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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT AS UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 AS AMENDED AND RESTATED
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
For Quarter Ended June 30, 1994 Commission file number 1-9915
GAYLORD CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3472452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Lake Cook Road, Suite 400
Deerfield, Illinois 60015
Telephone: (708) 405-5500
(Address, including zip code, and telephone number, including
area code, of registrant's principal offices)
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 by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No
As of August 8, 1994, the registrant had outstanding 48,385,027 shares
(including 31,845,533 shares held in trust for the benefit of the warrant
holders) of its $0.0001 par value Class A Common Stock, 31,845,533
redeemable exchangeable warrants and 5,266,273 shares of its $0.0001 par
value Class B Common Stock. One share of Class B Common Stock is
convertible into one share of Class A Common Stock at the option of the
holder thereof.
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PAGE
PART I. FINANCIAL INFORMATION NUMBERS
------------------------------
Item 1. Financial Statements 1 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8 - 12
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings. 13
Item 2. Changes in Securities. 13
Item 3. Defaults Upon Senior Securities. 13
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES 14
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<TABLE>
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS,
JUNE 30, 1994 AND SEPTEMBER 30, 1993
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JUNE 30, SEPTEMBER 30,
1994 1993
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ASSETS (In millions)
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<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 8.8 $ 27.6
Trade receivables (less allowances of
$4.0 million and $4.5 million, respectively) 111.4 103.2
Inventories (Note 3) 63.8 61.2
Other current assets 10.0 7.4
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Total current assets 194.0 199.4
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PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at cost 904.5 887.3
Less accumulated depreciation 315.0 276.2
----- -----
Property - Net 589.5 611.1
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OTHER ASSETS 43.6 49.6
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TOTAL $ 827.1 $ 860.1
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT LIABILITIES:
Current maturities of long-term debt (Note 2) $ 5.4 $ 5.7
Trade payables 41.8 43.7
Accrued and other liabilities 50.3 50.1
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Total current liabilities 97.5 99.5
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LONG-TERM DEBT (Note 2) 708.7 670.1
OTHER LONG-TERM LIABILITIES 27.5 32.6
DEFERRED INCOME TAXES 4.3 4.3
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY (DEFICIT):
Class A common stock - par value, $.0001 per share;
authorized 125,000,000 shares; issued 48,454,861
shares and 47,510,789 shares, respectively, and
outstanding 48,369,161 shares and 47,425,089
shares, respectively - -
Class B common stock - par value, $.0001 per share;
authorized 15,000,000 shares; issued and
outstanding 5,266,273 shares and 5,951,427 shares,
respectively - -
Capital in excess of par value 170.2 169.4
Retained deficit (170.2) (104.9)
Common stock in treasury - at cost; 85,700 shares (0.8) (0.8)
Recognition of minimum pension liability (10.1) (10.1)
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Total stockholders' equity (deficit) (10.9) 53.6
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TOTAL $ 827.1 $ 860.1
===== =====
</TABLE>
See notes to condensed consolidated financial statements.
1
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<TABLE>
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 1994 AND 1993 (In millions, except per share data)
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THREE MONTHS ENDED JUNE 30,
---------------------------
1994 1993
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<S> <C> <C>
NET SALES $ 203.2 $ 188.0
COST OF GOODS SOLD 182.8 172.5
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GROSS MARGIN 20.4 15.5
SELLING AND ADMINISTRATIVE COSTS (19.7) (18.4)
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OPERATING EARNINGS (LOSS) 0.7 (2.9)
INTEREST EXPENSE - Net (Note 2) (20.3) (21.8)
OTHER INCOME (EXPENSE) - Net (0.1) 0.7
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LOSS BEFORE INCOME TAXES (19.7) (24.0)
INCOME TAXES - -
----- -----
NET LOSS (19.7) $ (24.0)
=====
RETAINED DEFICIT:
BEGINNING OF PERIOD (150.5)
-----
END OF PERIOD $(170.2)
=====
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE $ (0.37) $ (0.45)
===== =====
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 53.6 53.4
===== =====
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
JUNE 30, 1994 AND 1993 (In millions, except per share data)
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NINE MONTHS ENDED JUNE 30,
--------------------------
1994 1993
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<S> <C> <C>
NET SALES $ 569.6 $ 546.3
COST OF GOODS SOLD 515.5 481.6
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GROSS MARGIN 54.1 64.7
SELLING AND ADMINISTRATIVE COSTS (59.4) (56.7)
DEBT RESTRUCTURING EXPENSES (Note 2) - (8.6)
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OPERATING LOSS (5.3) (0.6)
INTEREST EXPENSE - Net (Note 2) (59.7) (49.3)
OTHER INCOME (EXPENSE) - Net (0.3) 0.4
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LOSS BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND ACCOUNTING CHANGE (65.3) (49.5)
INCOME TAXES - -
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LOSS BEFORE EXTRAORDINARY ITEM AND
ACCOUNTING CHANGE (65.3) (49.5)
EXTRAORDINARY GAIN (Note 2) - 201.5
ACCOUNTING CHANGE (Note 1) - (1.3)
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NET INCOME (LOSS) (65.3) $ 150.7
=====
RETAINED DEFICIT:
BEGINNING OF PERIOD (104.9)
-----
END OF PERIOD $(170.2)
=====
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
LOSS BEFORE EXTRAORDINARY ITEM AND
ACCOUNTING CHANGE $ (1.22) $ (1.01)
EXTRAORDINARY GAIN - 4.14
ACCOUNTING CHANGE - (0.03)
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NET INCOME (LOSS) $ (1.22) $ 3.10
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AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 53.6 48.7
===== =====
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
JUNE 30, 1994 AND 1993
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NINE MONTHS ENDED JUNE 30,
--------------------------
1994 1993
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(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Loss before extraordinary item and
accounting change $(65.3) $(49.5)
Adjustments to reconcile loss before extraordinary
item and accounting change to net cash from
operating activities:
Depreciation and amortization 45.7 46.3
Non-cash interest expense 30.5 6.3
Change in current assets and liabilities,
excluding acquisitions and dispositions (23.2) (2.8)
Loss (gain) on asset dispositions 5.8 (0.6)
Other - net 1.5 0.2
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Net cash used for operations (5.0) (0.1)
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CASH FLOWS FROM INVESTMENTS:
Capital expenditures (25.6) (17.4)
Capitalized interest (0.5) (0.4)
Acquisition - (5.9)
Acquisition restructuring expenditures (2.4) (1.3)
Proceeds from asset sales 4.5 -
Other investments - net 2.1 -
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Net cash used for investments (21.9) (25.0)
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CASH FLOWS FROM FINANCING:
Issuance of senior notes (Note 2) - 225.0
Issuance of subordinated debentures (Note 2) - 300.0
Refinancing - debt extinguishment (Note 2) - (460.5)
Revolver borrowings - net 12.0 -
Senior debt - repayments (3.9) (12.3)
Restructuring closing (Note 2) - (53.1)
Debt issuance costs (Note 2) - (19.7)
Other financing - net - 3.1
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Net cash provided by (used for) financing 8.1 (17.5)
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Net decrease in cash and equivalents (18.8) (42.6)
Cash and equivalents, beginning of period 27.6 64.5
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Cash and equivalents, end of period $ 8.8 $ 21.9
===== =====
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest expense $ 32.7 $ 38.8
Supplemental schedule of non-cash investing and
financial activities:
Fair value of non-cash assets acquired - 4.9
</TABLE>
See notes to condensed consolidated financial statements.
4
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. GENERAL
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all normal and recurring
adjustments and accruals necessary to present fairly the financial position
as of June 30, 1994 and the results of operations for the three and nine
months ended June 30, 1994 and 1993 and cash flows for the nine months ended
June 30, 1994 and 1993, including all the accounts of Gaylord Container
Corporation (including its subsidiaries, the Company), and are in conformity
with Securities and Exchange Commission (the Commission) Rule 10-01 of
Regulation S-X. In addition to the normal and recurring adjustments and
accruals, for the nine months ended June 30, 1993, the Company recognized
"Debt Restructuring Expenses" of $8.6 million and an "Extraordinary Gain" of
$201.5 million related to a comprehensive debt restructuring (see Note 2)
and a charge of $1.3 million for an "Accounting Change" as described below.
In the three months and nine months ended June 30, 1994, the Company
recognized a charge against operating earnings of approximately $3.5 million
for costs associated with the closure of a corrugated container plant in the
third quarter of fiscal 1994. Also included in the results for the nine
months ended June 30, 1994 is a charge against operating earnings of
approximately $2 million for the loss on the sale and costs associated with
the disposition of a corrugated container plant in the second quarter of
fiscal 1994. The financial statements should be read in conjunction with
the audited consolidated financial statements and the notes thereto on Form
10-K for the fiscal year ended September 30, 1993.
On October 1, 1992, the Company adopted Financial Accounting Standard No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
and elected to immediately recognize its accumulated benefit obligation
under collective bargaining agreements at four of its facilities. As a
result, the Company recorded a charge to earnings of $1.3 million for the
effect of the "Accounting Change."
2. RESTRUCTURING/REFINANCING
On September 11, 1992, the Company filed a voluntary petition for relief and
a plan of reorganization (the Prepackaged Plan) under Chapter 11 of the
United States Bankruptcy Code. On November 2, 1992, the Company consummated
the Prepackaged Plan.
Upon consummation of the Prepackaged Plan, the Company issued (i) $182.3
million aggregate principal amount of 13-1/2% Senior Subordinated Debentures
Due 2003 (the 13-1/2% Senior Subordinated Notes) plus $20.7 million of
accrued interest from January 1, 1992 through November 1, 1992, (ii) $195.4
million aggregate principal amount of 10-1/4% Senior Subordinated PIK Notes
Due 2001 (the 10-1/4% Senior Subordinated Notes) plus $16.8 million of
accrued interest from January 1, 1992 through November 1, 1992 (including
$10.6 million of interest paid in additional 10-1/4% Senior Subordinated
Notes), (iii) approximately 6 million shares of the Company's Class A Common
Stock, par value $.0001 per share (Class A Common Stock) and (iv)
approximately 31.8 million redeemable exchangeable warrants (the Warrants)
to obtain one share of Class A Common Stock per Warrant, all in exchange for
5
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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$582.8 million aggregate principal amount of the Company's subordinated debt
plus approximately $134.5 million of accrued but unpaid interest thereon.
In addition, the Company repaid $26.2 million of principal outstanding under
its bank credit agreement.
Concurrent with the consummation of the Prepackaged Plan, the Company (i)
issued the number of shares of Class A Common Stock deliverable upon
exercise of the Warrants to a trustee, which will hold such shares in trust,
for the benefit of the holders of Warrants pending any such exercise, (ii)
filed with the Delaware Secretary of State the charter amendment which
amended the Company's Restated Certificate of Incorporation and (iii) closed
the post-restructuring credit agreement with its bank group.
The Company accounted for the consummation of the Prepackaged Plan in
accordance with the provisions of the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Accounting by Entities in
Reorganization Under the Bankruptcy Code." The exchange of subordinated
debt for the 13-1/2% Senior Subordinated Notes and the 10-1/4% Senior
Subordinated Notes, shares of Class A Common Stock and Warrants resulted in
a forgiveness of debt. The forgiveness of debt resulted in an extraordinary
gain of $201.5 million, net of $1.2 million of income taxes. The deferred
tax provision was recorded at less than the statutory tax rate due to the
recognition of deferred tax benefits which the Company was previously unable
to utilize due to limitations on its ability to carry-forward tax net
operating losses sustained in prior years. A provision of $1.2 million for
certain state income taxes was required due to limitations on the use of
such net operating loss carryforwards for state income tax purposes.
Approximately $4.0 million of interest expense on the Senior Subordinated
Notes for the period October 1, 1992 through November 1, 1992 reduced the
amount of the extraordinary gain recognized by the Company and therefore was
not reported as interest expense.
On May 18, 1993, the Company issued (i) $225 million aggregate principal
amount of 11-1/2% Senior Notes Due 2001 (the Senior Notes) and (ii)
approximately $434.2 million aggregate principal amount (approximately $300
million of gross proceeds) of 12-3/4% Senior Subordinated Discount
Debentures Due 2005 (the Subordinated Discount Debentures and together with
the Senior Notes, the Securities). Proceeds from the sale of the Securities
were used (i) to prepay $70 million outstanding under the term loan portion
of the Company's bank credit agreement, (ii) to redeem all outstanding
10-1/4% Senior Subordinated Notes ($208.2 million), plus accrued interest
thereon (approximately $9.8 million), (iii) to redeem all outstanding
13-1/2% Senior Subordinated Notes ($182.3 million), plus accrued interest
thereon (approximately $11.4 million), (iv) to pay fees and expenses of
approximately $19.7 million and (v) for general corporate purposes. As a
result of the refinancing, the Company accrued interest on the Securities
commencing May 18, 1993. The Company also recognized approximately $2.8
million of net interest expense related to the 10-1/4% Senior Subordinated
Notes and the 13-1/2% Senior Subordinated Notes for the period from May 18,
1993 to June 17, 1993.
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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The $70 million payment under the term loan portion of the Company's bank
credit agreement was applied to prepay in full the eight quarterly
installments due under the term loan facility from July 1993 through April
1995 and represented a permanent reduction in such facility. As a result of
the permanent reduction in the term loan facility, the Company recognized a
charge in the three and nine months ended June 30, 1993 of approximately
$2.5 million included in "Interest expense-net" for the write-off of
deferred financing fees associated with the prepaid portion of such
facility.
On September 24, 1993, the Company sold substantially all of its accounts
receivable to a wholly owned special purpose subsidiary, Gaylord Receivables
Corporation (GRC). GRC transferred the accounts receivable to a special
purpose trust in exchange for certain trust certificates representing
ownership interests in the accounts receivable. Concurrently, GRC and a
group of banks established a $70 million trade receivables-backed revolving
credit facility (the Trade Receivables Facility) collateralized by one
series of such trust certificates.
3. INVENTORIES
JUNE 30, SEPTEMBER 30,
1994 1993
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(In millions)
Inventories consist of:
Finished products $17.9 $13.3
In process 32.8 34.6
Raw materials 7.7 6.7
Supplies 9.4 9.4
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Total 67.8 64.0
LIFO valuation adjustment (4.0) (2.8)
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Total $63.8 $61.2
==== ====
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
---------------------
Third Quarter of Fiscal 1994 Compared with Third Quarter of Fiscal 1993.
Net sales for the third quarter of fiscal 1994 were $203.2 million,
approximately 8 percent higher than net sales of $188.0 million for the
third quarter of fiscal 1993. Operating earnings for the quarter were $0.7
million, after a $3.5 million charge for costs associated with the closure
of a corrugated container plant, compared with an operating loss of $2.9
million for the year-ago third quarter. The Company reported a net loss of
$19.7 million for the current quarter, or $0.37 per share, versus a net loss
of $24.0 million, or $0.45 per share a year ago.
Sales and earnings in the third quarter of fiscal 1994 benefited from
significantly higher average selling prices for linerboard and corrugated
products as compared to the prior-year quarter. Increased prices in the
third quarter of fiscal 1994 had a positive effect on operating earnings
of approximately $12 million versus the year-ago quarter.
A $25 per ton price increase for linerboard and a corresponding price
increase for corrugated containers were realized during the first half of
fiscal 1994. An additional $30 per ton price increase for linerboard was
realized late in the second quarter of fiscal 1994, and the Company has
implemented a corresponding price increase for corrugated containers. These
increases reversed a trend of substantial decreases in linerboard prices
that occurred throughout fiscal 1993.
Average selling prices for the Company's domestic linerboard and corrugated
products increased approximately 12 percent and 6 percent, respectively, in
the third quarter of fiscal 1994 compared with the prior-year quarter. In
addition, average selling prices for the Company's export linerboard
increased approximately 2 percent from the prior-year quarter. Average
selling prices for the Company's unbleached kraft paper and multiwall bags
in the third quarter of fiscal 1994 were essentially unchanged from the
year-ago quarter. Despite the implementation of two price increases in the
third quarter of fiscal 1994, grocery bag and sack average selling prices
were down approximately 8 percent due to substantial price deterioration in
late fiscal 1993 and early fiscal 1994.
Sales and earnings for the third quarter of fiscal 1994 also benefited from
increased mill production. Increased volume had a positive effect on
operating earnings of approximately $3 million. Linerboard production of
3,248 tons per day (TPD, calculated on the basis of the number of days in
the period) increased approximately 8 percent from 3,021 TPD in the
prior-year quarter. The Company's Bogalusa, Louisiana mill was down for
approximately six days for scheduled maintenance in the third quarter of
fiscal 1993 and no scheduled down time was taken in the current fiscal
quarter. Unbleached kraft paper production increased approximately 3
percent to 683 TPD from 663 TPD in the third quarter of fiscal 1993.
Corrugated shipments of approximately 3.2 billion square feet were unchanged
versus the prior-year quarter; however, the year-ago period includes
shipments from two corrugated container plants which were subsequently sold
or closed. Adjusting for the plant closures, corrugated shipments from
continuing operations increased approximately 6 percent in the current
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quarter. Multiwall bag shipments of 12.2 thousand tons were essentially flat
versus the year-ago quarter's shipments of 12.1 thousand tons. Grocery bag
and sack shipments decreased to 26.5 thousand tons versus shipments of 31.9
thousand tons in the year-ago quarter. In the third quarter of fiscal 1994,
the Company implemented price increases for grocery bags and sacks which
resulted in some erosion of its market share.
Gross margin as a percentage of net sales for the third quarter of fiscal
1994 increased to 10.0 percent from 8.2 percent in the prior-year quarter.
The margin improvement was primarily due to significantly higher selling
prices for linerboard and corrugated products, partially offset by increased
fiber costs (approximately $9 million) associated with significantly higher
secondary fiber prices (primarily old corrugated containers) and wood chip
transportation costs. In addition, gross margin was adversely affected by
an approximately $3.5 million charge for costs associated with the closure
of the corrugated container plant during the third quarter of fiscal 1994.
Selling and administrative costs of $19.7 million for the third quarter of
fiscal 1994 were $1.3 million higher than the prior-year quarter. The
variance in the current quarter is primarily a result of the reversal of an
accrual for incentive compensation in the third quarter of fiscal 1993.
Net interest expense decreased from the prior-year quarter by $1.5 million
to $20.3 million in the third quarter of fiscal 1994. As a result of the
refinancing in the third quarter of fiscal 1993, the Company accrued
interest on the 11-1/2% Senior Notes Due 2001 and the 12-3/4% Senior
Subordinated Discount Debentures Due 2005 commencing May 18, 1993. The
Company also recognized (i) approximately $2.8 million of net interest
expense related to the 13-1/2% Senior Subordinated Debentures Due 2003
and the 10-1/4% Senior Subordinated PIK Notes Due 2001 for the period
May 18, 1993 to June 17, 1993 (the Redemption Date) and (ii) a charge of
$2.5 million to write-off deferred financing fees related to a prepayment on
the term loan portion of the Company's bank credit agreement. Excluding
these items, interest expense in the third quarter of fiscal 1994 would have
been approximately $3.8 million higher, primarily as a result of higher
average debt levels and higher weighted average interest rates.
First Nine Months of Fiscal 1994 Compared with First Nine Months of Fiscal
1993.
Net sales for the first nine months of fiscal 1994 were $569.6 million,
approximately 4 percent higher than net sales of $546.3 million for the
first nine months of fiscal 1993. The operating loss for the first nine
months of fiscal 1994 was $5.3 million compared with an operating loss of
$0.6 million after $8.6 million of debt restructuring expenses for the
year-ago period. Included in the first nine months of fiscal 1994 results
were charges against operating earnings of (i) approximately $3.5 million
for costs associated with the closure of a corrugated container plant in the
third quarter of fiscal 1994 and (ii) approximately $2 million for a loss on
the sale and costs associated with the disposition of a corrugated container
plant in the second quarter of fiscal 1994. The Company reported a net loss
of $65.3 million, or $1.22 per share, in the first nine months of fiscal
1994 versus net income of $150.7 million, or $3.10 per share, after
recording an extraordinary gain on the restructuring of subordinated debt of
$201.5 million, or $4.14 per share, in the first nine months of fiscal 1993.
In addition, net income in the first nine months of fiscal 1993 was reduced
by $1.3 million, or $0.03 per share, for an "Accounting Change" as a result
of the Company's adoption of Financial Accounting Standard No. 106,
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"Employers' Accounting for Postretirement Benefits Other Than Pensions."
The earnings per share amounts were calculated based on 53.6 million
weighted average shares and 48.7 million weighted average shares outstanding
for the first nine months of fiscal 1994 and fiscal 1993, respectively. The
increase in weighted average shares outstanding in the current period was
primarily due to the approximately 37.8 million shares issued in November
1992 upon consummation of the Prepackaged Plan (as defined herein).
Sales and earnings for the first nine months of fiscal 1994 benefited from
increased mill production and higher shipments of corrugated products.
Increased volume had a positive effect on operating earnings of
approximately $9 million. Linerboard production of 3,248 TPD increased
approximately 4 percent from 3,133 TPD in the comparable prior-year period.
Unbleached kraft paper production increased 4 percent to 689 TPD from 662
TPD in the first nine months of fiscal 1993.
Corrugated shipments of approximately 9.5 billion square feet were
approximately 9 percent higher than the prior-year period. The majority of
the increase in corrugated shipments was attributable to the acquisition of
a corrugated sheet feeder plant in March 1993. Multiwall bag shipments of
37.5 thousand tons were approximately 4 percent higher than the first nine
months of fiscal 1993 primarily as a result of an increase in market
emphasis in certain product lines. Grocery bag and sack shipments were 90.9
thousand tons, a decrease of approximately 4 percent versus shipments of
94.2 thousand tons a year ago. The decrease in grocery bag and sack
shipments was consistent with the decline reported by the industry during
the same period.
Sales and earnings in the first nine months of fiscal 1994 also benefited
from slightly higher average selling prices for corrugated containers and
multiwall bags, partially offset by lower prices for unbleached kraft paper,
as compared to the prior-year period. Higher average selling prices in the
first nine months of fiscal 1994 increased operating earnings by
approximately $1 million versus the year-ago period. Average selling prices
for the Company's corrugated containers and multiwall bags increased
approximately 2 percent and 1 percent, respectively, in the first nine
months of fiscal 1994 compared with the first nine months of fiscal 1993.
Average selling prices for the Company's unbleached kraft paper and grocery
bags and sacks both decreased approximately 11 percent in the first nine
months of fiscal 1994 compared with the year-ago period. Average selling
prices for the Company's domestic linerboard remained flat in the first nine
months of fiscal 1994 when compared with the prior-year period; however,
average selling prices for the Company's export linerboard decreased
approximately 6 percent.
Gross margin as a percentage of net sales for the first nine months of
fiscal 1994 decreased to 9.5 percent from 11.8 percent in the prior-year
period. The margin decline was primarily due to increased fiber costs
(approximately $11 million) as a result of significantly higher secondary
fiber prices (primarily old corrugated containers) and higher wood chip
transportation costs. Further, operating earnings were adversely affected
by higher mill energy costs (approximately $3 million) due to increased
prices. Gross margin was also adversely affected by an approximately $3.5
million charge for costs associated with the closure of a corrugated
container plant during the third quarter of fiscal 1994 and an approximately
$2 million charge for the loss on the sale and costs associated with the
disposition of a corrugated container plant during the second quarter of
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fiscal 1994. Selling and administrative costs of $59.4 million for the
first nine months of fiscal 1994 increased $2.7 million from the prior year
primarily as a result of costs associated with a new compensation plan for
executive officers and the reversal of an accrual for incentive compensation
in the third quarter of fiscal 1993.
Operating earnings for the first nine months of fiscal 1993 were adversely
affected by $8.6 million of debt restructuring expenses related to the
Company's comprehensive debt restructuring completed in November 1992.
Consummation of the Company's Prepackaged Plan resulted in an extraordinary
gain of $201.5 million in the first quarter of fiscal 1993.
Net interest expense increased from the prior-year period by $10.4 million
to $59.7 million in the first nine months of fiscal 1994. The increase was
primarily due to the Company's debt refinancing in the third quarter of
fiscal 1993 which resulted in higher average debt levels and higher weighted
average interest rates.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
General
The Company has historically financed its operations through cash provided
by operations, borrowings under its credit agreements and the issuance of
debt and equity securities. The Company's principal uses of cash are to pay
operating expenses, fund capital expenditures and service debt.
Net cash used for operations for the first nine months of fiscal 1994 was
$5.0 million, compared with $0.1 million a year ago. The unfavorable
comparison to the prior-year period was primarily due to increases in
working capital.
Capital expenditures of $25.6 million in the first nine months of fiscal
1994 increased $8.2 million from the prior-year period. The Company has
initiated a five-year capital plan that provides for the investment of $50
million, on average, per year. The plan targets approximately 55 percent of
the spending to enhance the capacity, flexibility and cost effectiveness of
the Company's converting facilities. Should industry pricing conditions not
improve as anticipated, however, the Company has the ability to defer
certain capital projects. The Company plans to finance this five-year
capital plan with cash provided by operations and borrowings under its bank
credit agreement and Trade Receivables Facility (as defined below). In
addition, certain capital assets acquired may be leased or financed by debt
obligations secured by those assets.
On September 24, 1993, the Company sold substantially all of its accounts
receivable to a wholly owned, special purpose subsidiary, Gaylord
Receivables Corporation (GRC). GRC transferred the accounts receivable to a
special purpose trust in exchange for trust certificates representing
ownership in the accounts receivable. Concurrently, GRC and a group of
banks established a $70 million trade receivables-backed revolving credit
facility (the Trade Receivables Facility) collateralized by one series of
such trust certificates.
11
<PAGE>
<PAGE> 14
Liquidity
As of June 30, 1994, the Company had cash and equivalents of $8.8 million, a
decrease of $18.8 million from September 30, 1993 as interest payments,
investments in working capital and capital expenditures exceeded earnings
before interest, taxes, depreciation and amortization. Total debt increased
by $38.3 million from $675.8 million at September 30, 1993 to $714.1 million
at June 30, 1994. The increase in total debt was primarily the result of
the accretion of discount subordinated debt issued in May 1993 ($30.5
million) and borrowings under the Trade Receivables Facility. As of June
30, 1994, the Company had $12.0 million outstanding and approximately $53
million of credit available under its Trade Receivables Facility. The
Company is required to use Trade Receivables Facility borrowings in excess
of approximately $53 million to prepay quarterly installments due under the
term loan facility of the bank credit agreement, in order of maturity. As
of June 30, 1994, the Company had no amounts outstanding and approximately
$56 million of revolver borrowings available under its bank credit
agreement. On July 31, 1994, the Company amended certain financial
covenants related to its bank credit agreement to provide it with additional
financial flexibility.
During fiscal 1994, the Company has implemented $25 per ton and $30 per ton
increases for linerboard and corresponding increases for corrugated
containers. Effective July 1, 1994, a $40 per ton increase in linerboard
prices was implemented, and implementation of a corresponding price increase
for corrugated containers is underway. In addition, the Company has
announced a $40 per ton price increase for linerboard effective September 5,
1994. Although current industry conditions are strong, there can be no
assurance that the increase can be successfully implemented or that the
timing of the increase will not be delayed. Further, the effect of higher
product prices has been partially offset by increased fiber costs,
particularly the price of old corrugated containers, which began to escalate
in January 1994. While the secondary fiber markets have been volatile and
are difficult to predict, it appears that they have begun to stabilize.
There can be no assurance, however, that prices for secondary fiber will
decline or that they will not escalate further.
The Company believes that cash provided by operations and borrowings
available under the Trade Receivables Facility and the bank revolving credit
facility will provide adequate liquidity to meet debt service obligations
and other liquidity requirements over the next 12 to 24 months. Escalation
in the cost of fiber or failure to achieve higher product prices by fiscal
1996, however, could require additional modifications to certain of the
financial covenants in the bank credit agreement. Failure to obtain
covenant modifications, if necessary, or an erosion of product prices, or
escalation in the cost of fiber could have a material adverse effect on the
Company's liquidity and its ability to meet its debt service obligations.
12
<PAGE>
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any legal proceedings other than
litigation incidental to normal business activities. The outcome
of such litigation is not expected to have a material adverse
effect on the Company.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Number and Description of Exhibit
a) 4.1 Third Amendment to Amended and Restated Credit
Agreement dated as of July 31, 1994 by and between
the Registrant, the financial institutions signatory
thereto, Bankers Trust Company, as Agent and Co-Manager
and Wells Fargo Bank National Association, as
Co-Manager.
b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
13
<PAGE>
<PAGE> 16
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.
GAYLORD CONTAINER CORPORATION
Date: August 9, 1994 /s/ Marvin A. Pomerantz
-------------------------------------
Marvin A. Pomerantz
Chairman and Chief Executive Officer
Date: August 9, 1994 /s/ Jeffrey B. Park
-------------------------------------
Jeffrey B. Park
Vice President-Controller
(Principal Accounting Officer)
14
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Third Amendment to Amended and Restated Credit
Agreement (this "Amendment") is dated as of July 31, 1994 and is
made among Gaylord Container Corporation, a Delaware corporation
(the "Borrower"), the undersigned financial institutions in their
capacities as lenders (collectively, the "Banks"), Bankers Trust
Company, as both agent (the "Agent") and co-manager for the Banks,
and Wells Fargo Bank, National Association, as co-manager for the
Banks.
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Agent and the co-
managers are parties to that certain Amended and Restated Credit
Agreement dated as of July 31, 1992 (as amended, modified or
supplemented and in effect from time to time, the "Credit
Agreement") pursuant to which the Banks have provided to the
Borrower certain term and revolving credit facilities; and
WHEREAS, the Borrower has requested that the Banks amend
the Credit Agreement in certain respects set forth herein and the
Banks, the Agent and the co-managers are agreeable to the same,
subject to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants contained herein, and other good and valuable
consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Terms capitalized herein and not
otherwise defined herein are used with the meanings ascribed to
such terms in the Credit Agreement.
2. Amendment of Credit Agreement. The Credit Agreement
is hereby amended, effective on the Third Amendment Effective Date,
as follows:
(a) New Definitions Added to Section 1.1. Section 1.1 of the
Credit Agreement is amended by the addition thereto of the
following additional definitions in their respective proper
alphabetical places:
"Third Amendment" means that certain Third Amendment to
Amended and Restated Credit Agreement dated as of July 31,
1994, by and among the Borrower, the Required Banks, the Agent
and the Co-Managers.
"Third Amendment Effective Date" means the date upon
which each of the conditions precedent set forth in Section 4
of the Third Amendment has been either met to the satisfaction
of the Agent and the Required Banks or waived by the Required
Banks.
(b) Amendment of Section 5.1(j). Section 5.1(j) of the Credit
Agreement is amended and restated in its entirety as follows:
<PAGE>
(j) Adjusted Consolidated Net Worth. The Borrower's
Adjusted Consolidated Net Worth as of the end of each Fiscal
Quarter ending on or after the Fiscal Quarter ended in
September, 1994 shall not decrease from the amount of the
Borrower's Adjusted Consolidated Net Worth as of the end of
the Fiscal Quarter ended in September, 1993 (the "Baseline
Date") by more than the applicable amount set forth in the
table below:
Maximum Permitted
Decrease in Adjusted
Consolidated Net Worth
from Adjusted Consoli-
dated Net Worth on
Fiscal Quarter Ended the Baseline Date
-------------------- ----------------------
Fiscal Quarter ended $95,000,000
in September, 1994
Fiscal Quarter ended $125,000,000
in December, 1994
Fiscal Quarter ended $140,000,000
in March, 1995
Fiscal Quarter ended $140,000,000
in June, 1995
Fiscal Quarter ended $140,000,000
in September, 1995
Fiscal Quarter ended $140,000,000
in December, 1995
Fiscal Quarter ended $130,000,000
in March, 1996
Fiscal Quarter ended $115,000,000
in June, 1996
Fiscal Quarter ended $ 95,000,000
in September, 1996
Fiscal Quarter ended
in December, 1996 and
each Fiscal Quarter
ended thereafter Adjusted Consolidated Net
Worth shall not decrease
below the highest
Adjusted Consolidated Net
Worth of the Borrower as
of the last day of any
Fiscal Quarter ending
after the Baseline Date
minus the greater of (1)
$25,000,000 or (2) ten
percent (10%) of the
highest Adjusted
Consolidated Net Worth of
the Borrower as of the
last day of any Fiscal
Quarter ending after the
Baseline Date.
<PAGE>
(c) Amendment of Section 5.1(l). Section 5.1(l) of the Credit
Agreement is amended by deleting the table set forth therein and
substituting the following table, effective on the Third Amendment
Effective Date:
Fiscal Quarter Ended Interest Coverage Ratio
Fiscal Quarter ended in
September, 1994 0.99 to 1.00
Fiscal Quarter ended in
December, 1994 1.15 to 1.00
Fiscal Quarter ended in
March, 1995 1.30 to 1.00
Fiscal Quarter ended in
June, 1995 1.50 to 1.00
Fiscal Quarter ended in
September, 1995 1.70 to 1.00
Fiscal Quarter ended in
December, 1995 1.50 to 1.00
Each Fiscal Quarter ended
thereafter 1.80 to 1.00
3. Amendment Fee. In consideration of the execution of
this Amendment by the Agent, the co-managers and the Banks, the
Borrower hereby agrees to pay each Bank which executes this
Amendment a fee (the "Amendment Fee") in an amount equal to such
Bank's Commitment multiplied by six and one quarter (6.25) basis
points, payable concurrently with the execution and delivery of
this Amendment by the Borrower, the Agent, the co-managers and
Banks constituting Required Banks.
4. Borrower's Representations and Warranties. In order
to induce the Agent, the co-managers and the Banks to enter into
this Amendment, the Borrower hereby represents and warrants to the
Agent, the co-managers and the Banks that:
(i) the Borrower has the right, power and capacity and
has been duly authorized and empowered by all requisite
corporate and shareholder action to enter into, execute,
deliver and perform this Amendment;
(ii) this Amendment constitutes the Borrower's legal,
valid and binding obligation, enforceable against it, except
as enforcement thereof may be subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law or
otherwise);
(iii) the Borrower's execution, delivery and performance
of this Amendment do not and will not violate its Certificate
of Incorporation or By-laws, any law, rule, regulation, order,
writ, judgment, decree or award applicable to it or any
contractual provision to which it is a party or to which it or
any of its property is subject;
<PAGE>
(iv) no authorization or approval or other action by, and
no notice to or filing or registration with, any governmental
authority or regulatory body (other than those which have been
obtained and are in force and effect) is required in
connection with its execution, delivery and performance of
this Amendment; and
(v) No Event of Default or Unmatured Event of Default
exists as of the date hereof under the Credit Agreement or
would exist after giving effect to the transactions
contemplated by this Amendment.
5. Conditions to Third Amendment's Effectiveness. The
effectiveness of this Amendment is specifically subject to the
satisfaction of the following conditions precedent or concurrent:
(a) No Defaults. No Unmatured Event of Default or Event
of Default under the Credit Agreement (as amended hereby)
shall have occurred and be continuing.
(b) Warranties and Representations. The warranties and
representations of the Borrower contained in this Amendment
and in the Credit Agreement (as amended hereby) shall be true
and correct in all material respects as of the effective date
hereof, with the same effect as though made on such date,
except to the extent that any such warranty or representation
relates to an earlier date, in which case such warranty or
representation shall be true and correct in all material
respects as of such earlier date.
(c) Deliveries. The Borrower shall deliver to the Banks
and/or the Agent, as applicable, the following:
(i) an executed copy of this Amendment; and
(ii) fully executed originals of the following
documents, in form and substance reasonably satisfactory
to the Agent:
(1) resolutions of the Board of Directors of
the Borrower approving and authorizing the
execution, delivery and performance of this
Amendment and the other instruments, documents,
certificates and agreements to be executed and
delivered by the Borrower in connection herewith,
duly certified by the Borrower's corporate
secretary;
(2) a certificate of the secretary of the
Borrower to the effect that neither the Certificate
of Incorporation nor the By-Laws of the Borrower
has been amended since May 1, 1993;
(3) updates of all schedules to the Credit
Agreement to the extent necessary to make the
representations and warranties to which they relate
true and correct as of the Third Amendment
Effective Date; and
(4) such certificates of officers of the
Borrower as to compliance with the requirements of
this Section 4 as the Agent may reasonably request.
<PAGE>
6. MISCELLANEOUS. The parties hereto hereby further
agree as follows:
(a) Further Assurances. Each of the parties hereto
hereby agrees to take such further actions and to execute, deliver
and acknowledge such additional agreements, powers and instruments
as any other party hereto may reasonably require to carry into
effect the purposes of this Amendment.
(b) Costs, Expenses and Taxes. The Borrower hereby
agrees to pay all reasonable fees, costs and expenses of the Agent
incurred in connection with the negotiation, preparation and
execution of this Amendment and the transactions contemplated
hereby, including, without limitation, the reasonable fees and
expenses of Winston & Strawn, counsel to the Agent and the Banks.
(c) Counterparts. This Amendment may be executed in one
or more counterparts, each of which, when executed and delivered,
shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same document with
the same force and effect as if the signatures of all of the
parties were on a single counterpart, and it shall not be necessary
in making proof of this Amendment to produce more than one (1) such
counterpart.
(d) Headings. Headings used in this Amendment are for
convenience of reference only and shall not affect the construction
of this Amendment.
(e) Integration. This Amendment and the Credit
Agreement (as amended hereby) constitute the entire agreement among
the parties hereto with respect to the subject matter hereof.
(f) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS
AND DECISIONS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO
CONFLICT OF LAWS PRINCIPLES).
(g) Binding Effect. This Amendment shall be binding
upon and inure to the benefit of and be enforceable by the
Borrower, the Agent, the co-managers and the Banks and their
respective successors and assigns; provided, however, that the
Borrower may not assign or transfer any of its rights, interests or
obligations hereunder without the prior written consent of the
Required Banks. Except as expressly set forth to the contrary
herein, this Amendment shall not be construed so as to confer any
right or benefit upon any Person other than the Borrower, the
Agent, the co-managers and the Banks and their respective
successors and permitted assigns.
(h) Amendment; Waiver. The parties hereto agree and
acknowledge that nothing contained in this Amendment in any manner
or respect limits or terminates any of the provisions of the Credit
Agreement or any of the other Basic Agreements other than as
expressly set forth herein and further agree and acknowledge that
the Credit Agreement (as amended hereby) and each of the other
Basic Agreements remain and continue in full force and effect and
are hereby ratified and confirmed. Except to the extent expressly
set forth herein, the execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any rights, power or
remedy of the Banks, the Agent or the co-managers under the Credit
Agreement or any other Basic Agreement, nor constitute a waiver of
any provision of the Credit Agreement or any other Basic Agreement.
No delay on the part of any Bank, the Agent or the co-managers in
exercising any of their respective rights, remedies, powers and
privileges under the Credit Agreement or any of the Basic
Agreements or partial or single exercise thereof, shall constitute
a waiver thereof. None of the terms and conditions of this
Amendment may be changed, waived, modified or varied in any manner,
whatsoever, except in accordance with Section 9.1 of the Credit
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first written above.
GAYLORD CONTAINER CORPORATION
By: /s/ Daniel P. Casey
----------------------------
Title: Executive Vice President
BANKERS TRUST COMPANY, in its individual
capacity, as Agent and as Co-Manager
By: /s/ Mary Jo Jolly
---------------------------
Title: Assistant Vice President
WELLS FARGO BANK, NATIONAL
ASSOCIATION, in its individual
capacity and as Co-Manager
By: /s/ Laila S. Partridge
---------------------------
Title: Vice President
NATIONSBANK OF NORTH CAROLINA, N.A.
By: /s/ Michael O. Lincoln
---------------------------
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ Emilia DiMenco
---------------------------
Title: Senior Vice President
BANKERS TRUST (DELAWARE)
By: /s/ Donna Mitchell
---------------------------
Title: Vice President
BARCLAYS BANK PLC
By: /s/ Les Bek
---------------------------
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By: /s/ Dean Balice
----------------------------
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By:_____________________________
Title:__________________________
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By:_____________________________
Title:__________________________
LEHMAN COMMERCIAL PAPER, INC.
By: /s/ Lisa Raggi
----------------------------
Title: Authorized Signatory
