SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Twelve Weeks Ended March 26, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3838
FEDERAL PAPER BOARD COMPANY, INC.
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 22-0904830
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
75 CHESTNUT RIDGE ROAD, MONTVALE, NEW JERSEY 07645
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (201) 391-1776
Indicate by check mark ("X") 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 twelve
months and (2) has been subject to the filing requirements for
at least the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
CLASS OUTSTANDING AT APRIL 23, 1994
Common stock, par value $5 share 42,208,617
FEDERAL PAPER BOARD COMPANY, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1.Financial Statements:
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Income 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II OTHER INFORMATION *
Item 4. Submissions of Matters to a Vote of Security
Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
* Item numbers which are inapplicable or to which the answer is
negative have been omitted.
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FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 26, January 1,
In thousands 1994 1994
ASSETS
Cash $ 267 $ 271
Receivables - net 71,345 52,062
Inventories:
Raw materials 65,045 58,720
Work in process 15,434 15,469
Finished goods 95,139 99,329
Supplies 51,265 51,701
Subtotal 226,883 225,219
Lifo Reserve (2,900) ( 2,819)
Total inventories 223,983 222,400
Other current assets 33,400 34,960
Total Current Assets 328,995 309,693
Property, plant and equipment 2,694,924 2,666,423
Accumulated depreciation (799,418) (769,869)
Property, plant and equipment - net 1,895,506 1,896,554
Timber and timberlands 188,655 189,674
Goodwill and other intangibles 117,045 118,418
Other assets 71,033 55,955
Total Assets $2,601,234 $2,570,294
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 91,143 $ 90,356
Current portion of long-term debt 54,529 56,148
Short-term bank debt 26,590 25,304
Accrued interest 30,862 18,688
Other current liabilities 92,689 87,055
Total Current Liabilities 295,813 277,551
Long-term debt 983,437 973,825
Other liabilities 72,478 63,086
Deferred tax liability 350,559 349,126
Capital stock 214,115 214,111
Other capital 250,373 249,800
Retained earnings 438,259 447,361
Treasury stock, at cost (3,800) (4,566)
Total Shareholders' Equity 898,947 906,706
Total Liabilities and Shareholders'
Equity $2,601,234 $2,570,294
<FN>
See accompanying notes to condensed consolidated financial statements.
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FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For The Twelve Weeks Ended
March 26, March 27,
In thousands, except per share amounts 1994 1993
Net sales $319,454 $319,844
Costs and expenses:
Cost of products sold 246,523 235,674
Depreciation, amortization and cost
of timber harvested 32,885 33,839
Selling and administrative expenses 14,999 15,232
Interest expense 19,860 19,794
Other - net 82 189
Total costs and expenses 314,349 304,728
Income before taxes 5,105 15,116
Provision for income taxes 2,005 6,016
Net income 3,100 9,100
Preferred dividend requirements 1,525 1,526
Net income available to common shares $ 1,575 $ 7,574
Average Common Shares Outstanding:
Assuming no dilution 42,174 41,958
Assuming full dilution 42,948 42,527
Earnings Per Common Share:
Assuming no dilution $.04 $.18
Assuming full dilution $.04 $.18
Dividends Declared Per Common Share $.25 $.25
<FN>
See accompanying notes to condensed consolidated financial statements.
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FEDERAL PAPER BOARD COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Twelve Weeks Ended
March 26, March 27,
In thousands 1994 1993
CASH FLOWS FROM OPERATIONS:
Net income $ 3,100 $ 9,100
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation, amortization and cost of
timber harvested 32,885 33,839
Deferred income tax provision 939 5,234
Other - net (7,020) 2,799
Net changes in current assets and liabilities 278 (4,753)
NET CASH PROVIDED BY OPERATIONS 30,182 46,219
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (28,162) (22,201)
Other (144) 112
NET CASH USED FOR INVESTING ACTIVITIES (28,306) (22,089)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (12,189) (12,141)
Increase in long-term debt 10,267 125
Payments on long-term debt (2,313) (12,294)
Issuance of equity capital 1,113 289
Change in short-term bank debt 1,242 (106)
NET CASH USED FOR FINANCING ACTIVITIES (1,880) (24,127)
INCREASE (DECREASE)IN CASH (4) 3
Cash: Beginning of year 271 280
End of period $ 267 $ 283
<FN>
See accompanying notes to condensed consolidated financial statements.
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FEDERAL PAPER BOARD COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited
interim financial statements reflect all adjustments, of a
normal and recurring nature, necessary to present fairly the
results for the interim periods presented.
2. Net income used in the computation of earnings per common
share assuming no dilution is reduced by preferred dividend
requirements. Earnings per common share assuming full dilution
for the first quarter of 1994 and 1993 excludes the conversion
of the Company's $2.875 convertible preferred stock as the
effect is antidilutive.
3. The Company manages certain portions of its exposure to
foreign currency fluctuations through a variety of financial
instruments with off-balance-sheet market risk including foreign
currency option and foreign currency forward contracts. The
risk of loss to the Company in the event of non-performance by
any party under these agreements is not significant. The
Company's market risk under these agreements is subject to
currency rate differentials. At March 26, 1994, the Company had
outstanding foreign currency call option contracts with notional
amounts of 166.0 million U.S. dollars, 10.0 million British
pounds and 8.5 million German marks; foreign currency put option
contracts with a notional amount of 90.3 million U.S. dollars
and forward foreign exchange contracts with a notional amount of
15.0 million U.S. dollars.
4. During the first quarter of 1994, the Company terminated $75
million of interest rate swap agreements. At March 26, 1994,
the Company had interest rate swap agreements outstanding with a
notional principal amount of $175 million. These swap
agreements terminate on various dates through the year 1998.
5. Effective January 2, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits". SFAS No. 112 requires
the Company to accrue for postemployment benefits provided to
former or inactive employees, their beneficiaries and covered
dependents after employment but before retirement. The impact
of adopting this Statement was not material to the Company's
financial position and results of operations for the interim
period presented.
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FEDERAL PAPER BOARD COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
For the Twelve Weeks Ended
March 26, March 27,
In thousands 1994 1993
NET SALES:
Paper, Paperboard and Pulp $220,424 $221,066
Wood Products 58,835 56,110
Converting Operations 67,491 68,925
Intersegment Eliminations (27,296) (26,257)
Total $319,454 $319,844
INCOME BEFORE TAXES:
Paper, Paperboard and Pulp $ 10,606 $ 23,007
Wood Products 20,105 18,916
Converting Operations 1,236 (44)
Intersegment Eliminations 13 (963)
General Corporate Items - Net (6,995) (6,006)
Interest Expense (19,860) (19,794)
Total $ 5,105 $ 15,116
RESULTS OF OPERATIONS:
Paper, Paperboard and Pulp
Net sales of paper, paperboard and pulp remained virtually
unchanged compared to the first quarter of the prior year.
Market pulp sales increased 30% compared to the prior year due
to increased volume. Uncoated free-sheet paper sales remained
virtually unchanged compared to the prior year as increased
volume was offset by decreased average selling prices. Bleached
paperboard sales decreased 6% compared to the prior year
primarily due to lower average selling prices while recycled
paperboard sales increased 4% compared to the prior year as
increased demand for this product offset decreased average
selling prices.
Operating profits for this segment declined 54% from the prior
year. The decline in operating profits for this segment is
primarily attributable to weather related factors, weaknesses in
certain segments of the bleached paperboard market and operating
problems which resulted in lost production and higher costs at
the Company's major mills. During the quarter, operations at
the Augusta and Riegelwood mills were adversely affected by
unscheduled shutdowns. Operating results were also negatively
impacted by higher wood and energy costs in the first quarter of
1994 resulting from the harsh winter weather.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
The bleached paperboard market showed continued weakness in
certain segments. Average selling prices for this product were
lower than in the first quarter of last year mainly due to an
increase in lower priced commodity grade business. Despite this
decline, demand has remained strong, with shipments of this
product increasing slightly compared to the first quarter of the
prior year. Slightly offsetting the decrease in bleached
paperboard operating profits was improved results for market
pulp. Operating results increased approximately 40% in the first
quarter of 1994 as compared to the first quarter of 1993.
Although this product line remained unprofitable in the first
quarter, results improved significantly due to increasing
demand. A December 1993 pulp price increase was fully
implemented during the first quarter, an April price increase is
now being implemented and another increase is scheduled to take
effect in the second quarter.
Operating profits for the Company's uncoated free-sheet paper
operation improved from the comparable period of the prior year.
Market conditions began to improve during the first quarter,
allowing a price increase to be fully implemented with further
increases in selling prices expected in the second quarter.
Despite this price increase, average selling prices for this
product remained below last year's level by approximately 6%.
Demand has remained strong with adequate order backlogs and
increased shipments of this product compared to the prior year.
Profits were also positively impacted by slightly lower
operating costs in the first quarter of 1994, resulting from
capital improvements completed in 1993 which enhanced production
efficiencies.
Operating profits for recycled paperboard increased 40% compared
to the same quarter of the prior year. The recycled paperboard
market remained strong during the first quarter. The Company's
mill in Sprague, CT operated efficiently with strong order
backlogs and relatively stable pricing. Production and
shipments of this product increased 4% and 10% respectively,
compared to the first quarter of 1993, while average selling
prices decreased 5% compared to the first quarter of the prior
year. Improved operating efficiencies and increased demand for
this product positively impacted operating profits compared to
last year's first quarter.
Wood Products
The wood products segment recorded higher operating profits in
the first quarter of 1994 compared to the prior year. Market
conditions for lumber have continued to be favorable with
average selling prices increasing approximately 17% compared to
the first quarter of last year. However, shipments for lumber
declined approximately 8% compared to the first quarter of 1993.
The increase in selling price is primarily attributable to the
reduced availability of timber from government-owned lands in
the Pacific Northwest and from harsh weather conditions. The
decline in shipments was primarily caused by poor weather
conditions during the first quarter of 1994.
Converting Operations
Operating profits for this segment were improved while sales
declined slightly compared to the first quarter of the prior
year. The Company's cup operations experienced improved sales
and operating profits compared to the prior year. A
strengthening in demand and reduced costs, as a result of cost
savings programs which were implemented at each location, are
primarily responsible for the improvements. The Company's
packaging operations experienced decreased sales and operating
profits compared to the prior year.
Interest Expense
Interest expense for the first quarter of 1994 was virtually
unchanged compared to the prior year. During the first quarter
of 1994, capitalized interest increased while interest savings
from the Company's interest rate swap agreements decreased
compared to the prior year. The increase in capitalized
interest is attributable to higher capital spending on projects
qualifying for interest capitalization. Interest expense for
the first quarters of 1994 and 1993 includes approximately $0.1
million and $1.9 million of savings, respectively, related to
the Company's interest rate swap agreements.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Accounting Matters
Effective January 2, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits". The impact
of adopting this Statement, for the first quarter of 1994, was
not material to the Company's financial position and results of
operations.
CAPITAL RESOURCES AND LIQUIDITY:
Cash provided by operations declined 35% compared to the
comparable period of the prior year. The decline was primarily
attributable to the lower level of earnings and changes in
accounts receivable and inventories in the current year. The
increase in receivable levels during the first quarter of 1994
is due to an increase in the average collection period along
with a reduction in the amount of receivables sold under an
existing agreement. Under this agreement, $83 million and $88
million were sold at March 26, 1994 and January 1, 1994,
respectively. Improving market conditions for most of our
product lines have caused inventory levels to remain relatively
unchanged from the fourth quarter of 1993. However, inventory
levels in the first quarter of 1993 increased significantly from
the fourth quarter of 1992.
Cash used for investing activities increased approximately 28%
compared to the prior year. In both periods presented, the
majority of cash used for investing activities was related to
capital expenditures, predominantly related to a program to
expand and modernize the No. 18 paperboard machine at the
Riegelwood mill. This program is expected to be completed by
mid-year 1994. Capital expenditures for the full year are
expected to be consistent with last year's level.
The Company believes it has adequate resources to finance its
operations and future capital spending programs. The Company is
a party to two revolving credit agreements with total
commitments of $300 million. At April 23, 1994, $75 million was
outstanding under these agreements. In addition, the Company
has $75 million remaining under a previously filed shelf
registration statement which can be used for future debt
financings.
Future Outlook:
The outlook for the remainder of the year is for gradual
improvement in market conditions for our major product lines.
Demand is expected to improve in the second quarter and
throughout the year, which should allow further pricing
improvements. Operating problems which occurred in the first
quarter are not anticipated to recur and therefore improved
operating efficiencies are expected.
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PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual meeting of shareholders of the Company was held on
April 19, 1994. The following four proposals were submitted to
the shareholders for a vote:
(a) The election of directors. There were 34,758,711 votes
for the proposal, which was more than the majority of the shares
represented at the meeting, entitled to vote and needed to elect
directors and ratify the proposal under New York law.
(b) The approval of the 1992 Key Employees Long Term
Compensation Plan. There were 26,712,466 votes for the
proposal, 6,005,417 votes against and 1,426,471 votes withheld.
This was more than the majority of the shares represented at
the meeting, entitled to vote and needed to approve and adopt
the proposal under New York law.
(c) The appointment of Deloitte & Touche as independent
auditors. There were 35,263,470 votes for the proposal, 105,626
votes against and 108,470 votes withheld. This was more than
the majority of the shares represented at the meeting, entitled
to vote and needed to approve and adopt the proposal under New
York law.
(d) A shareholder proposal relating to the creation of an
independent compensation committee for the Company. There were
9,241,856 votes for the proposal, 20,520,149 votes against and
1,872,691 votes withheld. This was more than the majority of
the shares represented at the meeting, entitled to vote and
needed to defeat the proposal under New York law.
Item 5. Other Information
Effective April 20, 1994, the Company officially changed its
state of incorporation from New York to North Carolina. On
November 16, 1993, at a special meeting of shareholders a
proposal was approved to change the state of incorporation of
the Company. The change in the state of incorporation did not
result in any change of the Company's Board of Directors,
management, operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
A list of the exhibits required to be filed as part of this
Report on Form 10-Q is set forth in the "Exhibit Index", which
immediately precedes such exhibits, and is incorporated herein
by reference.
(b) There were no reports on Form 8-K filed for the twelve
weeks ended March 26, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FEDERAL PAPER BOARD COMPANY, INC.
(Registrant)
Date:
/s/ THOMAS L. COX
May 6, 1994 Thomas L. Cox, Vice President
and Treasurer
Date:
/s/ ROGER L. SANDERS, II
May 6, 1994 Roger L. Sanders, II, Controller
(Principal Accounting Officer)
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FEDERAL PAPER BOARD COMPANY, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
10 1992 Key Employees Long Term Compensation Plan 13-15
11 Computation of Earnings per Common Share 16-17
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