<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: 1-13868
- - --------------------------------------------------------------------------------
CROWN VANTAGE INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1752384
- - --------------------------------------------------------------------------------
(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:
9,080,707 Shares
-----------------------------
<PAGE>
INDEX
CROWN VANTAGE INC.
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
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
CROWN VANTAGE INC.
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 75,942 79,959
Current portion of long-term debt 11,883 11,883
----------- ----------
Total current liabilities 141,758 149,411
Long-term debt 557,886 555,352
Accrued postretirement benefits other than pensions 100,540 100,358
Accrued pension 15,141 14,235
Other long-term liabilities 9,139 15,507
Deferred income taxes 111,802 112,039
----------- ----------
Total Liabilities 936,266 946,902
----------- ----------
Shareholders' Equity:
Preferred Stock, no par value;
Authorized - 500,000 shares;
Issued and outstanding - None
Common Stock, no par value;
Authorized - 15,000,000 shares;
Issued and outstanding - 9,080,707 and
8,917,661 shares at March 31, 1996
and December 31, 1995, respectively 46,282 44,539
Unearned ESOP shares and other (12,081) (11,152)
Cumulative foreign currency translation adjustment (3,199) (1,348)
Retained earnings 16,249 13,187
----------- ----------
47,251 45,226
----------- ----------
Total Liabilities and Equity $983,517 $992,128
----------- ----------
----------- ----------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CROWN VANTAGE INC.
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 (16,112) (489)
Other income (expense) 750 (49)
-------------- ---------------
Income before income taxes 5,083 19,525
Provision for income taxes (2,021) (7,779)
-------------- ---------------
NET INCOME $ 3,062 $ 11,746
-------------- ---------------
-------------- ---------------
Earnings per share $ .36
--------------
--------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CROWN VANTAGE INC.
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 $ 3,062 $ 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 4,698 5,383
Changes in current assets and liabilities:
Accounts receivable 12,197 (5,008)
Inventories (3,777) (892)
Other current assets (548) (1,800)
Accounts payable (3,637) 1,772
Other current liabilities (4,017) (1,778)
Other, net (3,464) 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 VANTAGE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION
Crown Vantage Inc. and subsidiaries (the "Company") 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 Company (the "Distribution"). The Distribution was
made in the form of a tax-free dividend on the basis of one share of the
Company's common stock for every ten shares of James River common stock. A
total of 8,446,362 shares of the Company'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 Company, 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 Crown Vantage Inc. (the
"Parent"), Crown Paper Co., and Crown Paper Co.'s consolidated subsidiaries
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
6
<PAGE>
or selling and administrative expenses, as appropriate. James River's
administrative costs not directly 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 Vantage Inc.'s Annual Report to Shareholders and
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 -- EARNINGS PER SHARE
The computation of earnings per share for the quarter ended March 31,
1996 is based on the weighted average number of shares of common stock and
common stock equivalents outstanding during the period (8,527,765). The
number of shares considered outstanding does not include 351,899 unearned
shares held by the Employee Stock Ownership Plan Trust at March 31, 1996. In
accordance with Statement of Position 93-6 ("Employers' Accounting for
Employee Stock Ownership Plans"), shares held by the Trust are not considered
outstanding for purposes of computing earnings per share until the shares are
committed for release from the Trust.
Earnings per share information is not presented for the quarter ended
March 26, 1995 since the Company had no separate capital structure until
August 25, 1995. See Note 8 for pro forma earnings per share information for
the quarter ended March 26, 1995.
NOTE 4 -- 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 5 -- 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>
CROWN PAPER CO.
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 348 353
----------- ------------
478,030 481,785
CROWN VANTAGE INC.
11.45% Senior Pay-in-Kind Notes, due 2007
less unamortized discount 91,739 85,450
----------- ------------
569,769 567,235
Less current portion 11,883 11,883
----------- ------------
$557,886 $555,352
----------- ------------
----------- ------------
</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 6 -- 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>
8
<PAGE>
NOTE 7 -- 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 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 recorded by 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 8 -- 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) (15,640)(c) (16,129)
Other expense (49) - (49)
---------- ----------- ---------
Income before income taxes 19,525 (16,332) 3,193
Provision for income taxes 7,779 (6,353)(d) 1,426
---------- ----------- ---------
NET INCOME $ 11,746 $ (9,979) $ 1,767
---------- ----------- ---------
---------- ----------- ---------
Pro forma earnings per share (e) $ .21
---------
---------
</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 period 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, Senior
Pay-in-Kind 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.
(e) Pro forma earnings per share is computed based upon 8,527,765 assumed
weighted average shares outstanding for the period presented. The
number of shares considered outstanding does not include 351,899 shares
held be the Employee Stock Ownership Plan Trust. In accordance with
generally accepted accounting principles, shares held by the Trust are
not considered outstanding for earnings per share calculations until
the shares are committed for release from the Trust.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Crown Vantage Inc. and subsidiaries (the "Company") 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 Company (the "Distribution"). The Distribution was
made in the form of a tax-free dividend on the basis of one share of the
Company's common stock for every ten shares of James River common stock. A
total of 8,446,362 shares of the Company's common stock were issued and began
trading on NASDAQ on August 28, 1995.
The following management's discussion and analysis of certain significant
factors affecting the Company's results of operations during the periods
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 Vantage Inc. 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>
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
-------- -------- -------- -------
-------- -------- -------- -------
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 $15.6 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 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 "Receivables 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>
PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Ex. 11 Statement re: Computation of Per Share Earnings
(b) Reports on Form 8-K -- None.
16
<PAGE>
EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share earnings)
<TABLE>
Three Months Ended March 31, 1996
---------------------------------
Primary Fully Diluted
-------------- --------------
<S> <C> <C>
Average shares outstanding 8,527 8,529
Effect of dilutive stock options - based on the
treasury stock method using average market
price, which is greater than quarter end
market price 1 1
-------- -------
Totals 8,528 8,530
-------- -------
-------- -------
Net income $3,062 $3,062
-------- -------
-------- -------
Earnings per share $.36 $.36
-------- -------
-------- -------
</TABLE>
No earnings per share amounts are presented for the quarter ended March 26,
1995 since the Company had no separate capital structure until August 25,
1995.
17
<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 VANTAGE INC.
(Registrant)
/s/ Charles H. Shreve
- - -------------------------------
Charles H. Shreve
Senior Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
May 2, 1996
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,347
<SECURITIES> 0
<RECEIVABLES> 94,812
<ALLOWANCES> 334
<INVENTORY> 104,199
<CURRENT-ASSETS> 229,334
<PP&E> 1,175,364
<DEPRECIATION> 508,932
<TOTAL-ASSETS> 983,517
<CURRENT-LIABILITIES> 141,758
<BONDS> 0
0
0
<COMMON> 46,282
<OTHER-SE> 969
<TOTAL-LIABILITY-AND-EQUITY> 47,251
<SALES> 252,853
<TOTAL-REVENUES> 252,853
<CGS> 220,456
<TOTAL-COSTS> 220,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 312
<INTEREST-EXPENSE> 16,112
<INCOME-PRETAX> 5,083
<INCOME-TAX> 2,021
<INCOME-CONTINUING> 3,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,062
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
