SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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
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(Exact name of registrant as specified in its charter)
Maryland 52-0822639
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 Stevens Avenue
Valhalla, New York 10595
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(Address of principal executive offices) (Zip Code)
(914) 749-3200
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Registrant's telephone number, including area code:
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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 |X| No |_|
As of May 1, 1997, the registrant had 6,815,867 shares of Common Stock
outstanding.
<PAGE>
FOUR M CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements (Unaudited): Page
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 (audited) 1
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 13
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
March 31, 1997 December 31, 1996
(unaudited) (audited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 383 $ 2,431
Accounts receivable, less allowance for doubtful accounts of 55,597 52,775
$1,192 and $1,621
Inventories (Note 6) 27,880 32,896
Deferred income taxes 10,861 12,661
Notes, advances and other receivables 5,903 3,863
Income taxes recoverable 5,696 4,207
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 106,320 108,833
Property, plant and equipment, net of accumulated depreciation 172,047 173,333
Goodwill and other intangibles, net of accumulated amortization 4,596 4,678
Other assets 17,294 16,801
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$300,257 $303,645
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- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 51,690 $ 60,537
Current maturities of long-term debt and subordinated debt 3,413 2,447
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 55,103 62,984
Long-term debt, less current maturities 213,987 208,777
Subordinated debt, less current maturities 1,913 1,914
Deferred income taxes 14,175 14,486
Minority interest and other liabilities 2,407 3,296
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 287,585 291,457
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Stockholder's equity:
Common stock, par value $.125: Authorized shares -
10,000,000; shares issued 7,229,770, and outstanding
6,815,867 904 904
Additional paid-in capital 717 717
Retained earnings 12,013 11,529
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13,634 13,150
Less treasury stock, at cost (413,903 shares) 962 962
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Total stockholder's equity 12,672 12,188
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$300,257 $303,645
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</TABLE>
The accompanying footnotes are an integral part of these financial statements.
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<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three months Ended March 31,
----------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $117,896 $52,469
Cost of goods sold 99,054 45,945
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Gross profit 18,842 6,524
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Selling, general and administrative expenses 11,706 4,020
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Income from operations 7,136 2,504
Other Income (expense):
Interest expense (6,424) (856)
Other 85 129
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(6,339) (727)
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Income before provision for income taxes and
minority interest 797 1,777
Provision for income taxes 335 861
- ---------------------------------------------------------------------------------------------------------
Income before minority interest 462 916
Minority interest 22 --
- ---------------------------------------------------------------------------------------------------------
Net income $ 484 $ 916
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- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
2
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three months Ended March 31,
----------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 484 $ 916
Adjustments to reconcile net income to net cash provided by
(used for) operating activities
Depreciation and amortization 3,594 997
Allowance for doubtful accounts 201 57
Deferred income taxes 1,489 --
Loss on sale of fixed assets 10 8
Change in assets and liabilities:
Accounts, notes, advances, and other receivables (5,063) (1,593)
Inventories 5,016 2,367
Income taxes recoverable or payable (1,489) (1,429)
Other assets, net of other liabilities (1,382) (577)
Accounts payable and accrued liabilities (8,847) 4,421
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (5,987) 5,167
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (4,850) (1,900)
Proceeds from sale of fixed assets 2,614 --
- ---------------------------------------------------------------------------------------------------------
Net cash used for investing activities (2,236) (1,900)
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Cash flows from financing activities:
Net borrowings (repayments) under revolving credit 4,772 (2,448)
agreements
Secured term, mortgage, equipment and other 2,070 104
borrowings
Repayment of long-term debt (667) (805)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 6,175 (3,149)
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Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents (2,048) 118
Cash and cash equivalents, beginning of period 2,431 1,100
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 383 $ 1,218
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- ---------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 675 $ 801
Income taxes, net of refunds $ 46 $ 1,993
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
3
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the results for
interim periods. Operating results for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year
ending December 31, 1997. For further information refer to the consolidated
financial statements and footnotes thereto contained in the Four M Corporation
Transition Report on Form 10-K for the period from August 1, 1996 to December
31, 1996.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Business: Four M Corporation and subsidiaries ("Four M" or the "Company") are
manufacturers of corrugated packaging and semi-chemical corrugating medium. 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.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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. Investments in certain companies, of which Four M owns
50% but does not maintain operational control, are accounted for using the
equity method.
All significant intercompany amounts and transactions have been eliminated.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
St. Joe Container Company
On May 30, 1996, the Company acquired (i) substantially all of the
assets of St. Joe Container, which consisted primarily of 16 converting
facilities and related working capital (the "Acquisition") and (ii) through a
joint venture with Stone Container Corporation (the "Mill Joint Venture"), a 50%
interest in a linerboard mill located at Port St. Joe, Florida (the "Mill") (See
Note 4).
The Acquisition has been accounted for using the purchase method of accounting.
MannKraft Corporation
On August 5, 1996, the Company acquired 490 shares of common stock of
MannKraft Corporation ("MannKraft") from Stone Container Corporation ("Stone
Container") (the "MannKraft Acquisition"). The purchase
4
<PAGE>
represented 49% of MannKraft's outstanding shares, increasing the Company's
ownership interest to 50%. Since the remaining 50% interest in MannKraft is
owned indirectly by the Company's stockholder, the financial statements of
MannKraft are included in the Company's consolidation.
Disposition of Flint, Michigan Facility
On August 16, 1996, Box USA Group, Inc. ("Box USA"), a wholly-owned
subsidiary of the Company, discontinued operations at its Flint, Michigan
facility and subsequently disposed of substantially all of its assets. The
machinery and equipment were transferred pursuant to a like-kind exchange within
the meaning of Section 1031 of the Internal Revenue Code of 1986, as amended.
NOTE 4 - CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In connection with the Acquisition, the Company issued and sold $170.0
million aggregate principal amount of 12% Senior Secured Notes due 2006 (the
"Notes"). The Notes are fully and unconditionally guaranteed on a joint and
several basis by Box USA, Four M Paper Corporation, Page Packaging Corporation,
Box USA, Inc. and Four M Manufacturing Group of Georgia, Inc., each a direct or
indirect wholly owned subsidiary of the Company (collectively, the
"Guarantors"). Separate financial statements and other disclosures concerning
the Guarantors are not presented because management has determined that they are
not material to the holders of the Notes. The Notes are not guaranteed by Box
USA Paper Corporation, Box USA of Florida, L.P., Florida Coast Paper Company,
L.L.C. ("Florida Coast") or MannKraft (collectively, the "Non-Guarantors"). The
following are unaudited condensed consolidating financial statements regarding
the Company (on a stand-alone basis and on a consolidated basis) and the
Guarantors and Non-Guarantors as of and for the three months ended March 31,
1997:
Condensed Consolidating Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
Four M Elimination
Corporation Guarantors Non-Guarantors Entries Consolidated
----------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Current assets ................. $ -- $ 95,560 $10,760 $ -- $106,320
Investment in affiliates ....... 12,672 5,730 -- (12,873) 5,529
Total assets ................... 12,672 273,416 27,042 (12,873) 300,257
Current liabilities ............ -- 46,775 8,328 -- 55,103
Total liabilities .............. -- 263,738 23,847 -- 287,585
Stockholder's equity ........... 12,672 9,678 3,195 (12,873) 12,672
</TABLE>
Condensed Consolidating Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
Four M Elimination
Corporation Guarantors Non-Guarantors Entries Consolidated
----------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net sales ...................... $ -- $106,265 $11,631 $ -- $117,896
Gross profit ................... -- 17,491 1,351 -- 18,842
Income from operations ......... -- 6,825 311 -- 7,136
Income(loss) before income
taxes .......................... -- 871 (74) -- 797
Net income of subsidiaries ..... 484 -- -- (484) --
Net income (loss) .............. 484 505 (21) (484) 484
</TABLE>
5
<PAGE>
Condensed Consolidating Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Four M Elimination
Corporation Guarantors Non-Guarantors Entries Consolidated
----------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities
for) operating activities ...... $ -- $ (7,209) $ 1,222 $ -- $ (5,987)
Net cash used for investing
activities ..................... -- (1,539) (697) -- (2,236)
Net cash provided by (used
for) financing activities ...... -- 6,802 (627) -- 6,175
----------------------------------------------------------------------------------
Decrease in cash and cash
equivalents .................... -- (1,946) (102) -- (2,048)
Cash and cash equivalents,
beginning of period ............ -- 2,064 367 -- 2,431
----------------------------------------------------------------------------------
Cash and cash equivalents, ..... --
end of period
$ 118 $ 265 -- $ 383
==================================================================================
</TABLE>
NOTE 5 - INVESTMENT IN MILL JOINT VENTURE
In conjunction with the formation of the Mill Joint Venture, the
Company and Stone Container each invested $5 million for a 50% interest in
Florida Coast Holding Co., L.L.C. ("Florida Coast Holding"), the holder of all
of the member interests in the Mill Joint Venture and, Stone Container made a
$30 million loan to Florida Coast Holding. 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 did not allocate any portion of the Acquisitions purchase
price to its investment in the Mill Joint Venture since management believes the
investment value is nominal.
The Company's investment in the Mill Joint Venture is accounted for
using the equity method of accounting. The Company did not record its 50% share
of the Mill Joint Venture's operating results for the three month period ended
March 31, 1997 of $ (3.6) million since its investment had no carrying value.
Summarized unaudited income statement information of the Mill Joint
Venture for the three months ended March 31, 1997 were as follows:
Summarized Statement of Operations (in thousands):
Three Months
Ended
March 31, 1997
- ------------------------------------------------------------------------------
Net sales $42,074
Net operating loss (1,615)
Interest expense 5,617
Net loss 7,203
- ------------------------------------------------------------------------------
6
<PAGE>
Pursuant to an Output Purchase Agreement, the Company and Stone
Container have agreed to purchase one-half of the Mill's entire linerboard
production, at a price indexed to market prices but subject to a minimum
purchase price. This purchase price is intended to generate sufficient funds to
cover cash operating costs, cash interest expense and maintenance capital
expenditures of the Mill.
In accounting for the Acquisition, the Company determined that it would
be required to pay additional amounts above market price for linerboard and
possibly incur other additional costs to fulfill its obligations under the
Output Purchase Agreement and established a reserve for such amounts. The
Company charged approximately $1.2 million against this reserve for the three
months ended March 31, 1997, the remaining balance of such reserve was
approximately $16.7 million at March 31, 1997.
NOTE 6 - INVENTORY
Inventories are valued at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
March 31, December 31,
1996 1997
--------- ------------
Raw Materials $21,170 $25,056
Work-in-process 1,556 1,615
Finished goods 5,154 6,225
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$27,880 $32,896
======= =======
NOTE 7 - MILL CLOSURES
The Company has experienced a decline in prices for corrugating medium
as a result of increased capacity in the industry and decreased demand for such
products. As a result of this decline in price and demand, the Company shut down
its Ft. Madison Mill on March 31, 1997 for an indefinite period of time.
Operations at the Ft. Madison Mill will resume when market conditions warrant a
resumption of production. In addition, the Company and Stone Container, as
partners in the Mill Joint Venture, shut down the Mill on or about April 1, 1997
for an indefinite period of time. The Company continues to be subject to the
terms of the Output Purchase Agreement (See Note 5).
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth certain consolidated statement of
operations data and such data as a percentage of net sales for the periods
indicated (Dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------
1997 1996
-------------------------- -------------------------
Percent of Percent of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net Sales........................................ $117.9. 100.0% $ 52.5 100.0%
Cost of goods sold............................... ( 99.1) (84.0) (46.0) (87.6)
-------- ------ ------ ------
Gross profit..................................... 18.8 16.0 6.5 12.4
Selling, general and
administrative expenses........................ (11.7) (9.9) (4.0) (7.6)
-------- ------ ------ ------
Income from operations........................... 7.1 6.1 2.5 4.8
Interest expense................................. (6.4) (5.5) (0.8) (1.6)
Other income (expense) .......................... 0.1 0.1 0.1 0.2
-------- ------ ------ ------
Income before provision
for income taxes and minority interest...... 0.8 0.7 1.8 3.4
Provision for income taxes...................... (0.3) (0.3) (0.9) (1.7)
-------- ------ ------ ------
Income before minority interest.................. $ 0.5 0.4% $ 0.9 1.7%
========================================================
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
The Company's net sales increased $65.4 million, or 125%, to $117.9
million in the three months ended March 31, 1997 compared to $52.5 million in
the three months ended March 31, 1996. Net sales for the Company's converting
facilities increased $69.0 million, or 151% to $114.7 million for the three
months ended March 31, 1997 compared to $45.6 million for the three months ended
March 31, 1996 primarily as a result of the Acquisition and the MannKraft
Acquisition, which increased sales by $65.5 million and $9.7 million,
respectively, and which was partially offset by the closure in August 1996 of
the Flint, Michigan facility and lower average selling prices in the 1997 period
due to reduced raw materials prices. Net sales at the Company's mill at Ft.
Madison, Iowa (the "Ft. Madison Mill") decreased $3.6 million, or 52.7%, to $3.2
million in the three months ended March 31, 1997 compared to $6.8 million for
the three months ended March 31, 1996 due to a decrease in price per ton of
corrugating medium to $258 for the three months ended March 31, 1997 from $366
for the three months ended March 31, 1996 and a decline in demand.
The Company's cost of goods sold as a percentage of net sales decreased
to 84.0% for the three months ended March 31, 1997 from 87.6% for the three
months ended March 31, 1996. Cost of goods sold as a percentage of net sales at
the Company's converting facilities decreased to 83.3% for the three months
ended March 31, 1997 compared to 88.9% for the three months ended March 31, 1996
primarily as a result of lower raw material costs. Cost of goods sold at the Ft.
Madison Mill increased as a percentage of net sales to 118% for the three months
ended March 31, 1997 from 78.7% for the three months ended March 31, 1996
primarily due to a decrease in the selling price per ton of corrugating medium.
Gross profit increased $12.3 million, or 189%, to $18.8 million for the
three months ended March 31, 1997 compared to $6.5 million for the three months
ended March 31, 1996 as a result of the Acquisition and the MannKraft
Acquisition. Gross profit as a percentage of net sales for the Company's
converting operations increased to 16.7% for the three months ended March 31,
1997 compared to 11.1% for the three months ended March 31, 1996. Gross profit
(loss) as a percentage of net sales for the Ft. Madison Mill decreased to
(18.4)% for the three months ended March 31, 1997 from 21.3% for the three
months ended March 31, 1996.
Selling, general and administrative expenses increased $7.7 million, or
191%, to $11.7 million for the three months ended March 31, 1997 compared to
$4.0 million for the three months ended March 31, 1996. This increase is
primarily attributable to the Acquisition and the MannKraft Acquisition.
Selling, general and administrative expenses
8
<PAGE>
as a percentage of net sales increased to 9.9% for the three months ended March
31, 1997 compared to 7.6% for the three months ended March 31, 1996 primarily as
a result of lower average selling prices.
Income from operations increased $4.6 million, or 185%, to $7.1 million
for the three months ended March 31, 1997 compared to $2.5 million for the three
months ended March 31, 1996 primarily as a result of the Acquisition and the
MannKraft Acquisition..
Interest expense increased $5.6 million, or 650%, to $6.4 million for
the three months ended March 31, 1997 compared to $0.8 million for the three
month period ended March 31, 1996 as a result of the Company's 12% Senior
Secured Notes due 2006 issued in connection with the Acquisition.
The Company has experienced a decline in prices for corrugating medium
as a result of increased capacity in the industry and decreased demand for such
products. As a result of this decline in price and demand, the Company has shut
down its Ft. Madison Mill on March 31, 1997 for an indefinite period of time.
Operations at the Ft. Madison Mill will resume when market conditions warrant a
resumption of production. In addition, the Company and Stone Container, as
partners in the Mill Joint Venture, shut down the Mill on or about April 1, 1997
for an indefinite period of time. The Company continues to be subject to the
terms of the Output Purchase Agreement.
Liquidity and Capital Resources
Historically, the Company has relied on cash flows from operations and
bank borrowings to finance its working capital requirements and capital
expenditures.
Net cash used for operating activities for the three months ended March
31, 1997 was $6.0 million compared to net cash provided by operating activities
of $5.2 million for the three months ended March 31, 1996. Cash used in
operating activities for the three months ended March 31, 1997 was driven by net
income of $0.5 million for the period, and a $5.0 million decrease in inventory
which was offset by a $8.8 million decrease in accounts payable and accrued
liabilities and a $5.1 million increase in accounts, notes, advances and other
receivables. The decrease in accounts payable and accrued liabilities between
the comparable 1997 and 1996 periods is largely attributable to the Company's
decision in the latter part of 1996 to accelerate payments to vendors to take
advantage of early payment discounts.
Net cash used for investing activities was $2.2 million for the three
months ended March 31, 1997 compared to $1.9 million for the three months ended
March 31, 1996. This increase was primarily the result of increased capital
expenditures partly offset by proceeds received from the sale of certain
machinery and equipment from the Company's College Park, Georgia facility.
Net cash provided by financing activities was $6.2 million for the
three months ended March 31, 1997 compared to net cash used for financing
activities of $3.1 million for the three months ended March 31, 1997. The
increase was primarily the result of funding the Company's operating and
investing activities through borrowings.
Capital expenditures for the three months ended March 31, 1997 were
$4.9 million as compared to $1.9 million for the three months ended March 31,
1996. This increase was primarily due to maintenance capital expenditures at the
converting facilities acquired by the Company in the Acquisition. The Company
plans to spend approximately $6 to $8 million in 1997 on maintenance capital
expenditures. Additionally, the Company is contemplating spending an additional
$8 to $10 million in 1997 on capital expenditures intended to enhance
productivity, improve margin and create new sales opportunities.
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 February 28, 1997, the Credit Facility was amended and
Florida, L.P. was made an additional borrower hereunder. The sole general
partner of Florida, L.P. is Four M Manufacturing Group of Georgia, Inc. one of
the guarantors of the Notes. Pursuant to the Credit Facility, the Company is
subject to certain affirmative and negative covenants customarily found in
9
<PAGE>
agreements of this type. The Company is in compliance with these covenants as of
March 31, 1997. On May 5, 1997, the Company had unused borrowing capacity of
approximately $26.8 million under the Credit Facility.
The Company will provide, if needed, the Mill Joint Venture with up to
$10.0 million of subordinated indebtedness on a revolving credit basis. As of
March 31, 1997, the Mill Joint Venture was not indebted to the Company under
this facility.
In April and May 1997, pursuant to the Output Purchase Agreement, the
Company was required to pay Florida Coast Paper an aggregate of an additional
$1.2 million as a purchase price adjustment for its 50% share of the liner board
produced by the St. Joe Mill during the three-month period ended March 31, 1997.
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 through the end of 1997.
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.
10
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of its business. The Company
maintains insurance coverage against claims in an amount which it believes to be
adequate. The Company believes that it is not presently a party to any
litigation, the outcome of which could reasonably be expected to have a material
adverse effect on its financial condition or results of operations.
On July 19, 1996, a civil action was filed in the Superior Court of
Fulton County, Georgia (the "Suit") by Sid Dunken, individually and on behalf of
D&M Partnership, a purported Georgia partnership, against the Company, Box USA,
Four M Manufacturing Group of Georgia, Inc. and Dennis Mehiel. The complaint
alleges that Dunken is entitled to an equity interest in the Company or in the
alternative, $150 million 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 the Suit is without merit. The
Company intends to defend against the Suit vigorously and believes it has
adequate defenses. However, the Suit is in a preliminary stage, and there can be
no assurance that the outcome of the Suit will not be adverse to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) 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). Exhibits 10.7, 12.1 and 99.1 are
incorporated by reference to the exhibit with the corresponding number filed as
part of the Company's Form 10-K for the transition period ended December 31,
1996.
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
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").
11
<PAGE>
4.4 Security Agreement, dated as of May 30, 1996, between the Company and
the Trustee.
4.5 Subsidiary Security Agreement, dated as of May 30, 1996, among the
Guarantors and the Trustee.
4.6 Contribution Agreement, dated as of May 30, 1996, among the Company,
the Guarantors and the Trustee.
4.7 Drop Down Notes, dated as of May 30, 1996, executed by each of the
Guarantors.
4.8 Drop Down Note Security Agreement, dated as of May 30, 1996, among the
Guarantors and the Company.
4.9 Guaranty, dated as of May 30, 1996, among the Guarantors and the
Trustee.
4.10 Form of Company Pledge Agreement, dated as of May 30, 1996, between the
Company and the Trustee.
4.11 Form of Subsidiary Pledge Agreement, dated as of May 30, 1996, among
the Guarantors and the Trustee.
4.12 Warrant Agreement, dated as of May 30, 1996, between the Company and
the Initial Purchaser.
10.1 Output Purchase Agreement, dated as of May 30, 1996, among the Company,
Florida Coast and Stone Container Corporation ("Stone").
10.2 Financing and Security Agreement, dated as of May 30, 1996, among the
Company, the Guarantors, NationsBank, N.A. ("NationsBank"), the
financial institutions named therein (together with NationsBank, the
"Lenders"), and NationsBank, as agent (NationsBank, in such capacity,
the "Agent").
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.
10.7 First Amendment to Financing and Security Agreement and Additional
Borrower Joinder Supplement dated as of February 28, 1997, among the
Company, the Guarantors, the Lenders, the Agent and Box USA of Florida,
L.P.
12.1 Statement regarding computation of ratios.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule.
99.1 The financial statements for the period from May 30, 1996 to December
31, 1996, together with the Independent Accountants' Report for Florida
Coast and the financial statements for the period from January 1, 1996
to May 30, 1996 and the two years ended December 31, 1995 and 1994
together with the Independent Auditors' Report for St. Joe Forest
Products Company - Linerboard Mill Operations included in the Florida
Coast 10-K as filed with SEC on March 31, 1997.
(b) Reports on Form 8-K
On March 14, 1997, Four M Corporation filed on Form 8-K with the
Securities & Exchange Commission a press release which announced that the
Company will curtail production at its Fort Madison, Iowa corrugating medium
mill effective March 31, 1997 for an indefinite period until market demand and
pricing warrant a resumption of production.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOUR M CORPORATION
By: /s/ Timothy D. McMillin
---------------------------------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: May 12, 1997
FOUR M PAPER CORPORATION
By: /s/ Timothy D. McMillin
---------------------------------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: May 12, 1997
BOX USA GROUP, INC.
By: /s/ Timothy D. McMillin
---------------------------------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: May 12, 1997
PAGE PACKAGING CORPORATION
By: /s/ Timothy D. McMillin
---------------------------------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: May 12, 1997
13
<PAGE>
BOX USA, INC.
By: /s/ Timothy D. McMillin
---------------------------------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: May 12, 1997
FOUR M MANUFACTURING GROUP OF GEORGIA, INC.
By: /s/ Timothy D. McMillin
---------------------------------------------
Timothy D. McMillin
Senior Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: May 12, 1997
14
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