<PAGE> 1
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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, 1999
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:
Class Outstanding as of February 14, 2000
----------------------------------- -----------------------------------
Class A Common Stock, .01 par value 23,200,950
Class B Common Stock, .01 par value 11,563,992
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<PAGE> 2
ROCK-TENN COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the three months
ended December 31, 1999 and 1998 1
Condensed Consolidated Balance Sheets at December 31, 1999 and
September 30, 1999 2
Condensed Consolidated Statements of Cash Flows for the three months
ended December 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Index to Exhibits 18
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
PART 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,
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 345,861 $ 310,795
Cost of goods sold 255,471 223,969
------------ ------------
Gross profit 90,390 86,826
Selling, general and administrative expenses 61,063 57,098
Amortization of goodwill 2,356 2,350
Plant closing and other costs 2,474 2,053
------------ ------------
Income from operations 24,497 25,325
Interest income and other income 105 111
Interest expense (7,994) (8,314)
Minority interest in income of consolidated subsidiary (1,161) (1,441)
------------ ------------
Income before income taxes 15,447 15,681
Provision for income taxes 6,837 6,923
------------ ------------
Net income $ 8,610 $ 8,758
============ ============
Weighted average number of common and
common equivalent shares outstanding 35,391 34,975
------------ ------------
Basic earnings per share $ 0.25 $ 0.25
============ ============
Diluted earnings per share $ 0.24 $ 0.25
============ ============
Cash dividends per share $ 0.075 $ 0.075
============ ============
</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,
1999 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,619 $ 4,538
Accounts receivable (net of allowances of
$2,857 and $3,610) 130,807 139,034
Inventories 105,181 94,501
Other current assets 5,916 5,308
------------ ------------
TOTAL CURRENT ASSETS 247,523 243,381
Property, plant and equipment, at cost:
Land and buildings 196,338 194,903
Machinery and equipment 827,995 805,537
Transportation equipment 14,613 14,738
Leasehold improvements 7,251 7,242
------------ ------------
1,046,197 1,022,420
Less accumulated depreciation and amortization (445,994) (429,681)
------------ ------------
Net property, plant and equipment 600,203 592,739
Goodwill, net 306,041 308,283
Other assets 19,897 17,067
------------ ------------
$ 1,173,664 $ 1,161,470
============ ============
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58,532 $ 66,271
Accrued compensation and benefits 29,024 36,977
Current maturities of long-term debt 42,186 41,435
Other current liabilities 25,745 24,227
------------ ------------
TOTAL CURRENT LIABILITIES 155,487 168,910
Long-term debt due after one year 475,688 457,410
Deferred income taxes 86,636 85,631
Other long-term items 17,743 17,355
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; no
shares outstanding at December 31 and September 30 -- --
Class A common stock, $.01 par value; 175,000,000 shares authorized,
23,399,020 and 23,411,395 outstanding at December 31 and September 30,
respectively; Class B common stock, $.01 par value; 60,000,000 shares
authorized; 11,545,922 and 11,546,187 outstanding
at December 31 and September 30, respectively 350 350
Capital in excess of par value 132,635 132,048
Retained earnings 307,934 303,287
Accumulated other comprehensive income (2,809) (3,521)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 438,110 432,164
------------ ------------
$ 1,173,664 $ 1,161,470
============ ============
</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,
1999 1998
- --------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 8,610 $ 8,758
Items in income not affecting cash:
Depreciation and amortization 19,075 17,995
Deferred income taxes 1,005 1,022
Gain on disposal of plant and equipment and other, net (433) (203)
Minority interest in income of consolidated subsidiary 1,161 1,441
Change in operating assets and liabilities:
Accounts receivable 8,472 16,086
Inventories (10,471) (3,753)
Other assets (222) (1,174)
Accounts payable (7,794) 12,398
Accrued liabilities (6,551) (5,382)
------------ ------------
(16,566) 18,175
------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES 12,852 47,188
FINANCING ACTIVITIES:
Net additions (repayments) to revolving credit facilities 13,000 (16,000)
Additions to long term-debt 6,110 --
Repayments of long-term debt (81) (5,128)
Debt issuance costs (345) --
Sales of common stock 1,051 810
Purchases of common stock (1,797) --
Cash dividends paid to shareholders (2,630) (2,602)
Distribution to minority interest (875) (875)
------------ ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 14,433 (23,795)
INVESTING ACTIVITIES:
Capital expenditures (23,590) (21,245)
Proceeds from sale of property, plant and equipment 774 411
Increase in unexpended industrial revenue bond proceeds (3,247) --
------------ ------------
CASH USED FOR INVESTING ACTIVITIES (26,063) (20,834)
Effect of exchange rate changes on cash (141) 222
------------ ------------
Increase in cash and cash equivalents 1,081 2,781
Cash and cash equivalents at beginning of period 4,538 5,769
------------ ------------
Cash and cash equivalents at end of period $ 5,619 $ 8,550
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes (net of refunds) $ 2,327 $ 4,577
Interest (net of amounts capitalized) 7,034 6,069
</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 periods ended December 31, 1999 and 1998, the Company's financial
position at December 31, 1999 and September 30, 1999, and the cash flows for the
three month periods ended December 31, 1999 and 1998.
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 ended December 31, 1999 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 INCOME
Total comprehensive income for the three months ended December 31, 1999 and 1998
was $9.3 million and $9.1 million, respectively. The difference between total
comprehensive income and net 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 December 31, 1999 and September 30, 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ ------------
<S> <C> <C>
Finished goods and work in process $ 72,117 $ 67,934
Raw materials 44,298 37,029
Supplies 12,036 11,608
------------ ------------
Inventories at first-in, first-out (FIFO) cost 128,451 116,571
LIFO reserve (23,270) (22,070)
------------ ------------
Net inventories $ 105,181 $ 94,501
============ ============
</TABLE>
NOTE 6. 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.
5
<PAGE> 8
NOTE 7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net income $ 8,610 $ 8,758
Denominator:
Denominator for basic earnings per share - weighted average shares 35,026 34,580
Effect of dilutive stock options 365 395
------------ ------------
Denominator for diluted earnings per share - weighted
average shares and assumed conversions 35,391 34,975
============ ============
Basic earnings per share $ 0.25 $ 0.25
============ ============
Diluted earnings per share $ 0.24 $ 0.25
============ ============
</TABLE>
NOTE 8. SEGMENT INFORMATION
The following table sets forth business segment information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales (aggregate):
Packaging Products $ 228,912 $ 209,572
Paperboard 115,885 101,181
Laminated Paperboard, Plastic Packaging and Recycled Fiber 70,093 59,495
- -------------------------------------------------------------------------------------------------------
Total $ 414,890 $ 370,248
=======================================================================================================
Less net sales (intersegment):
Packaging Products $ 353 $ 146
Paperboard 54,792 52,139
Laminated Paperboard, Plastic Packaging and Recycled Fiber 13,884 7,168
- -------------------------------------------------------------------------------------------------------
Total $ 69,029 $ 59,453
=======================================================================================================
Net sales (unaffiliated customers):
Packaging Products $ 228,559 $ 209,426
Paperboard 61,093 49,042
Laminated Paperboard, Plastic Packaging and Recycled Fiber 56,209 52,327
- -------------------------------------------------------------------------------------------------------
Total $ 345,861 $ 310,795
=======================================================================================================
Segment income:
Packaging Products $ 11,171 $ 13,901
Paperboard 13,679 13,560
Laminated Paperboard, Plastic Packaging and Recycled Fiber 3,205 136
------------------------------------------------------------------------------------------------------
28,055 27,597
LIFO and intercompany profit (1,200) 800
Plant closing and other costs (2,474) (2,053)
Other non-allocated expenses 116 (1,019)
Minority interest in income of consolidated subsidiary (1,161) (1,441)
Interest expense (7,994) (8,314)
Interest and other income 105 111
- -------------------------------------------------------------------------------------------------------
Income before income taxes $ 15,447 $ 15,681
- -------------------------------------------------------------------------------------------------------
</TABLE>
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 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 shows 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 and certain corporate expenses.
7
<PAGE> 10
ROCK-TENN COMPANY
INDUSTRY SEGMENT INFORMATION
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR TONNAGE DATA)
<TABLE>
<CAPTION>
========================================================================================
FOR THE THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES:
Packaging Products Segment $ 228,912 $ 209,572
Paperboard Segment 115,885 101,181
Laminated Paperboard, Plastic Packaging and
Recycled Fiber Segment 70,093 59,495
Intersegment Eliminations (69,029) (59,453)
- ----------------------------------------------------------------------------------------
TOTAL 345,861 310,795
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES:
Packaging Products Segment 11,171 13,901
Paperboard Segment 13,679 13,560
Laminated Paperboard, Plastic Packaging and
Recycled Fiber Segment 3,205 136
- ----------------------------------------------------------------------------------------
Segment Income Before Income Taxes 28,055 27,597
LIFO and Intercompany Profit (1,200) 800
Plant Closing and Other Costs (2,474) (2,053)
Other Non-Allocated Expenses 116 (1,019)
Interest Expense (7,994) (8,314)
Interest and Other Income 105 111
Minority Interest in Income of Consolidated Subsidiary (1,161) (1,441)
- ----------------------------------------------------------------------------------------
TOTAL $ 15,447 $ 15,681
========================================================================================
Paperboard shipped (in tons) 284,931 266,904
========================================================================================
</TABLE>
RESULTS OF OPERATIONS
Net Sales (Unaffiliated Customers)
Net sales for the quarter ended December 31, 1999 increased 11.3% to $345.9
million from $310.8 million for the quarter ended December 31, 1998. Net sales
increased primarily as a result of firmer market conditions in our paperboard
and folding carton businesses and continuing growth in our corrugated packaging
and display division.
Net Sales (Aggregate) - Packaging Products Segment
<TABLE>
<CAPTION>
(In Millions) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $209.6 $208.0 $217.3 $237.1 $872.0
2000 $228.9 --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales of packaging products before intersegment eliminations for the quarter
ended December 31, 1999 increased 9.2% to $228.9 million from $209.6 million for
the quarter ended December 31, 1998. The increase for
8
<PAGE> 11
the quarter ended December 31, 1999 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. The increase
was offset in part by continued difficult market condition in our web offset
folding carton plants.
Net Sales (Aggregate) - Paperboard Segment
<TABLE>
<CAPTION>
(In Millions) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $101.2 $ 98.2 $107.7 $112.8 $419.9
2000 $115.9 --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales of paperboard before intersegment eliminations for the quarter ended
December 31, 1999 increased 14.5% to $115.9 million from $101.2 million for the
quarter ended December 31, 1998. The increase for the quarter ended December 31,
1999 was the result of higher volumes and selling prices.
Net Sales (Aggregate) - Laminated Paperboard, Plastic Packaging and Recycled
Fiber Segment
<TABLE>
<CAPTION>
(In Millions) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $59.5 $60.5 $64.9 $74.0 $258.9
2000 $70.1 --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales within this segment before intersegment eliminations for the quarter
ended December 31, 1999 increased 17.8% to $70.1 million from $59.5 million for
the quarter ended December 31, 1998. The increase resulted from higher volumes
in the plastic packaging division and increased selling prices in the plastic
packaging and recycled fiber divisions.
Cost of Goods Sold
Cost of goods sold for the quarter ended December 31, 1999 increased 14.1% to
$255.5 million from $224.0 million for the quarter ended December 31, 1998. Cost
of goods sold as a percentage of net sales for the quarter ended December 31,
1999 increased to 73.9% from 72.1% for the quarter ended December 31, 1998. The
increase in cost of goods sold resulted from higher raw material costs and
operational inefficiencies at several plants attributable in part to start-ups
of significant items of new business.
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.
9
<PAGE> 12
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 December 31,
1999 1998
---------------------------------- ----------------------------------------
(In Millions) LIFO FIFO LIFO FIFO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cost of goods sold $255.5 $254.3 $224.0 $224.8
Net income 8.6 9.3 8.8 8.3
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Gross Profit
<TABLE>
<CAPTION>
(% of Net Sales) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 27.9% 27.1% 27.5% 27.3% 27.4%
2000 26.1% --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Gross profit for the quarter ended December 31, 1999 increased 4.1% to $90.4
million from $86.8 million for the quarter ended December 31, 1998. Gross profit
as a percentage of net sales was 26.1% and 27.9% for the quarters ended December
31, 1999 and 1998. See Cost of Goods Sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended December 31,
1999 increased 7.0% to $61.1 million from $57.1 million for the quarter ended
December 31, 1998. Selling, general and administrative expenses as a percentage
of net sales for the quarter ended December 31, 1999 decreased to 17.7% from
18.4% for the quarter ended December 31, 1998. The decrease in these expenses as
a percentage of net sales resulted primarily from volume growth which did not
require a corresponding increase in selling, general and administrative
expenses.
Plant Closing and Other Costs
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. Severance, equipment relocation
and other one-time operational costs in connection with this closing are
expected to reduce net income by approximately $5.5 million during fiscal 2000.
We incurred charges of approximately $2.6 million, including payments of
approximately $1.3 million, for severance, equipment relocation and other
one-time operational costs, during the first quarter of fiscal 2000 related to
this closing. We had a remaining liability of approximately $1.3 million for the
charges incurred through December 31, 1999.
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 $0.3 million and made an adjustment to reduce the liability by $0.1
million during the first quarter of fiscal 2000. We had a nominal remaining
liability at December 31, 1999. 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 $0.2 million during the quarter ended December 31, 1999 related to
these terminations. The remaining liability at December 31, 1999 is $1.0
million, which is expected to be paid over the next two years.
10
<PAGE> 13
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
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 -- -- --
THIRD QUARTER -- -- --
FOURTH QUARTER -- -- --
- --------------------------------------------------------------------------------------------------
FISCAL 2000 -- -- --
==================================================================================================
</TABLE>
Operating income attributable to the packaging products segment for the quarter
ended December 31, 1999 decreased 19.4% to $11.2 million from $13.9 million for
the quarter ended December 31, 1998. Operating margin for the quarter ended
December 31, 1999 was 4.9% compared to 6.6% for the quarter ended December 31,
1998. The decrease in operating margin was the result of losses in our web
offset folding carton plants where volumes and margins were insufficient to
generate positive margins, higher raw material costs in our folding carton
division that were not fully passed on to customers during the quarter and
operational problems attributable in part to start ups of new business,
partially offset by higher income in our corrugated packaging and display
division. During the next several months, we intend 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
Average
Boxboard Average Medium Average Recovered
Net Sales Operating Tons Boxboard Tons Medium Paper
(Aggregate) Income Return Shipped Price Shipped Price 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
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 -- -- -- -- -- -- -- --
THIRD QUARTER -- -- -- -- -- -- -- --
FOURTH QUARTER -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
FISCAL 2000 -- -- -- -- -- -- -- --
===================================================================================================================================
</TABLE>
Operating income attributable to the paperboard segment for the quarter ended
December 31, 1999 increased 0.1% to $13.7 million from $13.6 million for the
quarter ended December 31, 1998. Operating margin for the quarter ended December
31, 1999 was 11.8% compared to 13.4% for the quarter ended December 31, 1998.
The decrease in operating margin was primarily the result of raw material cost
increases that were not passed on to customers. We will begin implementing price
increases during the second quarter of fiscal 2000 to attempt to recover the raw
material cost increases. There can be no assurance that these price increases
will fully recover raw material cost increases that we incur.
11
<PAGE> 14
Operating Income - Laminated Paperboard, Plastic Packaging and Recycled Fiber
Segment
<TABLE>
<CAPTION>
Net Sales Operating Return on
(In Millions, except Percentages) (Aggregate) Income Sales
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 59.5 $ 0.1 0.2%
Second Quarter 60.5 1.5 2.5
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 -- -- --
THIRD QUARTER -- -- --
FOURTH QUARTER -- -- --
- ------------------------------------------------------------------------------------------------------
FISCAL 2000 -- -- --
======================================================================================================
</TABLE>
Operating income attributable to this segment for the quarter ended December 31,
1999 was $3.2 million as compared to $0.1 million for the quarter ended December
31, 1998. Operating margin for the quarter ended December 31, 1999 increased to
4.6% from 0.2% for the quarter ended December 31, 1998. The increase in
operating margin primarily resulted from higher margins in our recycled fiber
division due to increases in selling prices.
Interest Expense
Interest expense for the quarter ended December 31, 1999 decreased to $8.0
million from $8.3 million for the quarter ended December 31, 1998. The decrease
in interest expense for the quarter ended December 31, 1999 was primarily due to
a decrease in the average outstanding borrowings.
Provision for Income Taxes
Provision for income taxes decreased to $6.8 million for the quarter ended
December 31, 1999 from $6.9 million for the quarter ended December 31, 1998. The
Company's effective tax rate increased to 44.3% for the quarter ended December
31, 1999 compared to 44.1% for the quarter ended December 31, 1998. Differences
between our effective tax rate and statutory rates relate primarily to the
amortization of goodwill which is not deductible for income tax purposes.
Net Income and Earnings Per Common and Common Equivalent Share
Net income for the quarter ended December 31, 1999 decreased 2.3% to $8.6
million from $8.8 million for the quarter ended December 31, 1999. Net income as
a percentage of net sales decreased to 2.5% for the quarter ended December 31,
1999 from 2.8% for the quarter ended December 31, 1998. Earnings per common and
common equivalent share for the quarters ended December 31, 1999 and 1998 was
$0.24 and $0.25, respectively.
12
<PAGE> 15
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 December 31, 1999, we had
$375.0 million outstanding under our revolving credit facility. The revolving
credit facility terminates in 2002. Cash and cash equivalents, $5.6 million at
December 31, 1999, increased from $4.5 million at September 30, 1999.
Net cash provided by operating activities decreased for the three months ended
December 31, 1999 to $12.9 million from $47.2 million for the quarter ended
December 31, 1998. During the quarter ended December 31, 1998, we allowed
current liabilities to increase so that we could use our cash to pay down
long-term debt and to take advantage of related discounted interest rates. Net
cash provided by financing activities aggregated $14.4 million for the quarter
ended December 31, 1999 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 $23.8
million for the quarter ended December 31, 1998 and consisted primarily of
repayments of long-term debt and dividend payments. Net cash used for investing
activities was $26.1 million for the quarter ended December 31, 1999 compared to
$20.8 million for the quarter ended December 31, 1998 and consisted primarily of
capital expenditures for the quarters ended December 31, 1999 and December 31,
1998.
Capital expenditures during the quarter ended December 31, 1999 aggregated $23.6
million and were used primarily for the purchase and upgrading of machinery and
equipment. We estimate that our capital expenditures will aggregate
approximately $46.4 million for the remainder of fiscal 2000. These expenditures
will be used for the purchase and upgrading of machinery and equipment in all of
our divisions and for building expansions and improvements in one of our
divisions.
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.
13
<PAGE> 16
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.
YEAR 2000
We utilized both internal and external resources to evaluate the potential
impact of the situation commonly referred to as the "Year 2000 problem". The
Year 2000 problem, which was common to most businesses, concerned the inability
of computer systems and devices to properly recognize and process date-sensitive
information when the year changed to 2000. We spent approximately $4.5 million
identifying, evaluating and resolving our potential Year 2000 issues. No
significant problems were incurred as a result of the year changing to 2000.
Our remaining potential exposure to the Year 2000 issue relates to Year 2000
problems that our suppliers might experience. If such problems exist with our
suppliers, we would expect it would begin to affect us during the second quarter
of fiscal 2000. We cannot reasonably estimate the magnitude of the impact on us
of the Year 2000 problems, if any, that may be experienced by any of our
suppliers; however, the impact of any such problems could have a material
adverse effect on our results of operations, financial condition and cash flows.
FORWARD-LOOKING STATEMENTS
Statements herein regarding, among other things, estimated price increases and
the estimated costs of closing the Lynchburg 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 these forward-looking statements,
management has made assumptions regarding, among other things, the amount and
timing of estimated price increases and the estimated costs of closing the
Lynchburg facility. These forward-looking statements are subject to certain
risks including, among others, that the amount of price increases that will be
accepted in the market has been overestimated. In addition, our performance in
future periods is subject to other risks 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 these estimates are reasonable; however, undue reliance
should not be placed on such estimates which are based on current expectations.
14
<PAGE> 17
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.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 - Retention Agreement
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
16
<PAGE> 19
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 14, 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)
17
<PAGE> 20
ROCK-TENN COMPANY
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
Page No.
Exhibit 10 Retention Agreement
Exhibit 27 Financial Data Schedule (for SEC use only)
</TABLE>
18
<PAGE> 1
EXHIBIT 10
RETENTION AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into effective this 1st
day of October, 1999 (the "Effective Date"), by and between JAY SHUSTER, an
individual resident of the State of Georgia ("Executive"), and ROCK-TENN
COMPANY, a corporation organized under the laws of the State of Georgia (the
"Company").
WITNESSETH:
WHEREAS, the Company and Executive desire to set forth the terms of
Executive's continued employment with the Company during the transition to a new
Chief Executive Officer and the terms of Executive's severance from the Company
if Executive does not remain with the Company for this transition period;
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
agree as follows:
Section 1. Employment.
1.1. Duties and Responsibilities. Subject to the terms hereof, the
Company will continue to employ Executive as President and Chief
Operating Officer. Executive agrees that his duties and
responsibilities in the management of the Company will be as are
assigned to him from time to time by the Company's Chief Executive
Officer or Board of Directors. Executive shall continue to devote his
full business time and best efforts to rendering services on behalf of
the Company. Executive will continue to fulfill his duties and
responsibilities in a reasonable and appropriate manner in light of the
Company's policies and practices and the laws and regulations which
apply to the Company's operation and administration.
1.2. Term. Unless terminated sooner pursuant to the terms hereof, (i)
this Agreement and Executive's employment with the Company hereunder
will continue until October 1, 2002 (the "Term"), and (ii) thereafter,
if Executive's employment has not terminated prior thereto, this
Agreement will terminate and Executive's employment with the Company
will continue at-will.
Section 2. Compensation.
2.1. Annual Salary. The Company will continue to pay Executive his
current annual base salary of $475,000, less applicable withholdings,
through September 30, 2000. Executive's annual base salary for the
remainder of the Term shall be determined by the Company's Compensation
Committee, in its sole and absolute discretion, after a review
19
<PAGE> 2
of Executive's performance and responsibilities, but in no event shall
be less than $475,000, less applicable withholdings. Executive's annual
base salary shall be paid in accordance with the Company's standard
payroll practices and policies.
2.2. Bonus. In addition to an annual base salary, Executive will be
eligible to participate in the Company's bonus plan(s) for senior
executives.
2.3. Stock Options. Executive may be granted stock options to purchase
shares of the Company's class A common stock at the sole and absolute
discretion of the Company's Compensation Committee. Any such stock
options granted to Executive will vest in accordance with the vesting
schedule established by the Compensation Committee and shall otherwise
be governed by the terms and conditions of the applicable stock option
plan(s).
2.4. Benefits. Executive, and to the extent applicable, his family
members, may participate in such medical, dental, disability,
hospitalization, life insurance and other benefit plans (including the
Company's pension plan) as the Company shall maintain from time to time
for the benefit of senior executives of the Company, on the terms and
subject to the conditions set forth in such plans.
2.5. Vacation. Executive shall be entitled to vacation in accordance
with the Company's normal vacation policy. Any unused vacation days in
any calendar year may not be carried over to subsequent years.
2.6. Expenses. The Company shall reimburse Executive for all reasonable
and necessary business expenses incurred by Executive at the request of
and on behalf of the Company. All such expenses shall be documented and
submitted in accordance with the Company's business expense policy.
Section 3. Early Termination.
This Agreement and Executive's employment with the Company hereunder
may be terminated prior to the expiration of the Term as follows:
3.1. Termination for Good Cause. The Company may terminate Executive's
employment at any time for Good Cause. For purposes of this Agreement,
"Good Cause" shall exist if Executive (a) is convicted of, pleads
guilty to, or confesses to any felony or commits any act of fraud,
misappropriation or embezzlement; (b) has engaged in a dishonest act to
the damage or prejudice of the Company or any of its affiliated
entities, as determined by the Company in good faith; (c) has engaged
in intentional or willful misconduct or gross negligence in the
performance of his assigned duties and responsibilities for the Company
which materially damages the property, business, or reputation the
Company or any of its affiliated entities, as determined by the Company
in good faith; (d) fails to comply with a material term of the
Company's written policies or fails to follow a reasonable directive of
the Company's Chief Executive Officer or Board
20
<PAGE> 3
of Directors, as determined by the Company in good faith, and, within
ten (10) days after written notice from the Company of such failure,
Executive has not corrected such failure to the satisfaction of the
Company, or, having once received such notice of failure and having so
corrected such failure, Executive at any time thereafter again so
fails; (e) violates any of the provisions contained in Section 5 of
this Agreement; or (f) fails to comply with the terms of this Agreement
(other than Section 5 hereof) and, within ten (10) days after written
notice from the Company of such failure, Executive has not corrected
such failure to the satisfaction of the Company, or, having once
received such notice of failure and having so corrected such failure,
Executive at any time thereafter again so fails.
3.2. Termination Without Good Cause. The Company may terminate
Executive's employment at any time without Good Cause upon giving
Executive ten (10) days prior written notice.
3.3. Termination for Death or Disability. Executive's employment shall
terminate immediately upon his death or Disability. For purposes of
this Agreement, "Disability" shall be as defined in the Company's then
current disability policy but, in the absence of such a definition,
shall mean the failure of Executive, even with reasonable
accommodation, to perform the essential duties and responsibilities of
his position for a period of six (6) months during any consecutive
twelve (12) month period during the Term by reason of Executive's
mental or physical disability. In the event Executive's employment
terminates due to Disability, the Company shall provide written notice
to Executive.
3.4. Termination by Executive for Good Reason. Executive may terminate
his employment at any time for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean (a) a reduction in Executive's
title; (b) an involuntary relocation of Executive's place of employment
from the metropolitan Atlanta area unless such relocation is to a
metropolitan area in which the Company or any successor has relocated
or is relocating its corporate headquarters; (c) a reduction in
Executive's benefits unless such reduction is associated with a similar
reduction of general applicability of the benefits afforded to members
of the Company's management committee who report directly to Executive
as of the Effective Date; or (d) the Company fails to comply with the
terms of this Agreement and, within ten (10) days after written notice
from Executive of such failure, the Company has not corrected such
failure to the satisfaction of Executive.
3.5. Termination by Executive Without Good Reason. Executive may
terminate his employment at any time for any reason upon giving the
Company ten (10) days prior written notice.
21
<PAGE> 4
Section 4. Severance Benefits Upon Early Termination.
4.1. General. Regardless of the reason for any termination of
Executive's employment, either prior to or at the expiration of the
Term, Executive shall be entitled to: (a) payment of any earned but
unpaid portion of his annual base salary through the effective date of
termination; (b) any earned but unpaid portion of any bonus due
Executive, under the terms and conditions of the applicable bonus
plan(s), on the effective date of termination; (c) any nonforfeitable
insurance or health benefit as required by law; and (d) any other
vested benefits in accordance with the terms of the Company's benefit
plans under which Executive was participating.
4.2. Termination for Good Cause (Except Under Section 3.1(d)) or Due to
Death or Disability. If Executive's employment is terminated prior to
the expiration of the Term for Good Cause (except under Section 3.1(d))
or due to his death or Disability, Executive shall be entitled only to
the payments and benefits provided in Section 4.1.
4.3. Other Termination.
a. If Executive's employment is terminated prior to the expiration
of the Term by the Company without Good Cause or by Executive with
Good Reason, or if Executive's employment is terminated by
Executive for any reason between October 1, 2000 and October 1,
2002, Executive shall be entitled to (in addition to the payments
and benefits provided in Section 4.1): (i) a lump sum severance
payment equal to two (2) times his annual base salary on the
effective date of the termination, les applicable withholdings
(such lump sum payment shall be in lieu of normal severance); (ii)
continuing health, life, and disability benefits for two (2) years
after termination pursuant to the terms and conditions of the
applicable benefit plans; and (iii) immediate vesting of any
unvested stock options of the Company which Executive holds. The
Company shall pay the lump sum payment in Section 4.3(a)(i) within
thirty (30) days after the effective date of termination.
b. If Executive's employment is terminated by Executive between
the Effective Date and October 1, 2000 without Good Reason,
Executive shall be entitled to (in addition to the payments and
benefits provided in Section 4.1) a lump sum severance payment
equal to one (1) time his annual base salary on the effective date
of the termination, less applicable withholdings (such lump sum
payment shall be in lieu of normal severance). The Company shall
pay the lump sum payment in Section 4.3(b) within thirty (30) days
after the effective date of termination.
c. If Executive's employment is terminated prior to the expiration
of the Term by the Company for Good Cause under Section 3.1(d),
Executive shall be entitled to (in addition to the payments and
benefits provided in Section 4.1), at the option of the Company,
depending on whether the Company elects to obligate
22
<PAGE> 5
Executive to a one (1) year or a two (2) year non-competition
covenant pursuant to Section 5.5(d), a lump sum severance payment
equal to either one (1) time or two (2) times his annual base
salary on the effective date of the termination, less applicable
withholdings (such lump sum payment shall be in lieu of normal
severance). The Company shall pay the lump sum payment in Section
4.3(c) within thirty (30) days after the effective date of
termination.
Section 5. Protective Covenants.
5.1. Definitions. For the purposes of this Section 5, the following
definitions shall apply:
i. "Company Businesses" shall mean the following businesses of the
Company and its subsidiaries:
1. manufacturing, marketing, and selling recycled
coated or uncoated paperboard or corrugating medium;
2. manufacturing, marketing, and selling laminated
paperboard products;
3. manufacturing, marketing, and selling folding
cartons;
4. manufacturing, marketing, and selling fiber
partitions;
5. manufacturing, marketing, and selling corrugated
displays or providing packout services;
6. manufacturing, marketing, and selling thermoformed
plastic packaging;
7. manufacturing, marketing, and selling corrugated
packaging; and
8. operating recovered paper facilities.
Executive understands and agrees that the scope of the Company
Businesses may change from time to time during his employment and,
therefore, the definition of the Company Businesses should be
modified to reflect such change in scope. Accordingly, Executive
agrees that the Company may amend the definition of the term
"Company Businesses" during his employment by delivering to
Executive written notice of such change and such amendment shall
be effective upon Executive's receipt of such notice.
b. "Confidential Information" shall mean any secret, confidential,
or proprietary data or information of the Company, including
information received
23
<PAGE> 6
by the Company or Executive from any customer or client or
potential customer or client of the Company, not otherwise
included in the definition of Trade Secret. The term Confidential
Information shall not include information that Executive can show
by competent proof has become generally known to the public by the
act of one who has the right to disclose such information without
violating any right of the Company or any customer or client to
which such information pertains.
c. "Territories" shall mean the following geographic areas with
respect to the Company Businesses:
9. for the Company Businesses described in Sections
5.1(a)(i)-(ii) and Section 5.1(a)(iv)-(vi): the continental
United States of America, which Executive acknowledges and
agrees is the primary area in which the Company engages in
these business activities;
10. for the Company Businesses described in Sections 5.1(a)(iii):
the continental United States of America and Quebec and
Ontario Provinces, Canada, which Executive acknowledges and
agrees is the primary area in which the Company engages in
these business activities;
11. for the Company Businesses described in Section 5(a)(vii):
Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina, and Tennessee, which Executive
acknowledges and agrees is the primary area in which the
Company engages in these business activities; and
12. for the Company Businesses described in Section 5(a)(viii):
the continental United States of America and Quebec Province,
Canada, which Executive acknowledges and agrees is a major
area in which the Company engages in these business
activities.
In the event that any of the Company Businesses are conducted
during Executive's employment in a geographic area that is
different from the geographic area set forth above, Executive
agrees that the Company may amend the definition of the term
"Territory" during Executive's employment by delivering to
Executive written notice of such change and such amendment shall
be effective upon Executive's receipt of such notice.
d. "Trade Secret" shall mean information, including, but not
limited to, technical or non-technical data, a formula, pattern,
compilation, program, device, method, technique, drawing, process,
financial data, financial plan, product plan, list of actual or
potential customers or suppliers, or other information similar to
24
<PAGE> 7
any of the foregoing, which derives economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
derive economic value from its disclosure or use and which is
subject to reasonable efforts by the Company to maintain its
secrecy or confidentiality.
5.2. Acknowledgement. Executive acknowledges that during the course of
his employment with the Company he has received and will receive and
have access to Confidential Information and Trade Secrets of the
Company. Executive agrees that the Company has a legitimate interest in
protecting its valuable Confidential Information and Trade Secrets.
Executive also acknowledges that due to the executive nature of his
position with the Company, Executive has performed and will perform his
duties an responsibilities throughout all the Territories. Executive
agrees that the Company's customer and client contacts and relations
are established and maintained at great expense to the Company and that
Executive has had and will have, by virtue of his employment, unique
and extensive exposure to and personal contact with the Company's
customers and clients and that he has been able to establish a unique
relationship with those customers and clients.
5.3. Trade Secrets. In consideration for the promises under this
Agreement and his continued employment by the Company, Executive agrees
and covenants that, both during and after his employment with the
Company, Executive will hold in a fiduciary capacity for the benefit of
the Company, and will not directly or indirectly use or disclose
(whether on his own behalf or on behalf of any other person,
corporation, partnership, venture, or any other entity or form of
business), except as authorized by the Company in connection with the
performance of Executive's duties, any Trade Secret that Executive may
have or acquire during the term of this Agreement for so long as the
such information remains a Trade Secret.
5.4. Confidential Information. In consideration for the promises under
this Agreement and his continued employment by the Company, Executive
agrees and covenants that, during his employment with the Company and
for a term of two (2) years after termination of his employment,
Executive will hold in a fiduciary capacity for the benefit of the
Company and will not directly or indirectly use or disclose (whether on
his own behalf or on behalf of any other person, corporation,
partnership, venture, or any other entity or form of business), except
as authorized by the Company in connection with the performance of
Executive's duties, any Confidential Information that Executive may
have or acquire (whether or not developed or compiled by Executive and
whether or not Executive has been authorized to have access to such
Confidential Information) during the term of this Agreement. Executive
acknowledges and agrees that nothing contained in this Agreement shall
be deemed a waiver, modification, or limitation of any rights the
Company may have under applicable federal, state, or local laws
pertaining to the protection of trade secrets or confidential
information.
25
<PAGE> 8
5.5. Non-Competition. In consideration for the promises under this
Agreement, and in order to protect the Company from unfair competition,
Executive covenants and agrees to the following:
a. Executive will not compete with the Company in any manner and
in any capacity (whether on his own behalf or as owner, partner,
stockholder, investor, officer, director, agent, independent
contractor, associate, executive, consultant or licensor) during
his employment with the Company.
b. If Executive's employment terminates as provided in Section
4.3(b), Executive will not directly or indirectly carry on, or be
engaged, concerned or take part in, any activities or services
identical or similar to any of Executive's duties and
responsibilities under this Agreement for himself or for any
corporation, partnership, venture, entity, or any other form of
business which competes with the Company in the Company Businesses
anywhere in the respective Territories in which the Company
engages in the Company Businesses for a period of one (1) year
after the effective date of termination.
c. If Executive's employment terminates as provided in Sections
4.2 and 4.3(a), Executive will not directly or indirectly carry
on, or be engaged, concerned or take part in, any activities or
services identical or similar to any of Executive's duties and
responsibilities under this Agreement for himself or for any
corporation, partnership, venture, entity, or any other form of
business which competes with the Company in the Company Businesses
anywhere in the respective Territories in which the Company
engages in the Company Businesses for a period of two (2) years
after the effective date of termination.
d. If Executive's employment terminates as provided in Section
4.3(c), Executive will not directly or indirectly carry on, or be
engaged, concerned or take part in, any activities or services
identical or similar to any of Executive's duties and
responsibilities under this Agreement for himself or for any
corporation, partnership, venture, entity, or any other form of
business which competes with the Company in the Company Businesses
anywhere in the respective Territories in which the Company
engages in the Company Businesses for a period of one (1) or two
(2) years after the effective date of termination, depending on
whether the Company exercises its option in Section 4.3(c) to pay
Executive a lump sum severance payment equal to one (1) time or
two (2) times his annual base salary on the effective date of the
termination, less applicable withholdings.
5.6 Non-Solicitation of Customers. In consideration for the promises
under this Agreement and his continued employment by the Company, and
in order to protect the Company from unfair competition, Executive
covenants and agrees to the following:
26
<PAGE> 9
a. Executive will not solicit or attempt to solicit any customer
and/or client or actively sought prospective client and/or
customer of the Company for any person or entity other than
Company during his employment with the Company.
i. If Executive's employment terminates as provided in Section
4.3(b), Executive will not, for the purpose of competing with the
Company in the Company Businesses (whether on his own behalf or on
behalf of any other person, corporation, partnership, venture, or
any other entity or form of business), directly or indirectly
solicit or attempt to solicit any customer and/or client or
actively sought prospective client and/or customer of the Company
with whom Executive had material business contact any time during
the twelve (12) months prior to such termination, for a period of
one (1) year after the effective date of termination.
ii. If Executive's employment terminates as provided in Sections
4.2, 4.3(a), and 4.3(c), Executive will not, for the purpose of
competing with the Company in the Company Businesses (whether on
his own behalf or on behalf of any other person, corporation,
partnership, venture, or any other entity or form of business),
directly or indirectly solicit or attempt to solicit any customer
and/or client or actively sought prospective client and/or
customer of the Company with whom Executive had material business
contact any time during the twelve (12) months prior to such
termination, for a period of two (2) years after the effective
date of termination.
5.7. Non-Hiring Away of Employees. In consideration for the promises
under this Agreement and his continued employment by the Company, and
in order to protect the Company from unfair competition, Executive
agrees and covenants that both during his employment and for a period
of three (3) years after the termination of his employment, he will
not, for any reason (whether on his own behalf or on behalf of any
other person, corporation, partnership, venture, or any other entity or
form of business), directly or indirectly employ or solicit for
employment any employee of the Company with whom Executive had material
business contact during his employment with the Company or, if this
Agreement is terminated, any time during the twelve (12) months prior
to such termination.
5.8. Reasonable Restrictions. Executive acknowledges and confirms that
the restrictions and covenants contained in Section 5 are reasonably
necessary to protect the good will and legitimate business interests of
the Company, are not overbroad, overlong, or unfair (including in
duration and scope), and are not the result of overreaching, duress or
coercion of any kind. Executive further acknowledges and confirms that
his full, uninhibited, and faithful observance of each of the covenants
contained in this Section 5 will not cause him any undue hardship,
financial or otherwise, and that enforcement of each of the covenants
contained herein will not impair his ability to obtain employment
commensurate with his abilities and on terms fully acceptable to him or
otherwise to obtain income required for the comfortable support of him
and his family and the
27
<PAGE> 10
satisfaction of the needs of his creditors. Executive acknowledges and
confirms that his special abilities and knowledge of the Company
Businesses are such that it would cause the Company serious,
irreparable injury or loss if he were to use such abilities and
knowledge to the benefit of a competitor or were to otherwise violate
these covenants. Executive further acknowledges that the restrictions
contained in Section 5 are intended to be, and shall be, for the
benefit of and shall be enforceable by, the Company's successors and
assigns.
5.9 . Legal and Equitable Remedies. Executive agrees that for any
breach or threatened breach of any of the provisions of this Section 5,
the Company shall be entitled to immediate injunctive relief and that a
restraining order and/or an injunction may issue against Executive to
prevent or restrain any such breach or threatened breach, in addition
to any other rights or remedies at law the Company may have.
5.10. Reformation. If any of the covenants in Section 5 is determined
by any court of law or equity, with jurisdiction over this matter, to
be unreasonable or unenforceable, in whole or in part, as written,
Executive hereby consents to and affirmatively requests that said court
reform the covenant so as to be reasonable and enforceable to the
maximum extent permitted by law and that said court enforce the
covenant as reformed. The time periods during which the prohibitions
set forth in this Section 5 shall apply shall be tolled and suspended
for a period equal to the aggregate quantity of time during which
Executive violates such prohibition in any respect; provided, however,
such tolled period shall not exceed a period of one year.
Section 6. Return of Company Property.
All the Company's property, equipment, funds, books, records, files,
memoranda, reports, lists, drawings, plans, sketches, documents, computer files,
and other material (together with all copies thereof) , which Executive shall
use, prepare or come in contact with or possession of during the course of, or
as a result of, his employment shall, as between the parties hereto, remain the
sole property of the Company. Upon the termination of Executive's employment or
upon the prior demand of the Company, Executive shall immediately return all
such property or materials and thereafter shall not remove or cause to be
removed such materials from the premises of the Company.
Section 7. Miscellaneous.
7.1. Assignment. This Agreement is for the personal services of
Executive, and the rights and obligations of Executive under this
Agreement are not assignable or delegable in whole or in part by
Executive without the prior written consent of the Company. This
Agreement is assignable in whole or in part to any parent,
subsidiaries, or affiliates of the Company or to any successor to the
Company, whether by merger, consolidation, sale of stock, sale of
assets or otherwise.
28
<PAGE> 11
7.2. Applicable Law. This Agreement has been entered into in and shall
be governed by and construed under the laws of the State of Georgia
(except to the extent that its choice of law rules would apply the laws
of another State).
7.3. Consent to Jurisdiction. Executive consents, and waives any
objection, to personal jurisdiction and venue in the federal and state
courts in Gwinnett County, Georgia in any action by the Company to
enforce this Agreement.
7.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same instrument.
7.5. Headings and Captions. The headings and captions used in this
Agreement are for convenience of reference only, and shall in no way
define, limit, expand or otherwise affect the meaning or construction
of any provision of this Agreement.
7.6. Attorneys Fees. The prevailing party shall be entitled to recover
his or its reasonable costs and attorneys' fees incurred in any action
to enforce this Agreement.
7.7. Modification. Except as provided in Sections 5.10 and 7.8, no
provision of this Agreement may be amended, changed, altered, modified
or waived except in writing signed by Executive and an officer of the
Company, which writing shall specifically reference this Agreement and
the provision which the parties intend to waive or modify.
7.8. Severability. Except as provided in Sections 5.10 and 7.7, should
any provision of this Agreement be declared or determined by any court
of competent jurisdiction to be unenforceable or invalid for any
reason, the validity of the remaining parts, terms or provisions of
this Agreement shall not be affected thereby and the invalid or
unenforceable part, term or provision shall be deemed not to be a part
of this Agreement.
7.9. Waiver. The waiver by any party to this Agreement of a breach of
any of the provisions of this Agreement shall not operate or be
construed as a waiver of any subsequent or simultaneous breach of the
same or different provisions.
7.10. Survival. Any provision of this Agreement which is intended to
survive the termination of this Agreement, including Sections 5 and 6,
shall survive and remain in effect after the termination of this
Agreement 1.
7.11. No Third-Party Beneficiaries. Except as provided in Section 7.1,
nothing herein, expressed or implied, is intended or will be construed
to confer upon or give to any person, firm, corporation or legal
entity, other than the parties hereto and any parent, subsidiary,
affiliate, or successor of the Company, any rights, remedies or other
benefits under or by reason of this Agreement.
29
<PAGE> 12
7.12. Entire Agreement. This Agreement constitutes a single integrated
contract expressing the entire agreement of the parties hereto. There
are no other agreements, written or oral, express or implied, between
the parties hereto, concerning the subject matter hereof.
7.13. Notices. Unless otherwise agreed to in writing by the parties
hereto, all communications provided for hereunder shall be in writing
and shall be deemed to be given when delivered if delivered in person,
on the next business day if delivered by facsimile or national
overnight courier service, or five (5) business days after being sent
by first-class mail, registered or certified, return receipt requested,
with proper postage prepaid, addressed as follows:
If to the Company:
Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
Attention: General Counsel
If to Executive:
or to such other representative or at such other address of a party as
such party hereto may furnish to the other parties in writing.
7.14. Understanding. Executive herewith covenants and agrees that he
has read and fully understands the contents and the effect of this
Agreement. Executive warrants and agrees that he has had a reasonable
opportunity and been advised in writing to seek the advice of an
attorney as to such content and effect. Executive accepts each and all
of the terms, provisions, and conditions of this Agreement, and does so
voluntarily and with full knowledge and understanding of the contents,
nature, an effect of this Agreement.
30
<PAGE> 13
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date first above written.
ROCK-TENN COMPANY
/s/ JAMES A. RUBRIGHT
- ------------------------------------------
James A. Rubright
Chief Executive Officer
EXECUTIVE
/s/ JAY SHUSTER
- ------------------------------------------
Jay Shuster
31
<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 THE ROCK-TENN COMPANY'S 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,619
<SECURITIES> 0
<RECEIVABLES> 107,938
<ALLOWANCES> 2,857
<INVENTORY> 105,181
<CURRENT-ASSETS> 247,523
<PP&E> 1,046,197
<DEPRECIATION> 445,994
<TOTAL-ASSETS> 1,173,664
<CURRENT-LIABILITIES> 155,487
<BONDS> 475,688
0
0
<COMMON> 350
<OTHER-SE> 437,760
<TOTAL-LIABILITY-AND-EQUITY> 1,173,664
<SALES> 345,861
<TOTAL-REVENUES> 345,861
<CGS> 255,471
<TOTAL-COSTS> 255,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,994
<INCOME-PRETAX> 15,447
<INCOME-TAX> 6,837
<INCOME-CONTINUING> 8,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,610
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.24
</TABLE>
