<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 15, 1996
CARAUSTAR INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
North Carolina 0-20646 58-1388387
- ---------------------------- ------------------------ ----------------------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
</TABLE>
3100 Washington Street
Austell, Georgia 30001
-----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(770) 948-3101
-----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
----------------------------------------------------------
(Former name or address, if changed from last report)
<PAGE> 2
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
Filed herewith are the financial statements and pro forma financial
information required to be filed by Item 7 of Form 8-K in connection with the
Company's entry into a joint venture with Tenneco Packaging Inc. ("TPI"), a
wholly-owned subsidiary of Tenneco, Inc., pursuant to a Contribution Agreement
and a Partnership Agreement dated as of June 21, 1996 by and between the
Company and TPI, as reported in the Current Report on Form 8-K filed with the
Commission on July 29, 1996 to which this Amendment No. 1 relates.
(a) Combined Financial Statements of the Paperboard Mill Group
of TPI:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
COMBINED STATEMENTS OF ASSETS, LIABILITIES AND
INTERDIVISION ACCOUNT
As of December 31, 1995 and 1994
COMBINED STATEMENTS OF REVENUES, EXPENSES AND
INTERDIVISION ACCOUNT
For the Years Ended December 31, 1995 and 1994
COMBINED STATEMENTS OF CASH FLOWS
For the years Ended December 31, 1995 and 1994
NOTES TO COMBINED FINANCIAL STATEMENTS
(b) Combined Financial Statements of Paperboard Mill Group of TPI
COMBINED STATEMENTS OF ASSETS, LIABILITIES AND INTERDIVISION ACCOUNT
as of June 30, 1996 (unaudited) and December 31, 1995
COMBINED STATEMENTS OF REVENUES, EXPENSES, AND INTERDIVISION ACCOUNT
For the six months ended June 30, 1996 (unaudited) and the
year ended December 31, 1995
COMBINED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996 (unaudited) and the
year ended December 31, 1995
(c) Pro Forma Condensed Consolidated Financial Statements:
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 1996 (unaudited)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1995 (Unaudited)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 30, 1996 (Unaudited)
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(d) Exhibits
Exhibit 23.1 Consent of Arthur Andersen LLP
-2-
<PAGE> 3
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 hereunto duly authorized.
Date: September 20, 1996
CARAUSTAR INDUSTRIES, INC.
By: /s/ H. Lee Thrash, III
------------------------------------------
H. Lee Thrash, III
Vice President and Chief Financial Officer
-3-
<PAGE> 4
PAPERBOARD MILL GROUP,
A DIVISION OF TENNECO PACKAGING INC.
(FORMERLY PACKAGING CORPORATION OF AMERICA AND SUBSIDIARIES)
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Tenneco Packaging Inc.:
We have audited the accompanying combined statements of assets, liabilities and
interdivision account of PAPERBOARD MILL GROUP (a division of Tenneco Packaging
Inc., which is a Delaware corporation and a wholly owned subsidiary of Tenneco
Inc.) (the "Group") as of December 31, 1995 and 1994, and the related combined
statements of revenues, expenses and interdivision account and cash flows for
each of the two years in the period ended December 31, 1995. These combined
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Paperboard Mill
Group as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN, LLP
Chicago, Illinois
August 12, 1996
<PAGE> 6
PAPERBOARD MILL GROUP
A DIVISION OF TENNECO PACKAGING INC.
(FORMERLY PACKAGING CORPORATION OF AMERICA AND SUBSIDIARIES)
COMBINED STATEMENTS OF ASSETS, LIABILITIES AND
INTERDIVISION ACCOUNT
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ---------------------------------------------------- ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 23,300 $ 18,850
Accounts receivable (net of allowance for doubtful
accounts of approximately $134,000 in 1995 and
$144,000 in 1994) 413,171 473,731
Inventories, net 7,751,087 8,272,882
Prepaid expenses 240,394 7,304
------------ ------------
Total current assets 8,427,952 8,772,767
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 15,284,701 14,386,628
Machinery and equipment 78,964,361 66,591,333
Construction in progress 5,036,016 8,292,996
Less - Reserves for depreciation (52,481,922) (48,312,527)
------------ ------------
Property, plant and equipment, net 46,803,156 40,958,430
------------ ------------
PREPAID PENSION ASSET 5,563,706 2,472,356
------------ ------------
$ 60,794,814 $ 52,203,553
============ ============
LIABILITIES AND INTERDIVISION ACCOUNT
- ----------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 6,145,604 $ 7,090,967
Other accrued liabilities 3,181,279 3,567,841
------------ ------------
Total current liabilities 9,326,883 10,658,808
OTHER LONG-TERM LIABILITIES 4,669,697 4,404,760
INTERDIVISION ACCOUNT 46,798,234 37,139,985
------------ ------------
$ 60,794,814 $ 52,203,553
============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE> 7
PAPERBOARD MILL GROUP
A DIVISION OF TENNECO PACKAGING INC.
(FORMERLY PACKAGING CORPORATION OF AMERICA AND SUBSIDIARIES)
COMBINED STATEMENTS OF REVENUES, EXPENSES AND
INTERDIVISION ACCOUNT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
NET SALES $165,211,516 $132,084,582
COST OF SALES 146,394,562 110,910,612
------------ ------------
Gross profit 18,816,954 21,173,970
SELLING AND ADMINISTRATIVE EXPENSES 7,142,495 6,460,187
OTHER EXPENSES, net 60,071 683,930
------------ ------------
Income excluding taxes and interest 11,614,388 14,029,853
INTERDIVISION ACCOUNT, beginning of period 37,139,985 33,995,748
INTERDIVISION ACCOUNT ACTIVITY, net (1,956,139) (10,885,616)
------------ ------------
INTERDIVISION ACCOUNT, end of period $ 46,798,234 $ 37,139,985
============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE> 8
PAPERBOARD MILL GROUP
A DIVISION OF TENNECO PACKAGING INC.
(FORMERLY PACKAGING CORPORATION OF AMERICA AND SUBSIDIARIES)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income excluding taxes and interest $ 11,614,388 $ 14,029,853
------------ ------------
Adjustments to reconcile income excluding taxes
and interest to net cash provided by operating activities-
Depreciation and amortization 6,334,771 5,293,982
Loss on disposal of property, plant and equipment 333,358 0
Cash effect of-
(Increase) decrease in receivables 2,694,412 (2,254,075)
(Increase) decrease in inventories 521,795 (2,599,517)
(Increase) decrease in other assets (3,324,440) 580,235
Increase (decrease) in accounts payable (945,363) 2,639,965
Increase (decrease) in other liabilities (121,625) 1,168,580
------------ ------------
Net cash provided by operating activities 17,107,296 18,859,023
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,621,629) (9,765,173)
Proceeds from sale of property, plant and equipment 108,774 0
------------ ------------
Net cash used in investing activities (12,512,855) (9,765,173)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in factored receivables (2,633,852) 1,794,766
Decrease in interdivision account (1,956,139) (10,885,616)
------------ ------------
Net cash used in financing activities (4,589,991) (9,090,850)
------------ ------------
NET CHANGE IN CASH 4,450 3,000
CASH, beginning of year 18,850 15,850
------------ ------------
CASH, end of year $ 23,300 $ 18,850
============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
<PAGE> 9
PAPERBOARD MILL GROUP
A DIVISION OF TENNECO PACKAGING INC.
(FORMERLY PACKAGING CORPORATION OF AMERICA AND SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. BUSINESS DESCRIPTION
The Paperboard Mill Group (the "Group") is a division of Tenneco Packaging
Inc. ("Packaging") which is, in turn, a subsidiary of Tenneco Inc.
("Tenneco"). The Group manufactures, markets and distributes recycled
paperboard. Its products are sold primarily in North America to a wide
variety of customers that serve both national and local markets. The
Group's sales to other Packaging plants account for 25% and 20% of net sales
for the years ended December 31, 1995 and 1994, respectively.
The Group consists of two mills, located in Rittman, Ohio, and Tama, Iowa,
along with a recycling center located in Cleveland, Ohio, and a recycled
paperboard brokerage business located at the Rittman, Ohio, mill.
As a result of the Group's relationship with Packaging, the combined
statements of assets, liabilities and interdivision account and revenues,
expenses and interdivision account are not necessarily indicative of what
actually would have occurred had the Group been a stand-alone entity.
Additionally, these financial statements are not necessarily indicative of
the future financial position or results of operations of the Group.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the assets, selected
liabilities, revenues and operating expenses of the Group. As discussed
further in Note 2 below, certain liabilities and expenses, including
interest and income taxes, are maintained and accounted for by Packaging and
are not allocated to the Group. All significant intragroup accounts and
transactions have been eliminated.
ACCOUNTS RECEIVABLE
A substantial portion of the Group's trade accounts receivable are sold by
Packaging, generally with recourse, to Tenneco Credit Corporation, a Tenneco
subsidiary. Expenses relating to cash discounts, credit losses, pricing
adjustments and other allowances on these factored receivables are accrued
by and charged to the Group. The discount on the sale of receivables is not
allocated by Packaging to the Group. The amount of trade accounts
receivable sold was approximately $6,197,000 and $8,830,000 at December 31,
1995 and 1994, respectively.
<PAGE> 10
-2-
INVENTORIES
Inventories for raw materials and finished goods are valued using the
last-in, first-out (LIFO) cost method and include material, labor and
manufacturing-related overhead costs. Supplies and spare parts inventories
are valued using a moving average cost. All inventories are stated at the
lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Interest costs relating
to construction in progress are capitalized based upon the total amount of
interest cost (including interest costs on notes payable to Tenneco)
incurred by Packaging.
The amount of interest capitalized related to construction in progress at
the Group was $85,959 and $17,536 for the years ended December 31, 1995 and
1994, respectively. As discussed below, debt and interest expense incurred
by Packaging are not allocated to the Group.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the related assets. The following useful lives are used for
the various categories of assets:
<TABLE>
<S> <C>
Buildings and land improvements 10 to 40 years
Machinery and equipment 3 to 25 years
Trucks and automobiles 3 to 10 years
Furniture and fixtures 3 to 10 years
</TABLE>
Expenditures for repairs and maintenance are expensed as incurred.
ENVIRONMENTAL LIABILITIES
The estimated landfill closure and post-closure maintenance costs expected
to be incurred upon and subsequent to the closing of existing operating
landfill areas are accrued based on the landfill capacity used to date.
Amounts are estimates using current technologies for closure and monitoring
and are not discounted.
The potential costs related to the Group for various environmental matters
are uncertain due to such factors as the unknown magnitude of possible
cleanup costs, the complexity and evolving nature of governmental laws and
regulations and their interpretations, and the timing, varying costs and
effectiveness of alternative cleanup technologies. Liabilities recorded by
the Group for environmental contingencies are estimates of probable costs
based upon available information and assumptions relating to the Group.
Because of these uncertainties, however, the Group's estimates may change.
The Group believes that any additional costs identified as further
information becomes available would not have a material effect on the
combined statements of assets, liabilities and interdivision account or
revenues, expenses and interdivision account of the Group.
INCOME TAXES
As a division, the Group is not a taxable entity. The Group's operating
results are included with Packaging (which, in turn, is included with
Tenneco) for income tax reporting purposes.
<PAGE> 11
-3-
Packaging does not allocate income tax expense, income tax payables or
deferred income taxes to the Group.
STATEMENTS OF CASH FLOWS
As a business unit of Packaging, the Group does not maintain separate cash
accounts other than for petty cash. The Group's disbursements for payroll,
capital projects, operating supplies and expenses are processed and funded
by Packaging through centrally managed accounts. In addition, cash receipts
from the collection of accounts receivable and the sales of assets are
remitted directly to bank accounts controlled by Packaging. In this type of
centrally managed cash system in which the cash receipts and disbursements
of Packaging's various divisions are commingled, it is not feasible to
segregate cash received from Packaging (e.g., as financing for the business)
from cash transmitted to Packaging (e.g., as a distribution). Accordingly,
the net effect of these cash transactions with Packaging are presented as a
single line item within the financing section of the cash flow statements.
Similarly, the reconciliation of the interdivision account presents the net
transfer of funds between Packaging and the Group as a single line item.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reporting amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CHANGE IN ACCOUNTING PRINCIPLES
The Group will adopt Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," in 1996. SFAS No. 121 establishes new
accounting standards for measuring the impairment of long-lived assets. The
adoption of this new standard will not have a significant effect on the
Group's combined statement of assets, liabilities and interdivision account
or revenues, expenses and interdivision account.
3. PENSION AND OTHER BENEFIT PLANS
Substantially all of the Group's salaried and hourly employers are covered
by retirement plans sponsored by Packaging and Tenneco. Benefits generally
are based on years of service and, for most salaried employees, on final
average compensation. Packaging's funding policies are to contribute to the
plans, at a minimum, amounts necessary to satisfy the funding requirements
of federal laws and regulations. The assets of the plans consist
principally of listed equity and fixed and variable income securities,
including Tenneco Inc. common stock.
The Group's eligible salaried employees participate in the Tenneco Inc.
Retirement Plan (the "Retirement Plan"), a defined benefit plan, along with
other Tenneco divisions and subsidiaries. The pension expense allocated to
the Group for this plan was $90,292 and $68,822 for the years ended December
31, 1995 and 1994, respectively. As this plan is overfunded, $43,098 and
$133,390 of the related prepaid pension costs have been allocated to
<PAGE> 12
-4-
the Group for 1995 and 1994, respectively, based on the number of salaried
employees in the Group.
The Group's eligible hourly employees participate in the Packaging
Corporation of America Hourly-Rated Employees Pension Plan, also a defined
benefit plan, along with other Packaging divisions. The net pension income
allocated to the Group for this plan was $2,592 and $44,858 for the years
ended December 31, 1995 and 1994, respectively. This plan is overfunded and
a portion of the related pension asset, $5,520,608 and $2,338,966 for
December 31, 1995 and 1994, respectively, has been allocated to the Group.
Allocated net pension income for the Group's defined benefit plans,
excluding the Retirement Plan, consists of the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
Service cost--benefits earned during the year $ (285,915) $ (241,814)
Interest cost on projected benefit obligations (1,526,607) (1,193,784)
Expected return on plan assets 2,047,153 1,632,209
Amortization of-
Transition liability (119,005) (104,061)
Prior service cost (113,034) (47,692)
---------- ----------
Subtotal (232,039) (151,753)
---------- ----------
Net pension income $ 2,592 $ 44,858
========== ==========
</TABLE>
The funded status of the Group's allocation of defined benefit plans,
excluding the Retirement Plan, reconciles with amounts recognized in the
statements of assets and liabilities and interdivision account as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Actuarial present value at September 30-
Vested benefit obligation $(19,284,134) $(15,702,683)
Accumulated benefit obligation (20,607,434) (16,731,979)
============ ============
Projected benefit obligation $(20,607,434) $(16,731,979)
Plan assets at fair value at September 30 23,031,595 16,694,864
Contributions during fourth quarter 474,243 983,116
Unrecognized transition liability 832,619 832,656
Unrecognized net loss (gain) 183,600 (29,455)
Unrecognized prior service cost 1,605,985 589,764
------------ ------------
Prepaid pension cost at
December 31 $ 5,520,608 $ 2,338,966
============ ============
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the benefit obligations was 7.75% and 8.25% for the years ended
December 31, 1995 and 1994, respectively. The rate of increase in future
compensation levels assumed (for plans with pay-
<PAGE> 13
-5-
related benefits) was 5% in 1995 and 6% in 1994. The weighted average
expected long-term rate of return on plan assets was 10% for both 1995 and
1994.
On June 1, 1992, Tenneco initiated an Employee Stock Purchase Plan. The
plan allows U.S. employees of the Group to purchase Tenneco Inc. common
stock through payroll deductions at a 15% discount.
4. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In addition to providing pension benefits, the Group provides certain health
care and life insurance benefits for retired employees. A substantial
number of the Group's employees may become eligible for such benefits if
they reach normal retirement age while working for the Group.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value at September 30-
Accumulated postretirement benefit obligation-
Retirees and beneficiaries $(1,388,798) $(1,251,324)
Fully eligible active plan participants (534,000) (482,846)
Other active plan participants (686,491) (518,155)
----------- -----------
Total (2,609,289) (2,252,325)
Plan assets at fair value at September 30 0 0
Funded status (2,609,289) (2,252,325)
Claims paid during the fourth quarter 61,377 60,849
Unrecognized prior service cost (85,240) (118,769)
Unrecognized net gain (736,545) (794,515)
----------- -----------
Accrued postretirement benefit cost at December 31 $(3,369,697) $(3,104,760)
=========== ===========
</TABLE>
The net periodic postretirement benefit costs from operations for the years
1995 and 1994 consist of the following components:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Service cost $ 49,781 $ 54,969
Interest cost 196,276 187,405
Amortization of net gain (54,499) (19,926)
Amortization of prior service cost (22,752) (25,023)
-------- --------
Net periodic postretirement
benefit cost $168,806 $197,425
</TABLE> ======== ========
The weighted average assumed health care cost trend rate used in determining
the 1995 accumulated postretirement benefit obligation was 7.0% in 1995
declining to 5.0% in 1997 and remaining at that level thereafter. The
weighted average assumed health care cost trend rate used in determining the
1994 accumulated postretirement benefit obligation was 8.0% in 1994
declining to 5.0% in 1997 and remaining at that level thereafter.
<PAGE> 14
-6-
Increasing the assumed health care cost trend rate by one percentage point
in each year would increase the accumulated postretirement benefit
obligation as of September 30, 1995 and 1994, by approximately $218,552 and
$181,832, respectively, and would increase the net postretirement benefit
cost for 1995 and 1994 by approximately $23,473 and $17,866, respectively.
The discount rates (which are based on long-term market rates) used in
determining the 1995 and 1994 accumulated postretirement benefit obligations
were 7.75% and 8.25%, respectively.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which
requires employers to account for postemployment benefits for former or
inactive employees after employment but before retirement on the accrual
basis rather than the "pay-as-you go" basis, was adopted by Packaging
effective January 1, 1994. This has been allocated to the Group through an
allocation based on number of employees. The Group has recorded liabilities
for SFAS No. 112 of $73,237 and $49,119, as of December 31, 1995 and 1994,
respectively.
5. STATEMENTS OF ASSETS AND LIABILITIES DETAIL
INVENTORIES
The components of inventories as of December 31, 1995 and 1994, are as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 1,991,961 $ 2,120,606
Finished goods 2,258,808 2,197,390
Supplies and spare parts 5,030,296 5,195,048
----------- -----------
Inventory, gross 9,281,065 9,513,044
Excess of FIFO over LIFO cost (1,529,978) (1,240,162)
----------- -----------
Inventory, net $ 7,751,087 $ 8,272,882
=========== ===========
</TABLE>
OTHER ACCRUED LIABILITIES
The components of the other accrued liabilities include:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Workers' compensation and
general liability $1,564,084 $1,637,708
Other 1,617,195 1,930,133
---------- ----------
Total $3,181,279 $3,567,841
========== ==========
</TABLE>
<PAGE> 15
-7-
OTHER LONG-TERM LIABILITIES
The components of the other long-term liabilities include:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Postretirement benefit liability $3,369,697 $3,104,760
Environmental reserves 1,300,000 1,300,000
---------- ----------
Total $4,669,697 $4,404,760
========== ==========
</TABLE>
6. RELATED-PARTY TRANSACTIONS
FUNDING OF CASH REQUIREMENTS
As discussed in Note 2, Packaging provides centralized treasury functions
and financing for the Group including funding of its cash requirements for
processing of accounts payable and payroll requirements.
MANAGEMENT FEES TO PACKAGING
Packaging provides various services to the Group, including legal, human
resources, data processing systems support, training, finance and treasury,
public relations and insurance management. Packaging does not allocate
these expenses the Group.
INSURANCE
The Group is self-insured for medical benefits and workers' compensation.
Expenses related to workers' compensation, health care claims for hourly and
salaried workers and postretirement health care benefits for hourly and
salaried workers are determined by Packaging and are allocated to the Group.
The Group incurred charges of $2,127,078 and $2,525,993 in 1995 and 1994,
respectively, for medical benefits and $673,318 and $618,602 in 1995 and
1994, respectively, for workers' compensation.
7. COMMITMENTS AND CONTINGENCIES
The Group had authorized capital expenditures of approximately $4,016,000 as
of December 31, 1995, in connection with the expansion and replacement of
existing facilities.
The Group is involved in various legal proceedings and litigation arising in
the ordinary course of business. In the opinion of the Group's management
and legal counsel, the outcome of such proceedings and litigation will not
materially affect the Group's financial position or results of operations.
8. LEASES
The Group leases various machine and office equipment under operating lease
agreements with terms ranging from one month to five years. Certain of the
lease agreements provide for renewal and purchase options. Rental expense
for operating leases included in operating
<PAGE> 16
-8-
income was $226,340 and $202,812 for the years ended December 31, 1995 and
1994, respectively. Future minimum rental payments under noncancelable
leases with remaining lease terms in excess of one year for the years ended
December 31 are as follows:
<TABLE>
<S> <C>
1996 $ 359,456
1997 286,870
1998 250,559
1999 212,601
2000 78,485
----------
Total $1,187,971
==========
</TABLE>
9. SUBSEQUENT EVENT
In June, 1996, Tenneco Packaging and Caraustar Industries entered into a
joint venture arrangement in which Tenneco Packaging contributed certain
assets and liabilities of the Group in exchange for $115 million in cash and
a 20% equity interest in the joint venture.
<PAGE> 17
PAPERBOARD MILL GROUP
A DIVISION OF TENNECO PACKAGING INC.
COMBINED STATEMENTS OF ASSETS, LIABILITIES
AND INTERDIVISION ACCOUNT
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 23,300 $ 20,300
Accounts receivable, net 413,171 8,222,876
Inventories, net 7,751,087 8,529,463
Prepaid expense 240,394 1,782,340
----------- -----------
Total current assets 8,427,952 18,554,979
PROPERTY, PLANT, AND EQUIPMENT, NET 46,803,156 47,519,903
PREPAID PENSION ASSET 5,563,706 5,563,706
----------- -----------
$60,794,814 $71,638,588
=========== ===========
LIABILITIES AND INTERDIVISION ACCOUNT
CURRENT LIABILITIES:
Accounts payable $ 6,145,604 $ 4,933,925
Other accrued liabilities 3,181,279 3,474,597
----------- -----------
Total current liabilities 9,326,883 8,408,522
OTHER LONG-TERM LIABILITIES 4,669,697 4,669,697
INTERDIVISION ACCOUNT 46,798,234 58,560,369
----------- -----------
$60,794,814 $71,638,588
=========== ===========
</TABLE>
The financial statements and accompanying notes of Paperboard Mill Group as
of December 31, 1995 and 1994 should be read in conjunction with these combined
statements.
<PAGE> 18
PAPERBOARD MILL GROUP
A DIVISION OF TENNECO PACKAGING INC.
COMBINED STATEMENTS OF REVENUES, EXPENSES
AND INTERDIVISION ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1995 1996
------------ -----------
(Unaudited)
<S> <C> <C>
NET SALES $165,211,516 $59,861,731
COST OF SALES 146,394,562 51,143,133
------------ -----------
Gross profit 18,816,954 8,718,598
SELLING AND ADMINISTRATIVE EXPENSES 7,142,495 2,445,550
OTHER EXPENSES, NET 60,071 0
------------ -----------
Income excluding taxes and interest 11,614,388 6,273,048
INTERDIVISION ACCOUNT, BEGINNING OF PERIOD 37,139,985 46,798,234
INTERDIVISION ACCOUNT ACTIVITY, NET (1,956,139) 5,489,087
------------ -----------
INTERDIVISION ACCOUNT, END OF PERIOD $ 46,798,234 $58,560,369
============ ===========
</TABLE>
The financial statements and accompanying notes of Paperboard Mill Group as
of December 31, 1995 and 1994 should be read in conjunction with these combined
statements.
<PAGE> 19
PAPERBOARD MILL GROUP
A DIVISION OF TENNECO PACKAGING INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income excluding taxes and interest $11,614,388 $6,273,048
Adjustments to reconcile income to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,334,771 2,733,458
Loss on disposal of property, plant, and equipment 333,358 0
Cash effect of changes in operating assets and liabilities:
Receivables 2,694,412 (7,809,705)
Inventories 521,795 (778,376)
Other assets (3,324,440) (1,541,946)
Accounts payable (945,363) (1,211,679)
Other liabilities (121,625) 293,318
----------- ----------
Net cash provided by (used in) operating activities 17,107,296 (2,041,882)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,621,629) (3,450,205)
Proceeds from sale of property, plant, and equipment 108,774 0
----------- ----------
Net cash used in investing activities (12,512,855) (3,450,205)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in factored receivables (2,633,852) 0
(Decrease) increase in interdivision account (1,956,139) 5,489,087
----------- ----------
Net cash (used in) provided by financing activities (4,589,991) 5,489,087
----------- ----------
NET CHANGE IN CASH 4,450 (3,000)
CASH, BEGINNING OF PERIOD 18,850 23,300
----------- ----------
CASH, END OF PERIOD $ 23,300 $ 20,300
=========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE> 20
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet as of
June 30, 1996, and the unaudited pro forma condensed consolidated statement of
income for the six month period then ended and the year ended December 31,
1995, give effect to the acquisition by CARAUSTAR INDUSTRIES, INC. (the
"Company" or "Caraustar") of an 80% interest in a newly formed partnership (the
"CPI Partnership") with TENNECO PACKAGING INC. ("TPI"), completed July 15,
1996. The adjustments related to the unaudited pro forma condensed
consolidated balance sheet assume that the transaction was consummated on June
30, 1996, while the adjustments to the unaudited pro forma condensed
consolidated statement of income assume, that the transaction was consummated
on January 1, 1995.
Under the terms of the Partnership Agreement, the Company acquired an 80%
interest in the CPI Partnership in exchange for approximately $114,500,000, in
a transaction accounted for as a purchase (Item 2 of the previously filed Form
8-K). Accordingly, pro forma adjustments include such adjustments as are
necessary to allocate the purchase price based on the estimated fair market
value of the assets acquired and the liabilities assumed. The allocation of
the purchase price for this acquisition is subject to revision when additional
information concerning asset and liability valuations is obtained. Any
purchase price allocation adjustments will be made within one year from the
acquisition date and are not expected to be material to the pro forma financial
statements taken as a whole. For purposes of presenting pro forma results, no
changes in revenues and expenses have been made to reflect the results of any
modification to operations that might have been made had such transactions been
consummated on the assumed effective date of the transactions. The pro forma
expenses include the recurring costs which are directly attributable to these
transactions, such as interest expense, depreciation expense and amortization
of the excess of cost over net assets acquired.
The pro forma financial information is not necessarily indicative of the
results of operations or the financial position which would have been attained
had the acquisition been consummated on the dates indicated or which may be
attained in the future. The pro forma financial information should be read in
conjunction with the historical consolidated financial statements of the
Company and Paperboard Mill Group, a division of Tenneco Packaging, Inc.
("CPI").
<PAGE> 21
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------------------------------------------
ACTUAL
---------------------------- PRO FORMA PRO FORMA
CARAUSTAR CPI (1) ADJUSTMENTS CONSOLIDATED
------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 6,431 $ 20 $ (5,992)(2) $ 439
(20)(2)
Receivables, net 55,639 8,223 63,862
Inventories 44,987 8,530 1,530 (2) 52,047
(3,000)(2)
Other current assets 2,282 1,782 4,064
--------- -------- --------- ---------
Total current assets 109,339 18,555 (7,482) 120,412
Property, plant and equipment, net 187,300 47,520 22,256 (2) 257,076
Goodwill 30,947 0 45,801 (2) 76,748
Other assets 10,279 5,564 (5,564)(2) 10,279
--------- -------- --------- ---------
$ 337,865 $ 71,639 $ 55,011 $ 464,515
========= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt $ 19 $ $ $ 19
Accounts payable 26,998 4,934 (1,431)(2) 30,501
Accrued liabilities 26,557 3,475 (2,312)(2) 27,720
Other current liabilities 8,913 0 8,913
--------- -------- --------- ---------
Total current liabilities 62,487 8,409 (3,743) 67,153
Revolving credit loan 17,000 110,000 (2) 127,000
Long-term debt, less current maturities 83,341 83,341
Deferred income taxes 22,045 22,045
Other liabilities 10,019 4,670 (4,670)(2) 10,019
Minority interests 103 11,984 (2) 12,087
Shareholders' equity 142,870 142,870
Interdivision account 58,560 (58,560)(2)
--------- -------- --------- ---------
$ 337,865 $ 71,639 $ 55,011 $ 464,515
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this pro forma condensed
consolidated balance sheet.
<PAGE> 22
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
--------------------------------------------------------------------
PRO FORMA PRO FORMA
CARAUSTAR CPI (1) ADJUSTMENTS CONSOLIDATED
--------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 544,628 $ 165,212 $ (40,684)(9) $ 669,156
(290)(3)
(88)(4)
COST OF SALES 401,570 146,395 (40,684)(9) 506,903
--------- --------- --------- ---------
Gross profit 143,058 18,817 378 162,253
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 67,361 7,142 1,145 (5) 75,648
--------- --------- --------- ---------
Operating income 75,697 11,675 (767) 86,605
OTHER EXPENSE (463) (60) (523)
INTEREST INCOME 821 0 821
INTEREST EXPENSE (6,955) (6,600)(6) (13,555)
--------- --------- --------- ---------
Income before minority
interest and taxes 69,100 11,615 (7,367) 73,348
MINORITY INTERESTS 153 0 (2,170)(7) (2,017)
--------- --------- --------- ---------
69,253 11,615 (9,537) 71,331
PROVISION FOR INCOME TAXES 26,265 0 802 (8) 27,067
--------- --------- --------- ---------
NET INCOME $ 42,988 $ 11,615 $ (10,339) $ 44,264
========= ========= ========= =========
INCOME PER COMMON SHARE $ 1.66 $ 1.70
========= =========
FULLY DILUTED WEIGHTED
AVERAGE SHARES OUTSTANDING 25,963 25,963
========= =========
</TABLE>
The accompanying notes are an integral part of this pro forma
condensed consolidated statement.
<PAGE> 23
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1996
-----------------------------------------------------------------
PRO FORMA PRO FORMA
CARAUSTAR CPI (1) ADJUSTMENTS CONSOLIDATED
-----------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 284,919 $ 59,862 $ (9,437)(9) $ 335,344
COST OF SALES 197,813 51,143 (9,437)(9) 239,910
391 (4)
--------- -------- -------- ---------
Gross profit 87,106 8,719 (391) 95,434
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 38,178 2,446 573 (5) 41,197
--------- -------- -------- ---------
OPERATING INCOME 48,928 6,273 (964) 54,237
OTHER INCOME 2,337 2,337
INTEREST INCOME 298 298
INTEREST EXPENSE (4,220) (3,300)(6) (7,520)
--------- -------- -------- ---------
Income before minority
interest and taxes 47,343 6,273 (4,264) 49,352
MINORITY INTERESTS (5) 0 (1,062)(7) (1,067)
--------- -------- -------- ---------
47,338 6,273 (5,326) 48,285
PROVISION FOR INCOME TAXES 18,460 366 (8) 18,826
--------- -------- -------- ---------
NET INCOME $ 28,878 $ 6,273 $ (5,692) $ 29,459
========= ======== ======== =========
INCOME PER COMMON SHARE $ 1.14 $ 1.16
========= =========
FULLY DILUTED WEIGHTED
AVERAGE SHARES OUTSTANDING 25,437 25,437
========= =========
</TABLE>
The accompanying notes are an integral part of this pro forma condensed
consolidated statement.
<PAGE> 24
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Represents the actual balance sheet as of June 30, 1996 and the
results of operations of the acquired business ("CPI") for the year ended
December 31, 1995 and the six months ended June 30, 1996.
(2) The following adjustments are necessary to adjust the June 30, 1996
assets and liabilities to their fair market values and to eliminate assets not
acquired and liabilities not assumed (in thousands):
<TABLE>
<S> <C>
Cash of the Company used in financing the transaction $ (5,992)
Cash of TPI not received in acquisition (20)
Elimination of reserve to state inventories using the
last-in, first-out ("LIFO") valuation method 1,530
Elimination of supplies inventory, expensed under
the Company's capitalization policy (3,000)
Write-up of property, plant and equipment to fair 22,256
market value
Recognition of goodwill 45,801
Elimination of prepaid pension asset not acquired (5,564)
Elimination of accounts payable not assumed 1,431
Elimination of other accrued liabilities not assumed 2,312
Draw on revolving credit facility used in
financing the transaction (110,000)
Elimination of long-term liabilities not assumed 4,670
Recognition of minority interest in CPI Partnership (11,984)
Elimination of equity in business acquired 58,560
</TABLE>
(3) Represents the decrease in the cost of goods sold as a result of the
valuation of inventory by the Company using first-in, first-out ("FIFO") as
opposed to LIFO, used by CPI prior to the acquisition.
(4) Represents the change in depreciation expense associated with the
write up over book value of the acquired property, plant and equipment based on
the appraised value of each. The depreciation expense is calculated based on a
40 year life for buildings and operating plant facilities, a 3 year life for
vehicles, a 5 year life for furniture and fixtures, and a 10 year life for
machinery and equipment which is consistent with the policies followed by the
Company.
(5) Represents amortization of the goodwill which will be amortized over
40 years. These amounts represent the amortization of goodwill as if the
transaction had been completed on January 1, 1995.
(6) Represents additional interest expense associated with the $110
million of borrowings under the Company's revolving credit facility to finance
the acquisition. Interest due under the Company's revolving credit facility is
payable monthly at LIBOR plus .25% (5.8125% as of June 30, 1996). The
accompanying pro forma statements of income assume a consistent interest rate
of 6.00% for all periods presented.
(7) Represents TPI's interest of 20% in the pro forma income (excluding
interest expense) of the CPI Partnership.
(8) Represents the effect of income taxes on the Company's share of the
pro forma income of the CPI Partnership based on the Company's effective income
tax rate of 38.6%.
(9) Represents the elimination of brokered paper sales and related costs
of CPI which are accounted for by the Company on a net basis.
<PAGE> 25
INDEX TO EXHIBITS
Exhibit 23.1 Consent of Arthur Andersen LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K, into Caraustar Industries, Inc.'s previously
filed Registration Statements on Form S-8 (File No. 33-77682, File No.
33-75838, File No. 35-53808, File No. 33-53726, and File No. 33-53728).
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 18, 1996
