<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 1996 Commission File Number: 33-93494
- - --------------------------------------------------------------------------------
CROWN PAPER CO.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1752385
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Lakeside Drive, Oakland, CA 94612-3592
--------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(510) 874-3400
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(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_____
Number of shares of no par value common stock outstanding as of the close of
business on May 1, 1996:
One (1) share which is owned by Crown Vantage Inc.
--------------------------------------------------
<PAGE>
INDEX
CROWN PAPER CO.
PART I: Financial Information
Item 1. Financial Statements
- Condensed Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995.
- Condensed Consolidated Statements of Operations - Three months
ended March 31, 1996 and March 26, 1995.
- Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 1996 and March 26, 1995.
- Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II: Other Information
None
SIGNATURES
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
CROWN PAPER CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS March 31, 1996 December 31, 1995
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,347 $ 5,335
Accounts receivable, net 94,478 106,674
Inventories 104,199 100,422
Prepaid expenses and other
current assets 8,411 8,832
Deferred income taxes 14,899 14,899
-------- --------
Total current assets 229,334 236,162
Property, plant and equipment, net 666,432 668,340
Other assets 40,692 39,952
Unamortized debt issue costs 15,934 16,448
Intangibles, net 31,125 31,226
-------- --------
Total Assets $983,517 $992,128
-------- --------
-------- --------
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 53,933 $57,569
Accrued liabilities 79,060 81,616
Current portion of long-term debt 11,883 11,883
-------- --------
Total current liabilities 144,876 151,068
Long-term debt 466,147 469,901
Accrued postretirement benefits
other than pensions 100,540 100,358
Accrued pension 15,141 14,235
Other long-term liabilities 8,034 11,341
Deferred income taxes 106,142 106,379
-------- --------
Total Liabilities 840,880 853,282
-------- --------
Shareholder's Equity:
Preferred Stock, no par value;
Authorized - 5,000 shares;
Issued and outstanding - None
Common Stock, no par value;
Authorized - 5,000 shares;
Issued and outstanding -
one (1) share 126,172 125,537
Minimum pension liability (1,311) (1,311)
Cumulative foreign currency
translation adjustment (3,199) (1,348)
Retained earnings 20,975 15,968
-------- --------
142,637 138,846
-------- --------
Total Liabilities and Equity $983,517 $992,128
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CROWN PAPER CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the First Quarter (13 weeks) Ended March 31, 1996 and March 26, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
First Quarter
------------------------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales $252,853 $261,677
Less:
Cost of goods sold 220,456 228,655
-------- --------
Gross margin 32,397 33,022
Selling and administrative
expenses 11,952 12,959
-------- ---------
Operating Income 20,445 20,063
Interest expense (12,884) (489)
Other income (expense) 750 (49)
-------- ---------
Income before income taxes 8,311 19,525
Provision for income taxes (3,304) (7,779)
-------- ---------
NET INCOME $ 5,007 $ 11,746
-------- ---------
-------- ---------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CROWN PAPER CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months (13 weeks) Ended March 31, 1996 and March 26, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months
-------------------
1996 1995
------- --------
(UNAUDITED)
<S> <C> <C>
Cash Provided by (Used for) Operating Activities:
Net income $ 5,007 $ 11,746
Items not affecting cash:
Depreciation and cost of timber harvested 19,267 19,289
Amortization of goodwill and other intangibles 281 281
Other, net 1,470 5,383
Changes in current assets and liabilities:
Accounts receivable 12,197 (5,008)
Inventories (3,777) (892)
Other current assets (547) (1,800)
Accounts payable (3,637) 1,772
Other current liabilities (2,554) (1,778)
Other, net (3,645) 25
------- --------
Cash Provided by Operating Activities 24,062 29,018
------- --------
Cash Used for Investing Activities:
Expenditures for property, plant and equipment (18,300) (7,696)
------- --------
Cash Used for Investing Activities (18,300) (7,696)
------- --------
Cash Provided by (Used for) Financing Activities :
Proceeds from draw down of Revolving Credit 76,000
Repayments of Revolving Credit (77,000)
Repayments of Term Loans and other long-term debt (2,750) (67)
James River capital (withdrawal) infusion (29,718)
------- --------
Cash Used for Financing Activities (3,750) (29,785)
------- --------
Increase in cash and cash equivalents 2,012 (8,463)
Cash and cash equivalents at beginning of period 5,335 12,435
------- --------
Cash and cash equivalents at end of period $ 7,347 $ 3,972
------- --------
------- --------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CROWN PAPER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION
Crown Paper Co. and subsidiaries (the "Company") is a wholly-owned
subsidiary of Crown Vantage Inc. Crown Vantage Inc. (the "Parent") became an
independent company after the Board of Directors of James River Corporation of
Virginia ("James River") approved the spin-off of assets, liabilities and
operations which comprised a substantial part of James River's Communication
Papers Business and the paper-based part of its Food and Consumer Packaging
Business ("Predecessor Business"). At the close of business on August 25, 1995,
James River distributed to its common shareholders all of the outstanding shares
of the Parent (the "Distribution"). The Distribution was made in the form of a
tax-free dividend on the basis of one share of the Parent's common stock for
every ten shares of James River common stock. A total of 8,446,362 shares of
the Parent's common stock were issued and began trading on NASDAQ on August 28,
1995.
James River transferred to the Company certain assets of the Predecessor
Business and the Company assumed certain related liabilities from James River.
In addition, the Company received $250 million in cash through a public offering
of Senior Subordinated Notes and $253 million from initial borrowings under
credit facilities with certain banks (collectively, the "Financing"). The
proceeds from the Financing after payment of expenses and retention of $1.2
million cash ($485 million) were paid to James River together with $100 million
Senior Pay-in-Kind Notes issued by the Parent, as a return of James River's
capital investment. The Distribution, transfer of assets and liabilities,
Financing and return of capital are collectively referred to as the "Spin-Off."
Also in connection with the Spin-Off, the Company entered into a
Contribution Agreement and certain transition agreements with James River. The
Company will rely on such agreements for certain services, and the supply of a
portion of the products necessary to conduct the Company's manufacturing
business, generally over terms of one to three years, at agreed to prices
consistent with market terms.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements include the
consolidated operations, assets and liabilities of the Company for the three
months ended March 31, 1996 and the combined historical operations, assets and
liabilities of the Predecessor Business while a part of James River for the
three months ended March 26, 1995. For simplicity of presentation these
financial statements are referred to as consolidated financial statements
herein.
The condensed consolidated financial statements for the quarter ended March
26, 1995 have been prepared as if the Company had operated as an independent
stand-alone entity, except the Company generally did not have significant
borrowings, and there was no allocation of James River's consolidated
borrowings, and related interest expense, except for interest capitalized as a
component of properties. During the quarter ended March 26, 1995, the Company
engaged in various transactions with James River and its affiliates that are
characteristic of a group of companies under common control. Throughout this
period, the Company participated in James River's centralized cash management
system and, as such, its cash funding requirements were met by James River.
During the quarter ended March 26, 1995, the Company was charged by James River
for direct costs and expenses associated with its operations which have been
included in cost of goods sold or selling and administrative expenses, as
appropriate. James River's administrative costs not directly
6
<PAGE>
attributable to the Company, which historically had not been allocated, have
been allocated to the Company for the quarter ended March 26, 1995 based on
net sales and are included in selling and administrative expense.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. The condensed consolidated balance sheet as of December
31, 1995 was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the year ended December 29, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Crown Paper Co.'s Form 10-K for the year ended
December 31, 1995.
The Company adopted Statement of Financial Accounting Standards No. 121
("Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of") in the first quarter of 1996. Adoption of Statement of
Financial Accounting Standards No. 121 did not have a material effect on the
Company's financial position or results of operations.
NOTE 3 -- INCOME TAX
Historically the Company has been included in the consolidated federal and
combined/unitary state income tax returns of James River. Income taxes in the
consolidated financial statements for the quarter ended March 26, 1995 represent
the Company's share of James River's income tax provision which is intended to
approximate the amount which would have been recognized had the Company filed
separate income tax returns. Income taxes for the quarter ended March 31, 1996
have been provided at the Company's estimated effective rate (39.75%) for the
year ending December 29, 1996.
7
<PAGE>
NOTE 4 -- LONG TERM DEBT
Consolidated long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
---------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Bank Credit Facility:
Revolving credit, due 2002 $ 9,000 $ 10,000
Term Loan A, due 2002 95,000 97,500
Term Loan B, due 2003 99,500 99,750
---------- ---------
203,500 207,250
11% Senior Subordinated Notes,
due 2005 250,000 250,000
Industrial Revenue Bonds, payable
to 2022 24,182 24,182
10% Note, payable in 1996 348 352
---------- ---------
478,030 481,784
Less current portion 11,883 11,883
---------- ---------
$466,147 $469,901
---------- ---------
---------- ---------
</TABLE>
Maturities of long-term debt for the next five fiscal year ends are:
1997 - $12.5; 1998 - $16.2; 1999 - $16.2; 2000 - $16.9; and 2001 - $48.8.
NOTE 5 -- INVENTORIES
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials $ 31,829 $ 37,238
Work in process 6,772 5,856
Finished goods 44,761 40,745
Stores and supplies 35,089 35,141
-------- --------
118,451 118,980
Reduction to state
inventories at last-in,
first-out cost (14,252) (18,558)
-------- --------
$104,199 $100,422
-------- --------
-------- --------
</TABLE>
NOTE 6 -- LITIGATION AND ENVIRONMENTAL MATTERS
The Company is a party to various legal proceedings generally incidental to
its business and is subject to a variety of environmental protection statutes
and regulations. As is the case with other companies in similar industries, the
Company faces exposure from actual or potential claims and legal proceedings
involving environmental matters. Although the ultimate disposition of legal
proceedings cannot be predicted with certainty, it is the present opinion of the
Company's management that the outcome of any claim which is pending or
threatened, either individually or on a combined basis, will not have a
materially adverse effect on the
8
<PAGE>
consolidated financial condition of the Company but could materially affect
consolidated results of operations in a given year.
In addition, the Company has been identified as a potentially responsible
party, along with others, under the Comprehensive Environmental Response,
Compensation and Liability Act or similar federal and state laws regarding the
past disposal of wastes at approximately 20 sites in the United States. It is
the Company's policy to accrue remediation costs when it is probable that such
costs will be incurred and when they can be reasonably estimated. Estimates of
future response costs are necessarily imprecise due to, among other things, the
possible identification of presently unknown sites and the allocation of costs
among potentially responsible parties with respect to any such sites. However,
based upon its previous experience with respect to the cleanup of hazardous
substances as well as the regular detailed review of its known hazardous waste
sites and estimated costs to remediate certain sites, the Company has accrued
$11.0 million and $11.0 million at March 31, 1996 and December 31, 1995
respectively. The liabilities can change substantially due to such factors as
the solvency of other potentially responsible parties, additional information on
the nature or extent of contamination, methods of remediation required, and
other actions by governmental agencies or private parties. Although the Company
has accrued cleanup and remediation liabilities currently, expenditures
generally are paid over an extended period of time, in some cases as long as 30
years. While it is not feasible to predict the outcome of all environmental
liabilities, based on the most recent review by management of these matters,
management is of the opinion that its share of the costs of investigation and
remediation of the sites of which it is currently aware will not have a material
adverse effect upon the consolidated financial condition of the company.
However, because of uncertainties associated with remediation activities,
regulations, technologies, and the allocation of costs among various other
parties, actual costs to be incurred at identified sites may vary from
estimates. Therefore, management is unable to determine if the ultimate
disposition of all known environmental liabilities will have a material adverse
effect on the Company's consolidated results of operations in a given year. The
accruals attributable to the Company are periodically reviewed for their
adequacy, and the Company will continue to review the status of all significant
existing or potential environmental issues and adjust its accruals as necessary.
The accruals do not reflect any possible future insurance recoveries. In
addition, as is the case with most manufacturing and many other entities, there
can be no assurance that the Company will not be named as a potentially
responsible party at additional sites in the future or that the costs associated
with such additional sites would not be material.
In December 1993, the EPA published draft rules which contain proposed
regulations affecting pulp and paper industry discharges of wastewater and
gaseous emissions ("Cluster Rules"). The final Cluster Rules were scheduled to
be issued in late 1995; however, their issuance was delayed until 1996 with a
nominal compliance date of 1999. These Cluster Rules may require significant
changes in the pulping, bleaching and/or wastewater treatment processes
presently used in some U.S. pulp and paper mills, including some of the
Company's mills. Although it is reasonably possible that the implementation of
the Cluster Rules could materially impact the Company's expenditures between
1996 and 1999, it is not currently possible to estimate such amounts.
9
<PAGE>
NOTE 7 -- SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED STATEMENT
OF OPERATIONS
The following supplemental unaudited pro forma condensed statement of
operations is presented for informational purposes to present the results of
operations assuming that the Spin-Off of the Predecessor Business had occurred
as of December 26, 1994 and that the issuance of debt discussed in Note 1 had
occurred as of December 26, 1994. This information may not necessarily be
indicative of the future results of operations of the Company or what the
results of operations would have been had the Company operated as a separate
independent Company during the entire period presented.
<TABLE>
<CAPTION>
Three Months Ended
March 26, 1995
------------------------------------------
Pro forma
Historical Adjustments Pro forma
------------ ------------- -----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
<S> <C> <C> <C>
Net sales $261,677 $ (250)(a) $261,427
Less:
Cost of goods sold 228,655 442 (b) 229,097
-------- -------- --------
Gross margin 33,022 (692) 32,330
Selling and administrative expenses 12,959 - 12,959
-------- -------- --------
Operating Income 20,063 (692) 19,371
Interest expense (489) (12,495)(c) (12,984)
Other expense (49) - (49)
-------- -------- --------
Income before income taxes 19,525 (13,187) 6,338
Provision for income taxes 7,779 (5,130)(d) 2,649
-------- -------- --------
NET INCOME $ 11,746 $ (8,057) $ 3,689
-------- -------- --------
-------- -------- --------
</TABLE>
(a) Historically, the Company has produced approximately 38,000 tons of creped
paper for converting to toweling for sale to James River's Consumer
Products Business at the Company's cost to produce. In connection with the
Spin-Off, the Company has entered into a product supply agreement whereby
the Company will supply to James River creped paper for converting to
toweling amounting to up to 20,000 tons annually at an agreed upon price.
The financial effect of this agreement would have decreased each of net
sales and income before income taxes by approximately $250,000 for the
three months of 1995. The Company will utilize the remaining 18,000 tons
of capacity as it deems appropriate. No adjustment has been made in the
pro forma statements with respect to the Company's utilization of this
remaining capacity.
(b) Historically, when the Company has purchased pulp from facilities within
James River, the purchase price of the pulp was reflected at existing
published prices less a discount ranging from 0% to 9% based upon a
combination of prevailing market prices and volumes purchased. Beginning
August 28, 1995, based upon a three year Pulp Purchase Agreement entered
into by the Company and James River, the price of such pulp purchases will
be at existing published prices less a discount ranging from 0% to 6%
based upon a combination of prevailing market prices and volumes purchased.
The effect of this agreement, if it was consummated at the beginning of the
periods presented, would have increased cost of goods sold by approximately
$442,000 for the three months of 1995.
10
<PAGE>
(c) Reflects pro forma increases in the Company's interest expense at
current market interest rates for the issuance of the Notes, initial
borrowings under the Bank Credit Facility, line of credit fees,
guaranty fees for IRB's and commitment fees on the unused portion of
the Revolver for the periods presented. Included in interest expense
is the amortization of the pro rata portion of debt issue costs
related to the Financings which will be amortized over the lives of
the related indebtedness. Variable rate debt of the Company is
subject to ongoing interest rate fluctuations. The effect of a 1%
increase in the interest rate on these borrowings would have the
impact of increasing interest expense by approximately $0.6 million
for the three months of 1995.
(d) Reflects the effects of the pro forma adjustments on income tax expense
using an estimated marginal tax rate of 38.9 % for the periods presented.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Crown Paper Co.(The "Company") together with its parent, Crown Vantage
Inc., were organized to effect the Spin-Off of certain assets of James River
Corporation of Virginia ("James River") to its shareholders. Prior to the
Spin-Off, the Company and its parent had never operated as separate,
stand-alone companies.
The following management's discussion and analysis of certain significant
factors affecting the Company's results of operations during the period
included in the accompanying condensed consolidated statements of operations
and changes in the Company's financial condition since December 31, 1995 is
made on a historical basis. Historical results of Crown Paper Co. include the
actual operations of the Company for the three months ended March 31, 1996,
and the combined historical operations of the Predecessor Business while a
part of James River for the three months ended March 26,1995. James River
provided certain corporate general and administrative services to the Company
prior to the Spin-Off. These overhead costs for the quarter ended March 26,
1995 have been allocated to the Company based upon net sales and are included
in selling and administrative expenses.
The Company is a major producer of value-added paper products for a diverse
array of end-uses. The Company's two business sectors and corresponding
principal product categories are (i) printing and publishing papers, for
applications such as special interest magazines, books, custom business forms
and corporate communications and promotions (e.g., annual reports and
stationery); and (ii) specialty papers, principally for food and retail
packaging applications and conversion into such items as coffee filters, cups
and plates.
The Company operates 11 facilities using 33 diverse paper machines. The
Company's two largest facilities are integrated operations located in St.
Francisville, Louisiana and Berlin and Gorham, New Hampshire. St. Francisville
produces coated groundwood papers for magazines and catalogs and uncoated
specialty converting papers. Berlin-Gorham primarily produces uncoated printing
and publishing papers as well as market pulp. The Company also produces
uncoated printing and publishing papers at its non-integrated facilities in
Adams, Massachusetts; Newark, Delaware; Ypsilanti, Michigan; and Dalmore and
Guardbridge, Scotland. The Company's food and retail packaging papers are
produced primarily at non-integrated facilities in Port Huron and Parchment,
Michigan and Milford, New Jersey. In addition to its primary paper-making
operations, the Company operates a cast-coating facility in Richmond, Virginia.
12
<PAGE>
RESULTS OF OPERATIONS
The Company's net sales and operating results for each business sector as
well as sales and operating income for pulp and miscellaneous, are as follows:
<TABLE>
<CAPTION>
Net Sales and Tonnage by Sector
for the Quarter Ended
March 31, 1996 March 26, 1995
----------------------- -----------------------
Tons Sales Tons Sales
----------- ---------- ----------- ----------
(thousands) (millions) (thousands) (millions)
<S> <C> <C> <C> <C>
Printing and Publishing Papers
Coated groundwood 63.6 $63.8 70.4 $56.2
Uncoated 61.5 65.7 63.7 67.9
Specialty Papers
Food and retail packaging 59.9 84.7 66.0 88.7
Converting 37.0 36.4 44.6 37.4
Pulp and Miscellaneous 3.2 2.3 11.2 11.5
----- ------ ----- ------
225.2 $252.9 255.9 $261.7
----- ------ ----- ------
----- ------ ----- ------
<CAPTION>
Operating Income by Sector
for the Quarter Ended
March 31, 1996 March 26, 1995
------------------ ------------------
(millions) (millions)
<S> <C> <C>
Printing and Publishing Papers $13.9 $13.2
Food and retail packaging 1.4 (1.0)
Converting 6.0 5.1
Pulp and Miscellaneous (.9) 2.8
----- -----
$20.4 $20.1
----- -----
----- -----
</TABLE>
NET SALES
The Company's net sales decreased 3.4% to $ 252.9 million for the three
months ended March 31, 1996 as compared to $ 261.7 million for the same
period in 1995. The decrease resulted from a 12% decrease in volume,
partially offset by a 9.8% increase in average selling price per ton for the
three months ended March 31, 1996 compared to the same period in 1995.
Net sales of coated groundwood paper increased by 13.5% to $ 63.8 million
for the three months in 1996 as compared to the same period in 1995. The
increase in sales reflects an average price per ton increase of 25.7% for the
three month period of 1996 compared to 1995. Sales volume decreased to
13
<PAGE>
63,600 tons in the three months ended March 31, 1996 as compared to 70,400
tons in the comparable period of 1995.
Net sales of uncoated printing and publishing papers decreased by 3.2% to
$65.7 million for the three month period of 1996 as compared to the same three
month period in 1995. The decrease in sales is primarily due to a 3.5%
decrease in tons sold in the first three months of 1996 as compared to the
same period in 1995. Average price per ton sold remained relatively stable in
1996 compared to the first quarter of 1995.
Food and retail packaging paper net sales totaled $84.7 million during the
three months ended March 31, 1996 as compared to $88.7 million for the same
period in 1995. The 4.5% decrease in sales is due to a 9.2% decrease in tons
sold in 1996 as compared to 1995 partially offset by a 5.2% increase in average
selling price per ton sold in the three months ended March 31, 1996 as compared
to the same period in 1995.
Net sales of specialty converting papers during the first three months of
1996 were $36.4 million, a 2.7% decrease compared to the first three months of
1995. The decrease is the combined result of a 17.0% decrease in tons sold in
1996 compared to 1995 and a 17.3% increase in average selling price per ton
during the three months ended March 31, 1996 compared to the same period in
1995.
Net sales of pulp and miscellaneous products decreased to $2.3 million
for the three months ended March 31, 1996 as compared to $11.5 million in the
same period in 1995. Tons sold in the three month period of 1996 decreased to
3,200 tons compared to 11,100 tons in the same period of 1995. This decrease
was due primarily to the increased internal use of pulp produced by the
Company.
OPERATING INCOME
The Company had operating income of $20.4 million for the three month
period in 1996 compared to operating income of $20.1 million for the same period
in 1995.
Operating income for printing and publishing papers increased to $13.9
million in the three months of 1996 compared to $13.2 million for 1995. The
increase in operating income resulted primarily from the increase in coated
groundwood paper prices discussed above .
Food and retail packaging operating income increased from a $1.0 million
loss for the first three months of 1995 to a profit of $ 1.4 million in the
first three months of 1996. The increase in operating profits is primarily
attributable to the 5.2% increase in average selling price per ton and a $1.7
million reduction in selling and administrative expenses.
Operating income for converting papers increased to $6.0 million in the
first quarter of 1996 as compared to $5.1 million in the first quarter of 1995.
The increase in operating profits is attributable to the 17.3% increase in
average selling price per ton referred to above.
Selling and administrative expenses decreased $1.0 million for the three
month period of 1996, compared to the same period in 1995.
14
<PAGE>
INTEREST EXPENSE
Interest expense increased $12.5 million for the three month period of
1996 as a result of the borrowings incurred in connection with the Spin-Off
(see Liquidity and Sources of Capital).
LIQUIDITY AND SOURCES OF CAPITAL
Prior to the Spin-Off, the assets of the Company comprised a substantial
part of the Communications Paper Business and the paper-based part of the Food
and Consumer Packaging Business of James River. For the period presented for
1995, the Company participated in James River's centralized cash management
system and, as such, its cash funding requirements, if any, were met by James
River. Since consummation of the Spin-Off, the Company no longer has any such
financial arrangements with James River and now relies on internally generated
funds and its ability to access funds from the equity and debt markets.
In connection with the Spin-Off, the Company obtained $250 million in
financing through a public offering of Senior Subordinated Notes and $253
million initial borrowing under a $350 million credit facility from a group of
banks (collectively, the "Financing"). The net proceeds from the Financing
were paid to James River together with $100 million Senior Pay-in-Kind Notes
issued by Crown Vantage Inc., the Company's parent, as a return of James
River's capital investment.
Under the bank credit facility the revolving credit available is in the
aggregate amount of $150 million with a $75 million sublimit for letters of
credit (of which $40 million have been issued at March 31, 1996) and can be used
for general corporate purposes, working capital needs, letters of credit and
permitted investments. At March 31, 1996, $9.0 million of the revolving credit
was outstanding.
Principal amounts on the Term Loan A and Term Loan B are due in quarterly
installments together with accrued interest. In addition to scheduled
repayments, the Company is obligated to make prepayments upon the occurrence of
certain events. The Company anticipates that cash flows provided by operating
activities will be sufficient to pay its operating expenses and satisfy its debt
repayments for the remainder of 1996.
Cash flows provided by operating activities were $24.1 million for the
three months ended March 31, 1996 compared to $29.0 million in the first three
months of 1995. Earnings before interest, taxes, depreciation and amortization
(EBITDA) were $40.7 million and $38.9 million for the first three months of 1996
and 1995, respectively.
The Company's capital expenditures for the three months ended March 31,
1996 were $18.3 million compared to $7.7 million in the same period in 1995. A
fully-integrated pulp and paper mill generally consists of an extensive network
of buildings, machines and equipment, which require continual upgrade,
replacement, modernization and improvement to remain competitive and meet
changing customer preferences and regulatory requirements. The Company's
strategic capital plans involve aggregate budgeted capital expenditure for the
remainder of 1996 of $85 million. These capital expenditures will be financed
primarily by cash flows from operations.
The Company expects to complete in the second quarter of 1996 its plans to
sell approximately $50 to $60 million of accounts receivable in a "AAA" Rated
Receivables Purchase Facility. The transaction, once completed, will be
accounted for as a "true sale" of accounts receivable with the proceeds being
used to partially pre-pay one or both of the Company's Term Loans.
15
<PAGE>
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.
CROWN PAPER CO.
(Registrant)
/s/ Charles H. Shreve
- - ---------------------------------------
Charles H. Shreve
Senior Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
May 2, 1996
16
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<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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