<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
------------------
(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
VALHALLA, NEW YORK 10595
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(Address of principal executive offices) (Zip Code)
(914) 749-3200
Registrant's telephone number, including area code:
-----------
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 November 10, 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 September 30, 1997 and
December 31, 1996 (audited) 2
Consolidated Statements of Operations for the three and nine
months ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 16
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT (UNAUDITED)
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996
(unaudited) (audited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 2,431
Accounts receivable, less allowance for doubtful accounts of 53,400 52,775
$2,860 and $1,621
Inventories (Note 6) 30,874 32,896
Deferred income taxes 9,394 12,661
Notes advances and other receivables 8,830 3,863
Income taxes recoverable 7,041 4,207
- -----------------------------------------------------------------------------------------------------
Total current assets 109,539 108,833
Property, plant and equipment, net of accumulated depreciation 177,192 173,333
Goodwill and other intangibles, net of accumulated amortization 4,408 4,678
Other assets 16,882 16,801
- -----------------------------------------------------------------------------------------------------
$ 308,021 $ 303,645
--------- ---------
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities (Note 7) $ 60,055 $ 60,537
Current maturities of long-term debt and subordinated debt 3,144 2,447
- -----------------------------------------------------------------------------------------------------
Total current liabilities 63,199 62,984
Long-term debt, less current maturities 224,126 208,777
Subordinated debt, less current maturities 1,966 1,914
Deferred income taxes 14,200 14,486
Minority interest and other liabilities 2,313 3,296
- -----------------------------------------------------------------------------------------------------
Total liabilities 305,804 291,457
- -----------------------------------------------------------------------------------------------------
Stockholder's equity:
Common Stock, Par Value $.125: Authorized shares-
10,000,000; shares issued 7,229,770 and outstanding
6,815,867
Additional paid-in capital 904 904
Retained earnings 717 717
1,558 11,529
- -----------------------------------------------------------------------------------------------------
3,179 13,150
Less treasury stock, at cost (413,903 shares) 962 962
- -----------------------------------------------------------------------------------------------------
Total stockholder's equity 2,217 12,188
- -----------------------------------------------------------------------------------------------------
$ 308,021 $303,645
--------- ---------
- -----------------------------------------------------------------------------------------------------
The accompanying footnotes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 113,992 $ 113,976 $ 348,017 $ 241,146
Cost of goods sold 103,569 98,031 300,201 209,979
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 10,423 15,945 47,816 31,167
- -----------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 13,376 10,283 36,934 19,943
Other expense due to plant closings 2,800 - 2,800 -
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (5,753) 5,662 8,082 11,224
- -----------------------------------------------------------------------------------------------------------------------
Other Income (expense):
Interest expense (6,653) (6,470) (19,277) (10,107)
Loss on Joint Venture Contract (6,000) - (6,000) -
Other - 585 85 808
- -----------------------------------------------------------------------------------------------------------------------
(12,653) (5,885) (25,192) (9,299)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income
taxes and minority interest (18,406) (223) (17,110) 1,925
Provision (benefit) for income taxes (7,681) (93) (7,145) 809
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest (10,725) (130) (9,965) 1,116
Minority interest 94 (136) (9) (136)
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (10,631) $ (266) $ (9,974) $ 980
--------- --------- --------- -------
- -----------------------------------------------------------------------------------------------------------------------
The accompanying footnotes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(Dollars in thousands except per share data) NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (9,974) $ 980
Adjustment to reconcile net income to net cash
provided by (used for) operating activities
Depreciation and amortization 11,015 5,521
Allowance for doubtful accounts 1,239 695
Noncash interest expense 52
Deferred income taxes 2,981 (6,438)
Loss (gain) on sale of fixed assets 134 (541)
Change in assets and liabilities, net of effect
of St. Joe
Container acquisition:
Accounts, notes, advances, and other receivables (1,864) (12,975)
Inventories 2,022 9,446
Income taxes recoverable or payable (6,090) (145)
Other assets, net of other liabilities (2,515) 1,452
Accounts payable and accrued liabilities (609) 13,225
- -----------------------------------------------------------------------------------
Net cash (used for) provided by operating activities (3,609) 11,220
- -----------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (17,959) (7,767)
Proceeds from sale of Flint - 2,300
Proceeds from sale of fixed assets 3,091 646
Purchase of net assets of St. Joe Container - (159,168)
Purchase of MannKraft, net of cash acquired - (5,500)
- -----------------------------------------------------------------------------------
Net cash used for investing activities (14,868) (169,489)
- -----------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
credit agreements 15,077 7,210
Secured term mortgage, equipment and other
borrowings 2,777 926
Repayment of long-term debt (1,808) (11,479)
Proceeds fom bond issuance - 170,000
Financing costs - (8,798)
- -----------------------------------------------------------------------------------
Net cash provided by financing activities 16,046 157,859
- -----------------------------------------------------------------------------------
Cash and cash equivalents:
Decrease in cash and cash equivalents (2,431) (410)
Cash and cash equivalents, beginning of period 2,431 1,100
- -----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ - $ 690
--------- ---------
- -----------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid (received) during the period for:
Interest $ 13,649 $ 2,257
Income taxes, net of refunds $ (1,047) $ 2,101
- -----------------------------------------------------------------------------------
The accompanying footnotes are an integral part of these financial statements.
</TABLE>
4
<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 nine months ended September 30, 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
report on Form 10-K for the transition 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 Corporation has no assets or independent business operations
other than 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 Corporation is beneficially owned by its Chairman of the Board
and Chief Executive Officer, Dennis Mehiel. Investments in certain companies, of
which Four M Corporation 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 - SIGNIFICANT ACQUISITIONS
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) a 50%
interest in Florida Coast Paper Company, L.L.C. ("Florida Coast"), a limited
liability company which owns a linerboard mill located at Port St. Joe, Florida
(the "Mill"). Stone Container Corporation ("Stone Container") owns the remaining
50% interest in Florida Coast (See Note 4).
The Acquisition has been accounted for using the purchase method of accounting.
5
<PAGE>
BOX USA OF NEW JERSEY, INC.
On August 5, 1996, the Company acquired 490 shares of common stock in
Box USA of New Jersey, Inc. ("New Jersey"), formerly known as MannKraft
Corporation, from Stone Container (the "New Jersey Acquisition"). The purchase
represented 49% of New Jersey's outstanding shares, increasing the Company's
ownership interest to 50%. Since the remaining 50% interest in New Jersey is
owned indirectly by the Company's beneficial holder of all its common stock, the
financial statements of New Jersey are included in the Company's consolidation.
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 Group, Inc., Four M Paper Corporation,
Page Packaging Corporation, Box USA, Inc. and Four M Manufacturing Group of
Georgia, Inc., each a direct or indirect wholly owned subsidiary of the
Company (collectively, the "Guarantors"). 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 L.P."), Florida Coast, New Jersey or Fibre Marketing
Group, L.L.C. (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 nine months ended September 30, 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........ $ - $98,137 $11,402 $ - $ 109,539
Investment in affiliates 2,217 5,862 - (2,417) 5,662
Total assets ......... 2,217 280,167 27,854 (2,417) 308,021
Current liabilities... - 54,102 9,097 - 63,199
Total liabilities..... - 281,125 24,679 - 305,804
Stockholder's equity.. 2,217 (758) 3,175 (2,417) 2,217
</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............. $ - $312,879 $35,138 $ - $348,017
Gross profit.......... - 43,519 4,297 - 47,816
Income from operations. - 6,859 1,223 - 8,082
Income(loss) before
income taxes........... - (17,138) 28 - (17,110)
Net income (loss) of
subsidiaries........... (9,974) - - 9,974 -
Net income (loss)...... (9,974) (9,981) 7 9,974 (9,974)
</TABLE>
6
<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 for) operating
activities ........... $ - $(6,270) $ 2,661 $ - $(3,609)
Net cash used for
investing activities.. - (13,101) (1,767) - (14,868)
Net cash provided by
(used for) financing
activities............ - 17,129 (1,083) - 16,046
----------- ----------- -------------- ------------ -------------
Decrease in cash and
cash equivalents...... - (2,242) (189) - (2,431)
Cash and cash
equivalents, beginning
of period............. - 2,064 367 - 2,431
----------- ----------- -------------- ------------ -------------
Cash and cash
equivalents, end of
period................ - $ (178) $178 - $ -
=========== =========== ============== ============ =============
</TABLE>
NOTE 5 - INVESTMENT IN FLORIDA COAST
In conjunction with the formation of Florida Coast, 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 Florida Coast, and Stone Container made a $30 million loan to
Florida Coast Holding. In addition, the Company and Stone Container have each
agreed to provide Florida Coast with up to $10 million of subordinated
financing, if needed, for general corporate purposes. As of September 30, 1997,
Florida Coast was indebted to the Company under this facility in the amount of
$6.6 million.
The Company did not allocate any portion of the purchase price for the
acquisition of the Mill to its investment in Florida Coast Holding since
management believes the investment value is nominal.
The Company's investment in Florida Coast Holding is accounted for using
the equity method of accounting. The Company did not record its 50% share of
Florida Coast Holding's operating loss for the nine month period ended September
30, 1997, in the amount of $(22.1) million since its investment has no carrying
value.
Summarized unaudited income statement information of Florida Coast for
the nine months ended September 30, 1997 were as follows:
Summarized Statement of Operations (in thousands):
Nine Months
Ended
September 30, 1997
- --------------------------------------------------------------------------------
Net sales $ 43,774
Net operating loss (26,826)
Other expense (17,397)
Net loss (44,223)
- --------------------------------------------------------------------------------
7
<PAGE>
Pursuant to an Output Purchase Agreement with Florida Coast, the Company
and Stone Container have each 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 of the Mill,
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. During the three months ended September 30, 1997 the Company
increased its reserve by charging $6.0 million against earnings for the quarter
as a result of the Mill shutdown (See Note 8). For the nine months ended
September 30, 1997, the Company charged approximately $10.2 million against this
reserve; the remaining balance of such reserve was approximately $13.4 million
at September 30, 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):
September 30, December 31,
1997 1996
------- -------
Raw Materials $22,825 $25,056
Work-in-process 1,946 1,615
Finished goods 6,103 6,225
-------- --------
$30,874 $32,896
-------- --------
-------- --------
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued liabilities were approximately $34.0 million at September 30,
1997, and $30.2 million at December 31, 1996 respectively. These amounts include
reserves for unfavorable contracts related to the acquisition of the Mill (See
Note 5), acquisition related provisions, plant closing costs (see Note 8) and
accruals for various items including employee benefits, utilities, interest and
plant repairs. Accrued liabilities increased June 30, 1997 to September 30, 1997
due to increased reserves of $9.8 million.
NOTE 8 - MILL SHUTDOWNS AND REOPENINGS
In the latter part of 1996 and first quarter of 1997, the Company
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,
the Company shut down its corrugating medium mill at Ft. Madison, Iowa (the "Ft.
Madison Mill") on March 31, 1997. Recently, market conditions for corrugating
medium have improved and the Company resumed limited production at the Ft.
Madison Mill on August 18, 1997, with full production commencing September 1,
1997.
In addition, the Company and Stone Container, as members of Florida
Coast Holding, shut down the Mill in April, 1997 due to a decline in prices for
linerboard as a result of increased capacity in the industry. Market conditions
for linerboard have since improved and as a result Florida Coast resumed limited
production in early September 1997 with full production commencing in October
1997. During the period of the Mill shut down, the Company remained subject to
the terms of the Output Purchase Agreement (see Note 5).
NOTE 9 - PLANT CLOSINGS AND DISPOSITIONS
On August 9, 1997 the Company announced its intent to close two of its
facilities and to reallocate its business at those locations to its other nearby
facilities, including a "Super Plant" that is intended to utilize state of the
art technology and is expected to expand capacity in the southeastern operating
region. In connection therewith, the Company recorded a provision of $1.0
million in the three months ended September 30, 1997 to accrue the costs of
closing such facilities, which are principally related to severance and
relocation of employees. In addition, the Company
8
<PAGE>
established a reserve during the three months ended September 30, 1997 of $1.8
million, to cover costs in connection with certain plant dispositions which are
anticipated to occur in fiscal 1998 or sooner.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward looking statements that involve known
and unknown risks and uncertainties, including, but not limited to, the impact
of competitive products, product demand and market acceptance risks,
fluctuations in operating results and other risks detailed from time to time in
the Company's filings with the Securities and Exchange Commission. These risks
could cause the Company's actual results for the current and future years to
differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company.
RESULTS OF OPERATIONS
The following tables set 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 SEPTEMBER 30,
----------------------------------------
1997 1996
------------------ -------------------
PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net Sales.............................. $114.0 100.0% $114.0 100.0%
Cost of goods sold..................... (103.6) (90.9) (98.0) (86.0)
-------- ------ ------ ------
Gross profit........................... 10.4 9.1 16.0 14.0
Selling, general and
administrative expenses.............. (13.4) (11.7) (10.3) (9.0)
Other expenses due to plant closings .. (2.8) (2.5) - -
----- ----- ----- -----
Income (loss) from operations.......... (5.8) (5.1) 5.7 5.0
Interest expense....................... (6.6) (5.8) (6.5) (5.7)
Loss on Joint Venture Contract ........ (6.0) (5.3 - -
Other income (expense) ................ - - 0.6 0.5
----- ----- ----- -----
Income (loss) before provision for
income taxes and minority interest... (18.4) (16.2) (0.2) (0.2)
Income tax benefit..................... 7.7 6.8 0.1 0.1
----- ----- ----- ------
Loss before minority interest.......... $(10.7) (9.4)% $ (0.1) (0.1)%
=======================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1997 1996
PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES
<S> <C> <C> <C> <C>
Net Sales.............................. $348.0 100.0% $241.1 100.0%
Cost of goods sold..................... (300.2) (86.3) (210.0) (87.1)
-------- ------ ------- ------
Gross profit........................... 47.8 13.7 31.1 12.9
Selling, general and
administrative expenses............... (36.9) (10.6) (19.9) (8.3)
Other expenses due to plant closings .. (2.8) (.8) - -
----- ---- - -
Income (loss) from operations.......... 8.1 2.3 11.2 4.6
Interest expense....................... (19.3) (5.5) (10.1) (4.2)
Loss on Joint Venture Contract ........ (6.0) (1.7) - -
Other income (expense)................. .1 - 0.8 0.3
-- - --- ---
Income before provision for
income taxes and minority interest.... (17.1) (4.9) 1.9 0.7
Benefit (provision) for income taxes... 7.1 2.0 (0.8) (0.3)
------ ----- ----- -----
Income (loss) before minority interest. (10.0) (2.9)% $1.1 0.4%
======================================
</TABLE>
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1996
Consolidated net sales of $114.0 million were achieved by the Company
for the three months ended September 30, 1997 which was unchanged from the
comparable 1996 period. Net sales for the Company's converting facilities
increased $.6 million for the three months ended September 30, 1997, or .5% to
$110.9 million from the comparable 1996 period of $110.3 million. The
Acquisition and the New Jersey Acquisition increased net sales by $61.8 million
and $ 9.2 million, respectively, for the three months ended September 30, 1997.
These increases were primarily offset by lower average selling prices due to
reduced raw material prices, and the temporary shutdown of the Ft. Madison Mill
due to the result of declining prices of corrugating medium. Net sales at the
Ft. Madison Mill for the three months ended September 30, 1997 were $3.1 million
as compared to net sales of $3.6 million for the comparable 1996 period. To a
lesser extent, these increases were partially offset by the closure in August
1996 of the Company's Flint, Michigan facility.
The Company's cost of goods sold, as a percentage of net sales,
increased to 90.9% for the three months ended September 30, 1997, from the
comparable 1996 period of 86.0%. Cost of goods sold, as a percentage of net
sales, at the Company's converting facilities increased to 90.2% for the three
months ended September 30, 1997, from 88.5% in the comparable 1996 period. The
increases were primarily a result of the Company's absorption of increased paper
prices for both linerboard and corrugating medium. Cost of goods sold at the Ft.
Madison Mill increased, as a percentage of net sales, to 113.5% for the three
months ended September 30, 1997, from the comparable 1996 period of 11.2%. This
increase was the result of the Ft. Madison Mill being shut down during the
second quarter, and part of the third quarter, of 1997, as well as the decreased
selling price per ton of corrugating medium in 1997.
Gross profit decreased $5.6 million, or 35.0%, to $10.4 million for the
three months ended September 30, 1997 from the comparable 1996 period of $16.0
million. The Company's gross profit for its converting facilities, as a
percentage of net sales, decreased to 9.1% for the three months ended September
30, 1997, as compared to 11.5% for the comparable 1996 period. The decline in
gross profit is attributable to increased paper prices absorbed by the Company
during the three months ended September 30, 1997. Gross profit at the Ft.
Madison Mill decreased as a result of the temporary shutdown to $(.4) million
for the three months ended September 30, 1997, from the comparable 1996 period
of $3.2 million.
10
<PAGE>
Selling, general and administrative expenses increased by $3.1 million
for the three months ended September 30, 1997. This increase is primarily
attributable to the reserve established to cover plant closings and disposition
costs. As a percentage of net sales, the selling, general and administrative
expenses increased to 11.7% for the three months ended September 30, 1997
compared to 9.0% in the comparable 1996 period, primarily as a result of lower
average selling prices.
As a result of the foregoing factors, income from operations decreased
$11.5 million or 201.8% for the three months ended September 30, 1997, to $(5.8)
million from $5.7 million in the comparable 1996 period.
Interest expense increased $0.1 million, or 1.5%, to $6.6 million for
the three months ended September 30, 1997, from $6.5 million in the comparable
1996 period.
In the three months ended September 30, 1997, the Company recorded a
$6.0 million charge related to its anticipated loss on the Output Purchase
Agreement which reflects the increased level of funding required due to the Mill
shut down. Additionally, in the three months ended September 30, 1997, the
Company recorded accruals of $4.6 million. The Company recorded $2.8 million to
cover plant closing and disposition costs (see Note 9), $1.0 million of
professional fees and medical benefit overruns, and $.8 million of additional
bad debt.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1996
Consolidated net sales of $348.0 million were achieved by the Company
for the nine months ended September 30, 1997, which represented an increase of
44.3%, from $241.1 million in the comparable 1996 period. Net sales for the
Company's converting facilities increased $111.7 million, or 48.9%, to $339.9
million for the nine months ended September 30, 1997, from $228.2 million for
the comparable 1996 period. Net sales increased primarily as a result of the
Acquisition and the New Jersey Acquisition, which increased sales by $190.9
million and $29.4 million, respectively, for the nine months ended September 30,
1997. These increases were primarily offset by lower average selling prices in
the 1997 period due to reduced raw material prices, and the temporary shutdown
of the Ft. Madison Mill. Net sales at the Ft. Madison Mill, for the nine months
ended September 30, 1997, were $8.2 million compared to $12.9 million in the
comparable 1996 period. To a lesser extent, these increases were offset by the
closure of the Company's Flint, Michigan facility in August 1996.
The Company's cost of goods sold, as a percentage of net sales,
decreased to 86.3% for the nine months ended September 30, 1997, from the
comparable 1996 period of 87.1%. Cost of goods sold, as a percentage of net
sales, at the Company's converting facilities decreased to 90.2% for the nine
months ended September 30, 1997, from the comparable 1996 period of 91.6%. The
decreases were primarily the result of a decline in the average cost of
linerboard and corrugating medium. Cost of goods sold at the Ft. Madison Mill
increased, as a percentage of net sales, to 118.2% for the nine months ended
September 30, 1997, from the comparable 1996 period of 6.8%. This increase was
the result of the Ft. Madison Mill being shut down during the second quarter,
and part of the third quarter, of 1997, as well as the decreased selling price
per ton of corrugating medium during the nine months ended September 30, 1997.
Gross profit increased $16.7 million, or 34.9%, to $47.8 million for the
nine months ended September 30, 1997, primarily as a result of the Acquisition
and the New Jersey Acquisition. This increase is partially offset by the
Company's absorption of increased paper prices during the nine months ended
September 30, 1997. The Company's gross profit at its converting facilities, as
a percentage of net sales, increased to 13.7% for the nine months ended
September 30, 1997 as compared to 12.9% for the comparable 1996 period.
Selling, general and administrative expenses increased by $17.0 million
for the nine months ended September 30, 1997. This increase is primarily
attributable to the Acquisition and the New Jersey Acquisition. As a percentage
of net sales, the selling, general, and administrative expenses increased to
10.6% for the nine months ended September 30, 1997, compared to 8.3% in the
comparable 1996 period primarily as a result of lower average selling prices.
11
<PAGE>
As a result of the foregoing factors, income from operations decreased
$3.1 million, or 27.7%, for the nine months ended September 30, 1997, to $8.1
million from $11.2 million in the comparable 1996 period.
Interest expense increased $9.2 million, or 91.1%, to $19.3 million for
the nine months ended September 30, 1997, from $10.1 million in the comparable
1996 period, primarily as a result of the Company's 12% Senior Secured Notes due
2006 issued in connection with the Acquisition.
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 nine months ended
September 30, 1997 was $3.6 million compared to net cash provided by operating
activities of $11.2 million for the nine months ended September 30, 1996. The
reduction in cash from operating activities for the nine months ended September
30, 1997 was primarily due to the net loss of $10.0 million, a $6.1 million
increase in income taxes recoverable and a $1.9 million increase in accounts,
notes, advances and other receivables. This was partly offset by a $.6 million
decrease in accounts payable and accrued liabilities and a $2.0 million decrease
in inventory primarily due to management's efforts to manage inventory levels as
well as declines in paper costs.
Net cash used for investing activities was $14.9 million for the nine
months ended September 30, 1997, compared to $169.5 million for the nine months
ended September 30, 1996. This difference was primarily the result of the
Acquisition.
Gross capital expenditures for the nine months ended September 30,
1997, were $18.0 million as compared to $7.8 million for the nine months ended
September 30, 1996. This increase was primarily due to upgrade and maintenance
capital expenditures at the converting facilities acquired by the Company in the
Acquisition and includes outfitting the Company's new facility in Vernon,
California with machinery and equipment. A portion of the funding for the 1997
capital expenditures was derived from the proceeds of the sale of other fixed
assets which results in net capital expenditures of $16.0 million.
Net cash provided by financing activities was $16.0 million for the nine
months ended September 30, 1997, compared to net cash provided by financing
activities of $157.9 million for the nine months ended September 30, 1996. This
difference is primarily attributable to the issuance of the Notes in the amount
of $170 million relating to the Acquisition.
On May 30, 1996, the Company established a Credit Facility which will
mature on May 30, 2001. The Credit Facility provides total borrowing capacity of
up to $80.0 million on a revolving basis, subject to borrowing base limitations,
to finance the Company's working capital needs. Pursuant to the Credit Facility,
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 thereunder. 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 agreements of this type. At
November 1, 1997 the Company had unused borrowing capacity of $17.2 million
under the Credit Facility.
12
<PAGE>
The Company and Stone Container have each agreed to provide Florida
Coast with up to $10.0 million of subordinated indebtedness on a revolving
credit basis. As of September 30, 1997, Florida Coast was indebted to the
Company under this facility in the amount of $6.6 million.
Pursuant to the Output Purchase Agreement, the Company was required to
pay Florida Coast $13.3 million as a purchase price adjustment for its 50% share
of the linerboard produced by the Mill during the nine months ended September
30, 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.
13
<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 and 12.1 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. Exhibits
10.8 and 10.9 are incorporated by reference to the exhibit with corresponding
number filed as part of the Company's reports on the form 10-Q for the period
ended March 31, 1997 and June 30, 1997, respectively.
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. ("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
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).
14
<PAGE>
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, between
the Guarantors and the Trustee.
4.6 Contribution Agreement, dated as of May 30, 1996, between 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 Notes Security Agreement, dated as of May 30, 1996, between
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 the Trustee, 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.
10.8 Second Amendment to Finance and Security Agreement
10.9 Third Amendment to Finance and Security Agreement
12.1 Statement regarding computation of ratios.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
On July 29, 1997, Four M Corporation filed a Form 8-K with the
Securities and Exchange Commission with respect to the Company resuming
operations at its Fort Madison, Iowa corrugating medium mill effective August
18, 1997, with full production anticipated by September 1, 1997.
15
<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/ Chris Mehiel
----------------------------------
Chris Mehiel
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: November 12, 1997
FOUR M PAPER CORPORATION
By: /s/ Chris Mehiel
----------------------------------
Chris Mehiel
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: August 12, 1997
BOX USA GROUP, INC.
By: /s/ Chris Mehiel
----------------------------------
Chris Mehiel
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: November 12, 1997
PAGE PACKAGING CORPORATION
By: /s/ Chris Mehiel
----------------------------------
Chris Mehiel
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: November 12, 1997
16
<PAGE>
BOX USA, INC.
By: /s/ Chris Mehiel
----------------------------------
Chris Mehiel
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: November 12, 1997
FOUR M MANUFACTURING GROUP OF GEORGIA, INC.
By: /s/ Chris Mehiel
----------------------------------
Chris Mehiel
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: November 12, 1997
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
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<RECEIVABLES> 56,260
<ALLOWANCES> 2,860
<INVENTORY> 30,874
<CURRENT-ASSETS> 109,539
<PP&E> 216,973
<DEPRECIATION> 39,781
<TOTAL-ASSETS> 308,021
<CURRENT-LIABILITIES> 63,199
<BONDS> 226,092
0
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<COMMON> 904
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<TOTAL-LIABILITY-AND-EQUITY> 308,021
<SALES> 348,017
<TOTAL-REVENUES> 348,017
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<TOTAL-COSTS> 337,135
<OTHER-EXPENSES> 2,800
<LOSS-PROVISION> 1,239
<INTEREST-EXPENSE> (19,277)
<INCOME-PRETAX> (17,110)
<INCOME-TAX> (7,145)
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