) or
market. Inventory costs include material, labor and operating overhead.
Operating supplies are priced at average cost. Inventories are as follows:
<TABLE>
<CAPTION>
March 31 December 31
1994 1993
-------- -----------
<S> <C> <C>
Finished Goods $21,874 $21,833
Raw Materials 42,272 56,649
Supplies 1,062 1,676
------- -------
Total Inventories $65,208 $80,158
------- -------
------- -------
</TABLE>
5. Fibreboard's ability to continue to operate outside of bankruptcy
protection is dependent upon its ongoing capability to fund asbestos-
related defense and indemnity costs. Prior to 1972, Fibreboard
manufactured insulation products containing asbestos. Fibreboard has since
been named as a defendant in many thousands of personal injury claims for
injuries allegedly caused by asbestos exposure and in asbestos-in-buildings
actions involving many thousands of buildings.
The following tables illustrate asbestos-related claims activity for the
periods indicated:
<TABLE>
<CAPTION>
Quarter Ended March 31
----------------------
1994 1993
------ ------
Personal Injury
---------------
<S> <C> <C>
New claims received(1) 3,400 5,900
Claims disposed
Settled 5,864 1,103
Dismissed 202 1,389
"Green Card" settlements(2) 57 173
Judgments(3) -- 1
Adjustments(4) -- 2,300
Average settlement amount per claim settled-
pre-1959 claims $ 10 $ 16
post-1959 claims 7 1
Claims pending at end of period (5) 55,100 57,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1994 1993
---- ----
Asbestos-in-Buildings
---------------------
<S> <C> <C>
New actions received 1 --
Actions disposed
Dismissed 4 --
Settled -- --
Joined National Schools class action -- 2
Actions pending at end of period 18 27
<FN>
1. Of the claims received in 1994, 3,300 claims will be covered by the
Global Settlement discussed below, if approved.
2. Under Green Card Settlements, there is no determination of liability
by Fibreboard to a claimant. Instead, Fibreboard waives the statute
of limitations should a claimant develop an asbestos-related
impairment in the future.
3. Judgments represent defense verdicts in favor of Fibreboard, plaintiff
verdicts where the net amount payable by Fibreboard is zero after
applying prior settlement amounts or plaintiff verdicts where the
judgment has been paid. Additional judgments favoring plaintiffs have
been entered. Fibreboard is appealing these judgments. The amount of
such judgments is included in Fibreboard's overall liability estimate.
4. Often, multiple claims are filed for the same injury. It is often not
possible to fully identify duplicate claims until the claims are
prepared for trial. Fibreboard has an ongoing program to identify
duplicate claims and remove them from the claims database, and
anticipates additional future adjustments.
5. Of the pending claims, 17,900 were filed on or after August 27, 1993
and will be covered by the Global Settlement, if approved.
- - -------------------------------------------------------------------------------
</TABLE>
During 1993, Fibreboard entered into a settlement agreement with
Continental Casualty Company (Continental) and Pacific Indemnity Company
(Pacific) (the Insurance Settlement). In addition, Fibreboard,
Continental, Pacific and plaintiffs' representatives entered into a
settlement agreement (the Global Settlement). These agreements are
interrelated. Final court approval of the agreements is required.
Fibreboard believes trial court approval could occur during 1994, but if
appealed, it may be 1995 or later before final court approval could be
obtained.
If both the Global Settlement and Insurance Settlement are approved,
Fibreboard believes its existing and future personal injury asbestos
liabilities will be resolved through insurance resources and existing
corporate reserves. Fibreboard will contribute $10,000 toward a $1,535,000
settlement trust, which it will obtain from other remaining insurance
sources and existing reserves. The remainder of the trust will be funded
by Continental and Pacific (at December 31, 1993, the insurers had placed
$1,525,000 in an escrow account pending court approval of the settlements).
The trust will be used to compensate "future" plaintiffs, defined as those
plaintiffs
9
<PAGE>
who had not filed a claim against Fibreboard before August 27, 1993. Such
future plaintiffs only source of compensation will be the trust, as an
injunction will be entered prohibiting future claims against Fibreboard or
the insurers.
If the Global Settlement is not approved, but the Insurance Settlement is
approved, the insurers will instead provide Fibreboard with up to
$2,000,000 to resolve pending and future claims and will pay the deferred
payment portion of existing settled claims.
While Fibreboard is optimistic, there is no assurance final court approval
of either the Global Settlement or the Insurance Settlement can be
obtained. If neither the Global Settlement nor the Insurance Settlement is
approved, the parties will be bound by the outcome of the insurance
coverage litigation, unless other settlements are reached.
All insurance proceeds due from other insurers under previous settlements
have been received with the exception of approximately $10,000 from Home
Insurance (Home). Fibreboard intends to draw these funds for substantially
all of its contribution to the Global Settlement if approved.
Plant Insulation Company, a former distributor of Fibreboard asbestos-
containing products, has filed a complaint against Fibreboard for
declaratory relief in California Superior Court seeking a determination
that the Global Settlement does not affect its right to indemnity from
Fibreboard and challenging the jurisdiction of the federal district court
in Texas considering approval of the Global Settlement, the adequacy of
representation of the defendant class in that litigation and the fairness
of the Global Settlement. Plant has previously lost on several claims
involving a right to indemnity from Fibreboard in California courts. One
of these decisions has been appealed by Plant and is pending in the
California Court of Appeal. Fibreboard believes that Plant's claims lack
merit and intends to vigorously oppose them.
In the event the settlements discussed above are not approved, Fibreboard
believes it has substantial insurance coverage for asbestos-related defense
and indemnity costs. Fibreboard's disputes with Continental and Pacific
have been the subject of litigation which began in 1979. Trial court
judgments rendered in 1990 give Fibreboard virtually unlimited insurance
coverage for asbestos-related personal injury claims where the initial
exposure to asbestos occurred prior to March 1959. Under the judgments,
these insurers can be required to pay up to $500 for each occurrence
(defined as each individual claim) with no limitation on the aggregate
number of occurrences.
The insurers appealed to the California Court of Appeal. Among other
issues, Continental disputed the definition of an occurrence under its
policy as well as the trigger and scope of coverage as determined by the
trial court, while Pacific argued that its policy contained an aggregate
limit as well as disputing the trigger and scope of coverage issues. In
November 1993, the Court of Appeal issued its ruling on the trigger and
scope of coverage issues, confirming the favorable trial court judgments,
except the court held the period for coverage would begin at the time of
exposure to Fibreboard's asbestos products rather than at the time of
exposure to any company's asbestos product, with the presumption that these
periods are the same. The insurers have filed petitions for review with
the California Supreme Court, which has granted review but not yet
scheduled any further activity. At the request of Fibreboard, Continental
and Pacific, the Court of Appeal withheld its ruling on the remaining
issues while the parties seek approval of the Global and Insurance
Settlements. If the Global and/or Insurance Settlements are ultimately
approved, Fibreboard and its insurers will seek to dismiss the insurance
coverage litigation.
10
<PAGE>
Fibreboard has entered into an interim agreement with Continental under
which Continental agreed to provide a full defense to Fibreboard on pre-
1959 claims and make certain funds available as needed to pay currently due
Structured Settlement Obligations and other personal injury defense costs
for which Fibreboard does not otherwise have insurance available during the
period pending final approval of the Global and/or Insurance Settlement, or
if neither is approved, through the ultimate conclusion of the insurance
coverage appeal, however long that may take. In exchange for the benefits
provided under this agreement, Fibreboard agreed not to settle additional
pre-1959 personal injury claims without Continental's consent.
If neither the Global Settlement nor the Insurance Settlement are approved
and Fibreboard prevails in the appeal of the insurance coverage litigation,
Continental has agreed to provide Fibreboard with $315,000 to $425,000 to
resolve personal injury claims alleging first exposure to asbestos after
March 1959, less any amounts Fibreboard recovers from the Pacific
settlement described below. Continental would also continue to have
responsibility for all pre-1959 personal injury claims against Fibreboard
up to $500 per claim.
In March 1992, Fibreboard and Pacific entered into a settlement agreement
(the Pacific Agreement). If the Global Settlement or Insurance Settlement
is approved, the Pacific Agreement will be of no effect. If neither of the
settlements is approved, the Pacific Agreement establishes amounts payable
to Fibreboard if the trial court judgments are upheld. Fibreboard received
$10,000 upon signing the agreements and received an additional $10,000
during 1993. In addition, if the judgments are affirmed on appeal,
Fibreboard will receive from $80,000 to $105,000 to be used for claims
costs for which it does not otherwise have insurance.
In the event the trigger and scope of coverage judgments are reversed on
appeal, Pacific will owe Fibreboard nothing and will have a right to
repayment of interim funds previously advanced.
Fibreboard believes amounts available under the settlements discussed above
will be adequate to fund defense and indemnity costs until the insurance
coverage appeal is concluded, whether as a result of the final approval of
the Global and/or Insurance Settlements or the final resolution of the
insurance coverage litigation.
Fibreboard is also litigating with its insurance carriers and believes the
total limits of insurance policies in effect from 1932 to 1985 which may
provide coverage for asbestos-in-buildings claims aggregate $420,000
(including the settlements discussed below), which is in addition to the
personal injury insurance coverage and does not include additional policies
which contain no aggregate limit. The insurers dispute coverage, although
to date substantially all of Fibreboard's costs of defending asbestos-in-
buildings claims have been paid by its primary carriers.
Fibreboard has reached final settlements with three of its primary insurers
and one of its excess level insurers. In addition, a settlement subject to
court approval has been reached with a fourth primary insurer. The final
settlements confirm more than $175,000 of insurance as needed to defend and
dispose of asbestos-in-buildings claims.
The asbestos-in-buildings insurance coverage trial has been continued. No
date has been set for the trial to recommence. Fibreboard is continuing
settlement discussions with the remaining insurers. While optimistic,
Fibreboard cannot predict whether such discussions will result in
settlements.
11
<PAGE>
Fibreboard has entered into tentative settlement agreements in two of the
class action asbestos-in-buildings claims in which it is involved. The
total amount of these settlements was $1,750, which will be fully funded
from existing confirmed insurance resources. The settlements are subject
to certain court actions. Once these settlements are finalized, the
settlement statistics in the table above will be adjusted to reflect these
two settlements.
At the end of 1991, Fibreboard attempted to quantify its liability for
asbestos-related personal injury claims then pending and anticipated
through the end of the decade. There are many opportunities for error in
such an exercise. Assumptions concerning the number of claims to be
received, the disease mix of pending and future claims and projections of
defense and indemnity costs may or may not prove correct. Fibreboard's
assumptions are based on its historical experience, modified as appropriate
for anticipated demographic changes or changes in the litigation
environment.
Notwithstanding the inherent risk of significant error in such a
calculation, Fibreboard estimated the amount necessary to defend and
dispose of asbestos-related personal injury claims pending at December 31,
1991 and anticipated through the end of the decade plus the costs of
prosecuting its insurance coverage litigation, would aggregate $1,610,000.
Because of the dynamic nature of this litigation, it is more difficult to
estimate how many personal injury claims will be received after 1999 as
well as the costs of defending and disposing of those future claims.
Consequently, Fibreboard's estimated liability contains no amounts for
personal injury claims received after the end of the decade, although it is
likely additional claims will be received thereafter. In addition, the
projected liability does not include any liability for asbestos-in-
buildings claims, if any, as Fibreboard believes that any liability for
such claims is not subject to reasonable estimation.
Fibreboard believes it is probable that it will ultimately receive
insurance proceeds of $1,584,000 for the defense and disposition of the
claims quantified above. Fibreboard's opinion is based on its
understanding of the disputed issues, the financial strength of the
insurers and the opinion of outside legal counsel regarding the outcome of
the litigation. As a result, Fibreboard recorded a liability, net of
anticipated insurance proceeds, of $26,000 at December 31, 1991,
representing its best estimate of the unreimbursed cost of resolving
personal injury claims then pending and anticipated through the remainder
of the decade as well as the costs of prosecuting the insurance coverage
litigation. The balance of the net liability was $19,071 at March 31,
1994.
Although Fibreboard, its insurers and plaintiffs' representatives entered
into the Insurance and Global Settlements discussed above, Fibreboard does
not believe these settlements impact its estimate of liability through the
end of the decade, and no additional events have transpired which indicate
the potential liability and insurance proceeds estimates should be changed.
Consequently, no adjustment has been made to the estimated liability for
personal injury claims through the end of the decade or anticipated
insurance proceeds. Fibreboard will continue to reevaluate its estimates
and will make adjustments to the effect dictated by changes in the personal
injury litigation.
12
<PAGE>
6. Information about Fibreboard's industry segments is set forth below:
<TABLE>
<CAPTION>
Quarter Ended March 31
----------------------
1994 1993
---- ----
<S> <C> <C>
Outside sales
Wood products $48,080 $ 47,029
Industrial insulation products 14,428 12,851
Resort operations 23,792 15,014
------- --------
$86,300 $ 74,894
------- --------
------- --------
Segment profit
Wood products $ 4,874 $ 6,367
Industrial insulation products 2,206 1,391
Resort operations 8,496 5,472
------- --------
Total Operations 15,576 13,230
Unallocated expense (2,829) (3,301)
Interest expense (980) (881)
Interest and other income 767 1,833
------- --------
Income before income taxes $12,534 $ 10,881
------- --------
------- --------
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Wood Products--
Wood products sales increased 2% compared to 1993. Sales increases occurred
in lumber (higher average sales prices and shipment volume) and millwork (higher
unit sales prices on slightly lower shipment volume) while plywood sales
remained flat (higher sales prices offset by lower shipment volume). Sales
during the first quarter of 1993 included approximately $3 million of sales from
the agricultural container business which was sold early in the first quarter of
1994.
Wood products operating profit decreased from $6.4 million to $4.9 million,
reflecting higher costs of raw materials consumed during the first quarter of
1994 when compared with 1993. Fibreboard anticipates its raw material costs
will continue to be higher for the remainder of 1994 than in 1993.
Fibreboard believes it has sufficient log inventories and timber under
contract or available from its own lands to meet raw material needs through the
end of 1994 and well into 1995. Providing an uninterrupted timber supply
remains a top priority. Fibreboard anticipates significant competition for
available timber supplies which could result in shortages and/or increased
costs.
In the past, timber supply concerns have resulted in increased sales prices
for Fibreboard's wood products. While there can be no assurance, Fibreboard
believes sales prices for its products may continue to increase should timber
supply be further constrained. Continuing supply constraints should also
enhance the value of Fibreboard's fee-owned timberlands.
Industrial Insulation Products--
Industrial insulation products sales increased 12% on a slightly higher
volume of calcium silicate molded insulation shipments and improved sales of
metal products resulting from higher unit sales prices. Operating profit
increased from $1.4 million during 1993 to $2.2 million. Improved operating
profit resulted primarily from improved margins on metals sales as unit sales
prices increased relative to inventory costs. In addition, $0.4 million was
realized during the first quarter of 1994 from mineral lease income.
Resort Operations--
Resort operations revenues increased 58% to $23.8 million due to increased
skier days at Northstar-at-Tahoe and the addition of Sierra-at-Tahoe which was
not included in the 1993 results. This skier day increase was achieved during
the sixth lowest season snowfall total of the past 18 years. Operating profit
increased from $5.5 million to $8.5 million as a result of increased skier days,
the addition of Sierra-at-Tahoe, aggressive marketing programs and cost
controls, in spite of much higher snowmaking costs incurred during 1994.
General Corporate Expenses--
Unallocated costs decreased from $3.3 million to $2.8 million. The decrease
is due to the 1993 recognition of compensation expense associated with the
vesting of certain performance based stock options.
14
<PAGE>
Other Items--
Interest expense increased from $0.9 million to $1.0 million. Interest and
other income declined from $1.8 million to $0.8 million. The sale of surplus
property resulted in pre-tax gains of $0.2 million in 1994 versus $1.4 million
in 1993.
First quarter 1994 net income of $7.5 million is not considered
representative of the income potential for the full year. A significant
component of the first quarter income realized was generated by Fibreboard's
resort operations, which are highly seasonal. These operations generate the
majority of their revenues and profits the first quarter of each year with
subsequent drops in revenues and profitability until the following winter. In
addition, lumber sales prices have fallen during the second quarter from first
quarter levels and demand is reduced. Fibreboard cannot predict whether sales
prices or demand will increase later in the year.
FINANCIAL CONDITION
Cash generated from operations increased from $16.2 million in 1993 to $23.6
million in 1994, including reductions of non-cash working capital of $7.0
million in 1993 and $12.4 million in 1994. Notes payable to banks decreased
from $17.7 million at December 31, 1993 to $4.5 million at March 31, 1994.
Amounts available for borrowing were $29.6 million at March 31, 1994. The
reduction in outstanding notes payable was achieved through the use of cash flow
generated in the first quarter. In addition, cash flow from resort operations
was used to reduce their reducing revolving credit facility from $10.0 million
at December 31, 1993 to $0.5 million at March 31, 1994. At March 31, 1994,
$14.5 million was available for borrowing under credit facilities supporting the
resort operations.
Fibreboard's $40 million operating line of credit expires in August 1994. In
anticipation of this event, Fibreboard has had discussions with a number of
banks regarding a replacement facility, and has received commitments from two
banks to agent a $100 million, three-year revolving facility at lower borrowing
costs than under the existing facility. Fibreboard believes this new facility
will be finalized in advance of the expiration of its existing $40 million
facility.
Fibreboard anticipates primarily discretionary capital expenditures of
approximately $6.0 to $7.0 million during 1994, primarily for replacements and
improvements of machinery and equipment and additional ski area amenities.
In addition to cash needs related to continuing operations, Fibreboard must
fund its on-going asbestos-related costs. To date, substantially all such
costs, other than the cost of litigating insurance coverage issues, have been
funded from insurance resources. At March 31, 1994, Fibreboard had $3.4 million
in cash on hand restricted for asbestos-related costs.
Fibreboard and Continental Casualty have entered into an interim agreement
under which Continental agreed to make certain funds available for defense and
indemnity costs associated with asbestos-related personal injury claims during
the period pending final approval of the Global and/or Insurance Settlements
(which are more fully discussed in Fibreboard's Annual Report on Form 10-K for
the year ended December 31, 1993), or if neither are approved, through the final
conclusion of the insurance coverage litigation, however long that may take.
Fibreboard believes the amounts to be paid by Continental under this interim
agreement and amounts available under prior settlements with
asbestos-in-buildings insurers will be adequate to satisfy its asbestos-related
cash requirements as they come due.
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During the first quarter of 1994, the Insurance or Global Settlements
progressed toward a trial court decision which is expected later this year.
Additional information regarding the asbestos-related litigation can be found
in note 5 to the consolidated financial statements beginning on page 8.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In March 1994, two purported class action lawsuits were filed in Delaware
Chancery Court naming Fibreboard and its directors as defendants (Sonem Partners
Ltd., et al. v. Roach, et al., Civil Action No. 13411; Vogel V. Roach, et al.,
Civil Action No. 13421). An additional purported class action lawsuit was filed
in April 1994 (Kahlenberg, et al. v. Fibreboard Corporation, et al., Civil
Action No. 13471). These lawsuits allege substantially similar causes of action
for breach of fiduciary duty relating to the recent amendment of Fibreboard's
stockholder rights plan and Fibreboard's rejection of unsolicited proposals from
Carl Pohlad of a merger with or an acquisition of Fibreboard. These lawsuits
seek injunctive relief and unspecified monetary damages. Fibreboard believes
the purported class action suits are without merit and intends to defend them
vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is filed as part of this Form 10-Q:
Exhibit No. Description
----------- --------------------------------------
10.1 Amendment No. 1 to Fibreboard Corporation Restated 1988
Employee Stock Option and Rights Plan, dated as of April 7,
1994.
(b) No Current Reports on Form 8-K were filed during the period January 1,
1994 to March 31, 1994.
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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.
FIBREBOARD CORPORATION
----------------------
(Registrant)
Dated: May 12, 1994 By: /S/ James P. Donohue
----------------------
James P. Donohue
Senior Vice President,
Finance and Administration and
Chief Financial Officer
Dated: May 12, 1994 By: /S/ Garold E. Swan
----------------------
Garold E. Swan
Vice President and Controller
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EXHIBIT 10.1
AMENDMENT NO. 1 TO THE FIBREBOARD CORPORATION RESTATED
1988 EMPLOYEE STOCK OPTION AND RIGHTS PLAN
1. Section 8(c) of the Fibreboard Corporation Restated 1988 Employee
Stock Option and Rights Plan (the "Plan") has been amended to read as
follows:
"Each non-employee director serving as such on July 13, 1988 is
awarded 2,000 restricted stock rights, which shall be forfeitable
until the director serves three years from the date of this grant as
a director, or, if sooner, until the occurrence of a Change of
Control as described in Section 10(b), without regard to whether the
Board adopts a resolution determining that no Change of Control has
occurred. If the non-employee director resigns, is removed or is
not re-nominated to the Board at the expiration of the director's
term of office, a portion of the restricted stock rights will be
nonforfeitable according to the number of whole years served as a
non-employee director as follows: 40% of the restricted shares
after one year; an additional 30% of the restricted shares after two
years; and an additional 30% of the restricted shares after three
years. Shares of Common Stock will be issued pursuant to the
restricted stock rights when the restricted stock rights become
nonforfeitable. In addition, each individual who becomes a
non-employee director after April 7, 1994, during the term of this
Plan, will automatically receive an award of 1,000 restricted stock
rights effective as of the date on which such individual becomes a
non-employee director, subject to the conditions set forth in this
subparagraph."
2. All other terms and provisions of the Plan shall remain in full
force and effect.
3. The effective date of this Amendment No. 1 is April 7, 1994.
