FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
For Quarter Ended March 31, 1996 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: (847) 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 May 8, 1996, the registrant had outstanding 54,149,517 shares of
its $0.0001 par value Class A Common Stock (including 18,008,701 shares held
in trust for the benefit of the warrant holders) and 18,008,701 redeemable
exchangeable warrants to obtain Class A Common Stock.
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PAGE
PART I. FINANCIAL INFORMATION NUMBERS
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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 - 10
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 11 - 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS,
MARCH 31, 1996 AND SEPTEMBER 30, 1995
- ------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1996 1995
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ASSETS (In millions)
CURRENT ASSETS:
Cash and equivalents $ 19.8 $ 32.5
Trade receivables (less allowances of
$6.0 million and $6.5 million, respectively) 108.0 140.0
Inventories (Note 2) 83.6 73.1
Deferred income taxes 37.5 49.6
Other current assets 11.9 11.1
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Total current assets 260.8 306.3
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PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 1,042.5 1,013.9
Less accumulated depreciation 403.2 373.9
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Property - net 639.3 640.0
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OTHER ASSETS 38.1 41.7
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TOTAL $ 938.2 $ 988.0
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 10.8 $ 15.6
Trade payables 52.7 51.7
Accrued and other liabilities 63.4 82.6
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Total current liabilities 126.9 149.9
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LONG-TERM DEBT 627.7 671.5
OTHER LONG-TERM LIABILITIES 26.3 27.5
DEFERRED INCOME TAXES 25.8 25.9
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Class A common stock - par value, $.0001 per share;
authorized 125,000,000 shares; issued 54,166,547
shares and 54,124,530 shares, respectively, and
outstanding 54,138,575 shares and 54,077,527
shares, respectively - -
Capital in excess of par value 173.0 172.6
Retained deficit (37.0) (54.7)
Common stock in treasury - at cost; 27,972 shares
and 47,003 shares, respectively (0.2) (0.4)
Recognition of minimum pension liability (4.3) (4.3)
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Total stockholders' equity 131.5 113.2
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TOTAL $ 938.2 $ 988.0
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</TABLE>
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
MARCH 31, 1996 AND 1995 (In millions, except per share data)
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THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
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NET SALES $ 219.3 $ 256.3
COST OF GOODS SOLD 174.1 181.8
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GROSS MARGIN 45.2 74.5
SELLING AND ADMINISTRATIVE COSTS (24.0) (23.9)
----- -----
OPERATING EARNINGS 21.2 50.6
INTEREST EXPENSE - Net (19.3) (22.4)
OTHER INCOME - Net 0.1 -
----- -----
EARNINGS BEFORE TAXES 2.0 28.2
INCOME TAXES 0.8 0.7
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NET INCOME 1.2 $ 27.5
=====
RETAINED DEFICIT:
BEGINNING OF PERIOD (38.2)
-----
END OF PERIOD $ (37.0)
=====
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.02 $ 0.51
===== =====
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 55.1 55.1
===== =====
</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 INCOME FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1995 (In millions, except per share data)
- -----------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31,
---------------------------
1996 1995
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NET SALES $ 473.1 $ 497.5
COST OF GOODS SOLD 353.1 365.9
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GROSS MARGIN 120.0 131.6
SELLING AND ADMINISTRATIVE COSTS (46.5) (47.9)
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OPERATING EARNINGS 73.5 83.7
INTEREST EXPENSE - Net (39.1) (43.2)
OTHER INCOME (EXPENSE) - Net 0.2 (0.2)
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EARNINGS BEFORE TAXES AND
EXTRAORDINARY ITEM 34.6 40.3
INCOME TAXES 14.3 1.0
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EARNINGS BEFORE EXTRAORDINARY ITEM 20.3 39.3
EXTRAORDINARY LOSS (Note 3) (2.6) -
----- -----
NET INCOME 17.7 $ 39.3
=====
RETAINED DEFICIT:
BEGINNING OF PERIOD (54.7)
-----
END OF PERIOD $ (37.0)
=====
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
EARNINGS BEFORE EXTRAORDINARY ITEM $ 0.37 $ 0.72
EXTRAORDINARY LOSS (Note 3) (0.05) -
----- -----
NET INCOME $ 0.32 $ 0.72
===== =====
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 55.1 55.0
===== =====
</TABLE>
See notes to condensed consolidated financial statements.
3
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1995
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SIX MONTHS ENDED MARCH 31,
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1996 1995
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(In millions)
CASH FLOWS FROM OPERATIONS:
Earnings before extraordinary item $ 20.3 $ 39.3
Adjustments to reconcile earnings before
extraordinary item to net cash from operating
activities:
Depreciation and amortization 32.7 31.6
Non-cash interest expense 24.5 22.6
Deferred income taxes 13.1 -
Change in current assets and liabilities,
excluding acquisitions and dispositions 4.5 (30.9)
Other - net (2.2) (2.6)
---- ----
Net cash provided by operations 92.9 60.0
---- ----
CASH FLOWS FROM INVESTMENTS:
Capital expenditures (29.4) (27.3)
Capitalized interest (0.3) (0.6)
Other investments - net (0.1) (0.3)
---- ----
Net cash used for investments (29.8) (28.2)
---- ----
CASH FLOWS FROM FINANCING:
Senior debt - repayments (9.3) (21.7)
Early retirement of debt (Note 3) (66.8) -
Other financing - net 0.3 0.8
---- ----
Net cash used for financing (75.8) (20.9)
---- ----
Net (decrease) increase in cash and equivalents (12.7) 10.9
Cash and equivalents, beginning of period 32.5 17.4
---- ----
Cash and equivalents, end of period $ 19.8 $ 28.3
==== ====
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 15.9 $ 18.5
==== ====
Income taxes $ 1.6 $ 0.6
==== ====
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Write-off of deferred financing fees $ 1.4 $ -
==== ====
Property additions $ - $ 43.4
==== ====
Increase in total debt $ - $ 43.4
==== ====
</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
- ----------------------------------------------------
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 March 31, 1996 and the results of operations for the three months and
six months ended March 31, 1996 and 1995 and cash flows for the six months
ended March 31, 1996 and 1995, including all the accounts of Gaylord
Container Corporation (including its subsidiaries, the Company), and are in
conformity with Securities and Exchange Commission Rule 10-01 of Regulation
S-X. Certain amounts in the statement of cash flows for fiscal 1995 have
been reclassified to conform with the current-year presentation. 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, 1995.
2. INVENTORIES
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MARCH 31, SEPTEMBER 30,
1996 1995
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(In millions)
Inventories consist of:
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Finished products $19.1 $17.4
In process 41.9 34.8
Raw materials 13.4 15.1
Supplies 14.9 15.8
---- ----
Total 89.3 83.1
LIFO valuation adjustment (5.7) (10.0)
---- ----
Total $83.6 $73.1
==== ====
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3. EXTRAORDINARY ITEM
------------------
During the first quarter of fiscal 1996, the Company purchased and retired
$65.3 million principal amount of its publicly traded debt securities. In
conjunction with the purchase, $1.4 million of deferred financing fees were
written off. These transactions resulted in an extraordinary loss of $2.6
million, net of an income tax benefit of $1.8 million.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Second Quarter of Fiscal 1996 Compared with Second Quarter of Fiscal 1995.
Net sales for the second quarter of fiscal 1996 were $219.3 million, a
decrease of approximately 14 percent compared with net sales of $256.3
million for the second quarter of fiscal 1995. Operating earnings for the
current quarter were $21.2 million compared with $50.6 million for the
year-ago quarter. Net income for the current quarter totaled $1.2 million,
or $0.02 per share, compared with $27.5 million, or $0.51 per share, for the
year-ago quarter.
Sales and earnings in the second quarter of fiscal 1996 were adversely
affected by lower average selling prices for the Company's products, which
decreased operating earnings by approximately $24 million compared with the
second quarter of fiscal 1995. Average selling prices for the Company's
domestic linerboard, export linerboard and corrugated products decreased
approximately 12 percent, 21 percent and 3 percent, respectively, in the
second quarter of fiscal 1996 compared with the prior-year quarter. Average
selling prices for the Company's unbleached kraft paper and grocery bags and
sacks decreased approximately 14 percent and 20 percent, respectively, while
average selling prices for the Company's multiwall bags increased
approximately 2 percent in the current quarter compared with the prior-year
quarter.
Sales and earnings in the second quarter of fiscal 1996 were also adversely
affected by lower mill production and incremental fixed operating costs
associated with capital investments to expand capacity in the Company's
converting operations. These factors decreased operating earnings by
approximately $19 million.
Quarter-over-quarter, total mill production decreased approximately 13
percent to 3,599 tons per day (TPD, calculated on the basis of the number of
days in the period) from 4,151 TPD. Containerboard production in the second
quarter of fiscal 1996 of 3,014 TPD decreased approximately 11 percent from
3,376 TPD in the prior-year quarter. Unbleached kraft paper production in
the current quarter decreased approximately 25 percent to 585 TPD from 775
TPD in the prior-year quarter. The decline in mill production was primarily
due to down time taken at the Bogalusa, Louisiana and Antioch, California
mills because of market conditions (approximately 57 thousand tons).
Corrugated shipments totaled 3.0 billion square feet in the second quarter
of fiscal 1996, virtually unchanged from the year-ago quarter. While
corrugated container plant shipments were down versus the year-ago quarter,
the decline was offset by an increase in corrugated sheet feeder plant
shipments primarily due to the opening of one new plant and the addition of
a second corrugator at another. Multiwall bag shipments of 12.0 thousand
tons in the current quarter decreased approximately 16 percent compared with
shipments in the second quarter of fiscal 1995 of 14.3 thousand tons.
Grocery bag and sack shipments increased approximately 14 percent to 27.6
thousand tons from shipments of 24.3 thousand tons in the year-ago quarter.
The quarter-over-quarter gain was due to an approximately 77 percent
increase in shipments of the Gaylord Handle-Bag R compared with the
prior-year quarter. Demand for and shipments of standard grocery sacks,
6
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however, continued to decline as a result of greater displacement by plastic
bags.
Gross margin as a percentage of net sales for the second quarter of fiscal
1996 decreased to 20.6 percent from 29.1 percent in the prior-year quarter
primarily due to lower selling prices for the Company's products and lower
containerboard and unbleached kraft paper shipments, partially offset by
lower fiber costs (primarily the cost of old corrugated containers (OCC)).
Lower fiber costs increased operating earnings by approximately $15 million.
The Company's average delivered cost of OCC decreased approximately 45
percent in the second quarter of fiscal 1996 compared with the year-ago
quarter. In addition, operating earnings in the second quarter of fiscal
1996 were favorably affected by the settlement of a water rights dispute at
the Antioch mill totaling approximately $2.9 million. Selling and
administrative costs of $24.0 million for the current quarter were
essentially unchanged from the prior-year quarter.
Net interest expense declined from the prior-year quarter by $3.1 million to
$19.3 million in the second quarter of fiscal 1996 primarily due to lower
average debt levels resulting from the Company's debt reduction efforts.
This was partially offset by accretion of the discount on subordinated debt
of $12.4 million, which was $0.9 higher than the prior-year quarter.
In the second quarter of fiscal 1996, the Company recorded a tax provision
of $0.8 million which corresponds to an effective tax rate of approximately
41 percent. In the second quarter of fiscal 1995, the Company recorded a
current tax provision of $0.7 million, an effective rate of 2.5 percent, due
to the application of net operating loss carryforwards.
First Six Months of Fiscal 1996 Compared with First Six Months of Fiscal
1995
Net sales for the first six months of fiscal 1996 were $473.1 million, a
decrease of approximately 5 percent from net sales of $497.5 million for the
first six months of fiscal 1995. Operating earnings for the current period
were $73.5 million compared with $83.7 million for the year-ago period,
which represents a decrease of approximately 12 percent. Earnings before
extraordinary item for the first six months of fiscal 1996 were $20.3
million, or $0.37 per share. Including a $2.6 million extraordinary loss
($0.05 per share) on the early retirement of debt, net income for the
current period totaled $17.7 million, or $0.32 per share, versus $39.3
million, or $0.72 per share, for the year-ago period.
Sales and earnings in the first six months of fiscal 1996 benefited from
slightly higher average selling prices for certain of the Company's
products, which increased operating earnings by approximately $4 million.
Average selling prices for the Company's corrugated products increased
approximately 6 percent while average selling prices for domestic linerboard
and export linerboard decreased approximately 1 percent and 6 percent,
respectively, versus the comparable prior-year period. Average selling
prices for the Company's multiwall bags increased approximately 7 percent
while average selling prices for unbleached kraft paper and grocery bags and
sacks decreased approximately 5 percent and 3 percent, respectively, in the
first six months of fiscal 1996 compared with the year-ago period.
7
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Sales and earnings in the first six months of fiscal 1996 were adversely
affected by lower mill and converted product shipments, which decreased
operating earnings by approximately $39 million compared with the year-ago
period. Total mill production decreased approximately 7 percent in the
first six months of fiscal 1996 to 3,751 TPD compared to 4,034 TPD in the
year-ago period.
Containerboard production in the first six months of fiscal 1996 of 3,080
TPD decreased approximately 5 percent from 3,247 TPD in the year-ago period.
Unbleached kraft paper production in the current period decreased
approximately 15 percent to 671 TPD from 787 TPD in the year-ago period.
These decreases are primarily the result of approximately 74 thousand tons
of market-related down time taken at the Bogalusa and Antioch mills.
Corrugated shipments of approximately 6.1 billion square feet were down
approximately 2 percent in the first six months of fiscal 1996 compared with
6.2 billion square feet shipped in the year-ago period. Multiwall bag
shipments of 24.6 thousand tons decreased approximately 12 percent compared
with the year-ago period's shipments of 28.0 thousand tons. Grocery bag and
sack shipments of 56.4 thousand tons were unchanged compared with the
year-ago period. An increase of approximately 53 percent in shipments of
Gaylord Handle-Bags was offset by lower shipments of standard grocery bags
and sacks.
Gross margin as a percentage of net sales for the first six months of fiscal
1996 decreased to 25.4 percent from 26.5 percent in the year-ago period.
The decrease in margin was primarily due to lower volume, partially offset
by decreased fiber costs. Lower fiber costs increased operating earnings by
approximately $24 million in the first six months of fiscal 1996 versus the
prior-year period. The Company's average delivered cost of OCC decreased
approximately 36 percent in the first six months of fiscal 1996 compared
with the year-ago period. Selling and administrative costs of $46.5 million
for the first six months of fiscal 1996 were $1.4 million lower than the
year-ago period, primarily due to a decrease in incentive compensation.
Net interest expense decreased from the prior-year period by $4.1 million to
$39.1 million in the first six months of fiscal 1996 primarily due to lower
average debt levels partially offset by accretion of the discount on
subordinated debt of $24.5 million, which was $1.9 million higher than the
prior-year period.
In the first six months of fiscal 1996, the Company recorded a tax provision
of $14.3 million which corresponds to an effective tax rate of approximately
41 percent. In the first six months of fiscal 1995, the Company recorded a
current tax provision of $1.0 million, an effective rate of 2.5 percent, due
to the application of net operating loss carryforwards.
During the first six months of fiscal 1996, the Company purchased and
retired $65.3 million principal amount of its publicly traded debt
securities. In conjunction with the purchase, $1.4 million of deferred
financing fees were written off. These transactions resulted in an
extraordinary loss of $2.6 million, net of an income tax benefit of $1.8
million.
8
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LIQUIDITY AND CAPITAL RESOURCES
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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 six months of fiscal 1996 was
$92.9 million, compared with $60.0 million a year ago. The favorable
comparison to the prior-year period was primarily due to a reduced
investment in working capital.
Capital expenditures of $29.4 million in the first six months of fiscal 1996
increased by $2.1 million from $27.3 million in the first six months of
fiscal 1995. In the first six months of fiscal 1995, the Company also
purchased $43.4 million of equipment financed by capital leases and debt
obligations secured by the assets acquired.
At the end of fiscal 1992, the Company determined it would be unlikely that
its Antioch, California virgin fiber mill (the East Mill), which was closed
in fiscal 1991, could be sold as a mill site or that the East Mill, or some
portion thereof, could be operated economically by the Company. The Company
believed, and continues to believe, that the most likely outcome will be the
sale of individual assets and the subsequent demolition of the remaining
structures on the mill site. For the first six months of fiscal 1996, proceeds
from asset disposals exceeded East Mill related costs by approximately $1.3
million. Demolition of the remaining structures on the mill site will require
the Company to incur costs for asbestos removal. While some demolition and
asbestos removal has begun, the Company has deferred incurring substantial
expenditures for such activities until the final disposition of the
remaining mill assets has been determined. At March 31, 1996, balance sheet
valuation allowances for demolition and asbestos removal were approximately $4.0
million and $14.2 million, respectively, reducing the book value of the East
Mill to $0.1 million.
In fiscal 1994, the Company recognized non-recurring operating charges of
$15.5 million. These charges included (i) $9.9 million primarily for
equipment abandonments, asset write-downs, lease termination costs and other
costs related to the relocation of three of the Company's converting
facilities (ii) $3.5 million for costs associated with closure of a
corrugated container plant and (iii) $2.1 million for a loss on the sale and
costs associated with the disposition of a corrugated container plant. For
the first six months of fiscal 1996, the Company charged approximately $1.5
million of costs associated with the fiscal 1994 non-recurring operating
charges to balance sheet accruals. At March 31, 1996, the Company had
balance sheet accruals for such costs of $1.9 million (primarily lease
termination costs). In addition, the Company has remaining balance sheet
accruals of approximately $0.8 million for non-recurring operating charges
(primarily lease termination costs) recognized in previous years and
anticipates incurring such costs ratably over the next two years.
9
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Liquidity
At March 31, 1996, the Company had cash and equivalents of $19.8 million, a
decrease of $12.7 million from September 30, 1995, as cash used for
financing and investments (principally the early retirement of debt and
capital spending) exceeded cash provided by operations. Total debt
decreased by $48.6 million to $638.5 million at March 31, 1996 from $687.1
million at September 30, 1995. The decline in total debt was due to the
purchase and retirement of $65.3 million principal amount of the Company's
publicly traded debt securities, partially offset by accretion of the
Company's Senior Subordinated Discount Debentures due 2005 (the Subordinated
Discount Debentures). On May 15, 1996, the Subordinated Discount Debentures
will be fully accreted, and cash interest will begin to accrue from that
date. The first cash interest payment on these securities is payable in the
first quarter of fiscal 1997. This will result in a significant increase in
the Company's cash requirements. At March 31, 1996, the Company had no
borrowings and more than $230 million of credit available under the
revolving portions of its credit agreements. The Company has made debt
reduction a priority and will continue to evaluate the advisability of using
future excess cash flow to reduce debt.
Based upon April 1996 product prices and fiber costs, and management's
current volume estimates, the Company believes that cash provided by
operations will provide adequate liquidity to meet its debt service
obligations and other liquidity requirements over the next 12 to 24 months.
Further price erosion, higher fiber costs or less than anticipated product
shipments could require the Company to borrow under its credit agreements.
Continued access to the bank credit agreement could require modifications to
certain of the financial covenants in the agreement.
Pending Accounting Standard
Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" (FAS No. 123), which encourages entities to adopt a fair value
based method of accounting for compensation costs of employee stock
compensation plans, was issued October 1995. FAS No. 123 allows an entity
to continue the application of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
however, pro forma footnote disclosures of net income and earnings per
share, as if the fair value based method of accounting defined by this
statement had been applied, are required.
The Company will be required to adopt FAS No. 123 in fiscal 1997. The
Company has not decided whether it will adopt the fair value based method of
accounting for compensation costs of employee stock compensation plans or
the footnote disclosure requirements prescribed by FAS No. 123. Therefore,
the Company is unable to predict the impact the adoption of FAS No. 123 will
have on its financial position or results of operations.
10
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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 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, originally sought
unspecified damages under the Illinois Consumer Fraud and Deceptive
Practices Act and for common law fraud. On January 10, 1996, the
court dismissed both counts with prejudice, and plaintiff has
appealed. 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 are without merit, and the Company is
vigorously defending the judgment on appeal.
On October 18 and December 4, 1995, the Company, its directors and
certain of its officers were named in complaints which have been
consolidated in the Court of Chancery of the state of Delaware
alleging breach of fiduciary duties on two counts. The first count
is a putative class action and the second is an alleged derivative
claim brought on behalf of the Company against the individual
defendants. Both counts allege that the Company's stockholder
Rights Agreement, adopted on June 12, 1995, amendments to the
Company's charter and by-laws, adopted on July 21, 1995, and
redemption of Warrants in June 1995 all were designed to entrench
the individual defendants in their capacities as directors and
officers at the expense of stockholders who otherwise would have
been able to take advantage of a sale of the Company. The
complaint asks the court, among other things, to rescind the
amendments and prohibit the use of the stockholder Rights Agreement
to discourage any bona fide acquirer. In the alternative, the
plaintiffs seek compensatory damages. The Company believes the
allegations are without merit and is vigorously defending itself.
On October 23, 1995, a rail tank car accident occurred at the
Bogalusa, Louisiana plant of Gaylord Chemical Corporation, a wholly
owned subsidiary of the Company. The accident resulted in the
venting of nitrogen tetroxide, a raw material used by the plant to
produce dimethyl sulfoxide, a solvent used in the manufacture of
pharmaceutical and agricultural chemicals. 65 lawsuits have
been filed in both federal and state courts naming Gaylord Chemical
Corporation, the Company, certain of their respective officers and
other unrelated corporate and individual defendants. On April 1,
1996, the federal judge dismissed all but one of the federal
actions for failing to state claims under federal law and remanded
the remaining tort cases to the district court in Washington
11
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PART II. OTHER INFORMATION - CONTINUED
Item 1. Legal Proceedings (continued).
Parish, Louisiana. This ruling has not been appealed. The
dismissed federal cases may be re-asserted under state law theories
of recovery. The lawsuits, primarily purported class actions,
seek to assert claims based on, among other things, negligence and
strict liability. Compensatory and punitive damages are sought.
The Company and its subsidiary are vigorously contesting the
claims. The Company and its subsidiary maintain insurance and have
filed separate suits seeking a declaratory judgment of coverage
against their general liability and directors and officers
liability insurance carriers. The primary carrier under the
general liability policy has agreed to pay defense costs under a
reservation of rights. The declaratory action against the general
liability carriers was remanded to state court with the liability
cases. The declaratory action against the directors and officers
insurance carrier is pending in federal court but a motion to
remand this action to state court in Washington Parish is pending.
The Company believes the outcome of such litigation will not have a
material adverse effect on the Company's financial position,
results of operations or cash flows.
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, 1996, the Company held its annual meeting of
stockholders at which the following issues were put to a vote by
holders of the Company's common stock:
The Company's eight Class B Directors were re-elected by the following vote:
For Withheld
--- --------
John E. Goodenow 49,668,737 388,907
David B. Hawkins 49,670,487 387,157
John Hawkinson 49,665,828 391,816
Warren J. Hayford 49,669,426 388,218
Richard S. Levitt 49,670,826 386,818
Ralph L. MacDonald Jr. 49,670,937 386,707
Marvin A. Pomerantz 49,666,624 391,020
Thomas H. Stoner 49,669,937 387,707
The appointment of Deloitte & Touche LLP to continue to serve as the
Company's independent auditors in fiscal 1996 was ratified by a vote of
49,709,998 for; 234,923 against; 112,723 withheld.
12
<PAGE>
PART II. OTHER INFORMATION - CONCLUDED
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Number and Description of Exhibit
---------------------------------
a) 27.1(a) Financial Data Schedule
b) Not applicable.
- ------------------------------------------------------------------------
(a) Filed with this Quarterly Report.
(b) Incorporated by reference.
13
<PAGE>
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: May 8, 1996 /s/ Marvin A. Pomerantz
------------------------------------
Marvin A. Pomerantz
Chairman and Chief Executive Officer
Date: May 8, 1996 /s/ Jeffrey B. Park
------------------------------------
Jeffrey B. Park
Vice President-Controller
(Principal Accounting Officer)
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 19,800
<SECURITIES> 0
<RECEIVABLES> 108,000
<ALLOWANCES> 6,000
<INVENTORY> 83,600
<CURRENT-ASSETS> 260,800
<PP&E> 1,042,500
<DEPRECIATION> 403,200
<TOTAL-ASSETS> 938,200
<CURRENT-LIABILITIES> 126,900
<BONDS> 627,700
0
0
<COMMON> 173,000
<OTHER-SE> (41,500)
<TOTAL-LIABILITY-AND-EQUITY> 938,200
<SALES> 219,300
<TOTAL-REVENUES> 219,300
<CGS> 174,100
<TOTAL-COSTS> 198,100
<OTHER-EXPENSES> (100)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,300
<INCOME-PRETAX> 2,000
<INCOME-TAX> 800
<INCOME-CONTINUING> 1,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,200
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
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