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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________
Commission File Number: 333-8043
Four M Corporation
(Exact name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of 52-0822639
Incorporation or Organization) (I.R.S. Employer
Identification No.)
115 Stevens Avenue
Valhalla, New York 10595 10595
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (914) 749-3200
-----------
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
----- -----
As of December 16, 1996, the registrant had 6,815,867 shares of Common Stock
outstanding.
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<PAGE>
FOUR M CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements (Unaudited): Page
Consolidated Balance Sheets as of October 31, 1996 and
July 31, 1996 (audited) 1
Consolidated Statements of Operations for the three months ended
October 31, 1996 and 1995 2
Consolidated Statements of Cash Flows for the three months ended
October 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Part II - Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures
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<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
October 31, 1996 July 31, 1996
(unaudited) (audited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 224 $ 811
Accounts receivable, less allowance for doubtful accounts of 53,709 43,193
$2,863 and $1,909
Inventories 34,591 32,732
Notes, advances and other receivables 5,548 1,433
Deferred income taxes 9,164 10,241
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 103,236 88,410
Property, plant and equipment, net of accumulated depreciation 168,841 157,973
Goodwill and other intangibles, net of accumulated amortization 4,816 933
Other assets 17,673 16,493
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$294,566 $263,809
======== ========
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 62,306 $ 48,380
Current maturities of long-term debt 3,784 2,440
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Total current liabilities 66,090 50,820
Long-term debt, less current maturities 202,822 187,092
Subordinated debt, less current maturities 1,858 --
Deferred income taxes 9,380 10,390
Minority interest and other liabilities 569 1,145
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Total liabilities 280,719 249,447
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Stockholder's equity:
Common stock, $.125 par value, 10,000,000 shares authorized; 7,229,770
shares issued and 6,815,867 outstanding
904 904
Additional paid-in capital 717 717
Retained earnings 13,188 13,703
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14,809 15,324
Less treasury stock, at cost (413,903 shares) 962 962
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Total stockholder's equity 13,847 14,362
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$294,566 $263,809
======== ========
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</TABLE>
The accompanying footnotes are an integral part of these financial statements.
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<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Three months Ended October 31,
------------------------------
1996 1995
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<S> <C> <C>
Net Sales $122,091 $61,255
Cost of Goods sold 106,310 52,198
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Gross Profit 15,781 9,057
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Operating Expenses:
General and administrative 6,534 3,101
Selling 4,119 1,524
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Total operating expenses 10,653 4,625
Income from operations 5,128 4,432
Other Income (expense):
Interest expense (6,234) (995)
Gain on sale of assets and other 480 166
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(Loss) income before (benefit) provision for income
taxes on income (626) 3,603
Provision (benefit) for income taxes (373) 1,479
(Loss) income before minority interest (253) 2,124
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Minority interest (262) --
Net (loss) income (515) 2,124
Retained earnings, beginning of period 13,703 8,590
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Retained Earnings, end of period $ 13,188 $ 10,714
======== ========
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</TABLE>
The accompanying footnotes are an integral part of these financial statements.
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<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Three months Ended October 31,
1996 1995
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Cash Flows From Operating Activities:
<S> <C> <C>
Net (loss) Income $ (515) $2,124
Adjustments to Reconcile Net Income to Net Cash Provided by
(Used for) Operating Activities
Depreciation and Amortization 3,208 905
Allowance for Doubtful Accounts 953 82
Gain on Sale/Closure of Subsidiary -- (166)
Deferred Income Taxes 67 96
Gain on Sale of Fixed Assets (480) (202)
Change in Assets and Liabilities, Net of Effects of Acquisitions
and Dispositions:
(Increase) in Accounts Receivable (4,455) (2,886)
(Increase) Decrease in Inventories (670) 793
(Increase) in Other Assets, Net of Liabilities (8,146) (979)
Increase (Decrease) in Accounts Payable and Accrued
Liabilities 7,426 (1,519)
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Net cash used in operating activities (2,612) (1,752)
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Cash Flows From Investing Activities:
Capital Expenditures (2,225) (550)
Proceeds From Sales of Subsidiaries -- 898
Proceeds From Sales of Fixed Assets 2,300 679
Purchase of MannKraft, net of cash acquired (5,500) --
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Net cash provided by (used in)
investing activities (5,425) 1,027
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Cash Flows From Financing Activities:
Long-Term Borrowings 8,761 1,312
Repayments of Long-Term Debt (1,311) (562)
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Net cash provided by financing activities 7,450 750
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Cash and Cash Equivalents:
Increase (Decrease) in Cash and Cash Equivalents (587) 25
Cash and Cash Equivalents, Beginning of Period 811 1,226
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Cash and Cash Equivalents, End of Period $ 224 $1,251
====== ======
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 650 $ 945
Income taxes, net of refunds $ 803 $ 239
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</TABLE>
The accompanying footnotes are an integral part of these financial statements.
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<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE -1- BASIS OF PRESENTATION
The financial statements as of October 31, 1996, and for the three
months ended October 31, 1996 and 1995 are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments and accruals) which Four M Corporation ("Four M" or the "Company")
considers necessary for a fair presentation of the operating results for that
period. Results for interim periods are not necessarily indicative of results
for the entire year.
NOTE - 2 - ACQUISITIONS AND DISPOSITIONS
Condensed Consolidating Financial Statements
In connection with the Acquisition (as defined herein), in May 1996 the
Company issued and sold $170.0 million aggregate principal amount of 12% Series
A Senior Secured Notes due 2006 (the "Old Notes"). In September 1996, the
Company registered $170.0 million aggregate principal amount of 12% Series B
Senior Secured Notes due 2006 (the "New Notes", and together with the Old Notes,
the "Notes"). The Company consummated an exchange offer pursuant to which the
New Notes were exchanged for the Old Notes in November 1996. The Notes are
guaranteed on a senior secured basis by Box USA Group, Inc., Four M Paper
Corporation, Page Packaging Corporation, Box USA, Inc. and Four M Manufacturing
Group of Georgia, Inc., each a direct or indirect wholly owned subsidiary of the
Company (collectively, the "Guarantors"). The Notes are not guaranteed by Box
USA Paper Corporation, Box USA of Florida, L.P., Florida Coast Paper Company,
L.L.C. ("Florida Coast") and MannKraft Corporation ("MannKraft") (collectively,
the "Non-Guarantors"). The Guarantors have fully and unconditionally guaranteed
the Notes on a joint and several basis. Separate financial statements and other
disclosures concerning the Guarantors are not presented because management has
determined that they are not material to holders of the Notes. The following are
condensed consolidating financial statements regarding the Company's Guarantors
and Non-Guarantors as of and for the three months ended October 31, 1996:
Condensed Consolidating Balance Sheet
Elimination
Guarantors Non-Guarantors Entries Consolidated
---------- -------------- ------- ------------
(in thousands)
Current assets........ $92,004 $11,232 -- $103,236
Total assets ......... 263,708 27,181 3,677 294,566
Total liabilities..... 250,405 22,618 7,696 280,719
Stockholder's equity.. 13,303 4,563 (4,019) 13,847
Condensed Consolidating Statement of Operations
<TABLE>
<CAPTION>
Elimination
Guarantors Non-Guarantors Entries Consolidated
---------- -------------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Net sales ............... $110,737 $11,354 -- $122,091
Income from operations... 3,781 1,347 -- 5,128
Net (loss) income ....... (1,059) 916 (372) (515)
</TABLE>
- --------------
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<PAGE>
Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
Elimination
Guarantors Non-Guarantors Entries Consolidated
---------- -------------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Net cash used in $(1,597) $(1,015) -- $(2,612)
operating activities..........
Net cash used in
investing activities.......... (4,960) (465) -- (5,425)
Net cash provided by
financing activities.......... 5,847 1,603 -- 7,450
------------------------------------------------------------------------
(Decrease) increase in
cash and cash
equivalents................ (710) 123 -- (587)
Cash and cash
equivalents, beginning of
period..................... 811 -- -- 811
------------------------------------------------------------------------
Cash and cash
equivalents, end of
period..................... $ 101 $ 123 -- $ 224
------------------------------------------------------------------------
</TABLE>
St. Joe Container Company
On May 30, 1996, the Company (i) acquired substantially all of the
assets of St. Joe Container Company ("St. Joe Container") and (ii) Florida Coast
Paper Company, L.L.C. ("Florida Coast"), a joint venture (the "Mill Joint
Venture") of the Company and Stone Container Corporation ("Stone Container",
together with the Company, the "Joint Venture Partners"), acquired a 50%
interest in a 500,000 tons per year linerboard mill at Port St. Joe, Florida
(the "St. Joe Mill") from St. Joe Forest Products Company ("St. Joe Forest"), an
affiliate of St. Joe Container (the "Acquisition"). The Acquisition was
accounted for using the purchase method of accounting.
Pursuant to the Output Purchase Agreement, each of the Joint Venture
Partners has agreed to purchase one-half of the St. Joe Mill's entire annual
linerboard production, representing approximately one-third of the Company's
total requirements, at a price that is $25 per ton below the price published in
Pulp & Paper Week, under the section entitled "Price Watch: Paper and
Paperboard," subject to a minimum purchase price, which price is intended to
generate sufficient funds to cover cash operating costs, cash interest expense
and maintenance capital expenditures. In November 1996, pursuant to the Output
Purchase Agreement, the Company was required to pay Florida Coast an additional
$3.3 million for its 50% share of the linerboard produced by the St. Joe Mill
during the three-month period ended September 30, 1996. The Company provided for
one half of these payments at May 30, 1996 in its purchase price allocation, and
the remainder was provided for in the three month period ended October 31, 1996
as an increase in cost of goods sold.
Fibre Marketing
Pursuant to a Limited Liability Agreement, dated as of May 24, 1996,
the Company acquired a 50% interest in Fibre Marketing, L.L.C. ("Fibre
Marketing"). The Company made a capital contribution of $280,000 to Fibre
Marketing in August 1996.
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<PAGE>
MannKraft Corporation
On August 5, 1996, the Company acquired 490 shares of common stock of
MannKraft Corporation ("MannKraft") from Stone Container (the "MannKraft
Acquisition"). The purchase represented 49% of MannKraft's outstanding shares,
increasing the Company's ownership interest to 50%. The Company's interest in
MannKraft was accounted for under the consolidation method.
Disposition of Flint, Michigan Facility
On August 16, 1996, Box USA Group, Inc. ("Box USA"), a wholly-owned
subsidiary of the Company, discontinued operations at its Flint, Michigan
facility and disposed of substantially all of the machinery and equipment for
approximately $2.3 million and finished goods and work-in-progress inventory and
certain related assets utilized at such facility for approximately $0.3 million.
Box USA retained all accounts receivable, accounts payable and raw materials
inventory. The machinery and equipment were transferred pursuant to a like-kind
exchange within the meaning of Section 1031 of the Internal Revenue Code of
1986, as amended.
NOTE - 3 - INVENTORY
Inventory consists of the following (in thousands):
October 31, 1996 July 31, 1996
---------------- -------------
Raw Materials $25,879 $ 25,410
Work-in-process 2,082 1,563
Finished goods 6,630 5,759
------- --------
$34,591 $32,732
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto included
elsewhere in this report.
The Company manufactures corrugated paper, rolled paper and other paper
products such as cartons and displays. The markets for corrugated packing
materials produced by the Company are generally subject to changes in industry
capacity and cyclical changes in the economy, both of which can significantly
impact the Company's profitability. The ability of the Company to sustain
profitability during cyclical fluctuations in corrugating packaging material
markets is dependent upon the Company's ability to maintain value-added margins
(net sales less the cost of raw materials). For corrugated packaging material
manufacturers, raw materials typically represent approximately 70.0% of the
total cost of goods sold. The ability of the Company to maintain value-added
margins is a function of the speed with which the Company can pass on raw
material cost increases to its customers. The Company has been able to sustain
consistent value-added margins on a unit basis. In addition, the Company also
believes it has been able to mitigate raw material price increases at its
converting facilities by entering into several long-term supply contracts.
In addition to maintaining value-added margins, the Company has focused
on controlling costs through maximum utilization of available production
capacity, the development and implementation of financial controls and
management systems and minimization of waste. Direct costs of production at the
Company's converting facilities have declined on a per unit basis from 1992
through the present.
On May 30, 1996, the Company acquired (i) substantially all of the
assets of St. Joe Container Company ("St. Joe Container"), which primarily
consisted of 16 converting facilities and related working capital and (ii)
through the Mill Joint Venture
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<PAGE>
with Stone Container, a 50% interest in the St. Joe Mill from St. Joe Forest, an
affiliate of St. Joe Container. The Mill Joint Venture acquired the St. Joe Mill
for its strategic location and to fulfill a portion of the linerboard
requirements of the corrugated container facilities of the Mill Joint Venture
Partners, each of which has committed to purchase one-half of the St. Joe Mill's
output. The St. Joe Mill has two paper machines which together are capable of
producing approximately 500,000 tons of linerboard annually in a variety of
grades and basis weights. Since 1990, approximately $156.6 million has been
spent for the maintenance and modernization of the St. Joe Mill's plant,
equipment and machinery and for environmental compliance. The St. Joe Mill's
production presently is approximately one-third mottled white linerboard, a
premium priced product, and two- thirds unbleached kraft linerboard. The St. Joe
Mill's operations will be managed principally by personnel designated by Stone
Container.
Results of Operations
The following table sets forth certain consolidated statement of
operations data and such data as a percentage of net sales for the periods
indicated:
Three Months Ended October 31,
1996 1995
<TABLE>
<CAPTION>
Percent of Percent of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net Sales ................................. 122.1 100.0% 61.2 100.0%
Cost of goods sold ........................ 106.3 87.1 52.2 85.2
Gross profit .............................. 15.8 12.9 9.0 14.8
Selling, general and
administrative expenses ................. 10.7 8.7 4.6 7.6
Income from operations .................... 5.1 4.2 4.4 7.2
Interest expense .......................... (6.2) (5.0) (1.0) (1.6)
Gain on sale of assets & other ............ 0.5 0.4 0.1 0.1
(Loss) Income before (benefit) provision
for income taxes and minority interest (0.6) (0.5) 3.6 6.1
Provision (benefit) for income taxes ...... (0.4) (0.3) 0.4 2.0
(Loss) income before minority interest $(0.2) (0.2)% 3.2 4.1%
===== ==== === ===
</TABLE>
Three Months Ended October 31, 1996 Compared to Three Months Ended October 31,
1995
The Company's net sales increased $60.9 million, or 99.2%, to $122.1
million in the three months ended October 31, 1996 compared to $61.2 million in
the three months ended October 31, 1995. Net sales for the Company's converting
facilities increased $64.3 million, or 119.1% to $118.3 million for the three
months ended October 31, 1996 compared to $54.0 million for the three months
ended October 31, 1995 primarily as a result of the Acquisition and the
MannKraft Acquisition, which increased sales by $68.1 million and $11.4 million,
respectively, and which was partially offsest by the closure in August 1996 of
the Flint, Michigan facility and the effect of the sale in August 1995 of the
Company's 67% interest in Timberline Packaging, Inc. Net sales at the Company's
mill at Ft. Madison, Iowa (the "Ft. Madison Mill") decreased $3.4 million, or
47.2%, to $3.8 million in the three months ended October 31, 1996 compared to
$7.2 million for the three months ended October 31, 1995 primarily due to a
decrease in price per ton of corrugating medium to $254.35 for the three months
ended October 31, 1996 from $458.28 for the three months ended October 31, 1995.
The Company's cost of goods sold as a percentage of net sales increased
to 87.1% for the three months ended October 31, 1996 from 85.2% for the three
months ended October 31, 1995, primarily as a result of a shift in product mix
and the impact of payments made to Florida Coast pursuant to the Output Purchase
Agreement. Cost of goods sold as a percentage of net sales at the Company's
converting facilities decreased to
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<PAGE>
86.5% for the three months ended October 31, 1996 compared to 90.1% for the
three months ended October 31, 1995. Cost of goods sold at the Ft. Madison Mill
increased as a percentage of net sales to 105.3% for the three months ended
October 31, 1996 from 48.9% for the three months ended October 31, 1995
primarily due to a decrease in price per ton of corrugating medium to $254.35
for the three months ended October 31, 1996 from $458.28 for the three months
ended October 31, 1995. Raw materials, freight and labor costs and the other
components of cost of goods sold remained constant for both of these periods.
Gross profit increased $6.7 million, or 74.2%, to $15.8 million for the
three months ended October 31, 1996 compared to $9.0 million for the three
months ended October 31, 1995. Gross profit as a percentage of net sales for the
Company's converting operations increased to 13.5% for the three months ended
October 31, 1996 compared to 10.0% for the three months ended October 31, 1995.
Gross profit as a percentage of net sales for the Ft. Madison Mill decreased to
(5.3)% for the three months ended October 31, 1996 from 51.1% for the three
months ended October 31, 1995.
Selling, general and administrative expenses increased $6.1 million, or
130.9%, to $10.7 million for the three months ended October 31, 1996 compared to
$4.6 million for the three months ended October 31, 1995. This increase is
primarily attributable to the Acquisition and the MannKraft Acquisition.
Selling, general and administrative expenses as a percentage of net sales
increased to 8.7% for the three months ended October 31, 1996 compared to 7.6%
for the three months ended October 31, 1995.
Operating income increased $0.7 million, or 11.5%, to $5.1 million for
the three months ended October 31, 1996 compared to $4.4 million for the three
months ended October 31, 1995.
Interest expense increased $5.2 million, or 520%, to $6.2 million for
the three months ended October 31, 1996 compared to $1.0 million for the three
month period ended October 31, 1995 as a result of the issuance and sale of the
Notes.
Liquidity and Capital Resources
Historically, the Company has relied on cash flows from operations and
bank borrowings to finance its working capital requirements and capital
expenditures.
Net cash used in operating activities for the three months ended
October 31, 1996 was $2.6 million compared to net cash used in operating
activities of $1.8 million for the three months ended October 31, 1995. Cash
used in operating activities for the three months ended October 31, 1996 was
driven by a net loss of $0.5 million for the period and a $5.1 million increase
in the level of accounts receivable and inventory which was offset by a $7.4
million increase in accounts payable and accrued liabilities.
Net cash used in investing activities was $5.4 million for the three
months ended October 31, 1996 compared to net cash provided by investing
activities of $1.0 million for the three months ended October 31, 1995. This
increase was primarily the result of increased capital expenditures and the
MannKraft Acquisition which was partially offset by the sale of fixed assets
located at the Flint, Michigan facility.
Net cash provided by financing activities was $7.5 million for the
three months ended October 31, 1996 compared to $0.8 million for the three
months ended October 31, 1995. The increase was primarily a result of the
Acquisition and the MannKraft Acquisition. .
Capital expenditures for the three months ended October 31, 1996 were
$2.2 million as compared to $0.6 million for the three months ended October 31,
1995. This increase was primarily due to maintenance capital expenditures at the
converting facilities acquired by the Company in the Acquisition.
On May 30, 1996, the Company established a Credit Facility which will
mature in 2001. The Credit Facility provides total borrowing of up to $80.0
million on a revolving basis, subject to borrowing base
- 8 -
<PAGE>
limitations, to finance the Company's working capital needs. Unused borrowing
base availability must be at least $5.0 million. On December 13, 1996, the
Company had unused borrowing capacity of approximately $9.4 million under the
Credit Facility. Pursuant to the Credit Facility, the Company is subject to
certain affirmative and negative covenants customarily found in agreements of
this type, including, without limitation, covenants that restrict, subject to
specified exceptions (i) mergers, consolidations, asset sales or changes in
capital structure, (ii) creation or acquisition of subsidiaries, (iii) purchase
or redemption of the Company's capital stock or declaration or payment of
dividends or distributions on such capital stock, (iv) incurrence of additional
indebtedness, (v) investment activities, (vi) capital expenditures, (vii)
granting or incurrence of liens to secure other indebtedness, (viii) prepayment
or modification of the terms of subordinated indebtedness and (ix) transactions
with affiliates. In addition, the Credit Facility requires that the Company
maintain certain specified financial covenants, including, without limitation, a
minimum tangible net worth, a minimum interest coverage ratio, a maximum funded
debt to EBITDA ratio and a minimum fixed charge coverage ratio. In addition, the
Company will provide, if needed, the Mill Joint Venture with up to $10.0 million
of subordinated indebtedness on a revolving credit basis. At December 2, 1996
the Mill Joint Venture drew down on the Subordinated Credit Facility in the
amount of $2.0 million ($1.0 million of which was funded by the Company and $1.0
million of which was funded by Stone Container) to supplement its cash flow in
order to meet its 1996 debt service requirements.
In November 1996, pursuant to the Output Purchase Agreement, the
Company was required to pay Florida Coast Paper an additional $3.3 for its 50%
share of the linerboard produced by the St. Joe Mill during the three-month
period ended September 30, 1996.
Although there can be no assurance, the Company believes that cash
generated by operations together with amounts available under the Credit
Facility, will be sufficient to meet its capital expenditure needs, debt service
requirements and working capital needs for the next twelve months.
Environmental Matters
The Company's operations are subject to environmental regulation by
federal, state and local authorities in the United States. The Company believes
that it is in substantial compliance with current federal, state and local
environmental regulation. Unreimbursed liabilities arising from environmental
claims, if significant, could have a material adverse effect on the Company's
results of operations and financial condition. Furthermore, actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of compliance with
environmental laws and regulations.
In November 1993, the EPA announced proposed regulations, known as the
"cluster rules," that would require more stringent controls on air and water
discharges from pulp and paper mills under the Clean Water Act and the Clean Air
Act. Pulp and paper manufacturers have submitted extensive comments to the EPA
on the proposed cluster rules in support of the position that requirements under
the proposed regulations are unnecessarily complex, burdensome and
environmentally unjustified. It cannot be predicted at this time whether the EPA
will modify the requirements in the final regulations. Based on information
presently available from the EPA, it is expected that the EPA will promulgate
the final cluster rules in 1997. In addition, the Company anticipates that the
earliest time for industry compliance with certain aspects of the regulations
should not be prior to the last quarter of 1997, and that compliance with the
remaining elements will be required by the end of 1999. The Company estimates
that these regulations, if adopted as currently proposed, would require capital
expenditures of approximately $1.5 million to $2.0 million by the Company with
respect to the Ft. Madison Mill. The ultimate financial impact of the proposed
regulations on the Company will depend on the nature of the final regulations,
the timing of required implementation and the cost and availability of new
technology.
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<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of its business. The Company
maintains insurance coverage against claims in an amount which it believes to be
adequate. The Company believes that it is not presently a party to any
litigation, the outcome of which could reasonably be expected to have a material
adverse effect on its financial condition or results of operations.
On July 19, 1996, a civil action was filed in the Superior Court of
Fulton County, Georgia (the "Suit") by Sid Dunken, individually and on behalf of
D&M Partnership, a purported Georgia partnership, against Four M, Box USA Group,
Inc., Four M Manufacturing Group of Georgia, Inc. and Dennis Mehiel. The
complaint alleges that Dunken is entitled to an equity interest in Four M or in
the alternative, $150,000,000 in compensatory damages, as well as punitive
damages and attorneys' fees. On September 23, 1996, the Company filed an answer
in response to the complaint. The Company believes that the Suit is without
merit. The Company intends to defend against the Suit vigorously and believes
that it has adequate defenses. However, the Suit is in a very preliminary stage,
and there can be no assurance that the outcome of the Suit will not be adverse
to Four M.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 2.1 through 10.6 are incorporated herein by reference to the
exhibit with the corresponding number filed as part of the Company's
Registration Statement on Form S-4 filed on July 12, 1996, and all amendments
thereto (File No. 333-8043).
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Asset Purchase Agreement, dated as of November 1, 1995,
among Four M Corporation (the "Company"), St. Joe Forest
Products Company, St. Joe Container Company, St. Joe Paper
Company and Florida Coast Paper Company, L.L.C. ("Florida
Coast").
3.1 Certificate of Incorporation of the Company.
3.2 Certificate of Incorporation of Box USA Group, Inc.
3.3 Certificate of Incorporation of Four M Paper Corporation.
3.4 Certificate of Incorporation of Page Packaging Corporation.
3.5 Certificate of Incorporation of Box USA, Inc.
3.6 Certificate of Incorporation of Four M Manufacturing Group of
Georgia, Inc.
3.7 By-laws of the Company.
3.8 By-laws of Box USA Group, Inc.
3.9 By-laws of Four M Paper Corporation.
3.10 By-laws of Page Packaging Corporation.
3.11 By-laws of Box USA, Inc.
3.12 By-laws of Four M Manufacturing Group of Georgia, Inc.
4.1 Indenture, dated as of May 30, 1996, between the Company and
Norwest Bank Minnesota, National Association (the
"Trustee").
4.2 Form of 12% Series A and Series B Senior Secured Notes,
dated as of May 30, 1996 (incorporated by reference to
Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of May 30, 1996,
among the
- 10 -
<PAGE>
Company, the Guarantors and Bear, Stearns & Co. Inc. (the
"Initial Purchaser").
4.4 Security Agreement, dated as of May 30, 1996, between the
Company and the Trustee.
4.5 Subsidiary Security Agreement, dated as of May 30, 1996,
among the Guarantors and the Trustee.
4.6 Contribution Agreement, dated as of May 30, 1996, among the
Company, the Guarantors and the Trustee.
4.7 Drop Down Notes, dated as of May 30, 1996, executed by each
of the Guarantors.
4.8 Drop Down Note Security Agreement, dated as of May 30, 1996,
among the Guarantors and the Company.
4.9 Guaranty, dated as of May 30, 1996, among the Guarantors and
the Trustee.
4.10 Form of Company Pledge Agreement, dated as of May 30, 1996,
between the Company and the Trustee.
4.11 Form of Subsidiary Pledge Agreement, dated as of May 30,
1996, among the Guarantors and the Trustee.
4.12 Warrant Agreement, dated as of May 30, 1996, between the
Company and the Initial Purchaser.
10.1 Output Purchase Agreement, dated as of May 30, 1996, among
the Company, Florida Coast and Stone Container Corporation
("Stone").
10.2 Financing and Security Agreement, dated as of May 30, 1996,
among the Company, the Guarantors and the Trustee.
10.3 Subordinated Credit Agreement, dated as of May 30, 1996,
among the Company, Florida Coast and Stone.
10.4 Environmental Indemnity Agreement, dated as of May 30, 1996,
between the Company and Florida Coast.
10.5 Stock Appreciation Unit Plan of the Company, dated as of
August 1, 1992, and Amendment No. 1 thereto, dated as of
August 1, 1995.
10.6 Subordination, Nondisturbance and Attornment Agreement,
dated as of May 30, 1996, between Norwest Bank Minnesota,
National Association, and Box USA Group, Inc.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the last
quarter of the period covered by this report.
- 11 -
<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.
FOUR M CORPORATION
/s/ Timothy D. McMillin
-----------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
Date:December 16, 1996
BOX USA GROUP, INC.
By: /s/ Timothy D. McMillin
-----------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: December 16, 1996
PAGE PACKAGING CORPORATION
By: /s/ Timothy D. McMillin
-----------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: December 16, 1996
BOX USA, INC.
By: /s/ Timothy D. McMillin
-----------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: December 16, 1996
- 12 -
<PAGE>
FOUR M MANUFACTURING GROUP OF GEORGIA,
INC.
By: /s/ Timothy D. McMillin
-----------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: December 16, 1996
- 13 -
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 224
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<ALLOWANCES> 2,863
<INVENTORY> 34,591
<CURRENT-ASSETS> 103,236
<PP&E> 168,841
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<BONDS> 202,822
0
0
<COMMON> 904
<OTHER-SE> 13,458
<TOTAL-LIABILITY-AND-EQUITY> 294,566
<SALES> 122,091
<TOTAL-REVENUES> 122,091
<CGS> 106,310
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<OTHER-EXPENSES> 10,534
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,234)
<INCOME-PRETAX> (626)
<INCOME-TAX> (373)
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