<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996 or
-------------------------------------
[_] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-20231
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SPECIALTY PAPERBOARD, INC.
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(Exact name of registrant as specified in its charter)
Delaware 82-0429330
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Brudies Road, Brattleboro, Vermont, 05302
-----------------------------------------
(Address of principal executive offices)
(802) 257-0365
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and 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 X No
---------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock.
Class Outstanding
Common Stock September 30, 1996
$.001 par value 4,039,092
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SPECIALTY PAPERBOARD, INC.
I N D E X
PART I. FINANCIAL INFORMATION
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PAGE
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<S> <C> <C>
ITEM 1. Financial Statements:
Consolidated Balance Sheets 3
September 30, 1996 and December 31, 1995
Consolidated Statements of Income 4
Three Months and Nine Months Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows 5
Three Months and Nine Months Ended
September 30, 1996 and 1995
Notes To Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial 8-10
Condition and Results of Operations
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K 11
EXHIBIT 11 Statement Regarding Computations of Net Earnings 12
Per Share
SIGNATURES 13
</TABLE>
2
<PAGE>
PART I, FINANCIAL INFORMATION
ITEM 1, FINANCIAL STATEMENTS
SPECIALTY PAPERBOARD, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
Unaudited
September 30 December 31
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1996 1995
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,174 $ 1,518
Accounts Receivable 11,278 9,406
Cogen Receivable 1,512 1,680
Inventories 16,402 16,856
Other 1,016 2,948
-------- --------
TOTAL CURRENT ASSETS 33,382 32,408
LONG TERM COGEN RECEIVABLE -- 1,832
PROPERTY, PLANT AND EQUIPMENT, NET 36,030 33,551
ORGANIZATIONAL AND FINANCING COSTS 1,988 2,199
OTHER LONG TERM ASSETS 487 500
DEFERRED INCOME TAXES 4,128 4,128
TOTAL ASSETS $ 76,015 $ 74,618
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 7,155 $ 7,702
Accrued Liabilities 8,175 5,546
Current Portion of Long Term Debt -- 1,688
-------- --------
TOTAL CURRENT LIABILITIES 15,330 14,936
LONG TERM LIABILITIES:
Revolving Debt --
Senior Term Debt 1,845 4,625
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TOTAL LONG TERM DEBT 1,845 4,625
Deferred Gain 13,033 14,322
-------- --------
TOTAL LONG TERM LIABILITIES 14,878 18,947
STOCKHOLDERS' EQUITY:
Common Stock 4 4
Additional Paid in Capital 44,733 44,713
Unearned Compensation (26) (121)
Accumulated Earnings 1,096 (3,861)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 45,807 40,735
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 76,015 $ 74,618
======== ========
(The accompanying notes are an integral part
of the consolidated financial statements.)
</TABLE>
3
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SPECIALTY PAPERBOARD, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
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1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 26,789 $ 24,480 $ 77,734 $ 91,557
Cost of Sales 21,674 20,730 64,105 78,601
-------- -------- -------- --------
Gross Profit 5,115 3,750 13,629 12,956
General and Administrative Expenses 2,089 1,753 6,316 6,189
-------- -------- -------- --------
Income from Operations 3,026 1,997 7,313 6,767
Other (Income) Expenses, Net (357) (258) (991) (782)
Cogeneration (Income) (6,512)
Loss on Sale of Assets 8,159
Interest Expense 8 180 310 811
-------- -------- -------- --------
Income Before Income Taxes 3,375 2,075 7,994 5,091
Provision for Income Taxes 1,282 (2,343) 3,037 (1,364)
-------- -------- -------- --------
Net Income 2,093 4,418 4,957 6,455
Net Income Applicable to Common Shares $ 2,093 $ 4,418 $ 4,957 $ 6,455
======== ======== ======== ========
Net Income Per Common Share: $ 0.52 $ 1.10 $ 1.23 $ 1.60
Average Number of Shares Outstanding 4,036 4,033 4,035 4,033
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
4
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SPECIALTY PAPERBOARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
<TABLE>
<CAPTION>
NINE MONTHS ENDED
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9/30/96 9/30/95
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,957 $ 6,455
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 2,389 2,680
Amortization of Deferred Gain (1,289) (1,287)
Amortization of Unearned Compensation 95 90
Loss on Sale of Assets 12 8,159
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable (1,872) 1,683
Inventories 454 (1,744)
Other 1,932 (2,065)
Accounts Payable (547) (3,474)
Accrued Liabilities 2,629 (235)
Deferred Tax Liability (3,000)
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Net Cash Provided by Operating Activities 8,760 7,262
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Cogeneration Proceeds 2,000 3,000
Cogeneration Receivable (6,512)
Additions to Property, Plant and Equipment (4,298) (2,303)
Net Proceeds from Sale of Assets -- 12,933
Expenses Paid in Connection with Sale of Assets -- (1,546)
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Net Cash Provided By (Used In) Investing Activities (2,298) 5,572
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Revolving Credit Line 64,092 104,385
Payments of Revolving Credit Line (63,530) (108,539)
Repayment of Senior Term Debt (5,030) (8,900)
Exercise of Stock Options 35 --
Acquisition Expenses Paid (358)
APIC - Unearned Compensation Adjustment (15) --
--------- ---------
Net Cash Used In Financing Activities (4,806) (13,054)
NET INCREASE (DECREASE) IN CASH 1,656 (220)
CASH AT BEGINNING OF PERIOD 1,518 1,367
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CASH AT END OF PERIOD $ 3,174 $ 1,147
========= =========
</TABLE>
(The accompanying notes are an integral part
of the consolidated financial statements.)
5
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SPECIALTY PAPERBOARD, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. Basis of Presentation:
---------------------
The balance sheet as of September 30, 1996 and the statements of income and cash
flows for the quarter then ended are unaudited and, in the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been recorded. Such adjustments consist only of normal
recurring items.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The year-end balance sheet was derived from
audited financial statements, but does not include disclosures required by
generally accepted accounting principles. It is suggested that these interim
financial statements be read in conjunction with the audited financial
statements for the year ended December 31, 1995 included in the Company's Annual
Report on Form 10-K.
2. Inventories:
------------
Inventories at September 30, 1996 and December 31, 1995 consisted of the
following (000's):
(Unaudited)
09/30/96 12/31/95
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<CAPTION>
<S> <C> <C>
Raw Materials $ 7,079 $ 7,269
Work in Process 4,479 4,650
Finished Goods 4,844 4,937
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$16,402 $16,856
</TABLE>
3. Cogeneration Project:
---------------------
The Company has entered into agreements with Kamine/Besicorp Beaver Falls L.P.
("Kamine"), pursuant to which the Company's Latex Fiber Products Division will
be the host for a gas-fired 79-megawatt combined-cycle cogeneration facility
developed by Kamine in Beaver Falls, New York. Construction of the facility has
been completed. The Company received $4.4 million in cash in 1993. The Company
has a firm contract with Kamine to receive a series of cash payments totaling
$7.0 million between May 1995 and May 1997. The present value of these cash
payments, in the amount of $6.5 million was recorded as income in the first
quarter 1995. Cash payments of $3.0 and $2.0 million were received in May
1995 and May 1996 respectively.
6
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4. Income Taxes:
------------
In April 1994 the Company concluded a $25,000,000 Sale/Leaseback transaction
with The CIT Group that resulted in a deferred book gain of $17,200,000. This
gain is being recognized over the 10-year life of the lease. Existing NOLs were
utilized to offset the taxability of that gain. At the time of the transaction
there was some uncertainty as to the ultimate realizability of the tax benefits
generated in this transaction. The Company therefore chose to not reflect
future tax benefits at that time. The Company has continued to review the tax
impact and determinations arising from this transaction, and has concluded it is
appropriate to recognize all deferred tax assets arising from it. The tax
benefit being recognized in the third quarter 1995 is $3,000,000.
7
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW:
- ---------
The Company's financial results are dependent upon a number of factors,
including the level of orders from key customers, levels of inventory maintained
by such customers, fluctuations in the price of raw materials and actions by
competitors. In addition, the Company's results will continue to be influenced-
- -as they have been in the past--by the level of growth in the overall economy
and in the markets served by the Company.
RESULTS OF OPERATIONS:
Three Months Ended September 30, 1996 Compared to Three Months Ended September
- ------------------------------------------------------------------------------
30, 1995:
- ---------
Net sales increased to $26,789,000 in the third quarter of 1996 from $24,480,000
in the comparable quarter in 1995. Sales of office products materials increased
9.2% ($1,167,000) to $13,899,000 as compared to $12,732,000 in the comparable
quarter in 1995. Sales of saturated specialties increased 23.6% ($1,605,000) to
$8,414,000 as compared to $6,809,000 in the comparable quarter in 1995. Sales
of book cover material increased 2.4% ($96,000) to $4,135,000 as compared to
$4,039,000 in the comparable quarter in 1995. The sales increases in all market
areas stem from improved economic conditions which strengthened customer demand.
Sales of gasket materials produced under a temporary toll agreement with
Armstrong World Industries Inc., who bought the Company's gasket business in
March 1995, totaled $341,000 in the third quarter of 1996, as compared to
$900,000 in the comparable quarter in 1995.
Gross profit margin increased to 19.1% for the third quarter 1996 as compared to
15.3% for the comparable quarter in 1995. The key reason for this improvement
relates to reduced fiber costs and higher volume, offset in part by increased
production trial activity.
General and administrative expenses increased slightly to $2,089,000 (7.8% of
net sales) in the third quarter of 1996 from $1,753,000 (7.2% of net sales) for
the comparable quarter in 1995. This slight increase resulted in part from
increased selling efforts through our Hong Kong subsidiary and the addition of a
Sales and Marketing Development Manager on the Corporate staff.
Income from operations increased to $3,026,000 (11.3% of net sales) in the third
quarter of 1996 from $1,997,000 (8.2% of net sales) for the comparable quarter
in 1995. This improvement was caused by the aforementioned improvement in
volume and lower fiber costs, offset in part by expenses related to a high level
of production trial activity.
Other income was $357,000 in the third quarter of 1996 as compared to $258,000
in the comparable 1995 quarter.
8
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Interest expense decreased to $8,000 in the third quarter of 1996 from $180,000
in the comparable 1995 quarter due to lower levels of outstanding debt.
The effective tax rate for the third quarter of 1996 was 38.0%, as compared to
(112.9%) for the comparable period in 1995. The 1995 rate reflects the reversal
of a $3,000,000 valuation allowance as the Company concluded that it is
appropriate to recognize all the deferred tax assets generated in its
sale/leaseback transaction.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1995:
-----
Net sales decreased to $77,734,000 in the first nine months of 1996 from
$91,577,000 in the comparable period in 1995. Sales of office products
materials decreased 9.9% ($4,312,000) to $39,420,000 as compared to $43,732,000
in the comparable period in 1995. Sales of saturated specialties decreased 9.3%
($2,601,000) to $25,227,000 as compared to $27,828,000 in the comparable period
in 1995. Sales of book cover material decreased 2.3% ($273,000) to $11,842,000
as compared to $12,115,000 in the comparable period in 1995. The sales decrease
in all market areas is a reflection of an economic slowdown in the first six
months which reduced customer demand. Sales of gasket materials produced under
a temporary toll agreement with Armstrong World Industries Inc., who bought the
Company's gasket business in March 1995, totaled $1,245,000 in the first nine
months of 1996, as compared to $7,882,000 in the comparable period in 1995.
Gross profit margin increased to 17.5% for the nine months of 1996 as compared
to 14.1% for the comparable period in 1995. This improvement was caused by
higher selling prices and lower fiber costs, offset in part by a high level of
production trial activity.
General and administrative expenses increased slightly to $6,316,000 (8.1% of
net sales) in the first nine months of 1996 from $6,189,000 (6.8% of net sales)
for the comparable period in 1995. This slight increase resulted in part from
increased selling efforts through our Hong Kong subsidiary and the addition of a
Sales and Marketing Development Manager on the Corporate staff.
Income from operations increased to $7,313,000 (9.4% of net sales) in the first
nine months of 1996 from $6,767,000 (7.4% of net sales) for the comparable
period in 1995.
Other income was $991,000 in the first nine months of 1996 as compared to
$782,000 in the comparable 1995 period..
Interest expense decreased to $310,000 in the first nine months of 1996 from
$811,000 in the comparable 1995 period, due to lower levels of debt.
The effective tax rate for the first nine months of 1996 was 38.0%, as compared
to (26.8%) for the comparable period in 1995. The 1995 rate reflects the
reversal of a $3,000,000 valuation allowance as the Company concluded that it is
appropriate to recognize all the deferred tax assets generated in its
sale/leaseback transaction.
9
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Liquidity and Capital Resources:
- --------------------------------
The Company's historical requirements for capital have been primarily for
servicing debt, capital expenditures and working capital. Cash flows from
operating activities were $8,760,000 and $7,262,000 for the nine months ended
September 30, 1996 and September 30, 1995, respectively. During these periods,
additions to property, plant and equipment were $4,298,000 and $2,303,000
respectively. The Company has budgeted base level capital spending at
$5,000,000 for its existing facilities in 1996. The Company believes that cash
flow from operations, plus amounts available under credit facilities will be
sufficient to fund its capital requirements, debt service and working capital
requirements for the foreseeable future. As of September 30, 1996, the
Company's $15,000,000 revolving credit line had a zero balance.
On October 31, 1996 the Company completed the acquisition of CPG Investors Inc.,
the parent Company of Custom Papers Group Inc. and CPG-Warren Glenn Inc., and
Arcon Holdings Corp., the parent Company of Arcon Coating Mills Inc. The
aggregate purchase price for these two companies is approximately $90 million.
This purchase price and expenses related to the acquisitions are being financed
with funds from a $100 million offering of senior notes which was consummated
on October 16, 1996 at a fixed interest rate of 9.375%.
Inflation:
- ----------
The Company's results of operations have experienced no significant impact due
to inflation for the three-month period ended September 30, 1996. The Company
does not anticipate any unusual effects of inflation over the foreseeable
future.
10
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PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K: PAGE
----
I. Exhibits:
Exhibit 11 Statement Regarding Computation of Net
Earnings Per Share 12
II. Reports on Form 8-K:
On April 22, 1996, the Company filed a Form 8-K describing
the resignation of Coopers & Lybrand as its independent
accountants and the engagement of KPMG Peat Marwick as its
new independent accountants with respect to the Company's
financial statements for the fiscal year ending December 31,
1996.
11
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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.
SPECIALTY PAPERBOARD, INC.
Date: November 13, 1996 /s/ Bruce Moore
_______________________________
Bruce Moore, Vice President,
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
12
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EXHIBIT 11
SPECIALTY PAPERBOARD, INC.
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS PER SHARE
(UNAUDITED)
Exhibit 11 - Statement regarding computation of per share earnings attached to
and made part of Part II of Form 10-Q for the nine month period ended September
30, 1996 and 1995.
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
Weighted average number of
shares issued and outstanding 4,034,826 4,033,432
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT FOR THE THREE MONTHS ENDED SEPT. 30, 1996 OF
SPECIALTY PAPERBOARD, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,174
<SECURITIES> 0
<RECEIVABLES> 11,174
<ALLOWANCES> 254
<INVENTORY> 16,402
<CURRENT-ASSETS> 33,382
<PP&E> 48,123
<DEPRECIATION> 12,093
<TOTAL-ASSETS> 76,015
<CURRENT-LIABILITIES> 15,330
<BONDS> 14,878
0
0
<COMMON> 4
<OTHER-SE> 45,803
<TOTAL-LIABILITY-AND-EQUITY> 76,015
<SALES> 77,734
<TOTAL-REVENUES> 77,734
<CGS> 64,105
<TOTAL-COSTS> 70,421
<OTHER-EXPENSES> (991)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310
<INCOME-PRETAX> 7,994
<INCOME-TAX> 3,037
<INCOME-CONTINUING> 4,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,957
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
