<PAGE> 1
UNITED STATES 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 DECEMBER 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 0-23340
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ROCK-TENN COMPANY
(Exact name of registrant as specified in its charter)
Georgia 62-0342590
------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
504 Thrasher Street, Norcross, Georgia 30071
- -------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 448-2193
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report.)
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
--- ---
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding as of February 7, 1997
- --------------------------------------- ----------------------------------
Class A Common Stock, .01 par value 21,345,107
Class B Common Stock, .01 par value 11,948,435
<PAGE> 2
ROCK-TENN COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the three months
ended December 31, 1996 and 1995 1
Condensed Consolidated Balance Sheets at December 31, 1996 and
September 30, 1996 2
Condensed Consolidated Statements of Cash Flows for the three months
ended December 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Index to Exhibits 14
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $208,318 $219,362
Cost of goods sold 154,725 161,203
-------- --------
Gross profit 53,593 58,159
Selling, general and administrative expenses 39,511 36,514
-------- --------
Income from operations 14,082 21,645
Interest income 496 248
Interest expense (2,442) (2,884)
-------- --------
Income before income taxes 12,136 19,009
Provision for income taxes 4,737 7,224
-------- --------
Net income $ 7,399 $ 11,785
Weighted average number of common and
common equivalent shares outstanding 34,075 33,932
-------- --------
Earnings per common and common
equivalent share $ .22 $ .35
======== ========
Cash dividends per common share $ .075 $ .068
======== ========
</TABLE>
See accompanying notes
1
<PAGE> 4
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 44,080 $ 50,876
Accounts receivable (net of allowance for
doubtful accounts of $3,625 and $3,094) 68,034 78,041
Inventories 59,598 58,505
Other current assets 1,640 1,908
--------- ---------
TOTAL CURRENT ASSETS 173,352 189,330
Property, plant and equipment at cost:
Land and buildings 114,951 113,059
Machinery and equipment 494,032 478,181
Leasehold improvements 4,062 4,049
Transportation equipment 12,798 12,106
--------- ---------
625,843 607,395
Less accumulated depreciation and amortization (280,804) (272,541)
--------- ---------
Net property, plant and equipment 345,039 334,854
Goodwill 48,082 48,632
Other assets 9,998 8,872
--------- ---------
$ 576,471 $ 581,688
========= =========
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,281 $ 28,555
Income taxes payable 1,731 ---
Accrued compensation and benefits 18,322 21,838
Current maturities of long-term debt 7,293 7,260
Other current liabilities 12,659 11,296
--------- ---------
TOTAL CURRENT LIABILITIES 61,286 68,949
Long-term debt due after one year 135,741 139,344
Deferred income taxes 23,095 23,136
Other liabilities 1,945 1,104
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; no
shares outstanding at December 31, 1996 and September 30, 1996 --- ---
Class A common stock, $.01 par value; 175,000,000 shares authorized,
21,247,712 outstanding at December 31, 1996 and 21,178,313 outstanding at
September 30, 1996; Class B common stock, $.01 par value; 60,000,000 shares
authorized; 11,948,435 outstanding
at December 31, 1996 and 11,949,097 outstanding at September 30, 1996 332 331
Capital in excess of par value 110,588 109,879
Retained earnings 244,362 239,561
Other (878) (616)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 354,404 349,155
--------- ---------
$ 576,471 $ 581,688
========= =========
</TABLE>
See accompanying notes
2
<PAGE> 5
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,399 $ 11,785
Items in income not affecting cash:
Depreciation and amortization 12,107 11,893
Deferred income taxes --- 1,379
Gain on sale of property, plant and equipment (83) (113)
Change in operating assets and liabilities:
Accounts receivable 9,488 14,634
Inventories (1,144) 1,721
Other assets (712) 4,815
Accounts payable (7,254) (6,449)
Accrued liabilities (1,286) (3,910)
Income taxes payable 1,697 1,114
Other (34) (153)
-------- ---------
755 11,772
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 20,178 36,716
FINANCING ACTIVITIES:
Net additions to revolving credit facilities 67 ---
Additions to long-term debt 1,500 ---
Repayments of long-term debt (5,133) (12,505)
Sales of common stock 606 527
Purchases of common stock --- (161)
Cash dividends paid (2,493) (2,263)
-------- --------
CASH USED FOR FINANCING ACTIVITIES (5,453) (14,402)
INVESTING ACTIVITIES:
Capital expenditures (21,501) (18,306)
Proceeds from sale of property, plant and equipment 427 237
Increase in unexpended industrial revenue bond proceeds (171) ---
Cash paid for intangibles (269) (117)
-------- --------
CASH USED FOR INVESTING ACTIVITIES (21,514) (18,186)
Effect of exchange rate changes on cash (7) (33)
(Decrease) increase in cash and cash equivalents (6,796) 4,095
Cash and cash equivalents at beginning of period 50,876 21,532
-------- --------
Cash and cash equivalents at end of period $ 44,080 $ 25,627
======== ========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Income taxes $ 2,806 $ 359
Interest (net of amounts capitalized) 900 1,493
</TABLE>
See accompanying notes
3
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements of Rock-Tenn
Company and its subsidiaries (the "Company") have not been audited by
independent auditors. The condensed consolidated balance sheet at September 30,
1996 has been derived from the audited consolidated financial statements. In the
opinion of the Company's management, the condensed consolidated financial
statements reflect all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of the results of operations for the
three-month periods ended December 31, 1996 and 1995, the Company's financial
position at December 31, 1996 and September 30, 1996, and the cash flows for the
three month periods ended December 31, 1996 and 1995.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
The results for the three months ended December 31, 1996 are not necessarily
indicative of results that may be expected for the full year.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
NOTE 2. 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 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 will differ from those estimates and the differences could be
material.
NOTE 3. INVENTORIES
Substantially all U.S. inventories are stated at the lower of cost or market,
with cost determined on the last-in, first-out (LIFO) basis. An actual valuation
of inventory under the LIFO method can only be made at the end of each year
based on the inventory levels and costs at that time. Accordingly, interim LIFO
estimates must necessarily be based on management's projection of expected
year-end inventory levels and costs. Because these are subject to many factors
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation.
Inventories at December 31, 1996 and September 30, 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(Unaudited)
<S> <C> <C>
Finished goods and work in process $47,471 $46,796
Raw materials 26,375 26,583
Supplies 6,042 5,816
------- -------
Inventories at first-in, first-out (FIFO) cost 79,888 79,195
LIFO reserve (20,290) (20,690)
------- -------
Net inventories $59,598 $58,505
======= =======
</TABLE>
4
<PAGE> 7
NOTE 4. NEW DEPRECIATION METHOD
Effective October 1, 1996, the Company changed its method of depreciation for
machinery and equipment placed in service after September 30, 1996 to the
straight-line method. This change was applied on a prospective basis to such
assets acquired after that date. The Company's previous policy of depreciation
for additions of machinery and equipment was the 150% declining balance method.
Assets placed in service prior to the effective date of the change continue to
be depreciated using accelerated methods. The Company changed its method of
depreciation based upon 1) management's shift in operating style over the last
several years to focus on capital and technological improvements and related
changes in maintenance, 2) management's belief that straight-line provides a
better matching of costs and revenues, and 3) the fact that the straight-line
method is the predominant industry practice. Given the Company's circumstances,
management believes the straight-line method is preferable. There is no
cumulative effect of this change. The effect of this change on net income for
the three months ended December 31, 1996 was to increase net income by
approximately $68,000, or less than $.01 per share.
NOTE 5. STOCK DIVIDEND
On November 15, 1996, a 10% stock dividend was paid by the Company for
shareholders of record on November 4, 1996. All applicable per share and
weighted average common and common equivalent shares outstanding information in
the accompanying condensed consolidated financial statements reflects the stock
dividend for all periods presented herein. This dividend has been retroactively
reflected in the accompanying September 30, 1996 consolidated balance sheet and
has been valued using the price per share as of October 23, 1996, the most
recent closing price prior to the announcement of the dividend.
NOTE 6. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121 ("SFAS 121") establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill. The Company adopted SFAS 121 effective
October 1, 1996. This adoption did not have a material impact on the Company's
consolidated financial statements.
Statement of Financial Accounting Standards No. 123 ("SFAS 123") establishes
financial accounting and reporting standards for stock-based employee
compensation plans, such as employee stock purchase plans and stock option
plans. This statement was adopted by the Company effective October 1, 1996. In
accordance with the alternatives permitted under SFAS 123, the Company plans to
present the pro forma impact of its stock-based employee compensation plans in
the footnotes to its consolidated financial statements rather than charge the
estimated pro forma expense related to these plans to its consolidated statement
of income.
In October 1996, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 96-1 ("SOP 96-1"). SOP 96-1 provides accounting
guidance on issues relating to the recognition, measurement and disclosure of
environmental liabilities. The Company is required to adopt this statement in
fiscal 1998. The impact of adopting SOP 96-1, if any, will be accounted for as a
change in an estimate. Currently, the Company has not completed the analysis
necessary to determine what the impact of SOP 96-1 will be on the Company's
consolidated financial statements; however, the Company does not anticipate a
material impact.
NOTE 7. SUBSEQUENT EVENTS
On January 8, 1997, the Company announced that it had signed a letter of intent
with Sonoco Products Company ("Sonoco") to combine the Company's and Sonoco's
fiber partition businesses into a new entity. The Company will contribute eight
fiber partition plants and a machine engineering facility in the U.S. and Sonoco
will contribute six fiber partition plants in the U.S. and its fiber partition
plant in Mexico to the entity. Under the terms of the agreement, the Company
will own 65% of the entity and Sonoco will own 35%. Consummation of the
arrangement is subject to the satisfaction of a number of conditions including
negotiation and execution of definitive agreements, obtaining certain regulatory
approvals and the satisfactory completion of due diligence. The closing of the
agreement is expected to take place in the second quarter of fiscal 1997.
5
<PAGE> 8
On January 21, 1997, the Company acquired all of the outstanding capital stock
of the parent of Waldorf Corporation ("Waldorf') for approximately $239,000,000
in cash (the "Waldorf Acquisition"). In addition, in connection with the Waldorf
Acquisition, the Company (i) made certain payments on the closing date
aggregating $32,600,000 relating to the settlement of a contingent interest
agreement with a former creditor of Waldorf and the termination of Waldorf's
Stock Appreciation Rights Plan and (ii) became indirectly liable for
approximately $142,300,000 of net long-term debt of Waldorf outstanding on such
date. Waldorf is a leading manufacturer of folding cartons and recycled
clay-coated paperboard, as well as a manufacturer of recycled corrugating
medium. The Waldorf Acquisition was financed with available cash and borrowings
aggregating $240,000,000 under a new $400,000,000 revolving credit facility. The
Company currently plans to repay a portion of such borrowings with the net
proceeds of a public offering of equity securities in the first half of fiscal
1997. Consummation of such public offering will be dependent upon the market
conditions prevailing at the time.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto, included herein, and the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended September 30, 1996 which have been filed with the Securities
and Exchange Commission as part of the Company's Annual Report on Form 10-K.
SEGMENT INFORMATION
The Company operates principally in two industry segments: converted products
and paperboard. The converted products segment is comprised of facilities that
produce folding cartons, fiber partitions, corrugated containers, corrugated
displays, thermoformed plastic products and laminated paperboard products. The
paperboard segment consists of facilities that manufacture 100% recycled
clay-coated and uncoated paperboard and that collect recovered paper.
ROCK-TENN COMPANY
INDUSTRY SEGMENT INFORMATION
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR TONNAGE DATA)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES:
Converted Products $184,437 $193,089
Paperboard 66,546 72,963
Intersegment Eliminations (42,665) (46,690)
- ----------------------------------------------------------------------------------------------------------
TOTAL 208,318 219,362
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES:
Converted Products 4,939 6,641
Paperboard 11,004 16,840
Corporate Expense (1,861) (1,836)
Interest Expense (2,442) (2,884)
Interest Income 496 248
- ----------------------------------------------------------------------------------------------------------
TOTAL $ 12,136 $ 19,009
- ----------------------------------------------------------------------------------------------------------
PAPERBOARD SHIPPED (IN TONS) 160,305 148,036
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Note: All per share amounts in the following discussion have been retroactively
restated to reflect a 10% stock dividend paid on November 15, 1996.
7
<PAGE> 10
RESULTS OF OPERATIONS
Net Sales (Unaffiliated Customers). Net sales for the quarter ended December 31,
1996 decreased 5.1% to $208.3 million from $219.4 million for the quarter ended
December 31, 1995. Net sales decreased for the quarter ended December 31, 1996
as a result of reduced customer demand in the converted products segment and
reduced selling prices in both business segments.
Net Sales (Aggregate) - Converted Products Segment. Net sales of converted
products before intersegment eliminations for the quarter ended December 31,
1996 decreased 4.5% to $184.4 million from $193.1 million for the quarter ended
December 31, 1995. The decrease for the quarter ended December 31, 1996 was
primarily the result of reduced customer demand for converted products,
particularly for folding cartons and laminated paperboard products, and
reductions in average selling prices.
Net Sales (Aggregate) - Paperboard Segment. Net sales of paperboard before
intersegment eliminations for the quarter ended December 31, 1996 decreased 8.9%
to $66.5 million from $73.0 million for the quarter ended December 31, 1995. The
decrease for the quarter ended December 31, 1996 resulted from a 16.5% decrease
in average selling prices, which was partially offset by an 8.3% increase in
tons shipped.
Cost of Goods Sold. Cost of goods sold for the quarter ended December 31, 1996
decreased 4.0% to $154.7 million from $161.2 million for the quarter ended
December 31, 1995. Cost of goods sold as a percentage of net sales for the
quarter ended December 31, 1996 increased to 74.3% from 73.5% for the quarter
ended December 31, 1995. The average cost of recovered paper, the Company's
primary raw material, decreased for the quarter ended December 31, 1996 compared
to the quarter ended December 31, 1995. This cost decrease was not enough to
offset the impact of lower average selling prices and volumes. As a result, cost
of goods sold as a percentage of net sales increased for the quarter ended
December 31, 1996.
Substantially all U.S. inventories of the Company are valued at the lower of
cost or market with cost determined on the last-in, first-out (LIFO) inventory
valuation method, which management believes generally results in a better
matching of current costs and revenues than under the first-in, first-out (FIFO)
inventory valuation method. In periods of decreasing costs, the LIFO method
generally results in lower cost of goods sold than under the FIFO method. In
periods of increasing costs, the results are generally the opposite. The
Company's quarterly results of operations reflect LIFO estimates based on
management's projection of expected year-end inventory levels and costs. Because
these estimates are subject to many factors beyond management's control, interim
results are subject to the final year-end LIFO inventory valuation.
Since some of the Company's competitors principally use the FIFO method, the
following supplemental data is presented to illustrate the comparative effect of
LIFO and FIFO accounting on the Company's results of operations. Cost of goods
sold determined under the LIFO method was $.4 million lower and $.5 million
lower than it would have been under the FIFO method in the quarter ended
December 31, 1996 and 1995, respectively. Net income was $.2 million higher and
$.3 million higher than it would have been under the FIFO method in the quarter
ended December 31, 1996 and 1995, respectively. These supplemental FIFO earnings
reflect the after tax effect of LIFO each year.
Gross Profit. Gross profit for the quarter ended December 31, 1996 decreased
7.9% to $53.6 million from $58.2 million for the quarter ended December 31,
1995. Gross profit as a percentage of net sales decreased to 25.7% for the
quarter ended December 31, 1996 from 26.5% for the quarter ended December 31,
1995. The decrease in gross profit as a percentage of net sales for the quarter
ended December 31, 1996 was primarily the result of reductions in average
selling prices, which were partially offset by decreases in the cost of
recovered paper, the Company's primary raw material, and increases in sales
volume in the paperboard segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended December 31, 1996 increased 8.2%
to $39.5 million from $36.5 million for the quarter ended December 31, 1995.
Selling, general and administrative expenses as a percentage of net sales for
the quarter ended December 31, 1996 increased to 19.0% from 16.6% for the
quarter ended December 31, 1995. The increase in selling, general and
administrative expenses as a percentage of net sales resulted from increased
salary and benefit costs combined with decreased net sales for the quarter ended
December 31, 1996 compared to the quarter ended December 31, 1995.
8
<PAGE> 11
Segment Operating Income.
Operating Income - Converted Products Segment. Operating income attributable to
the converted products segment for the quarter ended December 31, 1996 decreased
25.8% to $4.9 million from $6.6 million for the quarter ended December 31, 1995.
Operating margin for the quarter ended December 31, 1996 was 2.7% compared to
3.4 % for the quarter ended December 31, 1995. The decrease in operating income
was primarily the result of decreased customer demand for converted products,
particularly for folding cartons and laminated paperboard products, and reduced
average selling prices for certain converted products. Inefficiencies at the
recently reconfigured Vineland laminated paperboard products facility also
contributed to the decline in operating margin.
Operating Income - Paperboard Segment. Operating income attributable to the
paperboard segment for the quarter ended December 31, 1996 decreased 34.5% to
$11.0 million from $16.8 million for the quarter ended December 31, 1995.
Operating margin for the quarter ended December 31, 1996 was 16.5% compared to
23.0% for the quarter ended December 31, 1995. The decrease in operating income
and margin was primarily the result of a reduction in average paperboard selling
prices, which was partially offset by a decrease in the cost of recovered paper,
the primary raw material utilized in this segment, as well as an increase in
tons shipped. Average paperboard selling prices decreased to $389 per ton for
the quarter ended December 31, 1996 from $466 per ton for the quarter ended
December 31, 1995. The Company's weighted average cost per ton of recovered
paper during the quarter ended December 31, 1996 was $52 compared to $65 during
the quarter ended December 31, 1995. Tons of paperboard shipped increased to
160,305 for the quarter ended December 31, 1996 from 148,036 for the quarter
ended December 31, 1995.
Interest Expense. Interest expense for the quarter ended December 31, 1996
decreased to $2.4 million from $2.9 million for the quarter ended December 31,
1995. The decrease in interest expense for the quarter ended December 31, 1996
was primarily due to a decrease in the average outstanding borrowings during the
quarter ended December 31, 1996, as well as a decrease in the Company's average
interest rate on such borrowings.
Provision for Income Taxes. Provision for income taxes decreased to $4.7 million
for the quarter ended December 31, 1996 from $7.2 million for the quarter ended
December 31, 1995. The Company's effective tax rate increased to 39.0% for the
quarter ended December 31, 1996 compared to 38.0% for the quarter ended December
31, 1995. This increase in the effective tax rate was primarily due to the
effect of costs that are not deductible for federal income tax purposes.
Net Income and Earnings Per Common and Common Equivalent Share. Net income for
the quarter ended December 31, 1996 decreased 37.3% to $7.4 million from $11.8
million for the quarter ended December 31, 1995. Net income as a percentage of
net sales decreased to 3.6% for the quarter ended December 31, 1996 from 5.4%
for the quarter ended December 31, 1995. Earnings per common and common
equivalent share for the quarter ended December 31, 1996 decreased 37.1% to $.22
from $.35 for the quarter ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements and capital expenditures
(including acquisitions) from net cash provided by operating activities,
borrowings under term notes and bank credit facilities and proceeds received in
connection with the issuance of industrial revenue bonds and debt and equity
securities. During the quarter ended December 31, 1996, the Company maintained
revolving credit facilities under which it had $100.0 million in aggregate
borrowing availability. At December 31, 1996, the Company had no borrowings
outstanding under its credit facilities. In January 1997, the Company entered
into a new credit facility, which replaced the existing revolving credit
facilities, under which it has aggregate borrowing availability of $400.0
million. At January 21, 1997, the Company had $240.0 million outstanding under
its new revolving credit facility. Cash and cash equivalents, $44.1 million at
December 31, 1996, decreased from $50.9 million at September 30, 1996.
9
<PAGE> 12
Net cash provided by operating activities for the three months ended December
31, 1996 was $20.2 million compared to $36.7 million for the quarter ended
December 31, 1995. This decrease was primarily the result of decreased earnings
before depreciation and amortization and an increase in net operating asset
requirements. Net cash used for financing activities aggregated $5.5 million for
the quarter ended December 31, 1996 and consisted primarily of repayments of
long-term debt and dividend payments. Net cash used for financing activities
aggregated $14.4 million for the quarter ended December 31, 1995 and consisted
primarily of repayments of long-term debt and dividend payments. Net cash used
for investing activities was $21.5 million for the quarter ended December 31,
1996 compared to $18.2 million for the quarter ended December 31, 1995 and
consisted primarily of capital expenditures for the quarter ended December 31,
1996 and December 31, 1995.
The Company estimates that its capital expenditures will aggregate approximately
$60.0 million for the remainder of fiscal 1997, excluding any expenditures which
may be made relating to facilities acquired in fiscal 1997. These expenditures
will be used for (i) the remaining payments for three printers, the remaining
payments for two die cutters and one gluer in the Folding Carton Division, (ii)
a die cutter and conveyors in the Corrugated Division, (iii), a laminator
upgrade and a cut-to-size machine in the Paperboard Products Division, (iv) the
remaining capital costs associated with the construction and relocation for one
facility in the Recycled Fiber Division, (v) the upgrading of the paperforming,
coating and drying equipment at the Company's paperboard mills and (vi) the
upgrading of computer hardware in several of the Company's manufacturing
facilities.
The Company has completed the engineering work required to convert one of the
uncoated recycled paperboard machines at its Chattanooga Mill to a clay-coated
recycled paperboard machine. During fiscal 1997, improvements will be made to
the machine's paperforming capabilities. The cost of the final stages of this
conversion have not yet been determined.
The Company historically has expanded its business through the acquisition of
other related businesses and the Company plans to continue to focus on making
acquisitions. The recycled paperboard and converted paperboard products
industries have undergone significant consolidation in recent years, and the
Company believes it will be able to capitalize on this trend in the future.
On January 8, 1997, the Company announced it had signed a letter of intent to
enter into a new entity with Sonoco Products Company which would consist of both
companies' respective solid fiber partition businesses. Pursuant to the
agreement, the Company will own 65% of the entity and will supply 65% of the
joint venture's paperboard needs.
On January 21, 1997, the Company acquired all of the outstanding capital stock
of the parent of Waldorf Corporation ("Waldorf') for approximately $239.0
million in cash (the "Waldorf Acquisition"). In addition, in connection with the
Waldorf Acquisition, the Company (i) made certain payments on the closing date
aggregating $32.6 million relating to the settlement of a contingent interest
agreement with a former creditor of Waldorf and the termination of Waldorf's
Stock Appreciation Rights Plan and (ii) became indirectly liable for
approximately $142.3 million of net long-term debt of Waldorf outstanding on
such date. Waldorf is a leading manufacturer of folding cartons and recycled
clay-coated paperboard, as well as a manufacturer of recycled corrugating
medium. The Waldorf Acquisition was financed with available cash and borrowings
aggregating $240.0 million under a new $400.0 million revolving credit facility.
The Company currently plans to repay a portion of such borrowings with the net
proceeds of a public offering of equity securities in the first half of fiscal
1997. Consummation of such public offering will be dependent upon the market
conditions prevailing at the time.
The Board of Directors has authorized the Company to repurchase from time to
time prior to July 31, 1998 up to 1.5 million shares of Class A Common Stock in
open market transactions on the New York Stock Exchange. In addition, the Board
has authorized the Company to repurchase from time to time shares of Class B
Common Stock pursuant to certain first offer rights contained in the Company's
Restated and Amended Articles of Incorporation, provided that the aggregate
number of shares of Class A and Class B Common Stock purchased under these
programs may not exceed 1.5 million shares. During the three months ended
December 31, 1996, the Company did not repurchase any shares of Class A or Class
B Common Stock. As of December 31, 1996, an aggregate of 716,500 shares had been
repurchased under these programs. The Company anticipates that it will make
additional purchases through July 1998.
10
<PAGE> 13
The Company anticipates that it will be able to fund its capital expenditures,
acquisitions, stock repurchases, dividends and working capital needs for the
foreseeable future from cash generated from operations, borrowings under its
bank credit facilities, proceeds from the issuance of debt or equity securities
or other additional long-term debt financing.
The Class A Common Stock of the Company commenced trading on the New York Stock
Exchange under the symbol "RKT" on December 31, 1996. Prior to that time, the
Class A Common Stock was traded on the Nasdaq National Market under the symbol
"RKTN".
DEPRECIATION CHANGE
Effective October 1, 1996, the Company changed its method of depreciation for
machinery and equipment placed in service after September 30, 1996 to the
straight-line method. This change was applied on a prospective basis to such
assets acquired after that date. The Company's previous policy of depreciation
for additions of machinery and equipment was the 150% declining balance method.
Assets placed in service prior to the effective date of the change continue to
be depreciated using accelerated methods. The Company changed its method of
depreciation based upon 1) management's shift in operating style over the last
several years to focus on capital and technological improvements and related
changes in maintenance, 2) management's belief that straight-line provides a
better matching of costs and revenues, and 3) the fact that the straight-line
method is the predominant industry practice. Given the Company's circumstances,
management believes the straight-line method is preferable. There is no
cumulative effect of this change. The effect of this change on net income for
the three months ended December 31, 1996 was immaterial.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement regarding Computation of Per Share Earnings
18 - Letter regarding change in accounting principle
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
1. On October 23, 1996, the Company filed a Current Report on Form
8-K, dated October 23, 1996, under which the Company filed a
statement to avail itself of the safe harbor provided in the
Securities Act of 1933 and the Securities Exchange Act of 1934 with
respect to "forward looking statements".
2. On December 20, 1996, the Company filed a Current Report on Form
8-K, dated December 20, 1996, under which the Company filed a copy
of a press release announcing the proposed acquisition of all of
the outstanding capital stock of the parent of Waldorf Corporation
in January of 1997.
12
<PAGE> 15
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.
ROCK-TENN COMPANY
(Registrant)
Date: February 11, 1997 By: /s/ DAVID C. NICHOLSON
------------------------ --------------------------
David C. Nicholson, Senior Vice-President,
Chief Financial Officer, Secretary
(Principal Financial Officer, Principal
Accounting Officer and duly
authorized officer)
13
<PAGE> 16
ROCK-TENN COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Exhibit 11 Statement Regarding Computation of Per Share Earnings 15
Exhibit 18 Letter Regarding Change in Accounting Principle 16
Exhibit 27 Financial Data Schedule (for SEC use only)
</TABLE>
14
<PAGE> 1
EXHIBIT 11
ROCK-TENN COMPANY
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months Ended
December 31, December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE
<S> <C> <C>
Net income $ 7,399 $11,785
------- -------
Average common shares outstanding 33,171 33,163
Average common shares outstanding including
common equivalent shares 34,075 33,932
Primary earnings per common share $ .22 $ .36
Primary earnings per common and common
equivalent share $ .22 $ .35
======= =======
FULLY DILUTED EARNINGS PER SHARE
Net income $ 7,399 $11,785
------- -------
Average common shares outstanding 33,171 33,163
Average common shares outstanding including
common equivalent shares 34,108 33,932
Fully diluted earnings per common share $ .22 $ .36
Fully diluted earnings per common and common
equivalent share $ .22 $ .35
======= =======
</TABLE>
15
<PAGE> 1
EXHIBIT 18
Atlanta, Georgia
January 21, 1997
The Board of Directors
Rock-Tenn Company
Note 4 of Notes to Condensed Consolidated Financial Statements of Rock-Tenn
Company, as of December 31, 1996 and the three month periods ended December 31,
1996 and 1995, included in the Form 10-Q, describes a change in the method of
accounting for depreciation. Machinery and equipment placed in service after
September 30, 1996 will be depreciated using the straight-line method. Machinery
and equipment which was placed in service prior to October 1, 1996 will continue
to be depreciated by declining balance methods. You have advised us that you
believe that the change is to a preferable method in your circumstances because
you believe that, among other reasons, the new method provides for a better
matching of costs and revenues over the lives of such assets and that the
straight-line method is predominant within your industry.
There are no authoritative criteria for determining a "preferable" depreciation
method based on the particular circumstances; however, we conclude that the
change in the method of accounting for assets placed in service after September
30, 1996 is to an acceptable alternative method which, based on your business
judgment to make this change for the reasons cited above, is preferable in your
circumstances. We have not conducted an audit in accordance with generally
accepted auditing standards of any financial statements of the Company as of any
date or for any period subsequent to September 30, 1996, and therefore we do not
express any opinion on any financial statements of Rock-Tenn Company subsequent
to that date.
Very truly yours,
/s/ Ernst & Young LLP
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 44,080
<SECURITIES> 0
<RECEIVABLES> 71,659
<ALLOWANCES> 3,625
<INVENTORY> 59,598
<CURRENT-ASSETS> 173,352
<PP&E> 625,843
<DEPRECIATION> 280,804
<TOTAL-ASSETS> 576,471
<CURRENT-LIABILITIES> 61,286
<BONDS> 135,741
0
0
<COMMON> 332
<OTHER-SE> 354,072
<TOTAL-LIABILITY-AND-EQUITY> 576,471
<SALES> 208,318
<TOTAL-REVENUES> 208,318
<CGS> 154,725
<TOTAL-COSTS> 154,725
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,442
<INCOME-PRETAX> 12,136
<INCOME-TAX> 4,737
<INCOME-CONTINUING> 7,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,399
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
