SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 AND 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended July 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 52-0822639
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
115 STEVENS AVENUE 10595
VALHALLA, NEW YORK 10595 (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (914) 749-3200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
12% SERIES B SENIOR SECURED NOTES DUE 2006
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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 No X
---- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of November 30, 1996, there were no shares of voting stock of the
registrant held by non-affiliates.
As of November 30, 1996, registrant had 6,815,867 shares of Common Stock
outstanding.
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FOUR M CORPORATION
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business............................................................. 1
Item 2. Properties........................................................... 8
Item 3. Legal Proceedings.................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders.................. 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................. 10
Item 6. Selected Financial Data............................................. 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 11
Item 8. Financial Statements and Supplementary Data......................... 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................. 15
PART III
Item 10. Directors and Executive Officers of the Registrant................. 16
Item 11. Executive Compensation............................................. 18
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 19
Item 13. Certain Relationships and Related Party Transactions............... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 20
Signatures
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PART I
ITEM 1. BUSINESS
GENERAL
Four M Corporation (the "Company" or "Four M"), which operates under
the trade name Box USA, believes that it is one of the largest independent
full-service converters of corrugated packaging materials in North America. The
Company, through its subsidiaries, operates 28 strategically located converting
facilities, which sold 4.6 billion square feet of finished corrugated
containers, partitions and sheets during the fiscal year ended July 31, 1996
("Fiscal 1996"). The Company has developed and maintains longstanding customer
relationships with leading consumer products and packaging companies including
Avon, Clorox, Anchor Glass, Owens Illinois and Procter & Gamble. The Company
also owns and operates a paper mill at Ft. Madison, Iowa (the "Ft. Madison
Mill") which produced 77,726 tons of corrugating medium during Fiscal 1996, most
of which was sold to third parties. For Fiscal 1996, the Company generated net
sales of $257.8 million, net income of $5.1 million and EBITDA (as defined
herein) of $21.7 million.
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 a joint venture (the "Mill Joint Venture") with Stone Container
Corporation ("Stone Container"), a 50% interest in a 500,000 tons per year
linerboard mill (the "St. Joe Mill") from St. Joe Forest Products Company ("St.
Joe Forest"), an affiliate of St. Joe Container (the "Acquisition"). The
Acquisition more than doubled the size of the Company to 28 converting
facilities which sold, on a pro forma basis, 10.1 billion square feet of
corrugated packaging materials in Fiscal 1996. The facilities of the Company and
St. Joe Container utilize similar manufacturing equipment and production
processes and operate with minimal geographic redundancy and no material
customer overlap. Accordingly, the Company believes that the Acquisition creates
opportunities to pursue continued growth in its business, utilize its purchasing
power to achieve reductions in raw material costs, improve productivity and
reduce operating expenses. For Fiscal 1996, after giving pro forma effect to the
Acquisition, the Company would have generated net sales of $508.9 million, net
loss of $3.8 million and EBITDA of $34.1 million.
The Company was founded in 1966 as a manufacturer of corrugated
partitions. From a single partition plant, the Company expanded initially
through internal growth and later through 11 separate acquisitions involving 17
manufacturing facilities. The Company has historically targeted distressed
properties and undermanaged assets to which the Company could significantly
improve profitability. These strategic acquisitions have allowed the Company to
(i) supply its partition plants with lower-cost corrugated sheets for conversion
into interior packaging components, (ii) capture a portion of its partition
customers' corrugated container business and (iii) diversify its customer base
to include a broader variety of users of corrugated packaging materials. The
Company's ability to target and successfully integrate acquisitions is reflected
in an increase in average revenue per plant from $9.0 million in 1991 to $18.2
million in Fiscal 1996 while average annual production per plant has grown from
201.7 million square feet to 342.6 million square feet over the same period.
The Company's strategy is to enhance its position as one of the largest
independent full-service converters of corrugated packaging materials in North
America. Fundamental elements of the Company's strategy include:
o providing a full line of high-quality products
o capitalizing on the Company's significant raw materials
purchasing power
o implementing cost-reduction manufacturing techniques and
operating efficiency programs
o responding quickly to customer needs and offering high levels of
customer service
o expanding the Company's penetration of national accounts and
increasing the Company's share of existing customers' business
One of the Company's competitive advantages is its long-term
relationships with many customers, some of which have been maintained for over
25 years. A second feature which distinguishes the Company from its competitors
is the significant relationships it has established with its containerboard
suppliers. The Company believes that it is the largest customer of its four
primary raw material suppliers. As one of the largest purchasers of linerboard
and corrugating medium in the industry, the Company believes that
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it has been able to purchase raw materials from its outside suppliers at prices
substantially below those reported in Pulp & Paper Week, an industry trade
publication.
Four M has no assets or independent business operations other than its
ownership interest in its subsidiaries.
THE ACQUISITION
The Acquisition enabled the Company to increase its geographic coverage
from nine to 17 states. As a result, the Company is able to serve new markets in
the Midwest, Mid-Atlantic and the faster growing Southeast. While corrugated
packaging plants typically serve customers within a 150-mile radius, the Company
is generally able to extend its service area to a radius of approximately 250
miles. The Company believes that improved operating efficiencies have enabled it
to overcome any incremental freight costs associated with its larger trading
areas.
The Company believes that the Acquisition, by expanding the Company's
geographic coverage, will particularly benefit its national account sales
program by enabling it to serve national accounts from St. Joe Container
facilities in markets not previously covered by the Company. National accounts
comprised approximately 20% of net sales for the Company in Fiscal 1996. In
addition, the Company strives to operate its corrugator plants at three shifts
per day, five days per week rather than the two shifts, five days per week
operation of the St. Joe Container facilities in order to increase aggregate
production at these facilities. The Company intends to utilize available
capacity to increase production of corrugated sheets to supply sheet plants
owned by third parties in the vicinity of the St. Joe Container facilities.
The Company also believes that the Acquisition will further improve the
vertical integration of the Company's converting operations. The Company
anticipates that the 15 additional corrugator plants acquired in the Acquisition
will produce corrugated sheets for use at other Company facilities, reducing the
dependence of the Company on external suppliers of corrugated sheets. While the
Company presently has no commitments or understandings with respect to any
material acquisitions of sheet plants, it may pursue acquisitions of sheet
plants in areas contiguous to its existing operations in order to maintain
outlets for its production of corrugated sheets.
The Company has focused on the maximization of utilization of available
production capacity, minimization of waste and the development and
implementation of financial controls and management systems. In addition, the
Company believes that it can eliminate certain duplicative functions and achieve
efficiencies in manufacturing, administration and sales and marketing.
Furthermore, the Company believes that it can reduce manufacturing costs by
reducing waste at the St. Joe Container facilities.
OPERATIONS
The Company operates three types of converting facilities: (i)
corrugator plants which convert linerboard and corrugating medium into
corrugated sheets and then convert the sheets into corrugated containers, (ii)
sheet or specialty container plants which receive corrugated sheets from the
Company's corrugator plants or external suppliers and then manufacture
corrugated containers and displays and (iii) partition plants which receive
corrugated sheets from the Company's corrugator plants or external sources and
make corrugated interior packaging components. The Company also owns the Ft.
Madison Mill, a paper mill which produces corrugating medium primarily for sale
to third parties, and a 50% interest in the St. Joe Mill, which produces
linerboard for sale to the Company and Stone Container.
Corrugators
Prior to the Acquisition, the Company operated five corrugator plants
located in the Midwest, the Southeast and California. As a result of the
Acquisition, the Company currently operates an additional 14 full-service
corrugators located in the Southeast, Midwest, Mid-Atlantic and Texas. The
Company supplies corrugated containers to national, regional and local accounts,
which include companies in the food, household products, cosmetics, personal
care, beverage, pharmaceutical, electrical and other machinery, and high-tech
industries. The Company's corrugator plants are value-added container
manufacturers, as well as suppliers of corrugated sheets to the Company's and
third-parties' sheet and partition plants.
During Fiscal 1996, the Company's corrugator plants produced
approximately 5.2 billion square feet of corrugated sheets. The Company supplied
approximately 85.7% of its own corrugated sheet requirements in Fiscal 1996 and
purchased the remaining 14.3% in the marketplace from third parties.
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The Company's corrugators convert mottled white linerboard, unbleached
kraft linerboard and corrugating medium into corrugated sheets and containers.
Mottled white containers are generally sold at a premium over kraft containers;
however, the premium tends to cover the higher cost of mottled white linerboard
without increasing operating margins at the container facilities. Approximately
89.9% of the corrugated materials produced in these facilities in Fiscal 1996
required unbleached kraft linerboard and the remaining 10.1% required mottled
white linerboard.
Sheet Plants
The Company's sheet plants convert corrugated sheets into specialty
containers and point-of-sale displays. The Company operates one sheet plant in
Ohio, one in Alabama, two in California and one in Florida. During Fiscal 1996,
the Company's sheet plants produced approximately 543.2 million square feet of
corrugated containers, accounting for approximately 16.4% of the Company's net
sales. The Alabama facility, which was acquired by the Company in the
Acquisition, shipped approximately 68.1 million square feet of corrugated
containers in Fiscal 1996.
The Company's sheet plants operate on a two shifts per day, five days
per week schedule. The Company operates the sheet plants for smaller production
runs and specialized containers. The customers for these plants are primarily
local and regional accounts. By serving different market segments, sheet plants
allow the Company to operate in trading areas which overlap those of the
corrugator plants without competing with the larger, integrated facilities.
Partition Plants
The Company believes that it is the largest producer of corrugated
interior packaging components in the United States. The Company operates four
free-standing partition plants in the West, Midwest and Southeast and supplies
interior packaging components to major food, household products, and glass and
plastic container producers. The Company also has partition manufacturing
capability at two of its sheet plants. The Company maintains a leading position
in the partition segment of the corrugated market by supplying national account,
high-volume users such as Clorox, Anchor Glass, Owens Illinois and Procter &
Gamble. Output at the partition plants totaled approximately 402.4 million
square feet in Fiscal 1996.
Ft. Madison Mill
The Company's paper mill in Ft. Madison, Iowa was acquired out of
bankruptcy in January 1994. In 1993, the Ft. Madison Mill had a capacity of
approximately 70,000 tons per year and 200 tons per day of corrugating medium
and actual production of approximately 165 tons per day. Following the
acquisition of the Ft. Madison Mill, the Company improved production by
providing management leadership, supplying necessary working capital and
initiating significant repairs. By the first quarter of 1995, the Ft. Madison
Mill began to achieve record daily production levels, thereby lowering unit
operating costs and increasing sales. In Fiscal 1996, the Ft. Madison Mill
produced approximately 77,726 tons.
The Ft. Madison Mill is currently capable of producing up to 80,000
tons per year of corrugating medium. The Ft. Madison Mill sells its output
primarily to smaller, independent corrugated container manufacturers in the
Midwest. In Fiscal 1996, the Ft. Madison Mill generated net sales of $21.9
million through sales of 59,035 tons of corrugating medium to third parties. In
addition, the Ft. Madison Mill supplied 18,350 tons of corrugating medium for
processing at the Company's corrugator plants.
The Ft. Madison Mill has the capability to process both wood fiber and
recycled fiber. Recycled fiber utilized at the Ft. Madison Mill consists of
double-lined kraft clippings. This flexibility in raw materials processing has
enabled the Company to reduce the impact of fluctuations in raw material prices.
In Fiscal 1996, the output of the Ft. Madison Mill consisted of approximately
39.0% recycled fiber. Presently, the Company is benefiting from lower recycled
fiber costs. The price of recycled fiber paid by the Ft. Madison Mill has
declined from an average of approximately $205 per ton in August 1995 to an
average of approximately $77 per ton as of July 31, 1996.
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St. Joe Mill
On May 30, 1996, Florida Coast Paper Company, L.L.C. ("Florida Coast")
a joint venture of the Company and Stone Container (the "Joint Venture
Partners") 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 Joint Venture Partners. Under 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 (approximately 250,000 tons), 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. The
St. Joe Mill has two paper machines which are capable of producing an aggregate
of 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.
During Fiscal 1996, the Company did not exert significant influence
over the operations of the Mill Joint Venture. Accordingly, the Company did not
record 50% of the Mill Joint Venture's operating results during such period,
aggregating a loss of $3.5 million. Significant influence is expected to be
achieved in the first quarter of fiscal 1997. In addition, the Company has
established a reserve in the amount of $11.0 million for fiscal 1997 as it
expects to purchase linerboard pursuant to the Output Purchase Agreement at
prices above market.
Fibre Marketing Group
In 1996, the Company acquired a 50% interest in Fibre Marketing Group,
LLC ("Fibre Marketing"), which procures and markets waste paper. Fibre Marketing
acts as a broker for the sale and transportation of waste material from
companies which generate waste, such as printers, paper converters and recycling
processors, to paper mills. Fibre Marketing currently provides brokerage
services to all of the Company's converting facilities. Fibre Marketing also
owns and operates Fibre Processing Corporation, a waste paper processing company
located in Edgemere, Maryland, which services sources of recyclable waste paper
which are too small to utilize brokerage services.
MannKraft Corporation
On August 5, 1996, the Company acquired an additional 49% of the
outstanding shares of common stock of MannKraft Corporation ("MannKraft") from
Stone Container increasing its ownership interest to 50%. MannKraft is a
manufacturer of corrugated paper products, such as cartons and displays, which
it sells primarily in New Jersey, southern New York, Southeastern Connecticut
and Eastern Pennsylvania.
SALES, MARKETING AND CUSTOMERS
Sales and Marketing
The Company's products are sold on a direct basis and, to a lesser
degree, through the use of brokers. Currently, the Company generates
approximately 90% of its business through direct sales and approximately 10%
through brokers. The Company seeks to be a leader in customer service for the
markets it serves by capitalizing on its marketing experience, technical
expertise and manufacturing flexibility. The Company's corrugated packaging
materials are typically manufactured to customer order. The Company believes
that the strong integration between manufacturing, marketing and sales provides
it with a competitive advantage by allowing it to respond favorably and quickly
to changing customer demands. The Company prides itself on its sales oriented
culture and its long-standing relationships with customers. The Company's senior
executive officers personally handle a number of the larger accounts.
Each of the Company's sales representatives receives training in
product specifications and manufacturing techniques in order to satisfy customer
requirements and maintain existing national and local account relationships. The
Company emphasizes achieving sales efficiency by preserving existing
relationships, having a thorough knowledge of customer requirements and being
flexible and responsive to changing customer needs. The Company has focused on
capturing market share by targeting a diverse customer base and offering a full
product line within a given geographical area. The Company believes that the
Acquisition has provided access to markets currently outside the Company's
geographic service areas, as well as allow it to expand relationships with
existing customers which have packaging requirements within geographic areas
serviced by the St. Joe Container facilities.
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The Company's sales and marketing system is supported by a centralized
computer network. All sales are invoiced and entered into the computer network
at the plant level. Sales information and data are accessible on a real-time
basis from computer terminals at each plant and at the Company's executive
offices. The Company's sales and marketing organization provides the Company
with accurate and timely information on projected product demand, competitive
activity in the marketplace and potential markets for new products and services.
Customers
In Fiscal 1996, the Company's largest customer accounted for
approximately 7.1% of net sales, with the top 10 customers accounting for
approximately 21.8% of net sales. The Company typically has one-year, and in
some cases multi-year, contracts with its national accounts. These contracts
have provisions which provide for price adjustments based on changes in the
Company's raw material prices. Sales to national accounts accounted for
approximately 12.5% of net sales in Fiscal 1996.
COMPETITION
The markets in which the Company sells its products are highly
competitive. Competitors of the Company's corrugators include large, integrated
manufacturers with operations throughout the United States as well as small,
independent converters with a regional or local focus. The Company competes by
offering its customers high-quality products produced to the customers'
specifications, rapid order turnaround, competitive pricing and high levels of
customer service.
The Company's sheet plants generally compete with independent regional
and local sheet plants. Competitive factors include product quality, price,
delivery time and customer service. The Company believes that its ready access
to raw materials from its corrugator plants provides it with a competitive
advantage over its non-integrated competitors.
The market for corrugated partitions is mature. The primary competitors
in the partition business are producers of solid fiber partitions. Solid fiber
partitions have a price advantage over corrugated partitions due to lower raw
material costs but are not as effective as corrugated partitions for protection
of fragile products during shipment and storage. The Company competes with the
solid fiber manufacturers by tailoring timing, manufacturing specifications and
delivery requirements to individual customer needs. As consolidation among users
of corrugated partitions has increased, the Company has continued to focus on
aligning its manufacturing capabilities with individual customer needs to
maintain its market share in the partition segment. In addition, the Company has
utilized its relationships with its partition customers to increase sales of
corrugated containers.
DISTRIBUTION
Corrugated packaging materials generally are delivered by truck due to
the large number of customers and demand for timely service. The dispersion of
customers and the high bulk and low density and value of corrugated packaging
materials make shipping costs a relatively high percentage of total costs. As a
result, corrugated packaging material plants tend to be located close to
customers to minimize freight costs. Generally, corrugated packaging material
plants service an area within a 150-mile radius of the plant locations. Each of
the Company's plants typically services a market within a 250-mile radius of the
plant. The Company believes that improved operating efficiencies have enabled it
to overcome any incremental freight costs associated with its larger trading
areas.
RAW MATERIALS
The Company's primary raw materials are linerboard and corrugating
medium. Historically, over two-thirds of the Company's raw materials have been
provided by Stone Container, Inland Container Corporation and Tenneco Packaging
Inc. pursuant to long-term supply contracts. The Company has recently negotiated
renewals of these contracts; two of them expire in March and July, 2000, and the
third contract expires in December, 2002. The Company has also entered into an
additional long-term supply contract with Georgia-Pacific Corporation which
expires in January, 2001. The contracts specify certain monthly and annual
discounts to negotiated market prices, which are based on volumes purchased. The
Company believes that alternate sources of raw materials are available.
In Fiscal 1996, St. Joe Container bought a substantial amount of its
linerboard from the St. Joe Mill. Under 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 (approximately 250,000 tons), 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
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expense and maintenance capital expenditures. Pursuant to this minimum price
provision, in November 1996, the Company was required to pay Florida Coast Paper
Company, L.L.C. ("Florida Coast") an additional $3,337,500 for its share of the
linerboard produced by the St. Joe Mill during the three-month period ended
September 30, 1996.
The Ft. Madison Mill purchases its virgin fiber and its recycled fiber
from several suppliers, including some suppliers of recycled fiber who are also
customers of the Ft. Madison Mill. The Ft. Madison Mill does not typically enter
into long-term supply contracts.
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.
St. Joe Container, St. Joe Paper and St. Joe Forest (collectively, the
"Paper Indemnitors") agreed to indemnify the Company for certain "On-Site
Environmental Liabilities" (as defined in the Asset Purchase Agreement dated as
of November 1, 1995 (the "Acquisition Agreement")) arising from conditions
existing on the date of the closing of the Acquisition (the "Closing Date") and
relating either to the St. Joe Mill or the St. Joe Container facilities.
Pursuant to these provisions, (1) 100.0% of the first $2.5 million of such
liability will be paid by the Company or the Mill Joint Venture, (2) 100.0% of
the next $2.5 million by the Paper Indemnitors, (3) 100.0% of the next $2.5
million of such liability will be paid by the Company or the Mill Joint Venture,
(4) 100.0% of the next $2.5 million of such liability will be paid by the Paper
Indemnitors, (5) 100.0% of the next $2.5 million of such liability will be paid
by the Company or the Mill Joint Venture and (6) 100.0% of the next $5.0 million
of such liability will be paid by the Paper Indemnitors; provided that the
conditions that give rise to such On-Site Environmental Liabilities are
discovered and the Paper Indemnitors are notified not later than three years
after the Closing Date and, subject to certain exceptions, remediation expenses
are incurred within five years after the Closing Date. The Paper Indemnitors
will have no responsibility to indemnify the Company or the Mill Joint Venture
for expenses relating to On-Site Environmental Liabilities in excess of the
foregoing or for any On-Site Environmental Liabilities discovered after the
third anniversary of the Closing Date. The Company is solely responsible for
On-Site Environmental Liabilities that arise from the acts or omissions of the
Company after the Closing Date. In the event that On-Site Environmental
Liabilities arise from acts or omissions which occurred both before and after
the Closing Date, such liabilities will be allocated between the Paper
Indemnitors, on the one hand, and the Company or the Mill Joint Venture, on the
other hand, based on the relative contribution of the acts and omissions
occurring in each time period to such On-Site Environmental Liabilities. St. Joe
Paper and its affiliates, including St. Joe Container, have retained
responsibility for "Off-Site Environmental Liabilities" (as defined in the
Acquisition Agreement) that arise from conditions existing on the Closing Date.
In the event Off-Site Environmental Liabilities arise from acts or omissions
that occurred both before and after the Closing, such Liabilities will be
allocated between the Paper Indemnitors, on the one hand, and the Company and
the Mill Joint Venture, on the other hand, based on the relative contribution of
the acts and omissions occurring in each time period to such Off-Site
Environmental Liabilities. Should a condition exist that requires remediation
costs to be incurred both within and without the boundaries of the real
property, the costs for work within the boundaries will be deemed On-Site
Environmental Liabilities, and the work outside such boundaries will be deemed
Off-Site Environmental Liabilities. Subject to certain exceptions, On-Site
Environmental Liabilities do not include liabilities that arise due to a change
in any law or regulation becoming effective after November 1, 1995.
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Pursuant to the Indemnification Reimbursement Agreement between the
Mill Joint Venture and the Company, the benefit of indemnification from the
Paper Indemnitors with respect to such environmental liabilities will be
allocated 80.0% to the Mill Joint Venture and 20.0% to the Company, with the
Mill Joint Venture or the Company being obligated, under certain circumstances,
to reimburse the other in the event either recovers more than its allocated
share and the other recovers less.
The obligations of the Paper Indemnitors with respect to On-Site
Environmental Liabilities will terminate in the event that either the Company or
the Mill Joint Venture undergoes a "change of control" (as defined in the
Acquisition Agreement). Change of Control is defined to mean (i) a transaction
in which any Person or Group (as defined in Rule 13d-5 of the Exchange Act)
other than the "Principals" (as defined in the Acquisition Agreement) or the
"Lenders" (as defined in the Acquisition Agreement) acquires more than 50.0% of
the total voting power of all classes of voting stock of the Company or the Mill
Joint Venture, as the case may be, (ii) a transaction in which any Person or
Group (as defined in Rule 13d-5 of the Exchange Act) other than the Principals
or the Lenders has a sufficient number of nominees elected to constitute a
majority of the Board of Directors of the Company or of the Board of Managers of
the Mill Joint Venture, as the case may be, (iii) the sale of all or
substantially all of the capital stock of the Company or the Mill Joint Venture,
as the case may be, as an entirety or substantially as an entirety to any Person
or Group (as defined in Rule 13d-5 of the Exchange Act) other than the
Principals or the Lenders and (iv) the sale or transfer of all or substantially
all of the assets of the Company or the Mill Joint Venture, as the case may be,
as an entirety or substantially as an entirety to any Person other than the
Principals or the Lenders. For purposes of the definition of Change of Control,
"Principals" is defined as (1) Dennis Mehiel in the case of the Company, (2) the
Company and Stone Container, in the case of the Mill Joint Venture, and (3) any
subsidiary of Dennis Mehiel, the Company or Stone Container; and "Lenders" is
defined as one or more institutional lenders which provide debt financing to the
Company or the Mill Joint Venture as of the Closing.
Pursuant to the Acquisition Agreement, St. Joe Container has agreed to
undertake and complete, at its sole cost, remedial actions required for a former
land application area at the container facility located in Laurens, South
Carolina and remedial actions associated with two underground storage tanks at
the container facility located in Chicago, Illinois. St. Joe Container has also
agreed to reimburse the Company for up to $1.4 million of expenses incurred by
the Company after the Closing Date to undertake certain identified environmental
projects at several of the acquired container facilities.
The indemnification provisions in the Acquisition Agreement are
generally intended to be the exclusive remedies of the parties with respect to
such agreements.
PERSONNEL
As of November 30, 1996, the Company had 2,297 employees, of whom 1,678
were hourly employees and 619 were salaried employees. Of such employees, 522
were engaged in management and administrative functions, 97 were engaged in
sales and marketing and 1,678 were engaged in manufacturing. One thousand four
hundred and two hourly employees at 20 Company facilities are members of unions
under 21 separate contracts. Two of these contracts are currently being
renegotiated, two expire in 1997, ten expire in 1998, six expire in 1999 and one
expires in 2000. Management believes that its employee relations are good.
7
<PAGE>
ITEM 2. PROPERTIES
The Company owns or leases manufacturing properties having an aggregate
floor space of approximately 4.7 million square feet. The table below provides
summary information regarding the principal properties owned or leased by the
Company.
Approximate Leased
Location Square Footage Type or Owned
- -------- -------------- ---- --------
Compton, CA 135,000 Corrugator Leased
Port St. Joe, FL (1)(2) 142,000 Corrugator Leased
Lake Wales, FL (1) 275,000 Corrugator Owned
Stockbridge, GA (3) 160,000 Corrugator Leased
Chicago, IL (1) 185,000 Corrugator Owned
Hartford City, IN (1) 277,150 Corrugator Owned
Louisville, KY (1) 240,000 Corrugator Owned
Baltimore, MD (1) 220,000 Corrugator Owned
Newark, NJ 180,000 Corrugator Leased
Charlotte, NC (1) 170,000 Corrugator Owned
Newark, OH 107,000 Corrugator Owned
Eighty Four, PA 133,000 Corrugator Owned
Pittsburgh, PA (1) 225,000 Corrugator Owned
Laurens, SC (1) 180,000 Corrugator Owned
Memphis, TN (1) 216,000 Corrugator Owned
Dallas, TX (1) 187,000 Corrugator Owned
Houston, TX (1) 157,000 Corrugator Owned
Chesapeake, VA (1) 148,000 Corrugator Owned
Dothan, AL (1) 31,000 Sheet Owned
Montebello, CA 90,000 Sheet (4) Leased
San Leandro, CA 110,000 Sheet (4) Leased
Jacksonville, FL 72,700 Sheet Leased
Byesville, OH 60,000 Sheet Owned
Jacksonville, FL (3) 69,000 Partition Leased
Litchfield, IL 42,000 Partition Leased
Portland, IN (3) 40,500 Partition Leased
Bethesda, OH (3) 44,100 Partition Leased
Ft. Madison, IA 138,570 Mill Owned
Valhalla, NY 16,000 Executive Offices Leased
New York City, NY 3,500 Executive Offices Leased
College Park, GA (1)(6) 167,000 Corrugator Owned
Vernon, CA (5)(6) 200,000 Sheet Owned
Paperwood, NJ (6) 107,220 Sheet Owned
- -----------
(1) Properties acquired in the Acquisition.
(2) Property net leased from the Mill Joint Venture for a nominal rental
payment.
(3) Properties owned, directly or indirectly, by Dennis Mehiel. See "Certain
Relationships and Related Party Transactions."
(4) Sheet plants which have the capability to produce partitions.
(5) Acquired on June 4, 1996 by Box USA Group, Inc., a wholly-owned subsidiary
of the Company for approximately $4.5 million. The Company anticipates that
it will spend approximately $1.1 million for capital expenditures on this
plant.
(6) Inactive facilities.
8
<PAGE>
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's Common
Stock. Dennis Mehiel, the Chairman of the Board of Directors and the Chief
Executive Officer of the Company, is the sole shareholder of the Company's
outstanding Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following historical data have been derived from consolidated
financial statements of the Company. The data as of and for the fiscal years
ended July 31, 1996, 1995 and 1994 are derived from the consolidated financial
statements of the Company audited by BDO Seidman, LLP, independent certified
public accountants, whose report thereon is included elsewhere in this report.
The data as of and for the fiscal years ended July 31, 1993 and 1992 are derived
from the Company's consolidated financial statements audited by KPMG Peat
Marwick LLP, independent certified public accountants, whose report is not
included herein. The following data should be read in conjunction with the
Company's consolidated financial statements, and related notes, "Management's
Discussions and Analysis of Financial Condition and Results of Operations" and
the other financial information included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
STATEMENT OF OPERATION DATA:
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ 257,817 $ 271,994 $ 228,563 $ 214,936 $ 203,179
Cost of goods sold................................ 222,105 232,154 205,025 192,208 178,189
------------ ----------- ---------- ---------- -----------
Gross profit...................................... 35,712 39,840 23,538 22,728 24,990
Selling, general and administrative expenses...... 19,217 19,703 22,018 21,813 23,663
------------ ----------- ----------- ----------- -----------
Income from operations............................ 16,495 20,137 1,520 915 1,327
Other income...................................... - 1,927 126 3,651 5,917
Interest expense.................................. 7,565 5,607 5,448 4,948 5,903
------------ ----------- ----------- ----------- ------------
Income (loss) before provision (benefit)
for income taxes, minority interest and
extraordinary gain on early retirement of debt.. 8,930 16,457 (3,802) (382) 1,341
Minority interest................................. - (146) (180) - 94
Provision (benefit) for income taxes.............. 3,817 5,483 (325) 453 832
Extraordinary gain on early retirement of debt.... - 2,219 381 - 321
------------ ----------- ------------- -------------- ------------
Net income (loss)................................. 5,113 13,047 (3,276) (835) 924
============ ============ ============== ============ ===========
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(1)............. 2.0x 3.3x .5x 1.0x 1.1x
EBITDA(2)......................................... $ 21,677 $ 25,382 $ 6,796 $ 6,209 $ 6,664
Net cash provided by (used in)
operating activities(3)........................... 27,060 (2,217) 4,794 8,860 3,615
Net cash provided by (used in) investing activities (166,642) (1,975) (9,126) (4,135) 3,733
Net cash provided by (used in) financing activities 139,167 3,518 5,182 (3,841) (8,336)
Depreciation and amortization..................... $ 5,182 $ 5,245 $ 5,276 $ 5,294 $ 5,337
Capital expenditures.............................. 8,612 3,690 3,916 3,935 2,862
Adjusted net sales(4)............................. 246,140 212,562 155,869 153,857 139,116
Adjusted EBITDA(4)................................ 24,831 24,210 3,926 2,196 3,110
FISCAL YEAR ENDED JULY 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital................................... $ 37,590 $ 14,504 $ 8,903 $ 10,413 $ 11,573
Property, plant and equipment, net................ 157,973 27,044 36,536 36,052 37,636
Total assets...................................... 88,410 73,137 93,933 79,716 85,744
Total long-term debt.............................. 187,092 30,998 44,105 40,993 44,285
Stockholder's equity.............................. 14,362 8,649 1,278 4,554 5,389
</TABLE>
The accompanying footnotes, which are an integral part of this
financial data, appear on the following page.
10
<PAGE>
(1) For purpose of calculating the ratio of earnings to fixed charges, earnings
consist of earnings (loss) before provision (benefit) for income taxes,
minority interest and extraordinary gain on early retirement of debt plus
fixed charges, and fixed charges consist of interest expense plus that
portion of rental payments on operating leases deemed representative on the
interest factor.
(2) EBITDA represents income from operations before interest expense, provision
(benefit) for income taxes and depreciation and amortization. EBITDA
provides information regarding a company's ability to service and/or incur
debt. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operations or other consolidated income or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
EBITDA is not intended to disclose excess funds available for reinvestments
because other commitments and obligations exist, including, but not limited
to, principal repayment obligations and lease commitments, that are not
considered in the calculation of EBITDA. See Notes 7, 11, 12 and 13 to the
Company's financial statements.
(3) Material differences between EBITDA and net cash provided by or used in
operating activities may occur because of the inherent differences in each
such calculation including (a) the change in operating assets and
liabilities between the beginning and end of each period, as well as
certain non-cash items which are considered when presenting net cash
provided by or used in operating activities but are not used when
calculating EBITDA and (b) interest expense, provision for income taxes and
other income or expense which are included when presenting net cash
provided by or used in operating activities but are not included in the
calculation of EBITDA. EBITDA is a measure used as part of the covenants of
the Credit Facility.
(4) Adjusted to exclude the results of Fonda and the Flint, Michigan facility
(the "Flint Facility") which was owned by, Box USA Group, Inc. ("Box USA"),
a wholly-owned subsidiary of the Company. On August 16, 1996, Box USA
discontinued its operations at the Flint Facility and disposed of
substantially all of the machinery and equipment, finished goods and
work-in-progress inventory and certain related assets utilized at such
facility.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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 manufacturers 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 also
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. By controlling costs and maintaining value-added margins,
together with adding to its manufacturing base through acquisitions completed in
a cost effective manner, the Company has been able to increase its net sales
from $36.3 million in Fiscal 1985 to 257.8 million in Fiscal 1996, to increase
net income from $0.7 million to $5.1 million over the same period and to
increase EBITDA from $2.6 million to $21.7 million over the same period.
On May 30, 1996, 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 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.
11
<PAGE>
Prior to the consummation of the Acquisition, both of the St. Joe
Mill's paper machines were shut down for maintenance and to reduce inventory,
from April 17, 1996 through May 6, 1996, and in December 1995 and January 1996,
one paper machine was shut down for the same reasons. Since the consummation of
the Acquisition, both of the St. Joe Mill's paper machines were shut down in
July 1996 for annual maintenance. While there can be no assurance, the Mill
Joint Venture does not expect any shutdowns in the next twelve months other than
for routine maintenance. The Output Purchase Agreement requires that the St. Joe
Mill operate at a production rate not less than the average capacity utilization
rate of domestic linerboard producers. In the event further shutdowns occur, the
Company will need to purchase that portion of its linerboard that it would have
otherwise purchased from the Mill Joint Venture from outside suppliers.
During Fiscal 1996, the Company did not exert significant influence
over the operations of the Mill Joint Venture. Accordingly, the Company did not
record 50% of the Mill Joint Venture's operating results during such period,
aggregating a loss of $3.5 million. Significant influence is expected to be
achieved in the first quarter of fiscal 1997.
The Company's fiscal year end is July 31.
SUMMARY SALES TABLE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
1996 1995 1994
-------------------- -------------------------- -----------------
(IN MILLIONS)
PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales ....................... $257.8 100.0% $272.0 100.0% $228.6 100.0%
Cost of goods sold............... 222.1 86.2 232.2 85.4 205.0 89.7
Gross profit..................... 35.7 13.8 39.8 14.6 23.6 10.3
Selling, general and
administrative expenses..... 19.2 7.4 19.7 7.2 22.0 9.6
Income from operations........... 16.5 6.4 20.1 7.4 1.6 0.7
Other income..................... - - 2.0 0.7 0.1 0.1
Interest expense................. 7.6 2.9 5.6 2.1 5.5 2.4
------- ------ ----- ------ ------ -----
Income (loss) before
provision (benefit) for
income taxes, minority
interest and extraordinary
gain on early retirement of
debt......................... 8.9 3.5 16.5 6.1 (3.8) (1.6)
Provision (benefit) for
income taxes................ 3.8 1.5 5.5 2.0 (0.3) (0.1)
------- ---- ------ --- ------ -----
Net income (loss) before
minority interest and
extraordinary gain on early
retirement of debt.......... $ 5.1 2.0% $11.0 4.1% $(3.5) (1.5)%
======= ==== ===== ==== ====== ======
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net sales decreased $14.2 million, or 5.2%, to $257.8
million in Fiscal 1996 compared to $272.0 million in the twelve month period
ended July 31, 1995 ("Fiscal 1995"). Net sales for the Company's converting
operations increased $39.9 million, or 20.4%, to $235.9 million in Fiscal 1996
compared to $196.0 million in Fiscal 1995 primarily as a result of the
Acquisition, which increased sales by $44.8 million, or 22.8%. This increase was
partially offset by the effect of the sale in August 1995 of Timberline
Packaging, Inc. ("Timberline"), a converting facility which accounted for $1.2
million, or 0.5%, of net sales for Fiscal 1996 compared to $13.6 million, or
5.0%, for Fiscal 1995. Net sales at the Ft. Madison Mill decreased $11.7
million, or 34.8%, to $21.9 million in Fiscal 1996 compared to $33.6 million in
Fiscal 1995 due to a 16.1% decrease in price per ton to $371.47 in Fiscal 1996
from $442.67 in Fiscal 1995. The Company's net sales decreased by $42.4 million,
or 15.6%, in Fiscal 1996 due to the spinoff of the Fonda Group, Inc. ("Fonda")
in March 1995.
The Company's cost of goods sold as a percentage of net sales increased
to 86.2% for Fiscal 1996 from 85.4% in Fiscal 1995. Cost of goods sold at the
Company's converting operations increased as a percentage of net sales to 88.0%
in Fiscal 1996 from 87.6% in Fiscal 1995 primarily as a result of a shift in
product mix in Fiscal 1996. Cost of goods sold at the Ft. Madison Mill increased
as a percentage of net sales to 74.3% in Fiscal 1996 from 73.2% in Fiscal 1995
primarily as a result of a decrease in selling prices per ton.
Gross profit decreased $4.1 million, or 10.3%, to $35.7 million in
Fiscal 1996 from $39.8 million in Fiscal 1995. As a percentage of net sales,
gross profit decreased to 13.8% in Fiscal 1996 compared to 14.6% in Fiscal 1995.
Gross profit as a percentage of net sales
12
<PAGE>
for the Company's converting operations decreased to 12.0% in Fiscal 1996
compared to 12.4% in Fiscal 1995. Gross profit as a percentage of net sales for
the Ft. Madison Mill increased to 25.7% in Fiscal 1996 compared to 26.8% in
Fiscal 1995.
Selling, general and administrative expenses decreased $0.5 million, or
2.5%, to $19.2 million in Fiscal 1996 from $19.7 million in Fiscal 1995. The
decrease is primarily a result of the elimination of Fonda's expenses after
March 1995, partially offset by the addition of St. Joe expenses for June and
July 1996. Selling, general and administrative expenses as a percent of sales
remained flat in Fiscal 1996 and Fiscal 1995.
Operating income decreased $3.6, or 31.9%, to $16.5 million in Fiscal
1996 from $20.1 million in Fiscal 1995, primarily as a result of the spin-off of
Fonda, the sale of the Company's interest in Timberline and a decrease in
selling price per ton.
Income taxes decreased $1.7 million to $3.8 million in Fiscal 1996
compared to $5.5 million in Fiscal 1995. This decrease in the provision for
income taxes is related to the decrease in income before taxes.
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's net sales increased $43.4 million, or 19.0%, to $272.0
million in Fiscal 1995 compared to $228.6 million in Fiscal 1994. Net sales for
the Company's converting operations increased $40.6 million, or 26.1%, to $196.0
million in Fiscal 1995 compared to $155.4 million in Fiscal 1994 primarily as a
result of an increase in average price per thousand square feet sold to $51.66
in Fiscal 1995 from $40.90 in Fiscal 1994 with volume remaining virtually flat
at 3,794 million square feet sold compared to 3,799 million square feet sold.
Net sales at the Ft. Madison Mill increased $22.3 million, or 197.3%, to $33.6
million in Fiscal 1995 compared to $11.3 million in Fiscal 1994 primarily as a
result of net sales in Fiscal 1994 reflecting only five full months of
operations of the Ft. Madison Mill, which was acquired by the Company in January
1994, and by a 48.6% rise in the average price per ton sold of corrugating
medium to $442.67 in Fiscal 1995 from $297.98 in Fiscal 1994. Volume at the Ft.
Madison Mill increased to 75,872 tons sold in Fiscal 1995 from 38,029 tons sold
in Fiscal 1994. The increase in net sales from the Company's converting and mill
operations was partially offset by a decrease of $19.4 million, or 31.4%, in
Fonda's net sales to $42.4 million in Fiscal 1995 from $61.8 million in Fiscal
1994, resulting from the elimination of four months of operations following the
spin-off of Fonda in March 1995.
The Company's cost of goods sold as a percentage of net sales improved
to 85.4% in Fiscal 1995 compared to 89.7% in Fiscal 1994. Cost of goods sold as
a percentage of net sales at the Company's converting facilities improved to
87.1% in Fiscal 1995 compared to 91.2% in Fiscal 1994. This improvement was
primarily a result of a decrease in labor costs to 10.3% of net sales in Fiscal
1995 from 13.8% of net sales in Fiscal 1994 and reductions in other major
components of manufacturing costs as a percentage of net sales. Cost of goods
sold as a percentage of net sales at the Ft. Madison Mill improved to 73.2% in
Fiscal 1995 from 99.1% of net sales for the initial five months of ownership
ended July 31, 1994. The improved performance at the Ft. Madison Mill was
primarily a result of improved value-added margins which resulted from the 48.6%
increase in average price per ton sold of corrugating medium partially offset by
a 24.7% increase in raw material costs per ton sold. Manufacturing costs per ton
(excluding raw materials used at the Ft. Madison Mill) decreased to $169 per ton
in Fiscal 1995, or 1.7%, from $172 per ton sold in Fiscal 1994.
Gross profit increased $16.3 million, or 69.4%, to $39.8 million in
Fiscal 1995 from $23.5 million in Fiscal 1994, primarily as a result of the
reduction in the cost of goods sold as a percentage of net sales to 85.4% from
89.7% during this period. Gross profit as a percentage of net sales for the
Company's converting operations increased to 12.4% in Fiscal 1995 compared to
8.8% in Fiscal 1994. Gross profit as a percentage of net sales for the Ft.
Madison Mill improved to 26.8% in Fiscal 1995 compared to 0.9% in Fiscal 1994.
Selling, general and administrative expenses decreased $2.3 million, or
10.5%, to $19.7 million in Fiscal 1995 from $22.0 million in Fiscal 1994 due, in
part, to the elimination of Fonda's expenses subsequent to March 1995. Selling,
general and administrative expenses as a percentage of net sales were 7.2% in
Fiscal 1995 compared to 9.6% in Fiscal 1994. This decrease was primarily a
result of a reduction in certain selling, legal, insurance and other costs at
the Company's converting facilities.
Operating income increased $18.6 million to $20.1 million in Fiscal
1995 from $1.5 million in Fiscal 1994. This increase was attributable to a 26.1%
increase in net sales in the Company's converting operations and a 13.2%
improvement in value-added margin for the Company's converting operations, as
well as a reduction in overall selling, general and administrative expenses
primarily as a result of the exclusion of Fonda after March 1995.
Other income increased $1.8 million to $1.9 million in Fiscal 1995
compared to $0.1 million in Fiscal 1994. This increase was due to a gain on the
sale of the assets of the Company's fiber partitions division.
Income taxes increased $5.8 million to $5.5 million in Fiscal 1995
compared to a tax benefit in Fiscal 1994 of $0.3 million. This increase was
directly related to the change in income before taxes.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied on cash flows from operations and
bank borrowing to finance its working capital requirements and capital
expenditures.
Net cash provided by operating activities for Fiscal 1996 was $27.1
million compared to net cash used for operating activities of $2.2 million for
Fiscal 1995. Cash provided by operating activities in Fiscal 1996 was driven by
net income of $5.1 million for the period and a $14.1 million reduction in the
level of accounts receivable and inventory which was offset by a $7.1 million
reduction in accounts payable and accrued liabilities. Net cash provided by
operating activities was $2.2 million for Fiscal 1995 compared to $4.8 million
in Fiscal 1994. The period-to-period change was due primarily to the net changes
related to the exclusion of Fonda after March 1995.
Net cash used for investing activities was $166.6 million for Fiscal
1996 compared to $2.0 million for Fiscal 1995. This increase was principally the
result of the financing raised for the Acquisition and an increase in capital
expenditures. The Company's net cash used for investing activities decreased to
$2.0 million in Fiscal 1995 compared to $9.1 million for Fiscal 1994. The
decrease was principally the result of the acquisition by the Company in January
1994 of three converting facilities and the Ft. Madison Mill for $5.3 million
(the "CPC Acquisition").
Net cash provided by financing activities was $139.2 million in Fiscal
1996 compared to net cash provided by financing activities of $3.5 million in
Fiscal 1995. The increase was primarily a result of the net proceeds received
from the sale of the Company's 12% Series A Senior Secured Notes due 2006 (the
"Notes") and refinancing of the Company's Credit Facility. In Fiscal 1996 net
cash provided by financing activities was used to repay $16.1 million under a
credit facility, $10.0 million of term loans, $2.1 million of subordinated debt
and the balance for other debt.
Capital expenditures for Fiscal 1996 were $8.6 million compared to $3.7
million for Fiscal 1995. This increase is primarily a result of equipment
purchases for one of the Company's corrugator facilities and equipment purchases
and rehabilitation of certain property at a facility in Vernon, California where
the Company intends to consolidate the Compton and Montebello facilities.
The Company has implemented a target capital expenditure program with
annual capital expenditures totaling approximately $15.0 million for Fiscal
1997. The Company intends to finance capital expenditures primarily through
operating cash flow.
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 limitations, to finance
the Company's working capital needs. Unused borrowing base availability must be
at least $5.0 million. On November 27, 1996, the Company had unused borrowing
capacity of approximately $27.9 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) to supplement
its cash flow in order to meet its 1996 debt service requirements.
On November 1, 1995, the Company entered into the Acquisition Agreement
pursuant to which on May 30, 1996 (i) the Company acquired substantially all of
the assets of St. Joe Container and (ii) the Mill Joint Venture acquired the St.
Joe Mill. The purchase price for the St. Joe Container facilities was $87.8
million for the fixed assets, plus approximately $69.7 million for working
capital, for a total purchase price of $157.5 million, subject to adjustment for
changes in working capital described herein. The purchase price for the St. Joe
Mill was $185.0 million for the fixed assets, plus approximately $17.4 million
for working capital, for a total purchase price of $202.4 million, subject to
adjustment for changes in working capital described herein. In July 1996, St.
Joe Paper paid monies to both the Company and Florida Coast as purchase price
adjustments. Approximately $13.8 million was paid to the Company. St. Joe Paper
and the Company have reached an understanding with resepct to the payment of
additional monies by St. Joe Paper for the purchase price adjustment. The
Company acquired a 50% equity interest in the Mill Joint Venture for $5.0
million. The Acquisition was funded by the sale of the Notes and borrowings
under the Credit Facility.
In November 1996, pursuant to the Output Purchase Agreement, the
Company was required to pay Florida Coast Paper an additional $3,337,500 for its
share of the linerboard produced by the St. Joe Mill during the three-month
period ended September 30, 1996.
14
<PAGE>
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.
IMPACT OF INFLATION
A period of rising prices will affect the Company's cost of production
and, in particular, the Company's raw material costs. Since the Company's
business is a margin business, the impact of increased costs on the Company will
depend upon the Company's ability to pass on such costs to its customers. The
Company is typically able to pass on a significant portion of its increased raw
material costs in a timely fashion. From time to time, however, there is a lag
in passing on price adjustments which creates a temporary margin contraction in
a rising price environment. Historically, the Company has been able to recover
fully from the impact of rising prices over a short period of time.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and notes thereto are presented
under item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
NAME AGE POSITION
Dennis Mehiel 54 Chairman, Chief Executive Officer and Director
Chris Mehiel 57 Executive Vice President, Chief Operating Officer
and Director
Timothy D. McMillin 53 Senior Vice President, Chief Financial Officer
and Director
Gerald K. Adams 43 Chief Executive Officer of Box USA Group, Inc.
Harvey L. Friedman 54 Corporate Secretary and General Counsel
Howard Brainin 67 Regional Vice President
Clinton G. Ames 74 Director
Lawrence A. Bishop 52 Director
Samuel B. Guren 49 Director
Thomas Uleau 52 Director
James Armenakis 53 Director
John Nevin 61 Director
DENNIS MEHIEL, a co-founder of the Company, has been the Chairman and
Chief Executive Officer of the Company, except during a leave of absence from
April 1994 through July 1995, since 1977. He was also the Chief Executive
Officer of the Company's subsidiary, Box USA Group, Inc., until June 1996. He is
also the Chairman of the Executive Committee of the Company's Board of
Directors. Mr. Mehiel is also the Chairman of Fonda and the MannKraft
Corporation, a corrugated container manufacturer ("MannKraft").
CHRIS MEHIEL, the brother of Dennis Mehiel, is a co-founder of the
Company and has been Executive Vice President, Chief Operating Officer and a
Director of the Company since September 1995. Mr. Mehiel was President of Fibre
Marketing Group, Inc., a waste paper recovery business which he co-founded, from
1994 to January 1996. He is the President of the managing member of Fibre
Marketing Group, LLC, the successor to Fibre Marketing Group, Inc. From 1993 to
1994, Mr. Mehiel served as President and Chief Operating Officer of MannKraft
Corporation, a corrugated container manufacturer. From 1982 to 1992, Mr. Mehiel
served as the President and Chief Operating Officer of Specialty Industries,
Inc., a waste paper processing and container manufacturing company.
TIMOTHY D. MCMILLIN has been a Director of the Company since 1983 and
Senior Vice President and Chief Financial Officer since September 1995. From
November 1994 to September 1995, he was Chairman of Executive Advisors, Inc., a
consulting firm specializing in financial restructuring. From 1991 to 1994, Mr.
McMillin was an independent strategic and financial consultant. Mr. McMillin
spent over 25 years in the financial services industry and served in various
capacities, including Executive Vice President, at Maryland National Bank, from
1965 to 1990. Mr. McMillin is a Director of EIL Instruments, Inc., a
manufacturer and distributor of testing, measurement and energy control systems.
Mr. McMillin is a member of the Audit Committee of the Company's Board of
Directors.
GERALD K. ADAMS became Chief Executive Officer of the Company's
subsidiary, Box USA Group, Inc., in June 1996. From March 1992 to March 1996, he
was Chief Executive Officer of Amcor Fibre Packaging Group, a corrugated
packaging company and a division of Amcor, Ltd. From March 1988 until March
1992, Mr. Adams was the General Manager of Australian Paper, a folding
cartonboard producer and a division of Amcor, Ltd.
HARVEY L. FRIEDMAN has been General Counsel since 1991 and Corporate
Secretary since May 1996. He was a Director of the Company from 1985 to May
1996. He was formerly a partner in Kramer, Levin, Naftalis & Frankel, a New York
City law firm.
HOWARD BRAININ became Regional Vice President of Box USA Group, Inc. in
May 1996. From March 1992 until May 1996, Mr. Brainin was a Vice President and a
Director of St. Joe Paper and the President of St. Joe Container. From December
1981 to March 1992, Mr. Brainin was a Regional Vice President of St. Joe
Container.
CLINTON G. AMES has been a Director of the Company since 1992 and has
been Chief Executive Officer of Four M Paper Corporation, a subsidiary of the
Company and the operating company for the Ft. Madison Mill, since July 1995.
From April 1994 through July 1995, Mr. Ames served as the Company's President,
Chief Executive Officer and Chief Operating Officer. From 1990 to 1994, he
served as the Chief Executive Officer of Fonda. From 1988 to 1990, Mr. Ames
served as a consultant to the Company. Prior to joining the Company, Mr. Ames
was with Inland Container Corporation for 19 years, commencing in 1968. In 1974,
he became Inland's President
16
<PAGE>
and, in 1978, its Chief Executive Officer and Chairman, positions he held until
he retired from Inland in 1987. Mr. Ames is also a Director of Bell Packaging
Corporation.
LAWRENCE A. BISHOP has been a Director of the Company since November
1985. He has held various positions since 1980 at Gray, Seifert and Co., Inc., a
registered investment advisor that provides money management services to
individuals and institutions, and currently holds the title of Executive Vice
President. From 1972 to 1979, he was a Vice President of Bessemer Trust Company,
N.A. Mr. Bishop is a Director of Synergistics, Inc. and Unapix Entertainment,
Inc. Mr. Bishop is Chairman of the Compensation/Stock Appreciation Rights
Committee and a member of the Executive Committee and Audit Committee of the
Company's Board of Directors. Mr. Bishop is also a Director of Fonda.
SAMUEL B. GUREN has been a Director of the Company since 1987. He is a
Managing Director of Baird Capital Partners, a private equity fund. He is also
co-founder and Managing Partner since 1982 of William Blair Venture Management
Company, the general partner of three private equity funds. Mr. Guren was a Vice
President at Continental Illinois Corporation from 1974 to 1981. Mr. Guren is
Chairman of the Audit Committee of the Company's Board of Directors. Mr. Guren
is also a Director of Fonda and Maus Bros. Jewelers Inc.
THOMAS ULEAU has been the Chief Operating Officer of Fonda since March
1995 a Director of Fonda since 1988 and a Director of the Company since May
1989. Mr. Uleau was Executive Vice President and Chief Financial Officer of the
Company from 1989 through March 1994. He served as President of Cardinal
Container Corporation (which was acquired by the Company in 1985) from 1983 to
1986. Mr. Uleau started his career as an accountant at Deloitte, Haskins and
Sells from 1969 to 1972, after which he spent several years in various
capacities at IU International, a transportation and paper products
conglomerate. Mr. Uleau is a Director and Chief Operating Officer of Creative
Expressions Group, Inc., a company wholly-owned by Dennis Mehiel.
JAMES ARMENAKIS has been a Director of the Company since May 1996. He
has been a partner in Armenakis & Armenakis, a New York City law firm, since
1990.
JOHN NEVIN has been a Director of the Company since May 1996. He has
been an Executive Vice President at Fieldcrest Cannon, Inc. since October 1995.
From September 1990 to October 1995 he was a Senior Vice President at James
River Corporation. From 1957 to 1990, Mr. Nevin served in various capacities at
International Paper Company, including Vice President and Group Executive of the
Pulp and Coated Papers Businesses.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned, whether paid or
deferred, to the Company's Chief Executive Officer and its other four most
highly compensated executive officers during Fiscal 1996 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company for the Fiscal 1994, 1995, and 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation(1) Compensation
---------------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Option/SARs Compensation
--------------------------- ---- ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis Mehiel...................... 1996 $369,166 $173,131 $31,574(2) - $101,412(3)
Chairman of the Board of 1995 333,044 $375,000 38,904(2) - 137,448(3)
Directors and Chief Executive 1994 373,641 - 16,462(2) - 87,287(3)
Officer
Chris Mehiel....................... 1996 167,333(4) 60,000 - -
Executive Vice President and 1995 24,000 - - - -
Chief Operating Officer 1994 144,000 - - - -
Gerald K. Adams.................... 1996 31,445(5) $71,000 500(6) - -
Chief Executive Officer of Box 1995 - - - - -
USA Group Inc. 1994 - - - - -
Timothy D. McMillin................ 1996 154,542(4) 40,000 1,250(7) - -
Senior Vice President 1995 - - - - -
and Chief Financial Officer 1994 - - - - -
Howard Brainin..................... 1996 33,333(8) - - - -
Regional Vice President of Box 1995 - - - -
USA Group, Inc. 1994 - - - - -
-
</TABLE>
- -----------------------------
(1) Unless otherwise indicated, the Named Executive Officers did not receive
any annual compensation, stock options, restricted stock awards, SARs,
long-term incentive plan payments or any perquisites or other personal
benefits that exceeded the lesser of $50,000 or 10% of the salary and bonus
for such officer during Fiscal 1996, 1995 and 1994.
(2) Includes imputed interest from non-interest bearing loans provided to
Dennis Mehiel by the Company in Fiscal 1996, 1995 and 1994.
(3) Consists of split-dollar term life insurance premiums for Mr. Mehiel paid
by the Company.
(4) Consists of salary for employment commencing in September 1995.
(5) Consists of salary for employment commencing on June 24, 1996.
(6) Represents imputed interest from non-interest bearing loan provided to Mr.
Adams by the Company.
(7) Represents imputed interest from non-interest bearing loan provided to Mr.
McMillin by the Company.
(8) Consists of salary for employment commencing on May 31, 1996.
18
<PAGE>
COMPENSATION OF DIRECTORS
Any Director who is not an employee of the Company receives annual
compensation of (i) $12,000 (provided such director attends five meetings per
year), (ii) a fee of $1,000 for attendance at each meeting of the Board of
Directors or any committee thereof and (iii) 1,000 SARs. Directors who are
employees of the Company do not receive any compensation or fees for service on
the Board of Directors.
STOCK APPRECIATION RIGHTS
No Named Executive Officer received any grants of stock appreciation
rights ("SARs") during Fiscal 1996, and at the end of Fiscal 1996, no Named
Executive Officers held any SARs.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of November 30, 1996 with
respect to the beneficial ownership of shares of Common Stock:
PERCENTAGE OF
AMOUNT OF BENEFICIAL BENEFICIAL OWNERSHIP
OWNERSHIP OF SHARES OF SHARES
NAME OF COMMON STOCK OF COMMON STOCK
- ---- --------------- ---------------
Dennis Mehiel......... 6,815,867 100%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Dennis Mehiel, Chairman and Chief Executive Officer of the Company, is
an owner of entities from which the Company rents certain property, plant and
equipment. Rental expense incurred and paid to these entities in Fiscal 1996,
Fiscal 1995 and Fiscal 1994 amounted to approximately $1.0 million, $0.9
million, and $1.1 million, respectively. The Company believes that such rents
were not in excess of market levels. The partition plant located in
Jacksonville, Florida is currently leased by Fonda from Mr. Mehiel, and a
portion of the facility is subleased to the Company.
Dennis Mehiel has been a part owner since 1993 of MannKraft, to which
the Company sold approximately $1,351,000 and 3,300,000 of material in Fiscal
1996 and Fiscal 1994, respectively. The Company believes that the prices at
which such sales were made are not below market levels. There were no material
sales to MannKraft in Fiscal 1995.
In March 1995, the Company spun off its Fonda subsidiary to Dennis
Mehiel. The Company sold approximately $1.1 million and $.06 million of material
to Fonda in Fiscal 1995 and Fiscal 1994, respectively. The Company believes that
the prices at which such sales were made are not below market levels.
Chris Mehiel, Chief Operating Officer of the Company has been a part
owner since 1994 of Fibre Marketing, to which the Company sold approximately
$2.0 million and $3.4 million of material in Fiscal 1996 and Fiscal 1995,
respectively. The Company believes that the prices at which such sales were made
are not below market levels. There were no material sales to Fibre Marketing in
Fiscal 1994.
The Company has outstanding notes and loan receivables from Gerald
Adams and Timothy McMillin in the amount of $100,000 and $25,000, respectively,
at the end of Fiscal 1996 which are non-interest bearing and are due on June 30,
1999 and on demand, respectively. The Company had outstanding notes and loans
receivables from Dennis Mehiel in the amount of $0.8 million and $1.5 million at
the end of Fiscal 1996 and Fiscal 1995 respectively, all of which have been paid
and were non-interest bearing. Of these amounts, approximately $0.8 million and
$0.7 million relate to the cumulative premiums on life insurance policies paid
by the Company on behalf of Mr. Mehiel at the end of Fiscal 1996 and Fiscal
1995, respectively.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:
Index to Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets as of July 31, 1996 and 1995
Consolidated Statements of Operations for the years ended July 31,
1996, 1995 and 1994
Consolidated Statements of Stockholder's Equity for the years ended
July 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended July 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
(B) EXHIBITS:
Exhibits 2.1 through 10.6 and Exhibit 21.1, 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 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.
20
<PAGE>
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.
12.1 Statement re computation of ratios.
21.1 Subsidiaries of the registrant.
23.1 Consent of BDO Seidman, LLP.
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.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
FOUR M CORPORATION
By:/s/Dennis Mehiel
----------------
Dennis Mehiel
Chairman of the Board and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Dennis Mehiel Chairman of the Board and Director December 12, 1996
- ----------------- (Principal Executive Officer)
Dennis Mehiel
/s/ Chris Mehiel Executive Vice President, Chief December 12, 1996
- ---------------- Operating Officer and Director
Chris Mehiel
/s/ Timothy D. McMillin Senior Vice President, Chief December 12, 1996
- ----------------------- Financial Officer and Director
Timothy D. McMillin (Principal Accounting Officer)
Director December , 1996
- -------------------
Clinton G. Ames
/s/ James Armenakis Director December 12, 1996
- -------------------
James Armenakis
/s/ Lawrence A. Bishop Director December 12, 1996
- ----------------------
Lawrence A. Bishop
Director December , 1996
- -------------------
Samuel B. Guren
/s/ John Nevin Director December 12, 1996
- --------------
John Nevin
/s/ Thomas Uleau Director December 12, 1996
- ----------------
Thomas Uleau
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
FOUR M PAPER CORPORATION
By:/s/Dennis Mehiel
----------------
Dennis Mehiel
Chairman of the Board and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Dennis Mehiel Chairman of the Board and Director December 12, 1996
- ----------------- (Principal Executive Officer)
Dennis Mehiel
/s/ Chris Mehiel Executive Vice President, Chief December 12, 1996
- ---------------- Operating Officer and Director
Chris Mehiel
/s/ Timothy D. McMillin Senior Vice President, Chief December 12, 1996
- ----------------------- Financial Officer and Director
Timothy D. McMillin (Principal Accounting Officer)
Director December , 1996
- -------------------
Clinton G. Ames
/s/ James Armenakis Director December 12, 1996
- -------------------
James Armenakis
/s/ Lawrence A. Bishop Director December 12, 1996
- -------------------
Lawrence A. Bishop
Director December , 1996
- -------------------
Samuel B. Guren
/s/ John Nevin Director December 12, 1996
- --------------
John Nevin
/s/ Thomas Uleau Director December 12, 1996
- ----------------
Thomas Uleau
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
BOX USA GROUP, INC.
By:/s/Dennis Mehiel
----------------
Dennis Mehiel
Chairman of the Board and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Dennis Mehiel Chairman of the Board and Director December 12, 1996
- ----------------- (Principal Executive Officer)
Dennis Mehiel
/s/ Chris Mehiel Executive Vice President, Chief December 12, 1996
- ---------------- Operating Officer and Director
Chris Mehiel
/s/ Timothy D. McMillin Senior Vice President, Chief December 12, 1996
- ----------------------- Financial Officer and Director
Timothy D. McMillin (Principal Accounting Officer)
Director December , 1996
- -------------------
Clinton G. Ames
/s/ James Armenakis Director December 12, 1996
- -------------------
James Armenakis
/s/ Lawrence A. Bishop Director December 12, 1996
- -------------------
Lawrence A. Bishop
Director December , 1996
- -------------------
Samuel B. Guren
/s/ John Nevin Director December 12, 1996
- --------------
John Nevin
/s/ Thomas Uleau Director December 12, 1996
- ----------------
Thomas Uleau
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
PAGE PACKAGING CORPORATION
By:/s/Dennis Mehiel
----------------
Dennis Mehiel
Chairman of the Board and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Dennis Mehiel Chairman of the Board and Director December 12, 1996
- ----------------- (Principal Executive Officer)
Dennis Mehiel
/s/ Chris Mehiel Executive Vice President, Chief December 12, 1996
- ---------------- Operating Officer and Director
Chris Mehiel
/s/ Timothy D. McMillin Senior Vice President, Chief December 12, 1996
- ----------------------- Financial Officer and Director
Timothy D. McMillin (Principal Accounting Officer)
Director December , 1996
- -------------------
Clinton G. Ames
/s/ James Armenakis Director December 12, 1996
- -------------------
James Armenakis
/s/ Lawrence A. Bishop Director December 12, 1996
- -------------------
Lawrence A. Bishop
Director December , 1996
- -------------------
Samuel B. Guren
/s/ John Nevin Director December 12, 1996
- --------------
John Nevin
/s/ Thomas Uleau Director December 12, 1996
- ----------------
Thomas Uleau
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
BOX USA, INC.
By:/s/Dennis Mehiel
----------------
Dennis Mehiel
Chairman of the Board and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Dennis Mehiel Chairman of the Board and Director December 12, 1996
- ----------------- (Principal Executive Officer)
Dennis Mehiel
/s/ Chris Mehiel Executive Vice President, Chief December 12, 1996
- ---------------- Operating Officer and Director
Chris Mehiel
/s/ Timothy D. McMillin Senior Vice President, Chief December 12, 1996
- ----------------------- Financial Officer and Director
Timothy D. McMillin (Principal Accounting Officer)
Director December , 1996
- -------------------
Clinton G. Ames
/s/ James Armenakis Director December 12, 1996
- -------------------
James Armenakis
/s/ Lawrence A. Bishop Director December 12, 1996
- -------------------
Lawrence A. Bishop
Director December , 1996
- -------------------
Samuel B. Guren
/s/ John Nevin Director December 12, 1996
- --------------
John Nevin
/s/ Thomas Uleau Director December 12, 1996
- ----------------
Thomas Uleau
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
FOUR M MANUFACTURING GROUP OF
GEORGIA, INC
By:/s/Dennis Mehiel
----------------
Dennis Mehiel
Chairman of the Board and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/s/ Dennis Mehiel Chairman of the Board and Director December 12, 1996
- ----------------- (Principal Executive Officer)
Dennis Mehiel
/s/ Chris Mehiel Executive Vice President, Chief December 12, 1996
- ---------------- Operating Officer and Director
Chris Mehiel
/s/ Timothy D. McMillin Senior Vice President, Chief December 12, 1996
- ----------------------- Financial Officer and Director
Timothy D. McMillin (Principal Accounting Officer)
Director December , 1996
- -------------------
Clinton G. Ames
/s/ James Armenakis Director December 12, 1996
- -------------------
James Armenakis
/s/ Lawrence A. Bishop Director December 12, 1996
- -------------------
Lawrence A. Bishop
Director December , 1996
- -------------------
Samuel B. Guren
/s/ John Nevin Director December 12, 1996
- --------------
John Nevin
/s/ Thomas Uleau Director December 12, 1996
- ----------------
Thomas Uleau
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
Index to Financial Statements
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of stockholder's equity F-5
Statements of cash flows F-6
Notes to financial statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Four M Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Four M
Corporation and subsidiaries (the "Company") as of July 31, 1996 and 1995 and
the related consolidated statements of operations and stockholder's equity and
cash flows for each of the three years in the period ended July 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at July
31, 1996 and 1995 and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 1996 in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
--------------------
Valhalla, New York
October 11, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
BALANCE SHEETS
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------
JULY 31, July 31,
1996 1995
- -----------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 811 $ 1,226
Accounts receivable, less allowance for doubtful accounts of $1,909
and $1,778 (Notes 2 and 7) 43,193 22,867
Notes, advances and other receivables 1,433 1,452
Inventories (Notes 5 and 7) 32,732 15,110
Deferred income taxes (Note 9) 10,241 2,001
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 88,410 42,656
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
(NOTES 6 AND 7) 157,973 27,044
GOODWILL AND OTHER INTANGIBLES, NET OF ACCUMULATED AMORTIZATION OF
$763 AND $546 933 1,007
OTHER ASSETS (NOTE 12) 16,493 2,430
- ---------------------------------------------------------------------------------------------
$263,809 $73,137
- ---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 48,380 $24,703
Current maturities of long-term debt and subordinated debt (Notes 7
and 8) 2,440 3,449
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 50,820 28,152
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 7) 187,092 29,918
SUBORDINATED DEBT, LESS CURRENT MATURITIES (NOTE 8) -- 1,080
DEFERRED INCOME TAXES (NOTE 9) 10,390 3,663
MINORITY INTEREST (NOTE 10) -- 326
OTHER LIABILITIES 1,145 1,349
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 249,447 64,488
- ---------------------------------------------------------------------------------------------
COMMITMENT AND CONTINGENCIES (NOTES 11, 12 AND 13)
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 717 117
Retained earnings 13,703 8,590
- ---------------------------------------------------------------------------------------------
15,324 9,611
Less treasury stock, at cost (413,903 shares) 962 962
- ---------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 14,362 8,649
- ---------------------------------------------------------------------------------------------
$263,809 $73,137
- ---------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------
Years ended July 31,
--------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 257,817 $ 271,994 $ 228,563
COST OF GOODS SOLD 222,105 232,154 205,025
- -------------------------------------------------------------------------------------------------
GROSS PROFIT 35,712 39,840 23,538
- -------------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 19,217 19,703 22,018
- -------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 16,495 20,137 1,520
OTHER INCOME (EXPENSE):
Interest expense (7,565) (5,607) (5,448)
Gain on sale of assets and other (Note 3) -- 1,927 126
- -------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit) for income
taxes, minority interest and extraordinary gain on
early retirement of debt 8,930 16,457 (3,802)
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 9) 3,817 5,483 (325)
- -------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY
GAIN ON EARLY RETIREMENT OF DEBT 5,113 10,974 (3,477)
MINORITY INTEREST (NOTE 10) -- (146) (180)
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING
FOR TAXES ON INCOME (NOTE 9) -- -- 381
EXTRAORDINARY GAIN ON EARLY RETIREMENT OF DEBT
(NOTES 7 AND 8) -- 2,219 --
- -------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 5,113 $ 13,047 $ (3,276)
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
COMMON Common Additional
STOCK Stock Paid in Retained Treasury
SHARES Amount Capital Earnings Stock Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1993 6,816 $904 $117 $ 4,495 $ 962 $ 4,554
Net loss -- -- -- (3,276) -- (3,276)
- -------------------------------------------------------------------------------------------------
Balance, July 31, 1994 6,186 $904 $117 $ 1,219 $ 962 $ 1,278
- -------------------------------------------------------------------------------------------------
Net income -- -- -- 13,047 -- 13,047
Distribution (Note 3) -- -- -- (5,676) -- (5,676)
- -------------------------------------------------------------------------------------------------
Balance, July 31, 1995 6,816 $904 $117 $ 8,590 $ 962 $ 8,649
- -------------------------------------------------------------------------------------------------
Net income -- -- -- 5,113 -- 5,113
Warrant issuance (Note 3) -- -- 600 -- -- 600
- -------------------------------------------------------------------------------------------------
Balance, July 31, 1996 6,816 $904 $717 $ 13,703 $ 962 $ 14,362
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------
Years Ended July 31,
----------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 5,113 $ 13,047 $ (3,276)
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 5,182 5,245 5,276
Allowance for doubtful accounts (290) 467 678
Non-cash interest expense -- 499 1,123
Gain on sale/closure of subsidiary (166) (1,618) --
Gain on exchange of stock for debt -- (2,393) (381)
Deferred income taxes (1,506) (312) (600)
Loss (gain) on sale of fixed assets 246 32 (830)
Change in assets and liabilities, net of effect of
acquisitions and disposals:
Accounts, notes and other receivables 2,218 (4,273) (5,061)
Inventories 12,296 (10,594) (1,194)
Other assets, net of other liabilities (512) 275 (387)
Accounts payable and accrued liabilities 4,479 (2,592) 9,446
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 27,060 (2,217) 4,794
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,612) (3,690) (3,916)
Proceeds from sale of subsidiaries 898 1,618 1,401
Proceeds from sale or exchange of fixed assets 679 397 174
Payments for acquisition, net of cash acquired -- -- (6,601)
Purchase of net assets of St. Joe Container (159,168) -- --
Payment related to subsidiary spin-off, net of common stock
sold -- (300) --
Loans made to employees, net of payment (439) -- (184)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (166,642) (1,975) (9,126)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bond issuance 170,000 -- --
Financing costs (8,798) -- --
Short-term borrowings 14,419 -- 3,428
Repayment of short-term borrowings (22,953) -- --
Payments to pre-petition creditors (Note 7) -- (180) (274)
Secured term, mortgage, equipment and other borrowings 380 9,094 7,446
Repayments of long-term debt (13,881) (5,396) (5,418)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 139,167 3,518 5,182
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (415) (674) 850
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,226 1,900 1,050
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 811 $ 1,226 $ 1,900
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES
Business
Four M Corporation and subsidiaries ("Four M" or the "Company") are
manufacturers of corrugated packaging and semi-chemical corrugating medium and
prior to the distribution of The Fonda Group, Inc. ("Fonda") (See Note 3), paper
cups and plates. The Company uses the trade name Box USA to conduct the bulk of
its business activities.
Four M has no assets or independent business operations other than its ownership
interest in its subsidiaries.
Principles of Consolidation
The consolidated financial statements include the accounts of Four M Corporation
and all of its subsidiaries. All of the common stock of Four M is owned by its
Chairman of the Board and Chief Executive Officer, Dennis Mehiel (the
"Stockholder"). Intercompany accounts and transactions have been eliminated.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation is based on estimated useful lives of the assets and is provided
using the straight-line method. For income tax purposes, statutory accelerated
methods of depreciation are used.
Goodwill and Other Intangibles
Goodwill and other intangibles principally relate to the excess of the purchase
price of certain acquisitions over the fair value of the net assets acquired and
are being amortized over their estimated useful lives, not exceeding a 40-year
period, using the straight-line method.
F-7
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Other Assets
Other assets at July 31, 1996 include deferred financing costs of approximately
$8,798,000 and an investment in an unconsolidated affiliate of approximately
$5,250,000 (see Note 3).
Accounts Payable and Accrued Liabilities
Accrued liabilities were approximately $25,915,000 and $4,603,000 at July 31,
1996 and 1995, respectively. At July 31, 1996 accrued liabilities included
approximately $12,492,000 in reserves for unfavorable contracts related to the
Acquisition (see Note 4) and approximately $5,000,000 in acquisition related
provisions (See Note 3). In addition, accrued liabilities consisted of various
items including employee benefits, utilities, interest and plant repairs at July
31, 1996 and 1995.
Revenue Recognition
Revenue is recognized when products are shipped.
Income Taxes
Deferred taxes are provided on the differences between the basis of assets and
liabilities for financial reporting and income tax purposes using the statutory
rates enacted for future periods. A consolidated federal income tax return is
filed. State income tax returns are filed separately.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
made interest payments of $4,204,000, $4,882,000 and $4,015,000 in 1996, 1995
and 1994, respectively and income tax payments of $3,668,000, $6,052,000 and
$1,080,000 in 1996, 1995 and 1994, respectively. In addition, the Company
purchased equipment under capital leases for $7,862,000 in 1996 and had non-cash
distributions of $5,676,000 and $1,262,000 in 1995 and 1994, respectively.
Reclassifications
Certain prior year balances have been reclassified to conform with the 1996
presentation.
F-8
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Long-lived Assets
As prescribed in Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed Of," long-lived assets are required to be adjusted to net realizable
value if, in the opinion of management, there is a permanent diminution in
value. The adoption of this pronouncement does not have a significant impact on
the Company's financial statements.
Fair Value of Financial Instruments
The carrying value of financial instruments including cash, accounts receivable,
advances and other receivables and accounts payable approximate fair value
because of the relatively short maturities of these instruments. The carrying
value of long-term debt, including the current portion and subordinated debt,
approximate fair value based upon market rates for similar instruments.
2. CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with financial
institutions having high credit ratings. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different geographical regions. At July 31, 1996, the Company had no significant
concentrations of credit risk. No single customer accounted for 10% or more of
net sales during any of the reported periods.
F-9
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. ACQUISITIONS AND
DISPOSITIONS
St. Joe Container Company
The Company entered into an Asset Purchase Agreement (the "Agreement") on
November 1, 1995, as amended, for the Company to acquire substantially all of
the assets and certain liabilities of St. Joe Container Company for
approximately $160 million plus financing costs (the "Acquisition"). In
accordance with the Agreement, the Company entered into a joint venture (the
"Mill Joint Venture") between the Company and Stone Container Corporation
("Stone Container") to acquire a paper mill (the "Mill") owned by St. Joe Forest
Products Company having an annual production capacity of approximately 500,000
tons (See Note 4). On May 30, 1996 the Company issued senior secured notes for
$170 million and warrants valued at $600,000 and entered into a revolving credit
facility of $80 million to, in part, finance such transactions. The Acquisition
has been accounted for using the purchase method of accounting, and,
accordingly, the purchase price has been allocated to the assets purchased and
the liabilities assumed based upon fair value at the date of the Acquisition.
The purchase price was allocated as follows:
- -------------------------------------------------------------------------------
Accounts receivable, net $ 23,558
Inventories, net 30,257
Property, plant and equipment, net 120,747
Long term investment 5,250
Deferred financing costs 8,798
Accounts payable and accrued liabilities (2,552)
Acquisition related provisions (a) $ (5,000)
Reserve for unfavorable contracts (b) (12,492) (17,492)
- -------------------------------------------------------------------------------
Total costs allocated (c) $ 168,566
- -------------------------------------------------------------------------------
(a) The Acquisition related provisions consist of approximately $3.0 million
related to professional costs incurred with respect to the Acquisition,
approximately $1.0 million related to a plant closure and approximately
$1.0 million for severance and relocation costs.
F-10
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(b) The Company has provided for two contracts related to the Acquisition. The
first is with the Mill Joint Venture, which requires the Company and Stone
Container to each purchase one-half of the Mill's annual output in
accordance with the Output Purchase Agreement. Management has determined it
is probable that the Company will be required to pay additional amounts
above market price for linerboard in fiscal 1997 as result of this
agreement and has provided a reserve for $11 million in accordance with
Accounting Principles Board Opinion number 16 "Business Combinations". The
second relates to a paper mill in which the Company acquired a 12.6%
interest as part of the Acquisition. The Company, in accordance with a
sales agreement, is required to purchase 12.6% of the mill's annual
production of medium paper at a defined price. Management has determined it
is probable that the Company will be required to pay an aggregate $1.5
millon above market price in fiscal 1997 and 1998 as a result of this
agreement.
(c) The Company did not allocate any portion of the purchase price to its
investment in the Mill Joint Venture since management believes the
investment value is nominal (see Note 4).
The operating results of these acquired facilities have been included in the
consolidated financial statements from the date of the Acquisition. Pro forma
unaudited consolidated results of operations as if the Acquisition had taken
place as of August 1, 1994, rather than at May 30, 1996 are as follows (in
thousands):
Twelve months ended July 31,
------------------------------
1996 1995
- --------------------------------------------------------------------------------
Net sales $508,878 $534,680
(Loss)income before extraordinary items (3,767) 22,867
Net (loss) income (3,767) 25,086
- --------------------------------------------------------------------------------
F-11
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The unaudited pro forma results have been prepared for comparative purposes only
and include adjustments based on available information and certain assumptions
that the Company believes are reasonable. These adjustments include: 1)
additional interest expense resulting from the pro forma capitalization of the
Company 2) reduced cost of goods sold of the acquired facilities to reflect raw
material price savings that the Company has historically realized and the effect
of the Output Purchase Agreement and 3) the effect of the change from accounting
for inventories on the LIFO method to the FIFO method on cost of goods sold of
the facilities purchased in the Acquisition.
Timberline Packing Inc.
In August 1995, the Company sold its 67% interest in Timberline Packaging, Inc.
The sale resulted in a gain of approximately $166,000.
The Fonda Group, Inc.
In March 1995, Fonda concluded a purchase agreement with the Scott Paper Company
to acquire certain net assets and the business of its Scott Foodservice Division
for approximately $30 million in cash plus the assumption of certain
liabilities.
In March 1995, the stock of Fonda was distributed to the Stockholder, except for
3.5% which was distributed to a lender as described in Note 8. The distribution
to the Stockholder amounted to 96.5% of the net assets of Fonda as of March
31,1995.
Accordingly, the results of operations of Fonda are not included in the
financial statements after March 31, 1995.
The accounts of Fonda as of and for the eight months ended March 31, 1995 and
for the years ended July 31, 1994 and 1993 are summarized as follows (in
thousands):
March 31, July 31, July 31,
1995 1994 1993
- -------------------------------------------------------------------------------
Net sales $42,413 $61,839 $61,079
Operating income 1,352 1,788 2,835
Net (loss) income (57) 251 960
Total assets 33,332 24,668 23,598
Stockholder's equity 5,882 5,977 3,717
- -------------------------------------------------------------------------------
F-12
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Fiber Partition Products
Effective March 20, 1995, the Company disposed of certain assets relating to its
fiber partition products which resulted in a gain before income taxes of
approximately $1,618,000.
Consolidated Packaging Corporation, Debtor-In-Possession
On January 5, 1994, the Company acquired certain assets of Consolidated
Packaging Corporation, Debtor-in-Possession (the "CPC Acquisition"). The
purchase price was approximately $5,285,000. Assets acquired included accounts
receivable, inventories, equipment and certain real estate and leasehold
interests including a paper mill in Ft. Madison, Iowa. The assets were
transferred to certain subsidiaries. The financial statements reflect the
operations of such subsidiaries from the date of acquisition.
Effective July 31, 1994, the Company disposed of certain of the assets purchased
in the CPC Acquisition, resulting in a gain before income taxes of approximately
$622,000.
In November 1994, the Company sold certain additional assets purchased in the
CPC Acquisition, consisting of substantially all of the inventory, property and
equipment and certain tangible assets resulting in a loss of approximately
$73,000 which was recorded in 1994.
4. INVESTMENT IN MILL
JOINT VENTURE
On May 30, 1996, the Company invested $5 million for a 50% interest in the Mill
Joint Venture (see Note 3). In addition, the Company and Stone Container have
each agreed to provide the Mill Joint Venture with up to $10 million of
subordinated indebtedness if needed for general corporate purposes. The
Company's investment in the Mill Joint Venture will be accounted for using the
equity method of accounting.
Summarized unaudited balance sheet and income statement information of the Mill
Joint Venture, as of July 31, 1996, and for the period from May 30, 1996 (the
date of Acquisition) through July 31, 1996 were as follows:
F-13
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Summarized unaudited balance sheet information (in thousands):
1996
- --------------------------------------------------------------------------------
Current assets $ 32,768
Land, buildings and equipment, net 185,202
Other assets 3,583
- --------------------------------------------------------------------------------
Current liabilities 17,603
Long term liabilities 170,796
- --------------------------------------------------------------------------------
Summarized unaudited statement of operations (in thousands):
FROM DATE
OF
ACQUISITION
THROUGH
JULY 31, 1996
- -------------------------------------------------------------------------------
Net sales $24,876
Gross loss (3,007)
Net operating loss (3,354)
Interest expense 3,642
Net loss (6,996)
- -------------------------------------------------------------------------------
During the period ended July 31, 1996, the Company did not exert significant
influence over the operations of the Mill Joint Venture. Accordingly, the
Company did not record 50% of the Mill Joint Venture's operating results during
such period, aggregating ($3.5 million). Significant influence is expected to be
achieved in the first quarter of fiscal 1997.
F-14
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. INVENTORIES
Inventories as of July 31, consist of the following (in thousands):
1996 1995
- --------------------------------------------------------------------------------
Raw materials $25,410 $10,710
Work-in-process 1,563 632
Finished goods 5,759 3,768
- --------------------------------------------------------------------------------
$32,732 $15,110
- --------------------------------------------------------------------------------
6. PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment as of July 31, consist of the following (in
thousands):
Lives in
Years July 31,
------------------------------
1996 1995
- -------------------------------------------------------------------------------
Land and buildings 20 $ 50,015 $ 9,107
Machinery and equipment 3-20 125,574 31,819
Leasehold improvements 5-10 1,461 1,362
Furniture and fixtures 5 2,798 2,987
Autos and trucks 5 365 306
- -------------------------------------------------------------------------------
180,213 45,581
Less: accumulated depreciation 22,240 18,537
- -------------------------------------------------------------------------------
$157,973 $27,044
- -------------------------------------------------------------------------------
Depreciation expense was approximately $5,118,000 $4,887,000 and $5,014,000 for
the years ended July 31, 1996, 1995 and 1994, respectively.
Property, plant and equipment as of July 31, includes equipment under capital
leases as follows (in thousands):
July 31,
----------------------------
1996 1995
- -------------------------------------------------------------------------------
Equipment $8,332 $1,170
Less: accumulated depreciation 634 311
- -------------------------------------------------------------------------------
$7,698 $ 859
- -------------------------------------------------------------------------------
F-15
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT
Long-term debt as of July 31, consists of the following (in thousands):
1996 1995
- --------------------------------------------------------------------------------
12% senior secured notes(a) $170,000 $ -
Revolving credit agreements(b) 7,258 16,110
Terms loans(c) - 9,913
Mortgages (weighted average interest rate
as of July 31, 1996 7.9%) 2,456 2,620
Pre-petition creditors (discounted at 9%)(d) - 275
Other 2,267 2,857
- --------------------------------------------------------------------------------
181,981 31,775
Capital lease obligations (Note 11) 7,551 592
- --------------------------------------------------------------------------------
189,532 32,367
Less: current portion 2,440 2,449
- --------------------------------------------------------------------------------
Long-term debt $187,092 $29,918
- --------------------------------------------------------------------------------
(a) On May 30, 1996, the Company issued $170,000,000 of 12% series A Senior
Secured Notes ("the Notes") due 2006 to, in part, finance the Acquisition
of substantially all of the assets of St. Joe Container Company. The Notes
are secured by the Company's real and personal property other than accounts
receivable, inventory and certain related assets and interest is payable
semi-annually in arrears on June 1 and December 1 of each year beginning
December 1, 1996.
F-16
<PAGE>
(b) On May 30, 1996, the Company entered into a new credit facility in the
amount of $80 million. The credit facility is secured by accounts
receivable, inventories and certain related assets and advances are limited
to 85% of eligible receivables and the lesser of 60% of eligible
inventories or $40 million. The new credit facility matures on May 30,
2001. Interest rate at July 31, 1996 was prime (8.25% at July 31, 1996)
plus .75%. The Company has the ability to convert interest on some or all
of its advances to a LIBOR based rate. At July 31, 1996, the Company had
available approximately $29.2 million of additional credit under this
agreement. The Company is subject to certain loan covenants, the most
restrictive of which require the Company to maintain certain financial
ratios beginning on October 30, 1996. The Company believes that they will
be in compliance with these covenants at October 30, 1996. The Company is
in compliance with all loan covenants which began on May 30, 1996.
F-17
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(c) The term loans were paid off on May 30, 1996 in conjunction with the new
credit facility.
(d) In January 1995, Four M assumed certain outstanding pre-petition creditor
liabilities from Fonda aggregating $870,000 in exchange for partial
settlement of amounts owed to Fonda by Four M. In July 1995, this assumed
liability of $870,000 was settled for $455,000 resulting in an
extraordinary gain or $241,000 net of income taxes.
Long-term debt, excluding capital lease obligations, is payable as follows (in
thousands):
Year ending July 31,
- --------------------------------------------------------------------------------
1997 $ 1,393
1998 919
1999 485
2000 210
2001 159
Thereafter 178,815
- --------------------------------------------------------------------------------
$181,981
- --------------------------------------------------------------------------------
8. SUBORDINATED DEBT
Subordinated debt at July 31, consists of the following (in thousands):
July 31,
------------------------
1996 1995
- -------------------------------------------------------------------------------
Debt with warrants (a): $ - $2,080
Less: current portion - 1,000
- -------------------------------------------------------------------------------
Long-term subordinated debt $ - $1,080
- -------------------------------------------------------------------------------
F-18
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In January 1990, the Company borrowed $4,000,000 (the "Subordinated Debt") from
a lender (the "Holder") and issued a warrant (the "Warrant") to the Holder to
purchase 513,000 shares of its common stock. Interest on the Warrant was
accreted such that at March 31, 1995, the Warrant had a value of $2,184,000. In
March 1995, the Subordinated Debt was restructured as follows: (i) the Company
distributed 35 shares (3.5%) of the issued and outstanding stock of Fonda to the
Holder (see Note 3), in exchange for a portion of the outstanding principal
balance of the Subordinated Debt; and (ii) in consideration of the Holder's
surrendering the Warrant, and in satisfaction of the remaining portion of the
Subordinated Debt and interest accrued thereon, payments aggregating $4,000,000
were made, with a final payment of $1,080,000 which was made on July 30, 1996,
together with interest accrued thereon. As a result, the Company recognized an
extraordinary gain of $1,978,000 in 1995 which represented the excess of the
recorded value of the Warrant settled less $206,000, representing 3.5% of the
net assets of Fonda at March 31, 1995.
9. INCOME TAXES
Components of provision (benefit) for income taxes are as follows (in
thousands):
July 31,
----------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Current:
Federal $4,441 $4,675 $ -
State 889 1,120 275
- -------------------------------------------------------------------------------
5,330 5,795 275
- -------------------------------------------------------------------------------
Deferred:
Federal (1,261) (250) (481)
State (252) (62) (119)
- -------------------------------------------------------------------------------
(1,513) (312) (600)
- -------------------------------------------------------------------------------
Provision (benefit) for income
taxes before extraordinary item 3,817 5,483 (325)
- -------------------------------------------------------------------------------
Taxes on extraordinary item - 174 -
- -------------------------------------------------------------------------------
$ 3,817 $5,657 $ (325)
- -------------------------------------------------------------------------------
F-19
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred income taxes reflect the tax effect of temporary differences between
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. Deferred tax assets (liabilities) at July 31, result from
temporary differences as follows (in thousands):
1996 1995
- --------------------------------------------------------------------------------
Allowance for doubtful accounts receivable $ 581 $ 751
Capitalized inventory costs 1,213 762
Accrued salaries and benefits 730 299
Provisions for losses 7,350 -
Other 367 189
- --------------------------------------------------------------------------------
Gross deferred tax assets 10,241 2,001
Property, plant and equipment (10,390) (3,663)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ (149) $ (1,662)
- --------------------------------------------------------------------------------
The effective tax rate was different than the federal statutory rate due to the
following:
1996 1995 1994
- --------------------------------------------------------------------------------
Tax (benefit) at the
statutory Federal rate 35.0% 34.0% (34.0)%
State income taxes (net of
Federal benefit) 6.4 4.0 7.0
Non-deductible interest - 3.0 5.3
Goodwill amortization .1 .1 1.4
Officers' life insurance - - .1
Provision for (reversal of)
valuation allowance - (3.7) 11.7
Permanent differences
related to sale of
subsidiary, ceased
operations and other 1.1 (4.1) -
Meals and entertainment .1 - -
- -------------------------------------------------------------------------------
42.7% 33.3% (8.5)
- -------------------------------------------------------------------------------
F-20
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
During 1994, the Company adopted the provisions of Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("FASB 109").
The cumulative effect of this change in method of accounting for taxes on income
has been reported as of the beginning of the 1994 fiscal year in the
consolidated statements of operations.
10. MINORITY INTEREST
Minority interest represents the minority stockholder's investment plus its
proportionate share of the income or loss of the respective subsidiary.
11. LEASES
The Company leases several facilities and certain equipment used in connection
with its manufacturing operations. Future minimum payments for capital leases
and noncancellable operating leases with initial or remaining terms of one year
or more are (in thousands):
Capital Operating
Year ending July 31, Leases Leases
- --------------------------------------------------------------------------------
1997 $ 1,870 $ 3,423
1998 1,839 3,024
1999 1,729 2,458
2000 1,666 1,737
2001 1,647 1,467
Thereafter 1,774 8,002
- --------------------------------------------------------------------------------
Total minimum lease payments 10,525 $20,111
-----------
Less: amount representing interest 2,974
- ----------------------------------------------------------------
Present value of capital lease obligations $ 7,551
- --------------------------------------------------------------------------------
Rent expense under operating leases was approximately $5,041,000, $4,613,000 and
$4,984,000 for the years ended July 31, 1996, 1995 and 1994, respectively.
F-21
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. RELATED PARTY
TRANSACTIONS
The Stockholder is an owner of entities from which the Company rents certain
property, plant and equipment. Rental expense for the three years ended 1996,
1995 and 1994 was approximately $964,000, $929,000 and $1,120,000, respectively.
The Company believes that such rents are not in excess of market levels. The
partition plant located in Jacksonville, Florida is currently leased by Fonda
from the Stockholder, and a portion of the facility is subleased to the Company.
The Stockholder has been a part owner since 1993 of MannKraft, to which the
Company sold approximately $1,351,000 and $3,300,000 of material in 1996 and
1994, respectively. There were no material sales to this entity in 1995. The
Company believes that the prices at which such sales were made are not below
market levels. On August 5, 1996, the Company acquired 490 shares of common
stock of Mannkraft Corporation from Stone Container Corporation (See Note 14).
The Company had outstanding receivables from officers and employees in the
amount of $1,124,000 and $1,474,000 at July 31, 1996 and 1995, respectively, all
of which are non-interest bearing. Of these amounts, $828,000 and $740,000
relate to amounts advanced on behalf of the Shareholder for premiums on life
insurance policies. These receivables are classified as other assets.
An officer of the Company has been part owner since 1994 of Fibre Marketing, to
which the Company sold approximately $2,024,000 and $3,400,000 of material in
1996 and 1995, respectively. The Company believes that the prices at which such
sales were made are not below market levels.
13. COMMITMENT AND
CONTINGENCIES
Purchase Commitments
The Company has commitments to purchase paperboard inventory from four major
vendors. The total commitment is for the purchase of up to 160,000 tons of
inventory through December 2001. The price per ton will be based on market
rates.
As discussed in Note 4, the Company has commitments to purchase one half the
production of the Mill. The price per ton is based on the Output Purchase
Agreement discussed in Note 4.
Additionally the Company is required to purchase 12.6% of the output of a medium
mill at prices defined in an agreement among the owners of the mill. The mill's
production capacity is approximately 140,000 tons annually.
F-22
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Litigation
On July 19, 1996, a civil action was filed in the Superior Court of Fulton
County, Georgia (the "Suit") by a former employee, 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 the Stockholder. The
plaintiff alleges that he 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. 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. The Suit is in the preliminary stages and management believes
that the outcome of this suit will not have a material impact on the Company's
financial statements.
The Company is involved in various other legal actions and claims arising in the
ordinary course of its business. Management believes that current litigation and
claims will be resolved without any material effect on the Company's financial
statements.
Savings and Investment Plans
The Company has two defined contribution savings and investment plans covering
most of its non-union employees with at least one year of service. One plan does
not provide for matching of employee contributions. Under the other plan,
employee contributions up to 6% of their salary are matched at 20%. Expenses
incurred under both plans amounted to approximately $195,000, $107,000 and
$81,000 for the years ended July 31, 1996, 1995 and 1994, respectively.
Pension Plans
The Company has defined contribution plans for its union employees.
Contributions are made by the Company at a defined rate per hour worked. Expense
incurred under these plans amounted to approximately $93,000, $67,000 and
$431,000 for the years ended July 31, 1996, 1995 and 1994, respectively.
F-23
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
D/B/A BOX USA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stock Appreciation Unit Plan
On September 8, 1993, the Company's Board of Directors approved a Stock
Appreciation Unit Plan (the "Plan"). Pursuant to the Plan units may be granted
to key employees at the discretion of the Chief Executive Officer and the
non-employee directors of the Company. Units awarded under the Plan are subject
to the vesting and redemption terms of the Plan. Employees may elect to redeem
vested units awarded under the Plan. Units to be redeemed will be paid in cash
over a period of time at an amount based on earnings and increases in book
value.
14. SUBSEQUENT EVENTS
Purchase of Fibre Marketing
Pursuant to a Limited Liability Company Agreement dated as of May 24, 1996, the
Company acquired a 50% interest in Fibre Marketing Company, L.L.C. ("Fibre
Marketing"). The Company made an aggregate capital contribution of $280,000 to
Fibre Marketing in August, 1996.
Disposition of Flint
On August 16, 1996, the Company discontinued its operations at its Flint,
Michigan facility and disposed of substantially all of the machinery and
equipment, finished goods and work-in-process inventory and certain related
assets utilized at such facility for a purchase price of approximately $2.6
million and a gain of approximately $480,000. The Company retained all accounts
receivable, accounts payable and raw material inventory. The equipment was
transferred pursuant to a like-kind exchange within the meaning of Section 1031
of the Code, as amended.
Purchase of MannKraft
On August 5, 1996, the Company acquired 490 shares of common stock of MannKraft
Corporation ("MannKraft") from Stone Container. The purchase represented 49% of
MannKraft's outstanding shares and was acquired by the Company for $5.5 million,
which was paid on August 6, 1996, resulting in an ownership interest of 50%.
This transaction was made in compliance with the covenants contained in the
Indenture. The Company's interest in MannKraft will be accounted for under the
consolidation method.
F-24
Exhibit 12.1
<TABLE>
<CAPTION>
FOUR M CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Fiscal Year Ended July 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest expense......................... $ 7,585 $ 5,607 $ 5,448 $ 4,948 $ 5,903
Rent expense............................. 5,041 4,613 4,984 4,997 5,442
One third rent expense................... 1,680 1,538 1,661 1,666 1,814
------ ------ ------ ------ ------
Fixed charges............................ $ 9,245 $ 7,145 $ 7,109 $ 6,614 $ 7,717
IBT...................................... $ 8,930 $16,457 $(3,802) $ (382) $ 1,435
Fixed charges from above................. 9,245 7,145 7,109 6,614 7,717
------- ------- ------- ------- -------
Earnings, as defined..................... $18,175 $23,602 $ 3,307 $ 6,232 $ 9,152
Ratio of earnings to fixed
charges.................................. 2.0x 3.3x 0.5x 1.0x 1.1x
======= ======= ======= ======== ========
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
Four M Corporation and Subsidiaries
We consent to the use of our report dated October 11, 1996, with
respect to the consolidated financial statements of Four M Corporation and
subsidiaries included in the Annual Report on Form 10-K ("Annual Report") and to
the reference to our firm under the heading "Selected Financial Data" in the
Annual Report.
/s/ BDO Seidman, LLP
--------------------
Valhalla, NY
December 12, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> JUL-31-1996
<CASH> 811
<SECURITIES> 0
<RECEIVABLES> 45,102
<ALLOWANCES> 1,909
<INVENTORY> 32,732
<CURRENT-ASSETS> 88,410
<PP&E> 157,973
<DEPRECIATION> 22,240
<TOTAL-ASSETS> 263,809
<CURRENT-LIABILITIES> 50,820
<BONDS> 187,092
0
0
<COMMON> 904
<OTHER-SE> 13,458
<TOTAL-LIABILITY-AND-EQUITY> 263,809
<SALES> 257,817
<TOTAL-REVENUES> 257,817
<CGS> 222,105
<TOTAL-COSTS> 222,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (290)
<INTEREST-EXPENSE> 7,565
<INCOME-PRETAX> 8,930
<INCOME-TAX> 3,817
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,113
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
