<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 MARCH 31, 2000
--------------
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
-------
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:
<TABLE>
<CAPTION>
Class Outstanding as of May 9, 2000
------------------------------------- -----------------------------
<S> <C>
Class A Common Stock, .01 par value 23,276,155
Class B Common Stock, .01 par value 11,570,836
</TABLE>
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<PAGE> 2
ROCK-TENN COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the three months
and six months ended March 31, 2000 and 1999 1
Condensed Consolidated Balance Sheets at March 31, 2000 and
September 30, 1999 2
Condensed Consolidated Statements of Cash Flows for the six months
ended March 31, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
Index to Exhibits 22
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 368,918 $ 312,166 $ 714,779 $ 622,961
Cost of goods sold 275,918 227,590 531,389 451,559
---------- ---------- ---------- ----------
Gross profit 93,000 84,576 183,390 171,402
Selling, general and administrative expenses 65,011 56,201 126,074 113,299
Amortization of goodwill 2,357 2,352 4,713 4,702
Plant closing and other costs 52,725 1,085 55,199 3,138
---------- ---------- ---------- ----------
(Loss) income from operations (27,093) 24,938 (2,596) 50,263
Interest and other income 83 104 188 215
Interest expense (8,465) (7,780) (16,459) (16,094)
Minority interest in income of consolidated subsidiary (1,274) (1,488) (2,435) (2,929)
---------- ---------- ---------- ----------
(Loss) income before income taxes (36,749) 15,774 (21,302) 31,455
Income tax (benefit) expense (3,493) 6,968 3,344 13,891
---------- ---------- ---------- ----------
Net (loss) income $ (33,256) $ 8,806 $ (24,646) $ 17,564
========== ========== ========== ==========
Weighted average common
shares outstanding-diluted 34,797 35,245 34,912 35,133
========== ========== ========== ==========
Basic (loss) earnings per share $ (0.96) $ 0.25 $ (0.71) $ 0.51
========== ========== ========== ==========
Diluted (loss) earnings per share $ (0.96) $ 0.25 $ (0.71) $ 0.50
========== ========== ========== ==========
Cash dividends per common share $ 0.075 $ 0.075 $ 0.15 $ 0.15
========== ========== ========== ==========
</TABLE>
See accompanying notes
1
<PAGE> 4
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
- --------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3,063 $ 4,538
Accounts receivable (net of allowances of
$3,435 and $3,610) 145,257 139,034
Inventories 101,626 94,501
Other current assets 8,263 5,308
------------ ------------
TOTAL CURRENT ASSETS 258,209 243,381
Property, plant and equipment, at cost:
Land and buildings 197,796 194,903
Machinery and equipment 814,641 805,537
Transportation equipment 13,932 14,738
Leasehold improvements 7,410 7,242
------------ ------------
1,033,779 1,022,420
Less accumulated depreciation and amortization (450,727) (429,681)
------------ ------------
Net property, plant and equipment 583,052 592,739
Goodwill, net 278,227 308,283
Other assets 20,026 17,067
------------ ------------
$ 1,139,514 $ 1,161,470
============ ============
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 61,975 $ 66,271
Accrued compensation and benefits 31,998 36,977
Current maturities of long-term debt 386,997 41,435
Other current liabilities 21,263 24,227
------------ ------------
TOTAL CURRENT LIABILITIES 502,233 168,910
Long-term debt due after one year 141,614 457,410
Deferred income taxes 76,439 85,631
Other long-term items 20,495 17,355
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; no
shares outstanding at March 31 and September 30 -- --
Class A common stock, $.01 par value; 175,000,000 shares authorized,
23,147,778 and 23,411,395 outstanding at March 31 and September 30,
respectively; Class B common stock, $.01 par value; 60,000,000 shares
authorized; 11,553,383 and 11,546,187 outstanding
at March 31 and September 30, respectively 347 350
Capital in excess of par value 132,161 132,048
Retained earnings 268,884 303,287
Accumulated other comprehensive loss (2,659) (3,521)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 398,733 432,164
------------ ------------
$ 1,139,514 $ 1,161,470
============ ============
</TABLE>
See accompanying notes
2
<PAGE> 5
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
March 31, March 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (24,646) $ 17,564
Items in income not affecting cash:
Depreciation and amortization 38,453 36,173
Deferred income taxes (9,192) 1,808
Gain on disposal of property, plant and equipment (473) (271)
Minority interest in income of consolidated subsidiary 2,435 2,929
Impairment loss and other non-cash charges 49,719 --
Change in operating assets and liabilities:
Accounts receivable (6,092) 20
Inventories (6,997) 485
Other assets (2,660) (6,815)
Accounts payable (4,395) 11,470
Accrued liabilities (6,676) (11,771)
---------- ----------
(26,820) (6,611)
---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES 29,476 51,592
FINANCING ACTIVITIES:
Net additions (repayments) to revolving credit facilities 24,911 (2,954)
Additions to long term-debt 5,457 --
Repayments of long-term debt (602) (4,704)
Debt issuance costs (104) --
Sales of common stock 2,164 1,625
Purchases of common stock (6,564) --
Cash dividends paid to shareholders (5,247) (5,212)
Distribution to minority interest (1,575) (2,625)
---------- ----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 18,440 (13,870)
INVESTING ACTIVITIES:
Capital expenditures (46,301) (42,632)
Proceeds from sale of property, plant and equipment 123 755
Increase in unexpended industrial revenue bond proceeds (3,247) --
---------- ----------
CASH USED FOR INVESTING ACTIVITIES (49,425) (41,877)
Effect of exchange rate changes on cash 34 386
---------- ----------
Decrease in cash and cash equivalents (1,475) (3,769)
Cash and cash equivalents at beginning of period 4,538 5,769
---------- ----------
Cash and cash equivalents at end of period $ 3,063 $ 2,000
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes (net of refunds) $ 14,676 $ 19,226
Interest (net of amounts capitalized) 16,907 15,432
</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,
1999 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 and six month periods ended March 31, 2000 and 1999, the Company's
financial position at March 31, 2000 and September 30, 1999, and the cash flows
for the six month periods ended March 31, 2000 and 1999.
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,
1999.
The results for the three months and six months ended March 31, 2000 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. ACCOUNTING POLICIES
The Company enters into a variety of derivative transactions. Generally, the
Company designates at inception that derivatives hedge risks associated with
specific assets, liabilities or future commitments and monitors each derivative
to determine if it remains an effective hedge. The effectiveness of the
derivative as a hedge is based on high correlation between changes in its value
and changes in the value of the underlying hedged item. The Company includes in
operations amounts received or paid when the underlying transaction settles.
The Company does not enter into or hold derivatives for trading or speculative
purposes.
The Company uses interest rate cap agreements and interest rate swap agreements
to manage synthetically the interest rate characteristics of a portion of its
outstanding debt and to limit the Company's exposure to rising interest rates.
Amounts to be received or paid as a result of interest rate cap agreements and
interest rate swap agreements are accrued and recognized as an adjustment to
interest expense related to the designated debt. The cost of purchasing
interest rate caps are amortized to interest expense ratably during the life of
the agreement. Gains or losses on terminations of interest rate swap agreements
are deferred and amortized as an adjustment to interest expense related to the
debt over the remaining term of the original contract life of terminated swap
agreements. In the event of the early extinguishment of a designated debt
obligation, any realized or unrealized gain or loss from the swap would be
recognized in income at the time of extinguishment.
The Company uses forward contracts to limit exposure to fluctuations in
Canadian foreign currency rates with respect to its receivables denominated in
Canadian dollars. The forward contracts are settled monthly and resulting gains
or losses are recognized at the time of settlement.
The Company uses commodity swap agreements to limit the Company's exposure to
falling sales prices and rising raw material costs for a portion of its
recycled corrugating medium business. Amounts to be received or paid as a
result of these swap agreements are recognized in the period in which the
related sale is made.
4
<PAGE> 7
NOTE 3. COMPREHENSIVE (LOSS) INCOME
Total comprehensive loss for the three and six months ended March 31, 2000 was
$33.1 million and $23.8 million, respectively. Total comprehensive income for
the three and six months ended March 31, 1999 was $9.7 million and $18.8
million, respectively. The difference between total comprehensive (loss) income
and net (loss) income was foreign currency translation adjustments.
NOTE 4. 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 5. 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. All other
inventories are valued at lower of cost or market, with cost determined using
methods which approximate cost computed on a first-in, first-out (FIFO) 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 March 31, 2000 and September 30, 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
--------- -------------
<S> <C> <C>
Finished goods and work in process $ 74,046 $ 67,934
Raw materials 40,866 37,029
Supplies 11,449 11,608
----------- ----------
Inventories at first-in, first-out (FIFO) cost 126,361 116,571
LIFO reserve (24,735) (22,070)
----------- ----------
Net inventories $ 101,626 $ 94,501
=========== ===========
</TABLE>
NOTE 6. PLANT CLOSING AND OTHER COSTS
During the quarter ended March 31, 2000, the Company incurred losses in excess
of expectations in its two folding carton plants that use web offset
manufacturing technology. As a result, during the quarter ended March 31, 2000
the Company decided to close its folding carton plant in Chicago, Illinois and
consolidate its web offset operations into its other folding carton operations.
This closing was announced in April 2000 and will result in the termination of
approximately 180 employees. The plant will be closed during the quarter ending
June 30, 2000. Although this consolidation will reduce expected operating losses
in its web offset operations, the Company expects to continue to incur losses in
these operations. Accordingly, the Company recorded asset impairment charges
during the quarter ended March 31, 2000 of $43.1 million, reflecting its
determination that a material diminution in the value of the assets, including
goodwill of $25.4 million (which is not deductible for tax purposes) relating to
its two folding carton plants that use web offset manufacturing technology had
occurred. The Company expects to incur additional pre-tax charges aggregating
$5.1 million during the third and fourth quarters of fiscal 2000 related to
severance, machinery relocation and other one time operating costs in connection
with the closing of the Chicago plant.
5
<PAGE> 8
During the quarter ended March 31, 2000, the Company decided to close its
folding carton plant in Norcross, Georgia. This closing was announced in April
2000 and will result in the termination of approximately 70 employees. The
plant will be closed during the quarter ending June 30, 2000. As a result of
this decision, the Company incurred a charge in the quarter ended March 31,
2000 of $1.0 million for the impairment of certain plant assets. The Company
expects to incur pre-tax charges aggregating approximately $1.5 million during
the third and fourth quarters of fiscal 2000 consisting primarily of severance,
machinery relocation and other one time operating costs related to this
closing. The Company will move production from this facility to other folding
carton facilities.
During the first quarter of fiscal 2000, the Company announced the closing of
its Lynchburg, Virginia laminated paperboard products plant. The closing
resulted in the termination of approximately 115 employees. The Company expects
severance, equipment relocation and other one-time operating costs in
connection with this closing to reduce pre-tax income by approximately $8.9
million during fiscal 2000. The Company incurred pre-tax charges of
approximately $4.0 million and $6.5 million and made payments of approximately
$4.9 million and $6.2 million, for severance, equipment relocation and other
one-time operating costs, during the three and six month periods ended March
31, 2000, respectively, related to this closing and certain other closed
plants. The Company had a remaining liability of approximately $0.2 million for
the charges incurred through March 31, 2000.
During the second quarter of fiscal 2000, the Company decided to remove from
service certain equipment. As a result of this decision, the Company incurred
impairment charges of $4.6 million related to this equipment in the quarter
ended March 31, 2000.
During fiscal 1999, the Company closed a folding carton plant in Taylorsville,
North Carolina, a laminated paperboard products operation in Otsego, Michigan
and an uncoated papermill serving its coverboard converting operations in
Jersey City, New Jersey. The closures resulted in the termination of
approximately 280 employees. In connection with these closings, the Company
made severance and other payments of $0.1 million and $0.4 million during the
three and six month periods ended March 31, 2000, respectively. The Company had
a nominal remaining liability at March 31, 2000. The Company has consolidated
the operations of these closed plants into other existing facilities.
During fiscal 1998, the Company began implementing certain cost reduction
initiatives designed to reduce overhead and production costs and improve
operating efficiency. In connection with these cost reduction initiatives, the
Company terminated approximately 40 employees. The Company made severance and
other payments of approximately $0.1 million and $0.3 million during the three
and six months ended March 31, 2000, respectively, related to these
terminations. The remaining liability at March 31, 2000 is $0.9 million, which
is expected to be paid over the next two years.
NOTE 7. LONG-TERM DEBT
The Company obtained a waiver from the lenders under its revolving credit
agreement regarding its compliance with certain covenants under the agreement
at March 31, 2000. The waiver was necessary as a result of the net loss the
Company incurred during the quarter ended March 31, 2000. The Company intends
to replace its existing revolving credit agreement with a new credit facility
before June 30, 2000; however, the Company cannot guarantee that it will be
able to do so on terms acceptable to them. If the Company is unable to do so,
the Company believes it will need a waiver from the lenders under its revolving
credit agreement of the same covenants as of June 30, 2000. Accordingly, the
Company has classified the outstanding balance at March 31, 2000 under its
current revolving credit agreement as a current liability.
NOTE 8. NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." This statement requires the fair value of derivatives to be
recorded as assets or liabilities. Gains or losses resulting from changes in
the fair values of derivatives would be accounted for currently in earnings or
comprehensive income, depending on the purpose of the derivatives and whether
they qualify for hedge accounting treatment. SFAS 133 is required to be adopted
in fiscal 2001. The Company is currently evaluating SFAS 133 and has not yet
determined its impact on the Company's consolidated financial statements.
6
<PAGE> 9
NOTE 9. (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss)
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net (loss) income $ (33,256) $ 8,806 $ (24,646) $ 17,564
Denominator:
Denominator for basic earnings per share-
weighted average shares 34,797 34,768 34,912 34,709
Effect of dilutive stock options -- 477 -- 424
------------ ----------- ------------ -----------
Denominator for diluted earnings per share-
weighted average shares and assumed
conversions 34,797 35,245 34,912 35,133
============ =========== ============ ===========
Basic (loss) earnings per share $ (0.96) $ 0.25 $ (0.71) $ 0.51
============ =========== ============ ===========
Diluted (loss) earnings per share $ (0.96) $ 0.25 $ (0.71) $ 0.50
============ =========== ============ ===========
</TABLE>
Common stock equivalents were anti-dilutive and therefore excluded from the
calculation of weighted average shares used in computing diluted loss per share
for the three months and six months ended March 31, 2000.
7
<PAGE> 10
NOTE 10. SEGMENT INFORMATION
The following table sets forth business segment information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales (aggregate):
Packaging Products $ 237,573 $ 208,049 $ 466,485 $ 417,621
Paperboard 121,151 98,191 237,036 199,372
Laminated Paperboard, Plastic Packaging
And Recycled Fiber 80,053 60,520 150,146 120,015
- ------------------------------------------------------------------------------------------------------------------
Total $ 438,777 $ 366,760 $ 853,667 $ 737,008
==================================================================================================================
Less net sales (intersegment):
Packaging Products $ 528 $ 153 $ 881 $ 299
Paperboard 53,171 46,106 107,963 98,245
Laminated Paperboard, Plastic Packaging
and Recycled Fiber 16,160 8,335 30,044 15,503
- ------------------------------------------------------------------------------------------------------------------
Total $ 69,859 $ 54,594 $ 138,888 $ 114,047
==================================================================================================================
Net sales (unaffiliated customers):
Packaging Products $ 237,045 $ 207,896 $ 465,604 $ 417,322
Paperboard 67,980 52,085 129,073 101,127
Laminated Paperboard, Plastic Packaging
and Recycled Fiber 63,893 52,185 120,102 104,512
- ------------------------------------------------------------------------------------------------------------------
Total $ 368,918 $ 312,166 $ 714,779 $ 622,961
==================================================================================================================
Segment income:
Packaging Products $ 14,228 $ 13,972 $ 25,399 $ 27,873
Paperboard 10,985 10,772 24,664 24,282
Laminated Paperboard, Plastic Packaging
and Recycled Fiber 4,954 1,533 8,159 1,669
- ------------------------------------------------------------------------------------------------------------------
30,167 26,227 58,222 53,824
LIFO and intercompany profit (1,465) 700 (2,665) 1,500
Plant closing and other costs (52,725) (1,085) (55,199) (3,138)
Other non-allocated expenses (3,070) (904) (2,954) (1,923)
Minority interest in income of consolidated (1,274) (1,488) (2,435) (2,929)
subsidiary
Interest expense (8,465) (7,780) (16,459) (16,094)
Interest and other income 83 104 188 215
- ------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes $ (36,749) $ 15,774 $ (21,302) $ 31,455
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
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 our
audited consolidated financial statements and notes thereto for the fiscal year
ended September 30, 1999 which have been filed with the Securities and Exchange
Commission as part of our Annual Report on Form 10-K.
SEGMENT AND MARKET INFORMATION
We report our results in three industry segments: packaging products,
paperboard and a segment combining the results of our laminated paperboard
products division, plastic packaging division and recycled fiber division.
The packaging products segment consists of facilities that produce folding
cartons, solid fiber partitions, corrugated containers and corrugated displays.
We compete with a significant number of national, regional and local packaging
suppliers. During fiscal 1999, we sold packaging products to approximately
5,000 customers with no customer accounting for more than 5% of our net sales.
We sell packaging products to several large national customers with sales to an
individual customer ranging as high as $55 million during fiscal 1999. The
majority of our packaging products sales are to smaller national and regional
customers that annually purchase less than $10 million of packaging products
from the Company. The packaging business is highly competitive. As a result, we
regularly bid for sales opportunities to customers for business or for renewal
of existing business. The loss of business or the award of new business from
our larger customers may have a significant impact on our results of
operations.
The paperboard segment consists of facilities that manufacture 100% recycled
clay-coated and uncoated paperboard, which we refer to as boxboard, and
corrugating medium, which we refer to as medium. In the paperboard segment, we
compete with integrated and non-integrated national, regional and local
companies manufacturing various grades of paperboard. During fiscal 1999, we
sold paperboard to approximately 700 customers. A significant percentage of our
sales of boxboard are made to our packaging products segment and laminated
paperboard products division. Our paperboard segment's sales volumes may
therefore be directly impacted by changes in demand for the Company's packaging
and laminated paperboard products.
The laminated paperboard, plastic packaging and recycled fiber segment consists
of facilities that produce laminated paperboard products and thermoformed
plastic products and that collect recovered paper. In our laminated paperboard
products and thermoformed plastic products divisions, we compete with a small
number of national, regional and local companies offering highly specialized
products. We also compete with foreign companies in the book cover market. Our
recycled fiber division competes with national, regional and local companies.
During fiscal 1999, we sold laminated paperboard, plastic packaging and
recycled fiber to approximately 2,400 customers.
The following table presents certain operating data for our three industry
segments. Certain of our income and expenses are not allocated to our segments
and are thus not reflected in the information used by management to make
operating decisions and assess performance at the plant level. These items are
reported as non-allocated expenses. These include adjustments to record
inventory on the last-in, first-out, or "LIFO", method compared to the
first-in, first-out, "FIFO", method, elimination of intercompany profit, plant
closing and related expenses, asset impairment charges and certain corporate
expenses.
9
<PAGE> 12
ROCK-TENN COMPANY
INDUSTRY SEGMENT INFORMATION
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR TONNAGE DATA)
<TABLE>
<CAPTION>
==================================================================================================================
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES:
Packaging Products Segment $ 237,573 $ 208,049 $ 466,485 $ 417,621
Paperboard Segment 121,151 98,191 237,036 199,372
Laminated Paperboard, Plastic Packaging and
Recycled Fiber Segment 80,053 60,520 150,146 120,015
Intersegment Eliminations (69,859) (54,594) (138,888) (114,047)
- -------------------------------------------------------------------------------------------------------------------
TOTAL $ 368,918 $ 312,166 $ 714,779 $ 622,961
- -------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES:
Packaging Products Segment $ 14,228 $ 13,972 $ 25,399 $ 27,873
Paperboard Segment 10,985 10,772 24,664 24,282
Laminated Paperboard, Plastic Packaging and
Recycled Fiber Segment 4,954 1,533 8,159 1,669
- -------------------------------------------------------------------------------------------------------------------
Segment Income Before Income Taxes 30,167 26,227 58,222 53,824
LIFO and Intercompany Profit (1,465) 700 (2,665) 1,500
Plant Closing and Other Costs (52,725) (1,085) (55,199) (3,138)
Other Non-Allocated Expenses (3,070) (904) (2,954) (1,923)
Interest Expense (8,465) (7,780) (16,459) (16,094)
Interest and Other Income 83 104 188 215
Minority Interest in Income of
Consolidated Subsidiary (1,274) (1,488) (2,435) (2,929)
- -------------------------------------------------------------------------------------------------------------------
TOTAL $ (36,749) $ 15,774 $ (21,302) $ 31,455
==================================================================================================================
Paperboard Shipped (in tons) 294,498 262,018 579,429 528,922
==================================================================================================================
</TABLE>
RESULTS OF OPERATIONS
Net Sales (Unaffiliated Customers)
Net sales for the quarter ended March 31, 2000 increased 18.2% to $368.9
million from $312.2 million for the quarter ended March 31, 1999. Net sales for
the six months ended March 31, 2000 increased 14.7% to $714.8 million from
$623.0 million for the six months ended March 31, 1999. Net sales increased
primarily as a result of price increases implemented to recover higher
recovered fiber, paperboard and other costs and continuing growth in our
corrugated packaging and display and plastics divisions.
Net Sales (Aggregate) - Packaging Products Segment
<TABLE>
<CAPTION>
First Second Six Months Third Fourth Fiscal
(In Millions) Quarter Quarter Ended 3/31 Quarter Quarter Year
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $209.6 $208.0 $417.6 $217.3 $237.1 $872.0
2000 228.9 237.6 466.5 -- -- --
-----------------------------------------------------------------------------------
</TABLE>
Net sales of packaging products before intersegment eliminations for the
quarter ended March 31, 2000 increased 14.2% to $237.6 million from $208.0
million for the quarter ended March 31, 1999. Net sales of packaging
10
<PAGE> 13
products before intersegment eliminations for the six months ended March 31,
2000 increased 11.7% to $466.5 million from $417.6 million for the six months
ended March 31, 1999. The increase was primarily a result of firmer market
conditions in our folding carton business generally and increases in volume and
selling prices in our corrugated packaging and display division.
Net Sales (Aggregate) - Paperboard Segment
<TABLE>
<CAPTION>
First Second Six Months Third Fourth Fiscal
(In Millions) Quarter Quarter Ended 3/31 Quarter Quarter Year
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $101.2 $ 98.2 $199.4 $107.7 $112.8 $419.9
2000 115.9 121.1 237.0 -- -- --
------------------------------------------------------------------------------
</TABLE>
Net sales of paperboard before intersegment eliminations for the quarter ended
March 31, 2000 increased 23.3% to $121.1 million from $98.2 million for the
quarter ended March 31, 1999. Net sales of paperboard before intersegment
eliminations for the six months ended March 31, 2000 increased 18.9% to $237.0
million from $199.4 million for the six months ended March 31, 1999. The
increase was the result of higher volumes and selling prices.
Net Sales (Aggregate) - Laminated Paperboard, Plastic Packaging and Recycled
Fiber Segment
<TABLE>
<CAPTION>
First Second Six Months Third Fourth Fiscal
(In Millions) Quarter Quarter Ended 3/31 Quarter Quarter Year
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 $ 59.5 $ 60.5 $120.0 $ 64.9 $ 74.0 $258.9
2000 70.1 80.0 150.1 -- -- --
-----------------------------------------------------------------------------
</TABLE>
Net sales within this segment before intersegment eliminations for the quarter
ended March 31, 2000 increased 32.2% to $80.0 million from $60.5 million for
the quarter ended March 31, 1999. Net sales within this segment before
intersegment eliminations for the six months ended March 31, 2000 increased
25.1% to $150.1 million from $120.0 million for the six months ended March 31,
1999. The increase resulted from higher volumes in the plastic packaging
division and increased selling prices in the recycled fiber division.
Cost of Goods Sold
Cost of goods sold for the quarter ended March 31, 2000 increased 21.2% to
$275.9 million from $227.6 million for the quarter ended March 31, 1999. Cost
of goods sold as a percentage of net sales for the quarter ended March 31, 2000
increased to 74.8% from 72.9% for the quarter ended March 31, 1999. Cost of
goods sold for the six months ended March 31, 2000 increased 17.7% to $531.4
million from $451.6 million for the six months ended March 31, 1999. Cost of
goods sold as a percentage of net sales for the six months ended March 31, 2000
increased to 74.3% from 72.5% for the six months ended March 31, 1999. The
increase in cost of goods sold as a percentage of net sales was attributable to
(1) higher raw material costs, (2) operating inefficiencies at several plants
related in part to the start-up of certain new equipment, (3) a $1.0 million
charge representing estimated losses expected to be incurred under a customer
contract that has a remaining term of 21 months and (4) a $0.3 million charge
resulting from our decision to remove from service certain equipment. We
recorded the losses expected to be incurred under the customer contract during
the quarter ended March 31, 2000 because we determined that they were probable
and reasonably estimable.
Substantially all of our U.S. inventories are valued at the lower of cost or
market with cost determined on the last-in, first-out (LIFO) inventory
valuation method, which we believe 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. Our 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.
11
<PAGE> 14
The following table illustrates the comparative effect of LIFO and FIFO
accounting on our results of operations. These supplemental FIFO earnings
reflect the after-tax effect of eliminating the LIFO adjustment each year.
<TABLE>
<CAPTION>
Three months ended March 31, Six months ended March 31,
2000 1999 2000 1999
------------ ------------- -------------- --------------
(In Millions) LIFO FIFO LIFO FIFO LIFO FIFO LIFO FIFO
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of goods sold $275.9 $274.5 $227.6 $228.3 $531.4 $528.7 $451.6 $453.1
Net income (33.3) (32.4) 8.8 8.4 (24.6) (23.0) 17.6 16.7
-----------------------------------------------------------------------------------------------
</TABLE>
Gross Profit
<TABLE>
<CAPTION>
First Second Six Months Third Fourth Fiscal
(% of Net Sales) Quarter Quarter Ended 3/31 Quarter Quarter Year
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 27.9% 27.1% 27.5% 27.5% 27.3% 27.4%
2000 26.1% 25.2% 25.7% -- -- --
-----------------------------------------------------------------------------------
</TABLE>
Gross profit for the quarter ended March 31, 2000 increased 9.9% to $93.0
million from $84.6 million for the quarter ended March 31, 1999. Gross profit
for the six months ended March 31, 2000 increased 7.0% to $183.4 million from
$171.4 million for the six months ended March 31, 1999. Gross profit as a
percentage of net sales was 25.2% and 27.1% for the quarters ended March 31,
2000 and 1999. Gross profit as a percentage of net sales was 25.7% and 27.5%
for the six months ended March 31, 2000 and 1999, respectively. See Cost of
Goods Sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended March 31,
2000 increased 15.7% to $65.0 million from $56.2 million for the quarter ended
March 31, 1999. Selling, general and administrative expenses for the six months
ended March 31, 2000 increased 11.3% to $126.1 million from $113.3 million for
the six months ended March 31, 1999. Selling, general and administrative
expenses as a percentage of net sales for the quarter ended March 31, 2000
decreased to 17.6% from 18.0% for the quarter ended March 31, 1999. Selling,
general and administrative expenses as a percentage of net sales for the six
months ended March 31, 2000 decreased to 17.6% from 18.2% for the six months
ended March 31, 1999. The decrease in these expenses as a percentage of net
sales resulted primarily from increased net sales that did not require a
corresponding increase in selling, general and administrative expenses.
Plant Closing and Other Costs
During the quarter ended March 31, 2000, we incurred losses in excess of
expectations in our two folding carton plants that use web offset manufacturing
technology. As a result, during the quarter ended March 31, 2000 we decided to
close our folding carton plant in Chicago, Illinois and consolidate our web
offset operations into our other folding carton operations. This closing was
announced in April 2000 and will result in the termination of approximately 180
employees. The plant will be closed during the quarter ending June 30, 2000.
Although this consolidation will reduce expected operating losses in our web
offset operations, we expect to continue to incur losses in these operations.
Accordingly, we recorded asset impairment charges during the quarter ended March
31, 2000 of $43.1 million, reflecting our determination that a material
diminution in the value of the assets, including goodwill of $25.4 million
(which is not deductible for tax purposes) relating to our two folding carton
plants that use web offset manufacturing technology had occurred. We expect to
incur additional pre-tax charges aggregating $5.1 million during the third and
fourth quarters of fiscal 2000 related to severance, machinery relocation and
other one time operating costs in connection with the closing of the Chicago
plant.
During the quarter ended March 31, 2000, we decided to close our folding carton
plant in Norcross, Georgia. This closing was announced in April 2000 and will
result in the termination of approximately 70 employees. The plant will be
closed during the quarter ending June 30, 2000. As a result of this decision,
we incurred a charge in the quarter ended March 31, 2000 of $1.0 million for
the impairment of certain plant assets. We expect to incur pre-tax charges
aggregating approximately $1.5 million during the third and fourth quarters of
fiscal 2000 consisting primarily of severance, machinery relocation and other
one time operating costs related to this closing. We will move production from
this facility to other folding carton facilities.
12
<PAGE> 15
During the first quarter of fiscal 2000, we announced the closing of our
Lynchburg, Virginia laminated paperboard products plant. The closing resulted
in the termination of approximately 115 employees. We expect severance,
equipment relocation and other one-time operating costs in connection with this
closing to reduce pre-tax income by approximately $8.9 million during fiscal
2000. We incurred pre-tax charges of approximately $4.0 million and $6.5
million and made payments of approximately $4.9 million and $6.2 million, for
severance, equipment relocation and other one-time operating costs, during the
three and six month periods ended March 31, 2000, respectively, related to this
closing and certain other closed plants. We had a remaining liability of
approximately $0.2 million for the charges incurred through March 31, 2000.
During the second quarter of fiscal 2000, we decided to remove from service
certain equipment. As a result of this decision, we incurred impairment charges
of $4.6 million related to this equipment in the quarter ended March 31, 2000.
During fiscal 1999, we closed a folding carton plant in Taylorsville, North
Carolina, a laminated paperboard products operation in Otsego, Michigan and an
uncoated papermill serving our coverboard converting operations in Jersey City,
New Jersey. The closures resulted in the termination of approximately 280
employees. In connection with these closings, we made severance and other
payments of $0.1 million and $0.4 million during the three and six month
periods ended March 31, 2000, respectively. We had a nominal remaining
liability at March 31, 2000. We have consolidated the operations of these
closed plants into other existing facilities.
During fiscal 1998, we began implementing certain cost reduction initiatives
designed to reduce overhead and production costs and improve operating
efficiency. In connection with these cost reduction initiatives, we terminated
approximately 40 employees. We made severance and other payments of
approximately $0.1 million and $0.3 million during the three and six months
ended March 31, 2000, respectively, related to these terminations. The
remaining liability at March 31, 2000 is $0.9 million, which is expected to be
paid over the next two years.
Segment Operating Income.
Operating Income - Packaging Products Segment
<TABLE>
<CAPTION>
Net Sales Operating
(In Millions, except Percentages) (Aggregate) Income Return on Sales
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 209.6 $ 13.9 6.6%
Second Quarter 208.0 14.0 6.7
-------- -------- --------
Six Months Ended 3/31 417.6 27.9 6.7
Third Quarter 217.3 13.7 6.3
Fourth Quarter 237.1 19.1 8.1
- -----------------------------------------------------------------------------
Fiscal 1999 $ 872.0 $ 60.7 7.0%
=============================================================================
FIRST QUARTER $ 228.9 $ 11.2 4.9%
SECOND QUARTER 237.6 14.2 6.0
-------- -------- --------
SIX MONTHS ENDED 3/31 466.5 25.4 5.4%
THIRD QUARTER -- -- --
FOURTH QUARTER -- -- --
- -----------------------------------------------------------------------------
FISCAL 2000 -- -- --
=============================================================================
</TABLE>
Operating income attributable to the packaging products segment for the quarter
ended March 31, 2000 increased 1.4% to $14.2 million from $14.0 million for the
quarter ended March 31, 1999. Operating income attributable to the packaging
products segment for the six months ended March 31, 2000 decreased 9.0% to
$25.4 million from $27.9 million for the six months ended March 31, 1999.
Operating margin for the quarter ended March 31, 2000 was 6.0% compared to 6.7%
for the quarter ended March 31, 1999. Operating margin for the six months ended
March 31, 2000 was 5.4% compared to 6.7% for the six months ended March 31,
1999. The decrease in operating margin as a percentage of sales for the second
fiscal quarter was primarily the result of higher raw material costs in our
folding carton division and our partition operations that were not fully passed
on to customers during the quarter. The decrease in operating margin as a
percentage of sales for the six month period was primarily the result of higher
raw material costs, significant losses in our web offset folding carton
operations and operational problems
13
<PAGE> 16
attributable in part to start ups of new business. During the quarter ended
March 31, 2000, we decided to close two of our folding carton plants. See
discussion above under "Plant Closing and Other Costs." During the next several
months, we intend to continue to review our folding carton operations with a
view towards taking action to improve productivity and operating efficiencies.
Operating Income - Paperboard Segment
<TABLE>
<CAPTION>
Weighted
Boxboard Average Medium Average Average
Net Sales Operating Tons Boxboard Tons Medium Recovered
(Aggregate) Income Return Shipped Price Shipped Price Paper Cost
(In Millions) (In Millions) On Sales (In Thousands) (Per Ton) (In Thousands) (Per Ton) (Per Ton)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $101.2 $ 13.6 13.4% 221.7 $ 403 45.2 $ 288 $ 53
Second Quarter 98.2 10.7 10.9 218.5 399 43.5 328 52
------ ------ ------ ------ ------ ------ ------ ------
Six Months Ended 3/31 199.4 24.3 12.2 440.2 401 88.7 308 52
Third Quarter 107.7 15.3 14.2 238.5 398 45.3 340 58
Fourth Quarter 112.8 12.7 11.3 242.5 406 44.7 388 76
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal 1999 $419.9 $ 52.3 12.5% 921.2 $ 401 178.7 $ 336 $ 60
=============================================================================================================================
FIRST QUARTER $115.9 $ 13.7 11.8% 242.6 $ 420 42.4 $ 386 $ 83
SECOND QUARTER 121.1 11.0 9.1 249.8 426 44.7 403 87
------ ------ ------ ------ ------ ------ ------ ------
SIX MONTHS ENDED 3/31 237.0 24.7 10.4 492.4 423 87.1 395 85
THIRD QUARTER -- -- -- -- -- -- -- --
FOURTH QUARTER -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
FISCAL 2000 -- -- -- -- -- -- -- --
=============================================================================================================================
</TABLE>
Operating income attributable to the paperboard segment for the quarter ended
March 31, 2000 increased 2.8% to $11.0 million from $10.7 million for the
quarter ended March 31, 1999. Operating income attributable to the paperboard
segment for the six months ended March 31, 2000 increased 1.6% to $24.7 million
from $24.3 million for the six months ended March 31, 1999. Operating margin
for the quarter ended March 31, 2000 was 9.1% compared to 10.9% for the quarter
ended March 31, 1999. Operating margin for the six months ended March 31, 2000
was 10.4% compared to 12.2% for the six months ended March 31, 1999. The
decrease in operating margin was primarily the result of raw material cost
increases that were not passed on to customers, costs associated with the start
up of new equipment at our Otsego, Michigan papermill and operational issues at
certain other papermills.
Operating Income - Laminated Paperboard, Plastic Packaging and Recycled Fiber
Segment
<TABLE>
<CAPTION>
Net Sales Operating Return
(In Millions, except Percentages) (Aggregate) Income on Sales
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 59.5 $ 0.1 0.2%
Second Quarter 60.5 1.5 2.5
-------- -------- ----------
Six Months Ended 3/31 120.0 1.6 1.3
Third Quarter 64.9 1.7 2.6
Fourth Quarter 74.0 3.6 4.9
- ------------------------------------------------------------------------------
Fiscal 1999 $ 258.9 $ 6.9 2.7%
==============================================================================
FIRST QUARTER $ 70.1 $ 3.2 4.6%
SECOND QUARTER 80.0 5.0 6.3
-------- -------- ----------
SIX MONTHS ENDED 3/31 150.1 8.2 5.5
THIRD QUARTER -- -- --
FOURTH QUARTER -- -- --
- ------------------------------------------------------------------------------
FISCAL 2000 -- -- --
==============================================================================
</TABLE>
Operating income attributable to this segment for the quarter ended March 31,
2000 was $5.0 million as compared to $1.5 million for the quarter ended March
31,
14
<PAGE> 17
1999. Operating income attributable to this segment for the six months ended
March 31, 2000 was $8.2 million as compared to $1.6 million for the six months
ended March 31, 1999. Operating margin for the quarter ended March 31, 2000
increased to 6.3% from 2.5% for the quarter ended March 31, 1999. Operating
margin for the six months ended March 31, 2000 increased to 5.5% from 1.3% for
the six months ended March 31, 1999. The increase in operating margin primarily
resulted from higher margins in our recycled fiber division due to increases in
selling prices, higher sales and improved operating efficiencies in our plastic
packaging division and improved operating efficiencies in our laminated
paperboard operations.
Interest Expense
Interest expense for the quarter ended March 31, 2000 increased to $8.5 million
from $7.8 million for the quarter ended March 31, 1999. Interest expense for
the six months ended March 31, 2000 increased to $16.5 million from $16.1
million for the six months ended March 31, 1999. The increase in interest
expense for the quarter and six months ended March 31, 2000 was primarily due
to an increase in our average outstanding borrowings.
Provision for Income Taxes
The income tax benefit for the quarter ended March 31, 2000 was $3.5 million
compared to income tax expense of $7.0 million for the quarter ended March 31,
1999. Provision for income taxes decreased to $3.3 million for the six months
ended March 31, 2000 from $13.9 million for the six months ended March 31,
1999. The Company's effective tax benefit rate was 9.5% for the quarter ended
March 31, 2000 compared to an effective tax expense rate of 44.3% for the
quarter ended March 31, 1999. The Company's effective tax rate decreased to
15.5% for the six months ended March 31, 2000 compared to 44.1% for the six
months ended March 31, 1999. Differences between our effective tax rate and
statutory rates relate primarily to the amortization and write-off of goodwill,
which is not deductible for income tax purposes.
Net (Loss) Income and (Loss) Earnings Per Common and Common Equivalent Share
Net loss for the quarter and six months ended March 31, 2000 was $(33.3)
million and $(24.6) million, respectively. Net income for the quarter and six
months ended March 31, 1999 was $8.8 million and $17.6 million, respectively.
Net loss as a percentage of net sales was 9.0% and 3.4% for the quarter and six
months ended March 31, 2000, respectively. Net income as a percentage of net
sales was 2.8% for the quarter and six months ended March 31, 1999,
respectively. Loss per common and common equivalent share for the quarter and
six months ended March 31, 1999 was $(0.96) and $(0.71), respectively.
Earnings per common and common equivalent share for the quarter and six months
ended March 31, 1999 were $0.25 and $0.50, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Capital Expenditures
We have funded our 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. We maintain a revolving credit facility under which we have
aggregate borrowing availability of $450.0 million. At March 31, 2000, we had
$386.0 million outstanding under our revolving credit facility. The revolving
credit facility terminates in 2002. Cash and cash equivalents, $3.1 million at
March 31, 2000, decreased from $4.5 million at September 30, 1999.
We obtained a waiver from the lenders under our revolving credit agreement
regarding our compliance with certain covenants under the agreement at March
31, 2000. The waiver was necessary as a result of the net loss we incurred
during the quarter ended March 31, 2000. We intend to replace our existing
revolving credit agreement with a new credit facility before June 30, 2000;
however, we cannot guarantee that we will be able to do so on terms acceptable
to us. If we are unable to do so, we believe we will need a waiver from the
lenders under our revolving credit agreement of the same covenants as of June
30, 2000. Accordingly, we have classified the outstanding balance at March 31,
2000 under our current revolving credit agreement as a current liability.
Net cash provided by operating activities decreased for the six months ended
March 31, 2000 to $29.5 million from $51.6 million for the quarter ended March
31, 1999. The decrease was primarily a result of increases in accounts
receivable and inventory balances and decreases in accounts payable and accrued
liabilities balances. Net cash provided by financing activities aggregated
$18.4 million for the six months ended March 31, 2000 and consisted primarily
of additional borrowings under the revolving credit facility, partially offset
by purchases of common stock and dividend payments. Net cash used for financing
activities aggregated $13.9 million for the six months ended March 31, 1999 and
consisted primarily of repayments of long-term debt and dividend payments. Net
cash used for
15
<PAGE> 18
investing activities was $49.4 million for the six months ended March 31, 2000
compared to $41.9 million for the six months ended March 31, 1999 and consisted
primarily of capital expenditures for the six months ended March 31, 2000 and
March 31, 1999.
Capital expenditures during the six months ended March 31, 2000 aggregated
$46.3 million and were used primarily to purchase and upgrade machinery and
equipment. We estimate that our capital expenditures will aggregate
approximately $54.0 million for the remainder of fiscal 2000. These
expenditures will be used to purchase and upgrade various machinery and
equipment in all of our divisions and for building expansions and improvements
in one of our divisions.
During the second quarter of fiscal 2000, we announced the formation of a joint
venture with Lafarge Corporation to produce gypsum paperboard liner for
Lafarge's U.S. drywall manufacturing plants. The joint venture, Seven Hills
Paperboard, LLC, will own and operate a paperboard mill located at our
Lynchburg, Virginia manufacturing site. We will contribute a portion of our
existing Lynchburg assets to the venture, which will manufacture gypsum
paperboard liner using Lafarge's state of the art proprietary processes. We
anticipate contributing an additional $9.0 million to the venture over the next
several quarters for equipment. Lafarge owns 51 percent and we own 49 percent of
the joint venture.
On April 28, 2000, the Board of Directors amended our current stock repurchase
plan to allow for the repurchase of up to 2,000,000 shares in aggregate of
Class A Common or Class B Common from April 28, 2000 to July 31, 2003.
We anticipate that we will be able to fund our capital expenditures,
acquisitions, interest payments, stock repurchases, dividends and working
capital needs for the foreseeable future from cash generated from operations,
borrowings under our revolving credit facility, proceeds from the issuance of
debt or equity securities or other additional long-term debt financing.
Derivative Instruments
We enter into a variety of derivative transactions. Generally, we designate at
inception that derivatives hedge risks associated with specific assets,
liabilities or future commitments and monitor each derivative to determine if
it remains an effective hedge. The effectiveness of the derivative as a hedge
is based on a high correlation between changes in its value and changes in the
value of the underlying hedged item. We include in operations amounts received
or paid when the underlying transaction settles. We do not enter into or hold
derivatives for trading or speculative purposes.
We use interest rate cap agreements and interest rate swap agreements to manage
synthetically the interest rate characteristics of a portion of our outstanding
debt and to limit our exposure to rising interest rates. Amounts to be received
or paid as a result of interest rate cap agreements and interest rate swap
agreements are accrued and recognized as an adjustment to interest expense
related to the designated debt. The cost of purchasing interest rate caps are
amortized to interest expense ratably during the life of the agreement. Gains
or losses on terminations of interest rate swap agreements are deferred and
amortized as an adjustment to interest expense related to the debt over the
remaining term of the original contract life of terminated swap agreements. In
the event of the early extinguishment of a designated debt obligation, any
realized or unrealized gain or loss from the swap would be recognized in income
at the time of the extinguishment.
We use forward contracts to limit exposure to fluctuations in Canadian foreign
currency rates with respect to our receivables denominated in Canadian dollars.
The forward contracts are settled monthly and resulting gains or losses are
recognized at the time of settlement.
We use commodity swap agreements to limit our exposure to falling sales prices
and rising raw material costs for a portion of our recycled corrugating medium
business. Amounts to be received or paid as a result of these swap agreements
are recognized in the period in which the related sale is made.
16
<PAGE> 19
FORWARD-LOOKING STATEMENTS
Statements herein regarding future results of operations, estimated price
increases, the cost of plant closings, expected losses under one customer
contract and our ability to refinance our existing revolving credit facility
constitute forward-looking statements within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934. Such statements are subject to
certain risks and uncertainties that could cause actual amounts to differ
materially from those projected. With respect to plant closings and expected
losses under one customer contract, management has made assumptions regarding,
among other things, the realizable value of property and equipment, the amount
of severance costs, the estimated cost to perform under the customer contract
and the amount and timing of estimated price increases. These assumptions could
be inaccurate. Further, our future results of operations are subject to a
number of general risks that could impact our performance in future periods
including, among others, decreases in demand for our products, increases in raw
material costs, fluctuations in selling prices, the adverse actions of our
customers, the adverse actions of our competitors and our suppliers and adverse
changes in general market and industry conditions. We believe our statements
are reasonable; however, undue reliance should not be placed on such statements
which are based on current expectations.
17
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For a discussion of certain market risks related to the Company, See the
"Market Risk Sensitive Instruments and Positions" section in the Management's
Discussion and Analysis of Results of Operations and Financial Condition, in
the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1999. Other than the following, there have been no significant developments
with respect to derivatives or exposure to market risk. On January 18, 2000, we
terminated our interest rate swap agreement that had a $100 million notional
amount and, as a result, received $2.2 million in cash. This amount will be
amortized into interest expense over the original term of the agreement.
18
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on January 28, 2000 at which
several matters were submitted to a vote of the shareholders:
(a) Votes cast for or withheld regarding the five individuals elected as
directors of the Company for a term expiring in 2003 were as follows
(there were no abstentions or broker non-votes):
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Bradley Currey, Jr. 116,922,196 289,232
James A. Rubright 116,922,196 289,232
Lou Brown Jewell 116,922,196 289,232
John D. Hopkins 116,783,108 428,320
James W. Johnson 116,922,196 289,232
</TABLE>
Additional directors, whose terms of office as directors continued
after the meeting, are as follows:
<TABLE>
<CAPTION>
Term expiring in 2001 Term expiring in 2002
--------------------- ---------------------
<S> <C>
Stephen G. Anderson J. Hyatt Brown
Robert B. Currey A. D. Frazier
John W. Spiegel C. Randolph Sexton
L. L. Gellerstedt, III Jay Shuster
</TABLE>
(b) Votes cast for or against and the number of abstentions regarding each
other matter voted upon at the meeting were as follows:
<TABLE>
<CAPTION>
Broker
Description of Matter For Against Abstain Non-Votes
--------------------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
Ratification of the appointment
of Ernst & Young LLP as 117,043,711 162,622 5,095 ---
independent auditors of the
Company to serve for the 2000
fiscal year
</TABLE>
19
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
20
<PAGE> 23
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: May 10, 2000 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)
21
<PAGE> 24
ROCK-TENN COMPANY
INDEX TO EXHIBITS
Page No.
Exhibit 27 Financial Data Schedule (for SEC use only)
22
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 3,063
<SECURITIES> 0
<RECEIVABLES> 148,692
<ALLOWANCES> 3,435
<INVENTORY> 101,626
<CURRENT-ASSETS> 258,209
<PP&E> 1,033,779
<DEPRECIATION> 450,727
<TOTAL-ASSETS> 1,139,514
<CURRENT-LIABILITIES> 502,233
<BONDS> 141,614
0
0
<COMMON> 347
<OTHER-SE> 398,386
<TOTAL-LIABILITY-AND-EQUITY> 1,139,514
<SALES> 714,779
<TOTAL-REVENUES> 714,779
<CGS> 531,389
<TOTAL-COSTS> 531,389
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,459
<INCOME-PRETAX> (21,302)
<INCOME-TAX> 3,344
<INCOME-CONTINUING> (24,646)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,646)
<EPS-BASIC> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
