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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 9, 1999
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CROWN VANTAGE INC.
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(Exact name of registrant as specified in its charter)
Virginia 1-13868 54-1752384
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
300 Lakeside Drive, Oakland CA 94612-3592
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 874-3400
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 2. Disposition of Assets.
On July 9, 1999 Crown Vantage Inc. completed the sale of its pulp and paper
mills in Berlin and Gorham, New Hampshire to American Tissue Inc. for $45
million cash and the assumption of certain liabilities. See Exhibit 99.2 for
copy of news release.
Item 7. Financial Statements and Exhibits.
(b) Pro forma financial information
See Exhibit 99.1 for Unaudited Pro Forma Condensed Financial
Statements as of March 28, 1999, for the three months ended March 28,
1999 and for the year ended December 27, 1998.
(c) Exhibits
Exhibit No. Description
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99.1 Unaudited Pro Forma Condensed Financial Statements as of
March 28, 1999, for the three months ended March 28, 1999
and for the year ended December 27, 1998.
99.2 News release announcing successful completion of sale of
the Company's pulp and paper mills in Berlin and Gorham,
New Hampshire to American Tissue Inc.
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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 hereunto duly authorized.
CROWN VANTAGE INC.
July 16, 1999 /s/ Michael J. Hunter
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Michael J. Hunter
Senior Vice President, Chief Accounting Officer
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EXHIBIT 99.1
CROWN VANTAGE INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
SALE OF BERLIN-GORHAM FACILITIES
The following Unaudited Pro Forma Condensed Statements of Income for the
three months ended March 28, 1999 and for the year ended December 27, 1998 and
the Unaudited Pro Forma Condensed Balance Sheet as of March 28, 1999 give effect
to Crown Vantage Inc.'s (the "Company") sale of its pulp and paper mills in
Berlin and Gorham, New Hampshire ("Berlin-Gorham") to American Tissue Inc.
("American Tissue"). Proceeds from the sale of Berlin-Gorham to American Tissue
totaled $45 million in cash plus the assumption by American Tissue of certain
liabilities. The pro forma information is based on the historical consolidated
statements of the Company after giving effect to the pro forma adjustments
described in the Notes to the Unaudited Pro Forma Condensed Financial
Statements. The pro forma financial data are not necessarily indicative of the
results that actually would have occurred had the sale of Berlin-Gorham to
American Tissue been consummated on the dates indicated or that may be obtained
in the future.
CROWN VANTAGE INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
12 MONTHS ENDED DECEMBER 27, 1998
(amounts in 000's except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
CROWN BERLIN- PRO-FORMA
VANTAGE GORHAM (a) ADJUSTMENTS PRO-FORMA
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 850,994 $ (162,873) $ 19,981 (b) $ 708,102
Cost of Goods Sold 796,935 (176,202) 17,583 (b)
2,074 (c) 640,390
---------- ----------- ----------- -----------
Gross Margin 54,059 13,329 324 67,712
Asset Impairment and Other Charges 163,834 (143,632) 20,202
Selling and Administrative Expenses 62,360 (4,115) (d)
(640) (e)
(2,300) (f) 55,305
---------- ----------- ----------- -----------
Operating Income (Loss) (172,135) 156,961 7,379 (7,795)
Interest Expense (64,672) 2,479 (g) (62,193)
Other Income, net 1,400 (85) 1,315
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes and
extraordinary item (235,407) 156,876 9,858 (68,673)
Income Tax Provision (Benefit) (75,912) 77,903 (h) 1,991
----------- ----------- ----------- -----------
Net Income (Loss) before
extraordinary item $ (159,495) $ 156,876 $ (68,045) $ (70,664)
=========== =========== =========== ===========
Loss per share before extraordinary item $ (16.79) $ (7.44)
Average common stock and
common stock equivalents 9,502 9,502
</TABLE>
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CROWN VANTAGE INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
3 MONTHS ENDED MARCH 28, 1999
(amounts in 000's except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
CROWN BERLIN- PRO-FORMA
VANTAGE GORHAM (a) ADJUSTMENTS PRO-FORMA
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 201,165 $ (40,125) $ 5,037 (b) $ 166,077
Cost of Goods Sold 193,043 (38,293) 4,432 (b)
468 (c) 159,650
----------- ----------- ----------- -----------
Gross Margin 8,122 (1,832) 137 6,427
Asset Impairment and Other Charges 16,175 (16,175)
Property Tax Accrual Reversal (8,957) 8,957
Selling and Administrative Expenses 15,424 (981) (d)
(160) (e)
(575) (f) 13,708
----------- ----------- ----------- -----------
Operating Income (Loss) (14,520) 5,386 1,853 (7,281)
Interest Expense (15,552) 620 (g) (14,932)
Other Income, net 142 (21) 121
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (29,930) 5,365 2,473 (22,092)
Income Tax Provision 432 (42) (h) 390
----------- ----------- ----------- -----------
Net Income (Loss) $ (30,362) $ 5,365 $ 2,515 $ (22,482)
=========== =========== =========== ===========
Loss per share $ (2.93) $ (2.17)
Average common stock and
common stock equivalents 10,351 10,351
</TABLE>
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CROWN VANTAGE INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
MARCH 28, 1999
(amounts in 000's)
<TABLE>
<CAPTION>
HISTORICAL
CROWN PRO FORMA
VANTAGE ADJUSTMENTS PRO FORMA
---------------- ----------------- ---------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 11,230 $ 11,230
Inventory 72,775 72,775
Asset held for sale 45,000 $(45,000) (a)
Other current assets 56,531 56,531
---------------- ----------------- ---------------
Total current assets 185,536 (45,000) 140,536
PP&E, net 378,664 378,664
Other assets 80,288 80,288
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Total assets $ 644,488 $(45,000) $ 599,488
================ ================= ===============
LIABILITIES
Current liabilities $ 97,520 $(17,000) (g) $ 80,520
Long-Term liabilities
Long-term debt 585,423 (28,000) (g) 557,423
Post retirement benefits 85,084 85,084
Other long-term liabilities 45,336 45,336
---------------- ----------------- ---------------
Total liabilities 813,363 (45,000) 768,363
Shareholders' Equity (Deficit)
Common stock and other 45,831 45,831
Retained deficit (214,706) (214,706)
---------------- ----------------- ---------------
Total liabilities and deficit $ 644,488 $(45,000) $ 599,488
================ ================= ===============
</TABLE>
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CROWN VANTAGE INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Elimination of Berlin-Gorham's historical income statement and net assets
held for sale on the balance sheet. The Unaudited Pro Forma Condensed
Income Statements are presented assuming the sale occurred at the beginning
of the periods presented. The Unaudited Pro Forma Condensed Balance Sheet
is presented assuming the sale occurred on the balance sheet date.
(b) Effective with the sale of Berlin-Gorham, the Company entered into a three
year Strategic Alliance Agreement ("SAA") with American Tissue that
provides that the Company retains the rights to certain grades of paper
critical to its uncoated printing and publishing papers strategy. Berlin-
Gorham will continue to manufacture these papers on behalf of the Company.
The Company will market these grades (a minimum of 20,000 tons per year)
and collect a commission based on the net sales price of these grades. The
pro forma adjustment was calculated by applying the contractual commission
to actual net sales of these grades for the periods presented.
(c) Effective with the sale of Berlin-Gorham, the Company entered into a three
year Pulp Purchase Agreement ("PPA") that provides for the purchase of
40,000 tons of pulp from Berlin-Gorham at a discount off of quoted market
prices. The pro forma adjustment reflects the estimated cost difference
between the historical transfer costs of pulp from Berlin-Gorham to the
Company's other mills and the estimated costs under the PPA.
(d) Effective with the sale of Berlin-Gorham, the Company entered into a three
year Paper Brokerage Agreement ("PBA") that provides for the Company to
continue marketing and selling certain uncoated freesheet papers
manufactured by Berlin-Gorham not covered under the SAA (estimated at
130,000 tons annually). The Company will collect a commission on these
sales based on the net sales price. The pro forma adjustment was calculated
by applying the contractual commission to actual net sales of these grades
for the periods presented.
(e) As a result of the sale, management estimates that average accounts
receivable eligible for sale under its securitization facility would have
been reduced by approximately $8 million for the periods presented. The
estimated reduction is approximately the same for all periods presented.
This will result in a corresponding decrease in selling and administrative
expenses associated with this facility.
(f) The Company has agreed to provide certain transition services for Berlin-
Gorham. The transition services agreement provides for reimbursement to the
Company for certain general and administrative costs. The reimbursement is
contractually set at a rate per month based on the estimated costs to the
Company to perform these services.
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(g) Reduction in interest expense reflects the pay down of term and revolver
debt based on the estimated net proceeds from the sale. Net proceeds
available for debt reduction is estimated to be $28 million with a minimum
prepayment of $10 million to Term Loan B and the remainder to the Revolving
Credit Facility. The amount of net cash proceeds available for debt
reduction would not have materially varied for the periods presented. Cash
proceeds of $45 million from the sale are reduced by transaction costs and
certain current liabilities of Berlin-Gorham retained by the Company. Net
proceeds available for debt reduction are calculated as follows (amounts in
millions):
Cash proceeds $45.0
Transaction fees 1.8
Accounts payable and accrued liabilities 15.2
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Total $28.0
=====
(h) The pro forma adjustment gives income statement effect to a valuation
allowance against deferred tax benefits recognized for the period ended
December 27, 1998. The adjustment also eliminates state and value-added
taxes pertaining to Berlin-Gorham.
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Exhibit 99.2
Crown Vantage Completes Sale of New Hampshire Mills
To American Tissue Corp. for $45 Million
Highlights of the Transaction:
. Reduces debt
. Improves liquidity and cash flow
. Eliminates Berlin-Gorham's historical losses
. Focuses management and capital on specialized
papers
OAKLAND, Calif., July 9, 1999 - Crown Vantage Inc. (OTCBB:CVAN) said today
it has completed the sale of its pulp and paper mills in Berlin and Gorham,
N.H., to a subsidiary of American Tissue Corp. for approximately $45 million.
Crown Vantage will continue to outsource from ATC the production of its branded
printing papers made at the mills under a strategic marketing alliance
announced previously.
"In evaluating our business opportunities, we determined that the Berlin
and Gorham operations were not consistent with our current strategic
direction," said Crown Vantage President and Chief Executive Officer Robert A.
Olah. "We are now focusing our efforts more intensively on specialized, value-
added papers used in printing, publishing and packaging, where we expect our
strongest growth, and have exited the market pulp and commodity white papers
markets.
"This divestiture is in keeping with our strategy to reduce debt and
improve cash flow and liquidity. It also allows us to more fully concentrate on
the success of our remaining nine mills and to better focus our capital and
human resources on continuing the shift from a manufacturing-oriented business
to a marketing-driven organization. With the completion of this transaction,
we are now reviewing various recapitalization options to further strengthen our
financial position," Olah said.
The company will apply net proceeds from the sale to pay down debt stemming
from its origin as a spin-off company from the former James River Corporation
in 1995. Crown Vantage said it will apply a minimum of $10 million as a
permanent reduction to its senior secured term loan with the balance funding
reduction in its
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Page 2 -- Crown Vantage Mill Sale
revolving loan and certain retained liabilities related to the Berlin-Gorham
facilities. The revolving commitment from Crown Vantage lenders has not been
reduced, resulting in improved liquidity. A $5 million (net) letter of credit
will be terminated as part of the transaction and thus available as part of the
revolving commitment.
Company Anticipates Improved Financial Performance
The company said it believes that operating results going forward will be
stronger without the New Hampshire operations, based on 1998 pro forma data.
The combined operations at Berlin and Gorham accounted for nearly 20 percent of
Crown Vantage net sales of $851 million in 1998. However, on a pro forma basis
Crown Vantage gross margins without the two mills would have been about 25
percent higher. The company's operating profit for 1998 before special charges
would have been about $11.5 million, compared to an operating loss of $8.3
million on an actual basis. Additional pro forma information will be filed on
a Form 8-K within 15 days as required by the Securities and Exchange
Commission.
"In addition to eliminating the historical losses experienced by these
facilities, we will avoid major capital expenditures that would have been
required, particularly in the environmental area," Olah said. "We now can
refocus management and capital on those operations and market niches that have
strategic importance for us. All in all, we believe this is a major step
toward regaining profitability for Crown Vantage."
The company continues to own and operate nine papermaking facilities in the
United States and Scotland with 26 paper machines and a variety of coating,
waxing, embossing, calendering and sheeting equipment dedicated to producing
high value-added specialty papers. Annual manufacturing capacity continues to
exceed 750,000 tons of paper. Additionally, Crown Vantage will continue to
market and sell about 150,000 tons a year of printing and publishing papers
made at the Gorham paper mill for a period of at least three years. To
facilitate execution of the ongoing marketing and outsourcing agreement, Crown
Vantage will retain a manager on site at Berlin-Gorham.
Breaking New Ground With Strategic Marketing Alliance
"We're breaking new ground for our industry as we launch our marketing and
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Page 3 -- Crown Vantage Mill Sale
outsourcing alliance with ATC," Olah said. "That opens the possibility for us
to produce and commercialize our brands with even greater flexibility, enhancing
our ability to match capacity to the changing needs of the marketplace."
Crown Vantage is pursuing an ongoing strategy to increase sales and target-
market share by focusing its business in value-added areas. These include its
high quality premium printing paper brands such as Graphika!(R), King James(R)
Cast Coat, Squire(R) lightweight opaque papers, and the Curtis(R) Collection of
text, cover and writing papers. They also include coated groundwood publishing
papers for magazines, catalogs and commercial printing, and customized specialty
packaging and converting papers that are developed and produced for specific
customer end-use products such as coated label papers, disposable medical
garments, paper plates, sandwich wrappings, coffee filters and others.
Separately, the company said it expects to report improved operating
results due to stronger sales volume and improving market conditions when it
releases its second quarter results during the fourth week of July. More
information about Crown Vantage is available on the Internet at
www.crownvantage.com.
Forward-Looking Statements as Required by the Private Securities Litigation
Reform Act of 1995.
This news release contains certain forward-looking statements concerning
Crown Vantage's positioning for the future. As required by the Private
Securities Litigation Reform Act of 1995, the company advises that forward-
looking statements are subject to risks and uncertainties that could cause
actual results to differ materially from those stated or inferred. These could
include the failure of Crown Vantage to improve financial results despite the
sale of the New Hampshire mills or to maintain liquidity following application
of proceeds to its debt and revolving loan. The company may determine that
recapitalization of its assets should not be pursued. There is also a risk that
the company may not succeed in executing its value-added marketing strategy.
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Crown Vantage Profile After Sale Of New Hampshire
Facilities
Businesses:
Printing and Publishing Papers
Specialty Papers
Manufacturing Sites:
Adams, Mass.
Parchment, Port Huron and Ypsilanti, Mich.
St. Francisville, La.
Milford, N.J.
Richmond, Va.
St. Andrews and Penicuik, Scotland
Paper Manufacturing Capacity: 750,000 tons per year
Pulp Manufacturing Capacity: A groundwood pulp mill and a kraft pulp mill at
St. Francisville, La., combine to manufacture 350,000 tons per year, used
internally for full integration of the St. Francisville paper mill.
Strategy: To increase sales and target-market share by focusing its businesses
in markets and niches for value-added printing, publishing and specialty papers
while continuing to reduce debt and improve liquidity of the corporation.
