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 December 31, 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 December 31, 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 February 3, 1995, the registrant had outstanding 48,581,310
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
NUMBERS
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements 1 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6 - 8
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings. 9
Item 2. Changes in Securities. 9
Item 3. Defaults Upon Senior Securities. 9
Item 4. Submission of Matters to a Vote of Security Holders. 9 - 10
Item 5. Other Information. 10
Item 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS,
DECEMBER 31, 1994 AND SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1994 1994
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ASSETS (In millions)
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CURRENT ASSETS:
Cash and equivalents $ 11.9 $ 17.4
Trade receivables (less allowances of
$5.1 million and $3.7 million, respectively) 130.4 121.8
Inventories (Note 2) 63.7 59.6
Other current assets 8.4 7.9
----- -----
Total current assets 214.4 206.7
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PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 955.0 917.4
Less accumulated depreciation 337.7 324.5
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Property - Net (Note 3) 617.3 592.9
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OTHER ASSETS 43.3 43.5
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TOTAL $ 875.0 $ 843.1
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 27.3 $ 14.5
Trade payables 55.0 58.6
Accrued and other liabilities 60.6 62.0
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Total current liabilities 142.9 135.1
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LONG-TERM DEBT (Note 5) 713.7 696.8
OTHER LONG-TERM LIABILITIES 25.6 30.7
DEFERRED INCOME TAXES 4.3 4.3
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Class A common stock - par value, $.0001 per share;
authorized 125,000,000 shares; issued 48,587,989
shares and 48,510,859 shares, respectively, and
outstanding 48,513,449 shares and 48,427,881
shares, respectively - -
Class B common stock - par value, $.0001 per share;
authorized 15,000,000 shares; issued and
outstanding 5,266,273 shares - -
Capital in excess of par value 170.9 170.5
Retained deficit (177.1) (188.9)
Common stock in treasury - at cost; 74,540 shares
and 82,978 shares, respectively (0.7) (0.8)
Recognition of minimum pension liability (4.6) (4.6)
----- -----
Total stockholders' equity (deficit) (11.5) (23.8)
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TOTAL $ 875.0 $ 843.1
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See notes to condensed consolidated financial statements.
1
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
DECEMBER 31, 1994 AND 1993 (In millions, except per share data)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1994 1993
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NET SALES $ 241.2 $ 183.9
COST OF GOODS SOLD 184.1 167.2
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GROSS MARGIN 57.1 16.7
SELLING AND ADMINISTRATIVE COSTS (24.0) (20.1)
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OPERATING EARNINGS (LOSS) 33.1 (3.4)
INTEREST EXPENSE - Net (20.8) (19.5)
OTHER EXPENSE - Net (0.2) (0.1)
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EARNINGS (LOSS) BEFORE TAXES 12.1 (23.0)
INCOME TAXES (Note 4) 0.3 -
----- -----
NET INCOME (LOSS) 11.8 $ (23.0)
=====
RETAINED DEFICIT:
BEGINNING OF PERIOD (188.9)
-----
END OF PERIOD $(177.1)
=====
NET EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.21 $ (0.43)
===== =====
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 54.9 53.5
===== =====
</TABLE>
See notes to condensed consolidated financial statements.
2
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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 THREE MONTHS ENDED
DECEMBER 31, 1994 AND 1993
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THREE MONTHS ENDED DECEMBER 31,
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1994 1993
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(In millions)
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CASH FLOWS FROM OPERATIONS:
Net income (loss) $ 11.8 $(23.0)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization 15.1 15.3
Non-cash interest expense 11.1 9.8
Change in current assets and liabilities,
excluding acquisitions and dispositions (22.8) (15.9)
Other - net (0.3) 0.7
---- ----
Net cash provided by (used for) operations 14.9 (13.1)
---- ----
CASH FLOWS FROM INVESTMENTS:
Capital expenditures (16.1) (5.1)
Capitalized interest (0.4) (0.1)
Other investments - net (0.9) 2.0
---- ----
Net cash used for investments (17.4) (3.2)
---- ----
CASH FLOWS FROM FINANCING:
Senior debt - repayments (3.4) (1.3)
Other financing - net 0.4 (0.2)
---- ----
Net cash used for financing (3.0) (1.5)
---- ----
Net decrease in cash and equivalents (5.5) (17.8)
Cash and equivalents, beginning of period 17.4 27.6
---- ----
Cash and equivalents, end of period $ 11.9 $ 9.8
==== ====
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest expense $ 15.7 $ 14.9
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES (Note 3):
Property additions $ 22.0 $ -
Increase in total debt $ 22.0 $ -
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See notes to condensed consolidated financial statements.
3
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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 December 31, 1994 and the results of operations and cash flows for the
three months ended December 31, 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. 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, 1994.
On October 1, 1994, the Company adopted Financial Accounting Standard No.
112, "Employers' Accounting for Postemployment Benefits" (FAS 112). In
general, the Company does not provide post-employment benefits to its
employees; however, in certain limited circumstances the Company could be
liable for post-employment benefits. The Company believes the occurrence of
such circumstances is not probable and therefore, pursuant to the provisions
of FAS 112, the Company did not recognize a liability for post-employment
benefits.
2. INVENTORIES
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DECEMBER 31, SEPTEMBER 30,
1994 1994
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(In millions)
Inventories consist of:
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Finished products $14.7 $13.0
In process 38.4 38.7
Raw materials 11.2 8.6
Supplies 9.9 9.6
---- ----
Total 74.2 69.9
LIFO valuation adjustment (10.5) (10.3)
---- ----
Total $63.7 $59.6
==== ====
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3. PROPERTY - NET
--------------
Property additions in the first quarter of fiscal 1995 totaled $38.5 million.
The Company financed $22.0 million of such additions through capital leases
and debt obligations secured by those assets.
4. INCOME TAXES
------------
In general, the Company has regular and Alternative Minimum Tax (AMT)
operating loss carryforwards that exceed its projected earnings for fiscal
1995. The Company recorded a current tax provision of $0.3 million
(primarily for AMT) in the first quarter of Fiscal 1995 because Internal
Revenue Service regulations limit the use of AMT operating loss carryforwards
to 90 percent of the AMT.
4
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
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5. SUBSEQUENT EVENT
----------------
On February 8, 1995, the Company prepaid $10.0 million under the term loan
portion of its bank credit agreement. The prepayment will reduce future
quarterly amortization payments by approximately $0.9 million.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
---------------------
First Quarter of Fiscal 1995 Compared with First Quarter of Fiscal 1994.
Net sales for the first quarter of fiscal 1995 were a record $241.2 million,
an increase of approximately 31 percent compared with net sales of $183.9
million for the first quarter of fiscal 1994. Operating earnings for the
quarter were $33.1 million compared with an operating loss of $3.4 million
for the year-ago quarter. Net income was $11.8 million for the current
quarter, or $0.21 per share, versus a net loss of $23.0 million, or $0.43
per share, in the first quarter of fiscal 1994.
Sales and earnings in the first quarter of fiscal 1995 benefited from
significantly higher average selling prices for substantially all of the
Company's products as compared to the prior-year quarter. Operating
earnings increased by approximately $50 million compared with the prior-year
quarter due to higher average selling prices for linerboard, unbleached
kraft paper, corrugated products and grocery bags and sacks.
During fiscal 1994, the Company implemented linerboard price increases
totaling $95 per ton with corresponding increases for corrugated products.
The Company implemented a $40 per ton price increase for linerboard and
corresponding price increases for corrugated products during the first
quarter of fiscal 1995. Average selling prices for the Company's domestic
linerboard, export linerboard and corrugated products increased
approximately 38 percent, 60 percent and 21 percent, respectively, in the
first quarter of fiscal 1995 compared with the prior-year quarter. Average
selling prices for the Company's unbleached kraft paper and grocery bags and
sacks in the first quarter of fiscal 1995 increased approximately 30 percent
and 51 percent, respectively, compared with the year-ago period. The price
increases were realized due to low industry inventories and strong domestic
and export demand. Average selling prices for multiwall bags were
relatively flat quarter-over-quarter.
Earnings for the first quarter of fiscal 1995 also benefited from the
elimination of fixed costs for corrugated container plants either sold or
closed in fiscal 1994 and increased unbleached kraft paper production.
Increased volume and the elimination of such costs had a positive effect on
operating earnings of approximately $7 million. Despite down time taken to
install an extended nip press on a linerboard machine at the Company's
Bogalusa, Louisiana mill, linerboard production of 3,116 tons per day (TPD,
calculated on the basis of the number of days in the period) was essentially
unchanged from 3,138 TPD in the prior-year quarter. Unbleached kraft paper
production increased approximately 13 percent to 800 TPD from 711 TPD in the
first quarter of fiscal 1994. In total, mill production increased
approximately 2 percent quarter-over-quarter.
Corrugated shipments of approximately 3.2 billion square feet were unchanged
when compared to the prior-year quarter; however, the year-ago period
included shipments from two corrugated container plants which were
subsequently sold or closed. Adjusting for the plant closures, corrugated
shipments increased approximately 9 percent in the current quarter.
Multiwall bag shipments of 13.7 thousand tons increased approximately 13
percent when compared with the year-ago quarter's shipments of 12.1 thousand
tons. Grocery bag and sack shipments decreased to 32.1 thousand tons versus
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shipments of 33.8 thousand tons in the year-ago quarter. This decline was
primarily due to the consolidation of two grocery bag and sack plants in
the first quarter of fiscal 1994.
Gross margin as a percentage of net sales for the first quarter of fiscal
1995 increased to 23.7 percent from 9.1 percent in the prior-year quarter.
The margin improvement, primarily due to significantly higher selling prices
for substantially all of the Company's products, was partially offset by
increased fiber costs (primarily the cost of old corrugated containers
(OCC)) which adversely affected operating earnings by approximately $12
million. The Company's average delivered cost of OCC increased
approximately 98 percent in the first quarter of fiscal 1995 compared with
the year-ago quarter. Selling and administrative costs of $24.0 million for
the first quarter of fiscal 1995 were $3.9 million higher than the
prior-year quarter primarily as a result of increased incentive compensation
costs related to improved profitability and general inflation of other costs
in the current quarter.
Net interest expense increased from the prior-year quarter by $1.3 million
to $20.8 million in the first quarter of fiscal 1995 due to accretion of the
discount on subordinated debt issued in May 1993.
In general, the Company has regular and Alternative Minimum Tax (AMT)
operating loss carryforwards that exceed its projected earnings for fiscal
1995. The Company recorded a current tax provision of $0.3 million
(primarily for AMT) in the first quarter of Fiscal 1995 because Internal
Revenue Service regulations limit the use of AMT operating loss carryforwards
to 90 percent of the AMT.
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 provided by operations for the first quarter of fiscal 1995 was
$14.9 million, compared with cash used by operations of $13.1 million a year
ago. The favorable comparison to the prior-year quarter was primarily due
to significantly higher selling prices for substantially all of the
Company's products.
Capital expenditures of $16.1 million in the first quarter of fiscal 1995
increased $11.0 million from $5.1 million in the first quarter of fiscal
1994. In addition to the $16.1 million of capital spending, the Company
acquired $22.0 million of equipment financed by capital leases and debt
obligations secured by those assets. In fiscal 1994, the Company initiated
a five-year capital plan that provides for a total investment of
approximately $250 million. The plan targets approximately 60 percent of
the spending to enhance the capacity, flexibility and cost effectiveness of
the Company's converting facilities with the remainder to be invested at the
mills. The Company has the ability to adjust the timing of certain capital
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projects depending upon industry conditions. If industry conditions
continue to improve as anticipated, the Company may accelerate certain
capital projects. The Company plans to finance the remainder of the
five-year capital plan primarily with cash provided by operations. In
addition, certain capital assets acquired will be leased or financed by debt
obligations secured by those assets, or by borrowings under the Company's
credit agreements.
Liquidity
At December 31, 1994, the Company had cash and equivalents of $11.9 million,
a decrease of $5.5 million from September 30, 1994 as cash used for
investments and financing exceeded cash provided by operations. Total debt
increased by $29.7 million to $741.0 million at December 31, 1994 from
$711.3 million at September 30, 1994. The increase in total debt was due to
debt incurred in connection with the capital plan described above and
accretion of the discount on subordinated debt issued in May 1993. At
December 31, 1994, the Company had no amounts outstanding and approximately
$127 million of credit available under the revolving portion of its credit
agreements. The Company has made de-leveraging its balance sheet a
priority. As a result, subsequent to the end of the first quarter of fiscal
1995, the Company prepaid $10.0 million under the term loan portion of its
bank credit agreement. If industry conditions continue to improve as
anticipated, the Company intends to use future excess cash flow to prepay
additional debt.
During fiscal 1994, the Company implemented linerboard price increases
totaling $95 per ton with corresponding increases for corrugated products.
In the first quarter of fiscal 1995, the Company implemented a $40 per
ton increase in linerboard prices and a corresponding price increase for
corrugated products. Effective January 2, 1995, the Company increased
linerboard and unbleached kraft paper prices an additional $50 per ton and
is implementing corresponding increases for converted products. While the
current pricing environment is expected to continue due to favorable
industry conditions, including low inventories, strong demand for primary
and converted products and a strong export market, there can be no assurance
that any future price increases will be realized. The effect of higher
product prices has been partially offset by increased fiber costs,
particularly the price of OCC, which began to escalate in January 1994. The
secondary fiber markets continue to be volatile. After a decline in these
markets during the fall of 1994, prices are now escalating and may exceed
previous highs.
Based upon January 1995 product prices and fiber costs, the Company believes
that cash provided by operations and borrowings available under its credit
agreements will provide adequate liquidity to meet its debt service
obligations and other liquidity requirements over the next 12 to 24 months.
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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, except as
described below:
The Company and certain of its officers and directors have been
named in a civil suit filed in May 1994 in Cook County (Illinois)
Circuit Court alleging that they omitted or misrepresented facts
about the Company's operations in connection with the Company's
initial public offering of stock in 1988 and in certain periodic
reports. The complaint, a purported class action under the
Illinois Consumer Fraud and Deceptive Practices Act and common law
fraud, seeks unspecified damages. A similar lawsuit, based on the
same factual allegations, but alleging violations of Federal
securities laws and filed in the United States District Court for
the Northern District of Illinois, was voluntarily dismissed by the
same plaintiff in July 1993. The Company believes that, after
investigation of the facts, the allegations in the complaint are
without merit, and the Company is vigorously defending itself and
its officers and directors. 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.
On February 8, 1995, the Company held its annual meeting of
stockholders at which the following issues were put to a vote by
the Company's Class A and Class B stockholders voting together as a
single class and entitled to 1 vote per share and 10 votes per
share, respectively:
The Company's Class B Directors were elected by the following vote:
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For Withheld
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John E. Goodenow 97,490,571 132,356
David B. Hawkins 97,490,571 132,356
John Hawkinson 97,484,571 138,356
Warren J. Hayford 97,489,571 133,356
Richard S. Levitt 97,490,571 132,356
Ralph L. MacDonald Jr. 97,490,571 132,356
Marvin A. Pomerantz 97,489,771 133,156
Thomas H. Stoner 97,490,571 132,356
</TABLE>
9
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PART II. OTHER INFORMATION - CONTINUED
The increase in the number of shares of the Company's Class A
Common Stock available under the Gaylord Container Corporation 1989
Long-Term Incentive Plan was approved by a vote of 91,980,506 for;
5,554,513 against; 87,908 withheld.
The appointment of Deloitte & Touche LLP to continue to serve as
the Company's independent auditors in fiscal 1995 was ratified by a
vote of 97,491,691 for; 87,591 against; 43,645 withheld.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Not applicable.
b) Not applicable.
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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: February 9, 1995 /s/ Marvin A. Pomerantz
-----------------------------
Marvin A. Pomerantz
Chairman and Chief Executive Officer
Date: February 9, 1995 /s/ Jeffrey B. Park
------------------------------
Jeffrey B. Park
Vice President-Controller
(Principal Accounting Officer)
11
