<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
---------
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
---------------- --------------------
Commission file number 0-20646
CARAUSTAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
North Carolina 581388387
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3100 Washington Street
Austell, Georgia 30001
(Address of principal executive offices) (Zip Code)
</TABLE>
(770) 948-3101
----------------------------------------------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.10 par value
------------------------------------
(Title of Class)
----------------
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 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by
non-affiliates of the registrant as of March 3, 1997, computed by reference to
the closing sale price on such date, was $656,096,326. As of the same date,
24,727,415 shares of Common Stock, $.10 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement pertaining to the
1997 Annual Meeting of Shareholders ("the Proxy Statement") and filed pursuant
to Regulation 14A are incorporated herein by reference into Part III.
<PAGE> 2
INTRODUCTION
Caraustar Industries, Inc., a manufacturer of recycled paperboard and
converted paperboard products, operates its business through 35 subsidiaries
across the United States. As used herein, the "Company" or "Caraustar"
includes Caraustar Industries, Inc. and its subsidiaries, except that when used
with reference to common shares or other securities described herein and in
describing the positions held by management of the Company, the term includes
only Caraustar Industries, Inc.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
General. The Company, a major manufacturer of recycled paperboard and
converted paperboard products, was incorporated in North Carolina in 1980
through the consolidation of six corporations in the recycled paperboard
industry previously related by common ownership and administration. The
Company operates 70 facilities in the United States and Mexico, and
manufactures its products primarily from recovered fiber, which is derived from
recycled paperstock. At its 14 paperboard mills, the Company produces various
grades of uncoated and clay-coated recycled paperboard both for internal
consumption and for sale to customers in four principal markets: (1) tubes,
cores and composite containers; (2) folding cartons; (3) gypsum wallboard
facing paper; and (4) miscellaneous other specialty and converted products.
The Company produces converted paperboard products at 39 converting plants.
These plants include 26 tube and core converting plants, two composite
container plants, six folding carton plants and five specialty converting
plants. The Company also operates two plastics manufacturing plants, a
composite extrusion manufacturing plant, eight paperstock recycling and
processing facilities, and three contract manufacturing and contract packaging
plants. In addition, the Company operates special services and other
facilities which include a transportation facility, a packaging, engineering
and procurement facility and an industrial adhesives manufacturing plant. The
Company has an equity interest as the non-operating partner in a gypsum
wallboard manufacturing plant, which has a related gypsum quarry, and a
specialty paperboard converting plant. The operations of these facilities are
managed by the respective operating partners.
Operations and Products. The Company's principal manufacturing activity is the
production of uncoated and clay-coated recycled paperboard. In this
manufacturing process, paperstock is reduced to pulp, cleaned and refined and
then processed into various grades of paperboard for internal consumption or
sale in the four principal markets identified above. The Company operates a
total of 14 paperboard mills in the following states: North Carolina, South
Carolina, Georgia, Virginia, New Jersey, Illinois, Iowa, Ohio, Tennessee,
Pennsylvania and New York. In 1996, approximately 33% of the recycled
paperboard sold by the Company's paperboard mills was consumed internally by
the Company's converting facilities; the other 67% was sold to manufacturers in
a variety of industries, primarily independent gypsum wallboard manufacturers,
folding carton and set-up box makers, tube, can and drum producers, and
miscellaneous converters of recycled paperboard. External sales of unconverted
paperboard accounted for 36% of the Company's net sales in both 1996 and 1995.
Sales of tubes, cores and composite containers, together with sales of
unconverted paperboard to independent manufacturers of tubes, cores and
composite containers, accounted for approximately 36% of the Company's net
sales in both 1996 and 1995. Sales of folding cartons and related products,
together with external sales of boxboard grades of unconverted paperboard,
accounted for approximately 27% and 16%, respectively, of net sales in 1996 and
1995. Sales of gypsum wallboard and wallboard facing paper accounted for
approximately 17% and 23%, respectively, of net sales in 1996 and 1995. Sales
of other specialty, converted and laminated products accounted for
approximately 14% and 17%, respectively, of the Company's net sales in 1996 and
1995. Additionally, the Company's sales of injection-molded and extruded
plastic products accounted for approximately 3% of net sales in both 1996 and
1995, and external sales of paperstock accounted for approximately 3% and 5%,
respectively, of net sales in 1996 and 1995.
<PAGE> 3
Caraustar continually maintains and improves its paperboard mills.
During the past five years, the Company spent an average of $25.5 million
annually for capital expenditures, which sums were used primarily to expand and
upgrade its paperboard production and converting capacity, primarily by
acquiring and maintaining state-of-the-art machinery and technology. The
Company intends to continue to upgrade its existing facilities with modern,
cost-efficient and productive equipment. The Company's strategic plan includes
a capital expenditure program that anticipates average annual expenditures of
approximately $45.0 million at its existing facilities for the next four years.
Caraustar's 39 converting facilities produce tubes, cores and
composite containers, folding cartons and set-up boxes, and specialty converted
products. The Company's largest converting operation is the production of
tubes and cores. The principal applications of these products are: cloth
cores, paper mill cores, yarn carriers, carpet cores and film, foil and metal
cores. Tubes and cores are produced by the spiral or convolute winding of
paperboard. Paper tubes are designed to provide specific physical strength
properties, resistance to moisture and abrasion, and resistance to delamination
at extremely high rotational speeds.
The Company's 26 tube and core converting plants are operated by the
Company's Star Paper Tube, Inc. subsidiary. These plants obtain most of their
recycled paperboard from the Company's paperboard mills. Because of the
relatively high cost of shipping tubes and cores, tube and core converting
facilities generally serve customers within a relatively small geographic area.
Caraustar produces all of its tube and core products to order and markets these
products primarily to the synthetic fiber, paper, textile, carpet, plastic film
and foil industries. Accordingly, most of the Company's tube and core
converting plants are located in proximity to concentrations of customers in
those industries. The Company is seeking to expand its presence in the markets
for more sophisticated tubes and cores, which require stronger paper grades,
higher skill and new converting technology. These markets include the yarn
carrier and plastic film markets, as well as the market for cores used in
certain segments of the paper industry. The Company believes these markets
offer significant growth potential, as well as potentially higher operating
margins.
The Company's Federal Packaging Corporation subsidiary produces
composite containers used in adhesive, sealant, food, and food service markets,
as well as grease cans, tubes, cartridges and other components. Federal has
two plants located in Saint Paris and Orrville, Ohio.
The Company produces folding cartons and rigid set-up boxes at six
carton plants - four in North Carolina and one each in Ohio and Tennessee.
These facilities obtain approximately 40% of their recycled paperboard from the
Company's paperboard mills and the remaining 60% from other manufacturers. The
Company's boxes and cartons are used principally for hosiery boxes, dry food
containers, film containers and containers for various other industrial
applications, including textile and apparel applications.
The Company, through its five specialty converting plants, is a major
supplier of other specialty, converted and laminated products to the
bookbinding, game, puzzleboard, printing and furniture industries and also
manufactures products for other industrial packaging applications.
The Company also manufactures injection-molded and extruded plastic
products, including plastic cores for the textile industry, plastic cores for
the film, paper and other industries, and other specialized products. The
Company has an 80% equity interest in a plant in Union, South Carolina which
produces such plastic products. Certain of this plant's customers also
purchase the Company's tubes and cores. The plastic plant currently has three
plastic extrusion lines and 24 injection-molding machines, using the latest
available process control technology. These plastic products are to a large
extent complementary to the Company's tube and core products. The Company also
produces injection-molded plastic parts at a facility in Georgetown, Kentucky,
which are primarily used as components in the manufacture of its composite
containers. Composite extruded products with a wide variety of end-uses are
produced in a Lancaster, South Carolina facility from recycled waste
thermoplastics.
Each of the Company's paperboard mills and most of its converting
plants have paperstock recovery facilities. In addition, the Company has eight
off-site paperstock recycling and processing facilities that collect and bale
paperstock both for delivery to the Company's paperboard mills and for sale to
third parties.
2
<PAGE> 4
The Company also operates three specialty packaging facilities, two in
Ohio and one in North Carolina. These facilities perform contract
manufacturing and custom contract packaging for a variety of consumer product
companies.
The Company also provides special services and operates other
facilities, including an Ohio transportation facility, a North Carolina
facility which procures packaging and engineering services and an industrial
adhesives manufacturing plant, also located in North Carolina.
Acquisitions. Since its incorporation, the Company has grown in part as the
result of a number of acquisitions, and the Company intends to continue to
evaluate and complete acquisitions as part of its strategy to focus on and
expand in its primary markets. During 1996, the Company and its subsidiary,
Star Paper Tube, Inc., acquired all the assets of Summer Paper Tube Company
("Summer"). Summer is a manufacturer of spiral and convolute-wound tubes and
cores, as well as a producer of adhesives for industrial use. Summer has two
operating facilities in Kernersville, North Carolina, and one in Altavista,
Virginia. Also in 1996, the Company acquired an 80% interest in a newly formed
partnership with Tenneco Packaging, Inc., who retained a 20% interest. The
Company manages the operations of the partnership, which include two
clay-coated recycled paperboard mills located in Rittman, Ohio and Tama, Iowa
and recovered fiber recycling and brokerage operations located in Rittman and
Cleveland, Ohio.
Joint Venture. During 1996, the Company transferred substantially all of the
operating assets of its wholly-owned subsidiary, Standard Gypsum Corporation,
to a newly formed limited liability company, Standard Gypsum LLC ("Standard")
and sold a 50% interest in this business to Temple-Inland Forest Products
Corporation ("Temple"), an unrelated third party. Under the terms of the joint
venture agreement, Temple will manage Standard and the Company will continue to
supply the gypsum paperboard requirements. The business, located in McQueeney,
Texas, produces gypsum wallboard for use in the commercial and residential
construction industries, primarily in the southwestern United States. Standard
also operates a gypsum quarry located in Fredericksburg, Texas. Gypsum rock
obtained from the quarry is used in the production of wallboard or sold to
third parties for use in certain industrial and agricultural applications,
including the production of cement and fertilizer.
Product Distribution. Each of the Company's manufacturing and converting
facilities has its own sales staff and maintains direct sales relationships
with its customers. The Company also employs divisional and corporate level
sales personnel who support and coordinate the sales activities of individual
facilities. Divisional and corporate sales personnel also provide sales
management, marketing and product development assistance in markets where
customers are served by more than one of the Company's facilities.
Approximately 145 of the Company's employees are devoted exclusively to sales
and customer service activities, although many other employees participate
generally in sales efforts. The Company generally does not sell its products
through independent sales representatives. The Company's advertising is
limited to trade publications.
Customers. The Company manufactures most of its converted products pursuant to
customers' orders. The Company does, however, maintain minimal inventory
levels of certain products. The Company's business is not dependent on any
single customer or upon a small number of major customers. The Company
believes that the loss of any one customer would not have a material adverse
effect on its financial position or results of operations.
Raw Materials. Recovered fiber, derived from recycled paperstock, is the only
significant raw material used in the Company's mill operations. The Company
purchases approximately 64% of its paperstock requirements from independent
sources, such as major retail stores, distribution centers and manufacturing
plants. The balance is obtained from a combination of other sources. Some
paperstock is collected from small collectors and waste collection businesses.
This paperstock is sorted and baled by one of the Company's eight paperstock
recycling and processing facilities and then either transferred to the
Company's mills for processing or sold to third parties. Paperstock is also
obtained from customers of the Company's converting operations and from waste
handlers and collectors who deliver loose paperstock to the Company's mill
sites for direct use without baling. Another portion of the Company's
requirements is obtained from its small baler program, in which the Company
leases, sells or furnishes small baling machines to businesses that bale their
own paperstock for periodic collection by the Company.
3
<PAGE> 5
The Company closely monitors its recovered fiber costs and intends
to further increase its unbaled paperstock purchases as a percentage of its
total recovered fiber needs and increase its reliance on purchases from
customers and the small baler program.
Competition. Although the Company competes with numerous other manufacturers
and converters, the Company's competitive position varies greatly by geographic
area and within the various product markets of the recycled paperboard
industry. In most of its markets, the Company's competitors are capable of
supplying products that would meet customer needs. Some of the Company's
competitors have greater financial resources than the Company. The Company
competes in its markets on the basis of price, quality and service. The
Company believes that it is important in all of its markets that suppliers work
closely with their customers to develop or adapt products to meet customers'
specialized needs. The Company also believes that it competes favorably on the
basis of all of the above factors.
In the southeastern United States, where the Company historically has
marketed its tubes and cores, the Company believes that it and Sonoco Products
Company are the major competitors. On a national level, Sonoco is the dominant
competitor in the tube and core market. According to industry data, Sonoco had
more than 50% of the total United States market in 1996. Several regional
companies and numerous small local companies also compete in the tube and core
market.
The folding carton and set-up box market in the United States is
served by several large national and regional companies and numerous small
local companies. Nationally, none of the major competitors is dominant,
although certain competitors may be dominant in particular geographic areas or
market niches. In the markets served by the Company's carton and box plants
located in North Carolina, Ohio and Tennessee, the dominant competitor
is Rock-Tenn Company.
In its sales of miscellaneous specialty and converted products, and in
sales of recycled paperboard to other manufacturers for the production of
tubes, cores and composite containers, folding cartons and boxes, and
miscellaneous converted products (other than gypsum wallboard facing paper),
the Company competes with a number of recycled paperboard manufacturers,
including Sonoco, Rock-Tenn, Jefferson Smurfit Corporation and The Newark
Group, Inc. The Company believes that none of its competitors is dominant in
any of these markets.
The gypsum wallboard industry is divided into independent gypsum
wallboard manufacturers, which either do not produce their own gypsum wallboard
facing paper or cannot fill all of their needs internally, and integrated
wallboard manufacturers, which supply all of their own gypsum wallboard facing
paper requirements internally. The Company believes that the two largest
integrated gypsum wallboard manufacturers, USG Corporation and National Gypsum
Company, do not have significant sales of gypsum wallboard facing paper to the
independent gypsum wallboard manufacturers. The Company believes it has the
largest market share for the supply of gypsum wallboard facing paper to
independent wallboard manufacturers in North America.
The Company also competes in the gypsum wallboard industry through its
joint venture with Temple, formerly Standard Gypsum Corporation. Standard
competes with larger integrated wallboard manufacturers such as USG Corporation
and National Gypsum, who have greater financial resources and superior
marketing strength due to their greater number of locations and national
presence. Standard competes primarily on the basis of product quality,
dependability and timeliness of delivery and price.
Recovered fiber costs were much lower on average and relatively stable
in 1996 compared to 1995. The Company's average cost for recovered fiber per
ton of recycled paperboard produced was approximately $66 during 1996, which
was down 54% from $144 per ton in 1995. While no specific information is
available about competitors' actual recovered fiber costs, the Company believes
that its delivered recovered fiber costs are among the lowest in the recycled
paperboard industry. Relative to other competitors, the Company believes that
its lower recovered fiber costs are attributable in part to lower shipping
costs resulting from the location of the Company's paperboard mills and
paperstock facilities near major metropolitan areas that generate substantial
supplies of paperstock. Many of the paperboard mills operated by the Company's
principal competitors are located away from major
4
<PAGE> 6
metropolitan areas, and the Company believes, based on its knowledge of freight
rates, that these competitors incur higher freight costs associated with their
fiber recovery efforts, adding to their total cost of delivered recovered
fiber. The Company's relatively low recovered fiber costs are also
attributable to its emphasis on certain recovery methods that enable the
Company to avoid baling operations. The Company believes that its competitors
rely primarily on off-site, company-owned and -operated paperstock baling
operations that collect and bale paperstock for shipment and processing at the
mill site. The Company also operates such facilities, and its experience is
that the baling operation results in $25-$30 per ton higher recovered fiber
costs. The Company equips most of its paperboard mills to accept unbaled
paperstock for processing directly into its pulpers. In 1996 and 1995, unbaled
paperstock represented approximately 14% and 18%, respectively, of the
Company's total recovered fiber purchases. The Company also uses other fiber
recovery methods - its small baler program and its recovery of paperstock from
customers - that result in lower recovered fiber costs.
Environmental Matters. The Company's operations are subject to various
federal, state and local environmental laws and regulations. Among other
things, these laws and regulations regulate the discharge of materials into the
water, air and land and govern the use and disposal of hazardous substances.
The most significant federal laws are the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Clean Air Act, the Clean Water
Act, the Toxic Substances Control Act and the Resource Conservation and
Recovery Act ("RCRA"). These laws are administered by the United States
Environmental Protection Agency, and in some cases by state and local agencies.
In addition, states in which the Company operates have adopted supplemental
environmental laws and regulations, or have enacted their own parallel
environmental programs, which are enforced through various state and local
administrative agencies. Except as set forth below, the Company believes that
its operations are in substantial compliance with all applicable environmental
laws and regulations, except for minor violations which the Company believes
would not have a material adverse effect on the Company's business or financial
position.
The Company's recycled paperboard mills use substantial amounts of
water in the papermaking process. The Company's mills discharge process
effluent into local sewer systems pursuant to wastewater discharge permits.
The Company uses only small amounts of hazardous substances, and the Company
believes the concentration of these substances in the Company's wastewater
discharge generally is below permitted maximums. From time to time the
imposition of stricter limits on the solids, sulfides, BOD (biological oxygen
demand) or metals content of a mill's wastewater requires the Company to alter
the content of its wastewater. Such reductions can be effected by additional
screening of the wastewater, by other changes to the flow of process effluent
from the mill or from pretreatment ponds into the sewer system, and by chemical
additives. The Company also is subject to regulatory requirements related to
the disposal of its solid wastes and the air emissions from its facilities.
The Company is not currently aware of any required expenditures relating to
wastewater discharge, solid waste disposal or air emissions that it expects to
have a material adverse effect on the business or financial condition of the
Company, but there can be no assurance that expenditures required in these
areas will not have such a material adverse effect.
In addition, under CERCLA and other laws and regulations, the Company
can be held strictly liable if hazardous substances are found on real property
owned or operated by the Company or used by the Company as a disposal site. In
recent years, the Company has adopted a policy of assessing real property for
environmental risks prior to purchase. The Company is aware of issues
regarding hazardous substances at some of its facilities and one of its
disposal sites, but in each case a remedial plan is in place where necessary in
the Company's opinion, and the Company has reason to believe that any possible
liabilities will not be material.
Employees. As of December 31, 1996, the Company had approximately 4,048
employees, of whom 3,213 are hourly and 835 are salaried. Hourly employees at
the Chicago, Cincinnati, Chattanooga, Buffalo, Reading, Richmond, Rittman and
Tama paperboard mills, two Federal Packaging Corporation plants, Cleveland
Paper Stock and The Garber Company (approximately 1,333 employees) are
represented by labor unions. All principal union contracts expire during the
period 1997-2002. The Company considers its relations with its employees to be
excellent.
5
<PAGE> 7
Executive Officers. The names and ages, positions and periods of service of
each of the Company's executive officers are set forth below. The term of
office for each executive officer expires upon the earlier of the appointment
and qualification of a successor or such officer's death, resignation,
retirement, removal or disqualification.
<TABLE>
<CAPTION>
Name and Age Position Period of Service as Executive Officer
------------ -------- --------------------------------------
<S> <C> <C>
Thomas V. Brown (56) President and Chief Executive Officer; President since 1/91; CEO since 10/91;
Director Director since 4/91
Bob M. Prillaman (64) Senior Vice President; Director Senior Vice President and Director since 1980
Gary M. Cran (55) Vice President, Mills Since 1987
H. Lee Thrash, III (46) Vice President, Planning and Development; Vice President and CFO since 1986;
Chief Financial Officer; Director Director since 1987
Jimmy A. Russell (49) Vice President, Tubes, Cores, Composite Vice President since 4/93; CEO of Star Paper
Containers and Specialty Products Tube, Inc. since 1/93
James L. Walden (51) Vice President, Cartons Since 2/93
Richard E. France (65) Vice President, Human Resources Since 4/94
and Public Relations
John R. Foster (51) Vice President, Sales and Marketing Since 9/96
</TABLE>
ITEM 2. PROPERTIES
Facilities. The following table sets forth certain information concerning the
Company's facilities. Unless otherwise indicated, such facilities are owned by
the Company:
<TABLE>
<CAPTION>
TYPE OF FACILITY
AND LOCATION . . . . . . . . . . . . PRODUCTION CAPABILITIES
- -------------- -----------------------
<S> <C>
PAPERBOARD MILLS (1)
Austell, GA (Mill #1) . . . . . . . . . Uncoated, folding and set-up boxboard, white lined and colored paperboard,
specialty grades, including specialty laminates, game board/puzzle board
and bookbinding board.
Austell, GA (Mill #2) . . . . . . . . . Tube and core board and other specialty grades.
Austell, GA (Sweetwater) . . . . . . . Gypsum wallboard facing paper, tube and core board, and folding boxboard.
Tama, IA . . . . . . . . . . . . . . . Clay-coated boxboard and specialty grades.
Chicago, IL . . . . . . . . . . . . . . Tube and can, folding and set-up boxboard.
Charlotte, NC . . . . . . . . . . . . . Uncoated, folding and set-up boxboard, white lined and colored
paperboard, specialty grades, including specialty laminates, game
board/puzzle board and bookbinding board.
Camden, NJ . . . . . . . . . . . . . . Gypsum wallboard facing paper and folding boxboard.
Buffalo, NY . . . . . . . . . . . . . . Gypsum wallboard facing paper, tube and core board, and folding carton
grades.
Cincinnati, OH . . . . . . . . . . . . Tube, can and drum, folding and set-up boxboard and gypsum wallboard facing
paper.
Rittman, OH . . . . . . . . . . . . . . Clay-coated boxboard and gypsum wallboard facing paper.
Reading, PA . . . . . . . . . . . . . . Folding and set-up carton boxboard, white lined and special colored
paperboard.
Greenville, SC . . . . . . . . . . . . Uncoated, folding and set-up boxboard, white lined and colored paperboard,
specialty grades, including specialty laminates, game board/puzzle board,
bookbinding board and tube and core board.
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
TYPE OF FACILITY
AND LOCATION . . . . . . . . . . . . PRODUCTION CAPABILITIES
- -------------- -----------------------
<S> <C>
Chattanooga, TN . . . . . . . . . . . . Uncoated, folding and set-up boxboard, white lined and colored paperboard,
specialty grades, including specialty laminates, game board/puzzle board,
bookbinding board and tube, core and can board.
Richmond, VA. . . . . . . . . . . . . . Folding and set-up carton boxboard and tube and core board.
TUBE AND CORE PLANTS
Linden, AL . . . . . . . . . . . . . . Spiral-wound tubes.
Mobile, AL (leased) . . . . . . . . . . Spiral-wound tubes.
McGehee, AR (leased) . . . . . . . . . Core pre-cutting/capping.
Phoenix, AZ (leased) . . . . . . . . . Spiral-wound tubes.
Cantonment, FL . . . . . . . . . . . . Spiral-wound tubes.
Palatka, FL . . . . . . . . . . . . . . Spiral-wound tubes.
Austell, GA . . . . . . . . . . . . . . Spiral- and convolute-wound tubes.
Cedar Springs, GA . . . . . . . . . . . Spiral-wound tubes and yarn carriers.
Dalton, GA . . . . . . . . . . . . . . Spiral- and convolute-wound tubes and yarn carriers.
West Monroe, LA . . . . . . . . . . . . Spiral-wound tubes.
Zachary, LA (leased) . . . . . . . . . Pre-cutting/capping.
Mexico City, Mexico (leased) . . . . . Spiral-wound tubes.
Corinth, MS . . . . . . . . . . . . . . Spiral-wound tubes.
Kernersville, NC . . . . . . . . . . . Spiral-wound tubes and yarn carriers.
Lancaster, PA (leased) . . . . . . . . Spiral-wound tubes.
Rock Hill, SC . . . . . . . . . . . . . Spiral- and convolute-wound tubes.
Rock Hill, SC (leased) . . . . . . . . Ground and polished tubes.
Taylors, SC . . . . . . . . . . . . . . Spiral-wound tubes and yarn carriers.
Amarillo, TX (leased) . . . . . . . . . Yarn carriers.
Arlington, TX . . . . . . . . . . . . . Spiral-wound tubes.
Silsbee, TX . . . . . . . . . . . . . . Spiral-wound tubes.
Texarkana, TX . . . . . . . . . . . . . Spiral-wound tubes.
Salt Lake City, UT (leased) . . . . . . Spiral-wound tubes.
Altavista, VA (leased) . . . . . . . . Spiral-wound tubes and yarn carriers.
Danville, VA . . . . . . . . . . . . . Spiral-and convolute-wound tubes and yarn carriers.
Franklin, VA . . . . . . . . . . . . . Spiral-wound tubes.
COMPOSITE CONTAINER PLANTS
Orrville, OH . . . . . . . . . . . . . Composite cans, tubes and containers.
Saint Paris, OH . . . . . . . . . . . . Composite cans, tubes and containers.
CARTON PLANTS
Archdale, NC . . . . . . . . . . . . . Printed and unprinted folding and set-up cartons.
Burlington, NC . . . . . . . . . . . . Printed and unprinted folding and set-up cartons and vinyl lids.
Charlotte, NC . . . . . . . . . . . . . Specialty folding and set-up cartons.
Randleman, NC . . . . . . . . . . . . . Printed and unprinted folding and set-up cartons.
Ashland, OH . . . . . . . . . . . . . . Printed and unprinted folding cartons.
Kingston Springs, TN . . . . . . . . . Printed and unprinted folding cartons.
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
TYPE OF FACILITY
AND LOCATION . . . . . . . . . . . . PRODUCTION CAPABILITIES
- -------------- -----------------------
<S> <C>
SPECIALTY CONVERTING PLANTS
Austell, GA . . . . . . . . . . . . . . Edge protectors.
Austell, GA . . . . . . . . . . . . . . Laminated paperboard and specialty conversion.
Charlotte, NC . . . . . . . . . . . . . Laminated paperboard and specialty conversion.
Taylors, SC . . . . . . . . . . . . . . Laminated paperboard and specialty conversion.
Arlington, TX . . . . . . . . . . . . . Edge protectors.
PLASTICS PLANTS
Georgetown, KY . . . . . . . . . . . . Injection molded parts for composite containers.
Lancaster, SC (leased) . . . . . . . . Composite extrusion products for packaging and industrial use.
Union, SC . . . . . . . . . . . . . . . Injection molded cones and tubes, extruded plastic cores.
PAPERSTOCK COLLECTION AND PROCESSING PLANTS(2)
Austell, GA . . . . . . . . . . . . . . Recovered fiber brokerage sales.
Columbus, GA . . . . . . . . . . . . . Recovered fiber.
Dalton, GA . . . . . . . . . . . . . . Recovered fiber.
Doraville, GA . . . . . . . . . . . . . Recovered fiber.
Macon, GA (leased) . . . . . . . . . . Recovered fiber.
Charlotte, NC . . . . . . . . . . . . . Recovered fiber.
Cleveland, OH . . . . . . . . . . . . . Recovered fiber.
Rittman, OH . . . . . . . . . . . . . . Recovered fiber brokerage sales.
CONTRACT PACKAGING AND CONTRACT MANUFACTURING PLANTS
Robersonville, NC . . . . . . . . . . . Contract manufacturing and contract packaging
Bucyrus, OH . . . . . . . . . . . . . . Contract manufacturing and contract packaging
Strasburg, OH . . . . . . . . . . . . . Contract manufacturing and contract packaging
SPECIAL SERVICES AND OTHER FACILITIES
Saint Paris, OH . . . . . . . . . . . . Transportation
Charlotte, NC . . . . . . . . . . . . . Packaging, engineering and procurement services
Kernersville, NC (leased) . . . . . . . Adhesives
JOINT VENTURES
GYPSUM PRODUCTS (50% INTEREST)
Fredericksburg, TX (partially leased) . Gypsum rock quarry
McQueeney, TX . . . . . . . . . . . . . Gypsum wallboard
SPECIALTY CONVERTING PLANT (33% INTEREST)
Mooresville, NC . . . . . . . . . . . . Specialty converted and foam laminated
paperboard products
</TABLE>
__________________
(1) All of the Company's paperboard mills produce uncoated recycled
paperboard with the exceptions of its Rittman, OH and Tama, IA
paperboard mills, which produce clay-coated boxboard.
(2) Paperstock collection and/or processing also occurs at each of the
Company's mill sites and all of the carton plants and tube and core
plants.
8
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS.
From time to time claims are asserted against the Company arising out of
its operations in the normal course of business. Management does not believe
that the Company is a party to any litigation that will have a material adverse
effect on its financial condition or results of operations. On June 12, 1992,
the Company's Austell Box Board Corporation subsidiary received a charge of
discrimination filed by the Equal Employment Opportunity Commission ("EEOC"),
alleging that the subsidiary had violated Title VII of the Civil Rights Act of
1964 by discriminating in its hiring and recruitment practices. On March 21,
1995, the EEOC issued a decision finding reasonable cause to believe that
certain alleged practices of the subsidiary violated Title VII of the Civil
Rights Act of 1964. On May 2, 1996, the Company and the EEOC entered into an
agreement to conciliate all issues arising out of the EEOC's charge of
discrimination. The maximum amount payable under the conciliation agreement is
$101,000. The Company does not believe that it engages in discriminatory hiring
practices, and the conciliation agreement with the EEOC contained a provision
expressly providing that by entering into the conciliation agreement the company
did not admit that it has engaged in any such practices.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the Company's security holders during
the fourth fiscal quarter ended December 31, 1996.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since October 1, 1992, the Company's common shares, $.10 par value (the
"Common Shares") have traded on the National Association of Securities Dealers,
Inc. NASDAQ National Market System ("NASDAQ") under the symbol CSAR. As of
February 26, 1997, there were approximately 610 shareholders of record and, as
of that date, the Company estimates that there were approximately 4,500
beneficial owners holding stock in nominee or "street" name.
The table below sets forth high and low stock prices during the years
1996 and 1995.
<TABLE>
<CAPTION>
1996 HIGH LOW DIVIDEND 1995 HIGH LOW DIVIDEND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter 25 3/4 18 5/8 $0.12 First Quarter 23 15 3/4 $0.105
Second Quarter 28 1/4 24 1/4 $0.12 Second Quarter 19 3/4 17 1/4 $0.105
Third Quarter 30 3/4 26 $0.12 Third Quarter 22 1/4 18 1/4 $0.105
Fourth Quarter 37 1/4 28 1/2 $0.14 Fourth Quarter 21 5/8 18 1/4 $0.12
</TABLE>
The Company did not pay dividends on its Common Shares from the time of
the Company's recapitalization in 1986 until after its initial public offering
of Common Shares in October 1992. The Company paid dividends of $0.12 per
share during each of the first three quarters of 1996 and $0.14 per share
during the fourth quarter of 1996. The Company intends to continue paying
quarterly dividends at the same rate as the fourth quarter 1996 dividend,
although any decision to pay dividends in the future will be made by the
Company's Board of Directors after taking into account various factors,
including the Company's net income, current and anticipated cash needs and any
other factors deemed relevant by the Board of Directors. The Company's credit
agreements with its lenders permit the payment of dividends, subject to certain
restrictions contained therein. The Company does not believe that such
restrictions, however, will materially limit the Company's ability to pay
future dividends at the same rate as the 1996 fourth quarter dividend.
9
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands except per share data, COMPOUND GROWTH RATE YEARS ENDED DECEMBER 31,
ratios and growth rates) 5 Years 9 Years 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Sales $629,674 $569,455 $455,808 $365,410 $325,620
Freight 26,979 24,827 24,583 22,963 19,674
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales 17.3% 11.9% 602,695 544,628 431,225 342,447 305,946
Cost of sales 17.6% 12.0% 422,783 401,570 307,652 244,578 213,405
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit 16.7% 11.5% 179,912 143,058 123,573 97,869 92,541
Selling, general, and administrative expenses 17.2% 13.0% 81,003 67,361 59,247 49,355 42,402
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 16.3% 10.5% 98,909 75,697 64,326 48,514 50,139
Other (expense) income:
Interest expense (10,698) (6,955) (6,870) (6,822) (12,315)
Interest income 591 821 353 612 243
Equity in income (loss) of unconsolidated affiliates 2,154 -- -- -- --
Other, net 4,274 (463) (249) 167 (151)
- ---------------------------------------------------------------------------------------------------------------------------------
(3,679) (6,597) (6,766) (6,043) (12,223)
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 27.1% 19.6% 95,230 69,100 57,560 42,471 37,916
Minority interest (754) 153 13 15 --
Tax provision 26.9% 18.0% 36,574 26,265 22,095 15,165 14,839
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before discontinued
operations, extraordinary items, and accounting changes 26.9% 20.7% $ 57,902 $ 42,988 $ 35,478 $ 27,321 $ 23,077
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 26.9% 20.7% $ 57,902 $ 42,988 $ 35,478 $ 32,471 $ 22,899
- ---------------------------------------------------------------------------------------------------------------------------------
Fully diluted weighted average shares outstanding 25,431 25,963 25,771 25,392 20,024
PER SHARE DATA
Income from continuing operations before discontinued
operations, extraordinary items, and accounting changes 18.2% 15.8% $ 2.28 $ 1.66 $ 1.38 $ 1.08 $ 1.15
Net income 18.2% 15.8% 2.28 1.66 1.38 1.28 1.14
Cash dividends declared 0.50 0.435 0.375 0.33 0.08
Market price on December 31 $ 33.25 $ 20.00 $ 22.25 $ 16.75 $ 18.75
Shares outstanding December 31 25,053 25,682 25,280 24,968 24,639
Price/Earnings ratio 14.58 12.05 16.12 13.09 16.45
TOTAL MARKET VALUE OF COMMON STOCK $833,012 $513,640 $562,480 $418,214 $461,981
BALANCE SHEET DATA
Cash and cash equivalents $ 11,989 $ 8,785 $ 12,465 $ 14,371 $ 23,667
Property, plant, and equipment - net 256,834 181,930 150,391 127,773 103,004
Depreciation and amortization 26,314 17,671 14,542 12,493 10,661
Capital expenditures 32,059 28,041 29,331 21,251 16,880
Total assets 476,280 322,076 266,863 221,366 187,513
Current maturities of long-term debt 29 36 72 64 71
Revolving credit loans 100,000 10,000 -- -- --
Long-term debt, less current maturities 83,261 83,380 83,446 83,515 83,388
Shareholders' equity (deficit) 170,570 139,243 102,274 74,424 47,558
Total capital $353,860 $232,659 $185,792 $158,003 $131,017
OTHER KEY FINANCIAL MEASURES
Total debt-to-total capital 51.8% 40.2% 45.0% 52.9% 63.7%
Net debt-to-net capital 50.1% 37.8% 41.0% 48.2% 55.7%
Effective tax rate 38.7% 38.0% 38.4% 35.7% 39.1%
Return on shareholders' equity 37.4% 35.6% 40.2% 44.8% (A)
Return on average capital 22.0% 22.6% 23.1% 21.9% 27.2%
Dividend payout ratio 21.9% 26.2% 27.2% 25.8% 7.0%
Economic profit (B) $ 43,663 $ 29,104 $ 30,649 $ 19,512 (A)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands except per share data, YEARS ENDED DECEMBER 31,
ratios and growth rates) 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Sales $ 288,773 $ 286,410 $ 287,076 $ 266,661 $ 230,560
Freight 17,646 17,011 18,858 18,461 10,744
- --------------------------------------------------------------------------------------------------------------------------------
Net sales 271,127 269,399 268,218 248,200 219,816
Cost of sales 187,952 184,292 184,012 170,839 152,538
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 83,175 85,107 84,206 77,361 67,278
Selling, general, and administrative expenses 36,655 37,555 34,982 31,704 26,957
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 46,520 47,552 49,224 45,657 40,321
Other (expense) income:
Interest expense (17,754) (22,343) (26,721) (24,639) (20,821)
Interest income 246 412 491 617 995
Equity in income (loss) of unconsolidated affiliates -- -- -- (807) (934)
Other, net (297) (409) (19) 106 (599)
- --------------------------------------------------------------------------------------------------------------------------------
(17,805) (22,340) (26,249) (24,723) (21,359)
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 28,715 25,212 22,975 20,934 18,962
Minority interest -- 235 1,369 617 (56)
Tax provision 11,095 9,468 8,774 8,331 8,243
- --------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before discontinued
operations, extraordinary items, and accounting changes $ 17,620 $ 15,979 $ 15,570 $ 13,220 $ 10,663
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 17,620 $ 15,979 $ 15,570 $ 13,220 $ 10,663
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted weighted average shares outstanding 17,720 17,701 17,690 17,695 17,383
PER SHARE DATA
Income from continuing operations before discontinued
operations, extraordinary items, and accounting changes $ 0.99 $ 0.90 $ 0.88 $ 0.75 $ 0.61
Net income 0.99 0.90 0.88 0.75 0.61
Cash dividends declared -- -- -- -- --
Market price on December 31 N/A N/A N/A N/A N/A
Shares outstanding December 31 17,649 17,649 17,619 17,618 17,622
Price/Earnings ratio N/A N/A N/A N/A N/A
TOTAL MARKET VALUE OF COMMON STOCK N/A N/A N/A N/A N/A
BALANCE SHEET DATA
Cash and cash equivalents $ 4,547 $ 1,900 $ 13,364 $ 4,908 $ 404
Property, plant, and equipment - net 86,005 87,445 90,180 90,175 68,697
Depreciation and amortization 10,515 13,077 11,756 7,531 6,523
Capital expenditures 10,647 10,634 12,486 10,612 7,562
Total assets 144,519 141,216 153,671 146,874 117,812
Current maturities of long-term debt 36,292 36,216 39,514 34,633 14,052
Revolving credit loans -- -- -- -- --
Long-term debt, less current maturities 126,021 145,459 173,170 189,736 198,663
Shareholders' equity (deficit) (68,732) (86,352) (102,578) (118,220) (131,484)
Total capital $ 93,581 $ 95,323 $ 110,106 $ 106,149 $ 81,231
OTHER KEY FINANCIAL MEASURES
Total debt-to-total capital (A) (A) (A) (A) (A)
Net debt-to-net capital (A) (A) (A) (A) (A)
Effective tax rate 38.6% 37.6% 38.2% 39.8% 43.5%
Return on shareholders' equity (A) (A) (A) (A) (A)
Return on average capital 30.2% 29.1% 29.7% 29.9% 26.8%
Dividend payout ratio 0.0% 0.0% 0.0% 0.0% 0.0%
Economic profit (B) (A) (A) (A) (A) (A)
</TABLE>
(A) Not meaningful due to Company's leveraged recapitalization in 1986.
(B) Economic profit represents adjusted net operating profit after cash taxes
less a calculated capital charge for beginning-of-year capital employed.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS 1996 - 1995
Net sales increased 10.7 percent to $602.7 million from $544.6 million in 1995.
Acquisitions completed in 1996 and the fourth quarter of 1995 contributed
incremental sales of $103.3 million in 1996. These acquisitions included Summer
Paper Tube and the joint venture with Tenneco Packaging, Inc., both of which
were completed in 1996, and GAR Holding Company, completed in the fourth quarter
of 1995. On a same-plant basis, excluding acquisitions and the deconsolidation
of Standard Gypsum, net sales declined $25.7 million, or 4.9 percent. This
decline was due to lower average selling prices on paperboard and recovered
fiber. Average same-mill paperboard net selling price per ton was down $33, or
7.8 percent, in 1996 to $392. Market prices for recovered fiber, the Company's
primary raw material, were much lower on average and relatively stable in 1996
compared to 1994 and 1995. Paperboard price increases implemented in 1994 and
1995, in response to the unprecedented recovered fiber price increases of those
years, gave way to a gradual drift downward in paperboard net selling prices
during 1996. Average net selling price per ton for converted tubes and cores,
however, was up $8, or 1.1 percent, to $723.
Tons sold from paperboard mill production (consisting of sales to outside
customers and transfers to the Company's converting operations) increased 14.7
percent to 826.9 thousand tons in 1996. On a same-plant basis, tons sold
increased 0.7 percent year over year to 725.7 thousand tons. Purchases of
paperboard from outside manufacturers (primarily gypsum facing paper for resale;
tube, core and can grades for internal conversion; and folding carton grades for
internal conversion) increased 7.9 percent from 94.9 thousand tons to 102.4
thousand tons in 1996. Of this amount, converting facilities acquired in 1995
and 1996 accounted for 18.8 thousand tons. Total paperboard tonnage thus
increased 13.9 percent to 929.4 thousand tons in 1996 versus 815.8 thousand tons
last year. On a same-plant basis, total paperboard tonnage declined 0.6 percent
to 811.2 thousand tons for the year. Including acquisitions, tube, core and can
volume increased 8.1 percent on a year-over-year basis; folding carton
11
<PAGE> 13
volume increased 82.9 percent; gypsum facing paper volume increased 5.1 percent;
and other specialty volume decreased 4.7 percent. Excluding acquisitions, tube,
core and can volume increased 3.9 percent and folding carton volume decreased
15.8 percent.
The Company's gross margin increased to 29.9 percent of net sales from 26.3
percent in 1995. This increase was due to higher gross paper margins (selling
prices less raw materials costs) at the Company's paperboard mills and tube and
core converting operations. Average same-mill recovered fiber cost per ton of
paperboard produced for 1996 was down $78, or 54.2 percent, to $66 compared to
$144 in 1995. This cost decrease more than offset the $33 per ton paperboard net
selling price decrease the Company experienced. Average paperboard cost per ton
of paperboard consumed at the Company's tube and core converting operations
declined $12, or 2.8 percent, to $396. Thus, the gross paper margin was $45 per
ton higher for paperboard and $20 per ton higher for tube and core converted
products in 1996 versus 1995. This gross paper margin expansion was partially
offset by an increase of 10.3 percent in all other paperboard mill converting
costs including repairs and maintenance, purchased energy costs, and
depreciation.
Operating income increased $23.2 million, or 30.7 percent, from $75.7 million to
$98.9 million in 1996. Operating income at comparable facilities (excluding the
impact of acquisitions and dispositions) increased $19.7 million, or 27.4
percent, due primarily to higher margins at the Company's paperboard mills and
tube and core converting operations offset in part by lower margins at the
Company's paperstock recycling facilities. Selling, general and administrative
expenses increased $13.6 million in 1996 due primarily to acquisitions completed
in 1995 and 1996.
Interest expense increased to $10.7 million from $7.0 million in 1995 as the
result of higher outstanding balances under the revolving credit facility.
In the second quarter of 1996, the Company transferred substantially all the
operating assets of its wholly-owned subsidiary, Standard Gypsum Corporation, to
a newly formed limited liability company, Standard Gypsum LLC ("LLC").
Simultaneous with this transaction, Temple-Inland Forest Products Corporation,
an unrelated third party, paid the Company $10.8 million in cash for a 50
percent interest in
12
<PAGE> 14
the LLC. The business, which includes a gypsum wallboard manufacturing facility
in McQueeney, Texas, and a gypsum quarry in Fredericksburg, Texas, is being
managed by Temple-Inland. The Company supplies all of the gypsum facing
paperboard requirements of the LLC. In conjunction with this transaction, during
1996, the Company recognized a pretax, nonrecurring gain of $4.2 million which
is included in other income/expense in the Company's consolidated income
statement. The Company also recognized income of $2.1 million during 1996 that
represents its 50 percent interest in the earnings of the LLC. See Note 4 to
Consolidated Financial Statements.
Net income increased 34.7 percent from $43.0 million to $57.9 million in 1996.
As a percent of net sales, net income increased from 7.9 percent to 9.6 percent.
Fully diluted net income per common share rose 37.3 percent to $2.28 from $1.66
in 1995. Fully diluted weighted average shares outstanding declined in 1996 as
the result of share purchases under the Company's stock purchase program. This
decline was partially offset by increased dilution from stock options as the
result of a higher market price for the Company's common stock.
RESULTS OF OPERATIONS 1995 - 1994
Net sales increased 26.3 percent to $544.6 million from $431.2 million in 1994.
Approximately 13.5 percent of the total increase was attributable to
acquisitions completed in 1994 and 1995, with the balance due to volume gains
and overall pricing increases. Tons sold by the Company's paperboard mills
(including sales to outside customers and transfers to the Company's converting
operations) increased by 1.3 percent from 711.5 thousand tons to 720.9 thousand
tons in 1995. Purchases of paperboard from outside manufacturers (primarily
gypsum facing paper for resale; tube, core and can grades for internal
conversion; and folding carton grades for internal conversion) increased 36.4
percent from 69.6 thousand tons to 94.9 thousand tons in 1995. Total paperboard
tonnage thus increased 4.4 percent to 815.8 thousand tons in 1995. Gypsum facing
paper volume increased 3.2 percent on a year-over-year basis; tube, core and can
volume increased 1.9 percent; and folding carton and other specialty grade
volume increased 5.1 percent. Average paperboard mill net selling price per ton
was up $99, or 30.2 percent, in 1995 to $425, and average net selling price per
ton for converted tubes and cores was up $134, or 23.1 percent, to $715.
13
<PAGE> 15
Operating income increased 17.7 percent from $64.3 million to $75.7 million in
1995. This increase was due primarily to an increase in the margin between
selling prices per ton and raw materials costs per ton at the Company's
paperboard mills and tube and core converting operations. Prices for recovered
fiber, the Company's primary raw material, which had risen dramatically in 1994,
continued to rise and reached unprecedented levels in 1995. Recovered fiber
costs per ton of paperboard produced averaged $71 higher for the full year 1995
versus 1994, an increase of 96.2 percent. The increase in recovered fiber costs,
coupled with an average cost increase of $95, or 30.4 percent, per ton of
paperboard consumed in 1995 versus 1994 at the Company's tube and core
converting operations, drove the increase in costs of goods sold to 73.7 percent
of net sales from 71.3 percent of net sales in 1994. The Company undertook to
recover these raw materials cost increases by increasing selling prices on both
paperboard and converted products, resulting in the year-over-year per ton
average selling price gains mentioned above. The net effect was a per ton margin
expansion between selling prices and raw materials costs in 1995 of $28 per ton
for paperboard and $38 per ton for tube and core converted products over 1994
levels. However, 1994 margins were below historical levels as the Company was
unable to maintain its margins in the wake of the dramatic recovered fiber cost
increases during 1994. Thus, the margin expansion in 1995 represents a recovery
of margins lost during 1994. This margin expansion, offset in part by a $13.5
million increase in other costs including salaries and benefits, repairs and
maintenance, and operating supplies, resulted in an $11.4 million improvement in
operating profits in 1995.
Selling, general and administrative expenses increased $8.1 million, or 13.7
percent, in 1995. Of this increase, $2.0 million, or 24.7 percent, was due to
acquisitions completed in 1994 and 1995 and $735 thousand, or 9.1 percent, was
due to the write-off of costs associated with the proposed acquisition of
Gibraltar Packaging Group, Inc., which was terminated in the third quarter of
1995. The primary items contributing to the remainder of the increase include
higher salary expenses due to general annual increases, increased employee
benefits costs, and higher selling expenses. Selling, general and administrative
expenses as a percent of sales declined to 12.4 percent from 13.7 percent in
1994 primarily because of higher selling prices.
14
<PAGE> 16
Interest expense was slightly higher, $7.0 million in 1995 versus $6.9 million
in 1994, due to the Company's draw on its revolving credit facility to finance
the GAR Holding Company acquisition near the end of 1995. See Note 3 to
Consolidated Financial Statements.
Net income increased 21.1 percent from $35.5 million in 1994 to $43.0 million in
1995.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1996, the Company had loans of $100.0 million outstanding from
its revolving credit facility versus $10.0 million and none on December 31, 1995
and 1994, respectively. During 1996, the Company borrowed $145.0 million from
the facility and repaid $55.0 million by year end. These borrowings were used to
help finance the Company's contribution to form the partnership with Tenneco
Packaging, Inc., the acquisition of Summer Paper Tube and the purchase of shares
under the Company's stock purchase program. Other long-term debt, less current
maturities, was $83.3 million at year end compared to $83.4 million at year-end
1995 and 1994.
Cash generated from operations was $97.2 million for 1996, $58.6 million for
1995, and $47.6 million for 1994. The increase in 1996 compared to 1995 was due
primarily to higher net income combined with favorable changes in working
capital including inventory (due to lower average recovered fiber costs), trade
accounts payable and accrued liabilities.
Capital expenditures, excluding acquisitions, were $32.1 million in 1996, $28.0
million in 1995, and $29.3 million in 1994. Capital expenditures in 1994
included $5.7 million related to the buyout of operating leases in conjunction
with the Company's acquisition of Federal Packaging Corporation. Capital
expenditures of approximately $52.5 million are anticipated for 1997. The
Company used $138.4 million for acquisitions in 1996, compared with $35.1
million in 1995 and $9.0 million in 1994. Cash dividends of $12.0 million were
paid in 1996 compared with $10.7 million in 1995 and $9.0 million in 1994.
Effective July 1, 1996, the Company entered into a partnership ("Partnership")
with Tenneco Packaging, Inc., a wholly-owned subsidiary of Tenneco, Inc. The
Company contributed $114.5 million in cash in
15
<PAGE> 17
exchange for an 80 percent interest in the Partnership. Tenneco Packaging, Inc.
contributed substantially all the assets and liabilities of its Rittman, Ohio
and Tama, Iowa clay-coated recycled paperboard mills and recovered fiber
recycling and brokerage operations located in Rittman and Cleveland, Ohio in
exchange for $114.5 million in cash and a 20 percent partnership interest. The
Company's investment in the Partnership was funded with borrowings of $110.0
million from its revolving credit facility and the remainder with internally
generated cash. See Note 3 to Consolidated Financial Statements.
During 1996, the Company purchased and retired 1,020,000 shares of its common
stock pursuant to a plan authorized and approved by its board of directors which
allows purchases of up to 2,000,000 shares. These purchases were made in a
series of open market transactions at an aggregate cost of $20.9 million and at
prices ranging from $18.81 to $31.50 per share. See Note 2 to Consolidated
Financial Statements.
The Company anticipates that it will be able to meet its funding needs for the
possible acquisition of additional facilities, working capital, capital
expenditures, and additional stock purchases through internally generated cash
and borrowings under its revolving credit facility.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- --------------------------------------------------------------- ------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,989 $ 8,785
Receivables, net of allowances for doubtful accounts,
returns, and discounts of $1,314 and $1,275 at December
31, 1996 and 1995, respectively 59,789 53,788
Inventories 46,468 47,146
Refundable income taxes 5,620 214
Other current assets 3,187 3,966
--------- ---------
Total current assets 127,053 113,899
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT:
Land 5,640 9,031
Buildings and improvements 74,837 62,530
Machinery and equipment 313,379 243,913
Furniture and fixtures 9,098 7,477
--------- ---------
402,954 322,951
Less accumulated depreciation (146,120) (141,021)
--------- ---------
Property, plant, and equipment, net 256,834 181,930
--------- ---------
GOODWILL, net of accumulated amortization of $2,228 and
$611 at December 31, 1996 and 1995, respectively 81,124 17,676
--------- ---------
OTHER ASSETS 11,269 8,571
--------- ---------
$ 476,280 $ 322,076
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 29 $ 36
Cash overdraft 11,230 5,113
Accounts payable 31,117 26,125
Accrued liabilities 28,840 22,763
Dividends payable 3,501 3,076
-------- --------
Total current liabilities 74,717 57,113
-------- --------
REVOLVING CREDIT LOANS 100,000 10,000
-------- --------
LONG-TERM DEBT, less current maturities 83,261 83,380
-------- --------
DEFERRED INCOME TAXES 24,787 22,045
-------- --------
DEFERRED COMPENSATION 5,727 6,227
-------- --------
OTHER LIABILITIES 3,782 3,969
-------- --------
MINORITY INTEREST 13,436 99
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares
authorized, no shares issued at December 31, 1996
and 1995 0 0
Common stock, $.10 par value; 60,000,000 shares
authorized, 25,053,460 and 25,682,371 shares issued
and outstanding at December 31, 1996 and 1995,
respectively 2,505 2,568
Additional paid-in capital 140,144 154,013
Retained earnings (deficit) 27,921 (17,338)
-------- --------
170,570 139,243
-------- --------
$476,280 $322,076
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
17
<PAGE> 19
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
SALES $629,674 $569,455 $455,808
FREIGHT 26,979 24,827 24,583
-------- -------- --------
Net sales 602,695 544,628 431,225
COST OF SALES 422,783 401,570 307,652
-------- -------- --------
Gross profit 179,912 143,058 123,573
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 81,003 67,361 59,247
-------- -------- --------
Operating income 98,909 75,697 64,326
-------- -------- --------
OTHER (EXPENSE) INCOME:
Interest expense (10,698) (6,955) (6,870)
Interest income 591 821 353
Equity in income of unconsolidated affiliates 2,154 0 0
Other, net 4,274 (463) (249)
-------- -------- --------
(3,679) (6,597) (6,766)
-------- -------- --------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 95,230 69,100 57,560
MINORITY INTEREST (754) 153 13
PROVISION FOR INCOME TAXES 36,574 26,265 22,095
-------- -------- --------
NET INCOME $ 57,902 $ 42,988 $ 35,478
======== ======== ========
FULLY DILUTED INCOME PER COMMON SHARE $ 2.28 $ 1.66 $ 1.38
======== ======== ========
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 25,431 25,963 25,771
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
18
<PAGE> 20
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 24,967,587 $2,497 $144,162 $(72,235) $ 74,424
Net income 0 0 0 35,478 35,478
Issuance of common stock under nonqualified stock option plans 246,068 24 3,478 0 3,502
Issuance of common stock under 1993 stock purchase plan 66,014 7 955 0 962
Pension liability adjustment 0 0 0 (2,450) (2,450)
Foreign currency translation adjustment 0 0 0 (218) (218)
Dividends declared of $.375 per share 0 0 0 (9,424) (9,424)
---------- ------ -------- ------- -------
BALANCE, DECEMBER 31, 1994 25,279,669 2,528 148,595 (48,849) 102,274
Net income 0 0 0 42,988 42,988
Issuance of common stock under nonqualified stock option plans 320,605 32 3,944 0 3,976
Issuance of common stock under 1993 stock purchase plan 82,097 8 1,474 0 1,482
Foreign currency translation adjustment 0 0 0 (356) (356)
Dividends declared of $.435 per share 0 0 0 (11,121) (11,121)
---------- ------ -------- ------- -------
BALANCE, DECEMBER 31, 1995 25,682,371 2,568 154,013 (17,338) 139,243
Net income 0 0 0 57,902 57,902
Issuance of common stock under nonqualified stock option plans 359,519 36 6,055 0 6,091
Issuance of common stock under 1993 stock purchase plan 30,394 3 884 0 887
Issuance of common stock under director equity plan 1,176 0 31 0 31
Purchase and retirement of common stock (1,020,000) (102) (20,839) 0 (20,941)
Pension liability adjustment 0 0 0 (274) (274)
Foreign currency translation adjustment 0 0 0 49 49
Dividends declared of $.50 per share 0 0 0 (12,418) (12,418)
---------- ------ -------- -------- --------
BALANCE, DECEMBER 31, 1996 25,053,460 $2,505 $140,144 $ 27,921 $170,570
========== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
19
<PAGE> 21
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 57,902 $ 42,988 $ 35,478
-------- -------- --------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 26,314 17,671 14,542
Equity in income of unconsolidated affiliates (2,154) 0 0
Gain on sale of interest in subsidiary (4,228) 0 0
Change in deferred income taxes 2,742 952 4,149
Provision for deferred compensation 596 441 514
Minority interest 754 (153) (13)
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables (1,015) (1,432) (8,793)
Inventories 3,873 (3,832) (4,789)
Other current assets 2,145 (1,184) 316
Accounts payable and accrued liabilities 6,993 (1,217) 7,222
Cash overdraft 6,117 (691) 1,849
Income taxes (2,791) 5,083 (2,922)
-------- -------- --------
Total adjustments 39,346 15,638 12,075
-------- -------- --------
Net cash provided by operating activities 97,248 58,626 47,553
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (32,059) (28,041) (29,331)
Acquisition of businesses, net of cash acquired (138,402) (35,071) (8,958)
Proceeds from the sale of interest in subsidiary, net 10,524 0 0
Other 5,655 (633) (2,201)
-------- -------- --------
Net cash used in investing activities (154,282) (63,745) (40,490)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from revolving credit loans 145,000 20,000 0
Repayments of revolving credit loans (55,000) (10,000) 0
Repayments of long-term debt (126) (111) (2,125)
Dividends paid (11,993) (10,699) (9,017)
Proceeds from issuances of stock 4,092 2,874 2,833
Purchases of stock (20,941) 0 0
Other (794) (625) (660)
-------- -------- --------
Net cash provided by (used in) financing activities 60,238 1,439 (8,969)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,204 (3,680) (1,906)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,785 12,465 14,371
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,989 $ 8,785 $ 12,465
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest $ 10,309 $ 6,973 $ 6,773
======== ======== ========
Cash payments for income taxes $ 36,221 $ 19,462 $ 20,074
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
20
<PAGE> 22
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Caraustar Industries, Inc. (the "Parent Company") and subsidiaries
(collectively, the "Company") are engaged in manufacturing, converting,
and marketing paperboard and related products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Parent Company and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers cash on deposit and investments with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost includes
materials, labor, and overhead. Market, with respect to all
inventories, is replacement cost. Substantially all inventories
(approximately 94 percent and 93 percent at December 31, 1996 and 1995,
respectively) are valued using the first-in, first-out method. Reserves
related to inventories valued using the last-in, first-out method are
not significant.
Inventories at December 31, 1996 and 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Raw materials and supplies $24,784 $25,028
Finished goods and work in process 21,684 22,118
------- -------
$46,468 $47,146
======= =======
</TABLE>
21
<PAGE> 23
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. When assets are
retired or otherwise disposed of, the related costs and accumulated
depreciation are removed from the accounts and any resulting gain or
loss is reflected in income. Expenditures for repairs and maintenance
not considered to substantially lengthen the asset lives are charged to
expense as incurred.
For financial reporting purposes, depreciation is computed using both
straight-line and accelerated methods over the following estimated
useful lives of the assets:
Buildings and improvements 10-45 years
Machinery and equipment 3-20 years
Furniture and fixtures 5-10 years
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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
SELF-INSURANCE
The Company is self-insured for the majority of its workers'
compensation costs and group health insurance costs, subject to
specific retention levels. Consulting actuaries and administrators
assist the Company in determining its liability for self-insured
claims, and such liabilities are not discounted.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's non-U.S. subsidiary are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation."
Net assets of the non-U.S. subsidiary are translated at current rates
of exchange. Income and expense items are translated at the average
exchange rate for the year. The resulting translation adjustments are
recorded in shareholders' equity. Certain other translation adjustments
and transaction gains and losses continue to be reported in net income
and were not material in any year.
GOODWILL
Goodwill is amortized on the straight-line method over periods ranging
up to 40 years. The Company periodically evaluates goodwill for
impairment. In completing this evaluation, the Company estimates the
future undiscounted cash flows of the businesses to which goodwill
relates in order to ensure that the carrying amount of goodwill has not
been impaired.
22
<PAGE> 24
FULLY DILUTED INCOME PER COMMON SHARE
The computation of income per common share is based on the weighted
average number of common shares outstanding during the year, plus the
effect, if dilutive, of common shares issuable under stock options.
PRIOR YEAR RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with
current year presentation.
2. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 5,000,000 shares of $.10 par value preferred
stock. The preferred stock is issuable from time to time in one or more
series and with such designations and preferences for each series as
shall be stated in the resolutions providing for the designation and
issue of each such series adopted by the board of directors of the
Company. The board of directors is authorized by the Company's articles
of incorporation to determine the voting, dividend, redemption, and
liquidation preferences pertaining to each such series. No shares of
preferred stock have been issued by the Company.
COMMON STOCK PURCHASE PLAN
During 1996, the Company purchased and retired 1,020,000 shares of its
common stock pursuant to a plan authorized and approved by its board of
directors allowing purchases of up to 2,000,000 common shares. These
purchases were made in a series of open market transactions at an
aggregate cost of $20,941,000 and at prices ranging from $18.81 to
$31.50 per share.
3. ACQUISITIONS
Effective January 16, 1996, the Company acquired all of the assets of
Summer Paper Tube Company ("Summer"), a manufacturer of paper tubes and
industrial adhesives, for approximately $22,400,000 in cash. In
conjunction with this acquisition, the Company recorded approximately
$13,800,000 in goodwill, which is being amortized over 40 years. The
acquisition has been accounted for as a purchase. The Summer
acquisition was primarily funded with borrowings under the Company's
revolving credit facility.
Effective July 1, 1996, the Company entered into a partnership with
Tenneco Packaging Inc. ("TPI"), a wholly owned subsidiary of Tenneco,
Inc. Under the terms of the partnership agreement, the Company
contributed $114,500,000 in cash in exchange for an 80 percent interest
in the partnership. TPI contributed the assets and liabilities of its
Rittman, Ohio, and Tama, Iowa, clay-coated recycled paperboard mills
and recovered fiber recycling and brokerage operations located in
Rittman and Cleveland, Ohio, in exchange for $114,500,000 in cash and a
20 percent partnership interest. The Company's investment
23
<PAGE> 25
in the partnership was funded primarily with borrowings of $110,000,000
from its revolving credit facility. The Company has accounted for the
acquisition of its partnership interest using the purchase method of
accounting, and as such, the purchase price has been allocated to the
assets acquired based on their estimated fair values. This allocation
was based on preliminary estimates and may be revised at a later date.
For financial reporting purposes, the assets, liabilities, results of
operations, and cash flows of the partnership have been included in the
Company's consolidated financial statements from the date of formation,
and TPI's interest has been included as minority interest. In
conjunction with this transaction, the Company recorded approximately
$51,200,000 in goodwill, which is being amortized over 40 years.
Effective October 31, 1995, the Company acquired all of the outstanding
stock of GAR Holding Company ("GAR"), a manufacturer of folding
cartons, for approximately $35,000,000. The acquisition has been
accounted for using the purchase method, and accordingly, the acquired
assets and liabilities have been recorded at their estimated fair
values at the date of acquisition and the results of operations have
been included in the accompanying statements of income from the date of
acquisition. Allocation of the purchase price of the GAR acquisition
resulted in goodwill of approximately $10,700,000, which is being
amortized over 20 years.
The following unaudited pro forma financial information assumes that
the Company acquired its 80 percent interest in the partnership and GAR
on January 1, 1995. These results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the Company acquired its 80 percent interest in the
partnership and GAR on January 1, 1995 or the results which may occur
in the future (in thousands except per share data):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net sales $653,120 $717,145
Net income 58,483 45,294
Fully diluted net income per common share $ 2.30 $ 1.74
</TABLE>
Additionally, during 1994, the Company acquired all of the outstanding
stock of Mid Packaging Group, Inc., a folding carton manufacturer, for
approximately $9,000,000. In addition, during 1994, the Company
completed an acquisition of a plastic products manufacturer for
approximately $2,700,000.
The Company has accounted for the 1994 acquisitions using the purchase
method, and accordingly, the purchase prices were allocated to the
acquired assets and liabilities based on their estimated fair values at
the date of acquisition. These allocations resulted in goodwill of
$4,295,000, which is being amortized over 40 years. The 1994
acquisitions did not have a material effect on the 1994 operations of
the Company.
4. SALE OF INTEREST IN SUBSIDIARY
On April 1, 1996, the Company transferred substantially all of the
operating assets and liabilities of its wholly owned subsidiary,
Standard Gypsum Corporation, a producer of
24
<PAGE> 26
gypsum wallboard, to a newly formed limited liability company, Standard
Gypsum LLC ("Standard"). Simultaneous with the formation of Standard,
the Company sold a 50 percent interest in Standard to Temple-Inland
Forest Products Corporation ("Temple"), an unrelated third party, for
$10,800,000 in cash. Standard will be operated as a joint venture
managed by Temple. The Company accounts for its interest in Standard
under the equity method of accounting. In conjunction with this
transaction, the Company recognized a nonrecurring gain, before income
taxes, of $4,228,000, which is reflected as a component of other, net,
in the accompanying statement of income for the year ended December 31,
1996. Additionally, from the date of the transaction through December
31, 1996, the Company recognized earnings of $2,050,000 for its equity
interest in the earnings of Standard.
5. REVOLVING CREDIT FACILITY
During 1995, the Company secured a $200,000,000 bank credit facility
(the "1995 facility") to replace its existing $100,000,000 bank credit
facility. The 1995 facility matures in June 2000. Interest under the
1995 facility is payable monthly and may be computed based on the
Company's choice of the Eurodollar rate, certificate of deposit rate,
or prime rate, as defined by the lender. As of December 31, 1996 and
1995, borrowings of $100,000,000 and $10,000,000, respectively, were
outstanding under the 1995 facility at interest rates of 5.875 percent
and 6 percent, respectively.
6. LONG-TERM DEBT
At December 31, 1996 and 1995, long-term debt consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Senior notes, dated October 8, 1992, terms as
described below $82,750 $82,750
Other notes payable 540 666
------- -------
83,290 83,416
Less current maturities 29 36
------- -------
$83,261 $83,380
======= =======
</TABLE>
The senior notes dated October 8, 1992 (the "Notes") are payable to an
insurance company in five equal annual installments of $16,550,000
beginning October 8, 2000. Interest on the Notes accrues at 7.74
percent and is payable semiannually. The Notes also provide for
optional prepayments, in whole or in part, with a penalty, as defined,
during specified periods.
The Notes and 1995 facility (Note 5) each contain certain restrictive
covenants on the part of the Company, including but not limited to
payment of dividends, sales of assets, incurrence of additional
indebtedness, capital expenditures, maintenance of certain interest
coverage ratios (as defined), investments, and minimum working capital
requirements.
25
<PAGE> 27
Aggregate maturities of long-term debt at December 31, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
1997 $ 29
1998 93
1999 105
2000 16,646
2001 16,650
Thereafter 49,767
-------
$83,290
=======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain buildings, machinery, and transportation
equipment under operating lease agreements expiring at various dates
through 2008. Certain rental payments for transportation equipment are
based on a fixed rate, plus an additional amount for mileage. Rental
expense on operating leases for the years ended December 31, 1996,
1995, and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Minimum rentals $4,895 $7,025 $5,565
Contingent rentals 563 911 901
------ ------ ------
$5,458 $7,936 $6,466
====== ====== ======
</TABLE>
The following is a schedule of future minimum rental payments required
under leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997 $ 5,452
1998 4,216
1999 2,965
2000 1,991
2001 1,104
Thereafter 2,683
-------
$18,411
=======
</TABLE>
LITIGATION
The Company is involved in certain litigation arising in the ordinary
course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
26
<PAGE> 28
8. STOCK OPTION AND DEFERRED COMPENSATION PLANS
DIRECTOR EQUITY PLAN
During 1996, the Company's board of directors approved a director
equity plan. Under the plan, directors who are not employees of the
Company ("Eligible Directors") are paid a portion of their director's
fees in the Company's common stock. Additionally, each Eligible
Director is granted an option to purchase 1,000 shares of the Company's
common stock at an option price equal to the fair market value at the
date of grant. These options are immediately exercisable and expire ten
years following grant. A maximum of 100,000 shares of common stock may
be granted under this plan. During 1996, 1,176 shares of common stock
and options to purchase 6,000 shares of common stock were issued under
this plan.
INCENTIVE STOCK OPTION AND BONUS PLANS
The Company has a nonqualified incentive stock option plan adopted in
1987 (the "Plan") for certain officers of the Company. Under the Plan,
options to purchase a maximum of 1,980,000 shares could be granted
through 1990. The stock option committee, appointed by the board of
directors, determined the price, vesting period, exercise dates, and
expiration dates for options granted to officers. Options outstanding
under the Plan expire at various dates through 1997.
During 1992, the Company's board of directors approved a nonqualified
incentive stock option and bonus plan which became effective January 1,
1993 and terminates December 31, 1997 (the "1993 Plan"). Under the
provisions of the 1993 Plan, selected members of management may receive
one share of common stock ("bonus share") for each two shares purchased
at market value. In addition, the 1993 Plan provides for the issuance
of options at prices not less than market value at the date of grant.
The options and bonus shares awarded under the 1993 Plan are subject to
four-year and five-year respective vesting periods. The Company's board
of directors authorized 1,400,000 common shares for grant under the
1993 Plan. During 1996, 1995, and 1994, the Company issued 142,060,
136,020, and 131,070 nonqualified incentive stock options,
respectively, under the 1993 plan. During 1996, 1995, and 1994, the
Company issued 10,859, 26,420, and 20,291 bonus shares, respectively,
with a respective aggregate market value of $264,000, $505,000, and
$366,000, respectively. Compensation expense of $359,000, $264,000, and
$158,000 related to bonus shares was recorded in 1996, 1995, and 1994,
respectively.
27
<PAGE> 29
A summary of stock option activity for the years ended December 31,
1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1993 1,481,330 $2.70-$17.75
Granted 131,070 15.50
Forfeited (18,175) 10.00
Exercised (246,068) 2.70-9.06
---------
Outstanding at December 31, 1994 1,348,157 2.70-17.75
Granted 136,020 19.75
Forfeited (21,876) 15.00-19.75
Exercised (320,605) 2.70-15.50
---------
Outstanding at December 31, 1995 1,141,696 2.70-19.75
Granted 148,060 19.50-29.75
Forfeited (24,680) 15.00-20.50
Exercised (361,035) 2.70-19.75
---------
Outstanding at December 31, 1996 904,041 2.70-29.75
=========
</TABLE>
Accruals of approximately $1,344,000 and $1,699,000 related to the
outstanding incentive stock options are included in deferred
compensation in the accompanying balance sheets at December 31, 1996
and 1995, respectively.
During 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which defines a fair
value-based method of accounting for an employee stock option plan or
similar equity instrument. However, it also allows an entity to
continue to measure compensation cost for those plans using the method
of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities electing
to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair
value-based method of accounting defined in the statement has been
applied.
The Company accounts for the director equity plan and the incentive
stock option and bonus plans under APB Opinion No. 25; however, the
Company has computed for pro forma disclosure purposes the value of all
options granted during 1996 and 1995 using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following
weighted average assumptions used for grants in 1996 and 1995:
Risk-free interest rate 5.40%-6.79%
Expected dividend yield 1.61%-2.46%
Expected option lives 6-8 years
Expected volatility 25%
The total values of the options granted during the year ended December
31, 1996 and 1995 were computed to be approximately $763,074 and
$722,505, respectively, which would be amortized over the vesting
period of the options. If the Company had accounted for these plans in
accordance with SFAS No. 123, the Company's reported and pro forma net
income
28
<PAGE> 30
and net income per share for the years ended December 31, 1996 and 1995
would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net income:
As reported $57,902 $42,988
Pro forma 57,659 42,925
Fully diluted income per common share:
As reported $ 2.28 $ 1.66
Pro forma 2.27 1.65
</TABLE>
DEFERRED COMPENSATION PLANS
The Parent Company and certain of its subsidiaries have deferred
compensation plans for several of their present and former officers and
key employees. These plans provide for retirement, involuntary
termination, and death benefits. The involuntary termination and
retirement benefits are accrued over the period of active employment
from the execution dates of the plans to the normal retirement dates
(age 65) of the employees covered. Deferred compensation expense
applicable to the plans was approximately $483,000, $480,000, and
$441,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Accruals of approximately $4,383,000 and $4,528,000
related to these plans are included in deferred compensation in the
accompanying balance sheets at December 31, 1996 and 1995,
respectively.
9. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
PENSION PLAN
Substantially all of the Company's employees participate in a
noncontributory defined benefit pension plan (the "Pension Plan"). The
Pension Plan calls for benefits to be paid to all eligible employees at
retirement based primarily on years of service with the Company and
compensation rates in effect near retirement. The Pension Plan's assets
consist of shares held in collective investment funds and group annuity
contracts. The Company's policy is to fund benefits attributed to
employees' service to date as well as service expected to be earned in
the future. Contributions to the Pension Plan totaled approximately
$4,651,000, $2,019,000, and $2,221,000 in 1996, 1995, and 1994,
respectively.
The Company adopted SFAS No. 87, "Employers' Accounting for Pensions,"
as of May 1, 1987, which requires use of the projected unit credit
actuarial method to determine the projected benefit obligation and plan
cost. The projected benefit obligation is the actuarial present value
of the portion of projected future benefits that is attributed to
employee service to date. The benefit cost for service during the year
is the portion of the projected benefit obligation that is attributed
to employees' service during the year. This cost method recognizes the
effect of future compensation and service in projecting the future
benefits. In addition, the adoption of SFAS No. 87 established a
transition asset. The transition asset is being amortized over the
average remaining service period of employees.
29
<PAGE> 31
Pension expense includes the following components for the years ended
December 31, 1996, 1995, and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost of benefits earned $ 1,493 $ 1,448 $ 1,264
Interest cost on projected benefit obligation 2,191 2,045 1,803
Actual (gain) loss on plan assets (1,146) (1,914) 974
Net amortization and deferral (110) 1,131 (1,987)
------- ------- -------
Net pension expense $ 2,428 $ 2,710 $ 2,054
======= ======= =======
</TABLE>
The table below represents a reconciliation of the funded status of the
Pension Plan to prepaid (accrued) pension cost as of December 31, 1996
and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Accumulated benefit obligation:
Vested $28,062 $ 23,401
Nonvested 969 887
------- --------
29,031 24,288
Effect of projected future compensation levels 5,287 5,345
------- --------
Projected benefit obligation 34,318 29,633
Plan assets, at fair value 25,204 18,486
------- --------
Projected benefit obligation in excess of plan assets (9,114) (11,147)
Unrecognized net loss 9,317 9,259
Prior service cost 326 387
Transition asset from initial adoption of SFAS No. 87 (267) (460)
------- --------
Prepaid (accrued) pension cost before minimum pension
liability adjustment $ 262 $ (1,961)
======= ========
</TABLE>
In accordance with SFAS No. 87, the Company has recorded in 1996 and
1994 an additional minimum pension liability for underfunded plans
representing the excess of unfunded accumulated benefit obligations
over previously recorded pension liabilities. The cumulative additional
liability totaled $4,150,000 and $3,876,000 at December 31, 1996 and
1995, respectively, and has been offset by intangible assets to the
extent of previously unrecognized prior service costs. Amounts in
excess of previously unrecognized prior service cost are recorded as
reductions in shareholders' equity.
Net pension expense and projected benefit obligations are calculated
using assumptions of weighted average discount rates, future
compensation levels, and expected long-term rates of return on assets.
The weighted average discount rate used to measure the projected
benefit obligation at December 31, 1996 and 1995 is 7.5 percent, the
rate of increase in future compensation levels is 3.5 percent, and the
expected long-term rate of return on assets is 9.5 percent.
30
<PAGE> 32
OTHER POSTRETIREMENT BENEFITS
The Company provides postretirement medical benefits at certain of its
subsidiaries. The Company accounts for these postretirement medical
benefits in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement requires
the cost of postretirement benefits to be accrued during the service
lives of employees.
Net periodic postretirement benefit cost for the years ended December
31, 1996, 1995, and 1994 included the following components (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned $ 86 $ 86 $ 78
Interest cost on accumulated postretirement
benefit obligation 239 281 248
---- ---- ----
Net periodic postretirement benefit cost $325 $367 $326
==== ==== ====
</TABLE>
Postretirement benefits totaling $203,000, $151,000, and $202,000 were
paid during 1996, 1995, and 1994, respectively.
The accrued postretirement benefit cost as of December 31, 1996 and
1995 consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $1,961 $1,761
Fully eligible active plan participants 197 337
Other active plan participants 1,266 1,922
------ ------
3,424 4,020
Unrecognized net loss (39) (757)
------ ------
Accrued postretirement benefit cost $3,385 $3,263
====== ======
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1996
and 1995 was determined using a weighted average discount rate of 7.5
percent. The rate of increase in the costs of covered health care
benefits is assumed to be 7.5 percent in 1997, gradually decreasing to
5.5 percent by the year 2001. Increasing the assumed health care costs
trend rate by one percentage point would increase the accumulated
postretirement benefit obligation as of December 31, 1996 by
approximately $419,000 and would increase net periodic postretirement
benefit cost by approximately $44,000 for the year ended December 31,
1996.
31
<PAGE> 33
10. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability
method of accounting for deferred income taxes.
The provision for income taxes for the years ended December 31, 1996,
1995, and 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $29,989 $22,026 $15,347
State 3,843 3,286 2,599
------- ------- -------
33,832 25,312 17,946
Deferred 2,742 953 4,149
------- ------- -------
$36,574 $26,265 $22,095
======= ======= =======
</TABLE>
The principal differences between the federal statutory tax rate and
the provision for income taxes for the years ended December 31, 1996,
1995, and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit 3.5 3.3 3.3
Other 0.2 (0.3) 0.1
---- ---- ----
Effective tax rate 38.7% 38.0% 38.4%
==== ==== ====
</TABLE>
32
<PAGE> 34
Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1996 and 1995 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax assets:
Deferred employee benefits $ 1,909 $ 2,444
Postemployment benefits 643 1,350
Postretirement benefits other than pensions 619 508
Accounts receivable 627 500
Other 238 276
-------- --------
Total deferred income tax assets 4,036 5,078
-------- --------
Deferred income tax liabilities:
Depreciation and amortization (27,170) (25,829)
Asset revaluations (854) (884)
Other (799) (410)
-------- --------
Total deferred income tax liabilities (28,823) (27,123)
-------- --------
Valuation allowance 0 0
-------- --------
$(24,787) $(22,045)
======== ========
</TABLE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data for the
periods indicated:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1996:
Net sales $144,519,000 $140,400,000 $158,199,000 $159,577,000
Gross profit 43,340,000 43,766,000 47,002,000 45,804,000
Net income 13,551,000 15,327,000 14,766,000 14,258,000
Fully diluted net
income per share $ 0.53 $ 0.61 $ 0.58 $ 0.56
1995:
Net sales $130,427,000 $139,665,000 $137,967,000 $136,569,000
Gross profit 32,228,000 34,180,000 34,883,000 41,767,000
Net income 9,024,000 10,411,000 10,322,000 13,231,000
Fully diluted net
income per share $ 0.35 $ 0.40 $ 0.40 $ 0.51
</TABLE>
33
<PAGE> 35
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments as of December 31, 1996:
- CASH AND CASH EQUIVALENTS. The carrying amount
approximates fair value because of the short maturity
of these instruments.
- LONG-TERM DEBT. The fair values of the Company's
senior notes and revolving credit facility are based
on the current rates available to the Company for
debt of the same remaining maturity and, as of
December 31, 1996, approximate the carrying amounts.
The carrying amounts of the other notes payable are
assumed to approximate fair value due to the short
maturity and variable rate structure of the
instruments.
34
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Caraustar Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CARAUSTAR
INDUSTRIES, INC. (a North Carolina corporation) AND SUBSIDIARIES as of December
31, 1996 and 1995 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly, in
all material respects, the financial position of Caraustar Industries, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 4, 1997
35
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company had no disagreements on accounting or financial disclosure
matters with its independent public accountants to report under this Item 9.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information contained under the caption "Election of Directors" in the
Proxy Statement is incorporated herein by reference in response to this Item
10. The information in response to this Item 10 regarding the executive
officers of the Company is contained in Item 1, Part I hereof under the caption
"Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
Information contained under the caption "Executive Compensation" in the
Proxy Statement, except the item captioned "Compensation Committee Report" is
incorporated herein by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information contained under the caption "Share Ownership" in the Proxy
Statement is incorporated by reference herein in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information contained under the heading "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated
herein by reference in response to this Item 13.
36
<PAGE> 38
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. Documents filed as part of the Report
(1) The following financial statements of the Company and
Report of Independent Public Accountants are included in Part II, Item 8 above.
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31,
1996 and 1995
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1996, 1995 and
1994
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(2) The Report of Independent Public Accountants as to
Schedule and the following financial statement schedule are filed as part of
the report:
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable, or the required
information is included elsewhere in the financial statements.
(3) Exhibits:
The Exhibits to this report on Form 10-K are listed in the
accompanying Exhibit Index.
b. Reports on Form 8-K.
No Current Reports on Form 8-K were filed in the last quarter of the
fiscal year ended December 31, 1996.
*Management contract or compensatory plan required to be filed under
Item 14(c) of this report and Item 601 of Regulation S-K of the Securities and
Exchange Commission.
37
<PAGE> 39
SCHEDULE II
CARAUSTAR INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to
Beginning Costs and Balance at
of Year Expenses Deductions* End of Year
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1994:
Allowances for doubtful accounts
receivable, returns, and discounts $2,180 $ 398 $(1,449) $1,129
------ ------ ------- ------
1995:
Allowances for doubtful accounts
receivable, returns, and discounts $1,129 $1,324 $(1,178) $1,275
------ ------ ------- ------
1996:
Allowances for doubtful accounts
receivable, returns, and discounts $1,275 $3,254 $(3,215) $1,314
------ ------ ------- ------
</TABLE>
* Principally charges for which reserves were provided, net of recoveries.
38
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders of
Caraustar Industries, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of CARAUSTAR INDUSTRIES, INC. (a North
Carolina corporation) AND SUBSIDIARIES as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996 included
in this Form 10-K and have issued our report thereon dated February 4, 1997.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 a.(2) is the
responsibility of the Company's management, is presented for purposes of
complying with the Securities and Exchange Commission's rules, and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 4, 1997
39
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CARAUSTAR INDUSTRIES, INC.
By: /s/ H. Lee Thrash, III
---------------------------------------
H. Lee Thrash, III, Vice President and
Chief Financial Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on March 26, 1997.
Signature
/s/ Thomas V. Brown
- ------------------------------------------------------
Thomas V. Brown, President and Chief Executive Officer
(principal executive officer); Director
/s/ H. Lee Thrash, III
- ------------------------------------------------------------------------
H. Lee Thrash, III, Vice President and Chief Financial Officer
(principal financial officer and principal accounting officer); Director
/s/ James E. Rogers
- ------------------------------
James E. Rogers, Director
- ------------------------------
Bob M. Prillaman, Director
/s/ Russell M. Robinson, II
- ---------------------------------
Russell M. Robinson, II, Director
/s/ Maxine Francis Forrest
- ---------------------------------
Maxine Francis Forrest, Director
40
<PAGE> 42
EXHIBIT INDEX
Exhibit No. Description
2.01 Contribution Agreement between Tenneco
Packaging Inc. and Caraustar
Industries, Inc. regarding the
information of a Partnership, dated as
of June 21, 1996 (including Annex A,
Form of Partnership Agreement), as
amended by Amendment to Contribution
Agreement dated July 15, 1996
(Incorporated by reference - Exhibit 2
to Current Report on Form 8-K dated
July 15, 1996 [SEC File No. 0-20646])
3.01 Amended and Restated Articles of
Incorporation of the Company
(Incorporated by reference - Exhibit
3.01 to Annual Report for 1992 on Form
10-K [SEC File No. 0-20646])
3.02 Second Amended and Restated Bylaws of
the Company (Incorporated by reference
- Exhibit 3.02 to Annual Report for
1992 on Form 10-K [SEC File No.
0-20646])
4.01 Specimen Common Stock Certificate
(Incorporated by reference - Exhibit
4.01 to Registration Statement on form
S-1 [SEC File No. 33-50582])
4.02 Articles 3 and 4 of the Company's
Amended and Restated Articles of
Incorporation (included in Exhibit
3.01)
4.03 Article II of the Company's Second
Amended and Restated Bylaws (included
in Exhibit 3.02)
4.04 Rights Agreement, dated as of April 19,
1995, between Caraustar Industries,
Inc. and First Union National Bank of
North Carolina, as Rights Agent
(Incorporated by reference - Exhibit 1
to Current Report on Form 8-K dated
April 19, 1995 [SEC File No. 0-20646])
10.01 Credit Agreement, dated as of June 2,
1995, by and among the Company, the
Banks signatory thereto from time to
time, NationsBank, N.A. (Carolinas) as
Administrative and Managing Agent,
Bankers Trust Company, as Managing
Agent and CIBC, Inc., as Co-Agent, as
amended by First Amendment to Credit
Agreement, dated as of July 31, 1995
(Incorporated by reference - Exhibit
10.01 to Report on Form 10-Q for the
quarter ended September 30, 1995 [SEC
File No. 0-20646])
10.02 Note Agreement, dated as of October 1,
1992, between the Company and the
Prudential Insurance Company of
America, regarding the Company's 7.89%
Senior Subordinated Notes (Incorporated
by reference - Exhibit 10.02 to Annual
Report for 1992 on Form 10-K [SEC File
No. 0-20646])
10.03 Amendment Agreement, dated as of June
2, 1995, between the Company and the
Prudential Insurance Company of America
regarding the Company's 7.89% Senior
Subordinated Notes (Incorporated by
reference - Exhibit 10.03 to Report on
Form 10-Q for the quarter ended
September 30, 1995 [SEC File No.
0-20646])
10.04* Employment Agreement, dated December
31, 1990, between the Company and
Thomas V. Brown (Incorporated by
reference - Exhibit 10.06 to
Registration Statement on Form S-1 [SEC
File No. 33-50582])
10.05 Asset Purchase Agreement, dated August
7, 1992, between the Company and Domtar
Gypsum Inc. (Incorporated by reference
- Exhibit 10.07 to Registration
Statement on Form S-1 [SEC File No.
33-50582])
41
<PAGE> 43
10.06* Deferred Compensation Plan, together
with copies of existing individual
deferred compensation agreements
(Incorporated by reference - Exhibit
10.08 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
10.07* 1987 Executive Stock Option Plan
(Incorporated by reference - Exhibit
10.09 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
10.08* 1993 Key Employees' Share Ownership
Plan (Incorporated by reference -
Exhibit 10.10 to Registration Statement
on Form S-1 [SEC File No. 33-50582])
10.09 Energy Purchase Agreement, dated
December 18, 1989, between Camden
Paperboard Corporation and Camden
Cogen, L.P. (Incorporated by reference
- Exhibit 10.11 to Registration
Statement on Form S-1 [SEC File No.
33-50582])
10.10* Incentive Bonus Plan of the Company
(Incorporated by reference - Exhibit
10.10 to Annual Report for 1993 on Form
10-K [SEC File No. 0-20646])
10.11 Agreement and Plan of Merger, dated as
of September 13, 1995, among the
Company, CSAR Acquisition, Inc., GAR
Holding Company and each of the
stockholders, warrantholders and
optionees of GAR Holding Company, as
amended by Amendment No. 1 to
Agreement and Plan of Merger dated as
of October 31, 1995 (Incorporated by
reference - Exhibit 10.11 to Report on
Form 10-Q for the quarter ended
September 30, 1995 [SEC File No.
0-20646])
10.12 1996 Director Equity Plan of the
Company (Incorporated by reference -
Exhibit 10.12 to Report on Form 10-Q
for the quarter ended March 31, 1996
[SEC File No. 0-20646])
21.01 Subsidiaries of the Company
23.01 Consent of Arthur Andersen LLP in
connection with the Company's
Registration Statements on Form S-8
27.01 Financial Data Schedule (For SEC
purposes only)
42
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES* OF CARAUSTAR INDUSTRIES, INC.
STATE OF
NAME INCORPORATION TRADE, D/B/A/ NAMES
---- ------------- -------------------
ACC Services, Inc. North Carolina
Mid Packaging Group - Alabama, Inc. Alabama
Atlantic Coast Carton Company North Carolina
Austell Box Board Corporation Georgia
Buffalo Paperboard Corporation New York
Camden Paperboard Corporation New Jersey
Caraustar Paper Sales, Inc. Georgia Caraustar Paper Sales-
South
Caraustar Paperboard Corporation Ohio * *
Carolina Paper Board Corporation North Carolina
Carolina Paper Box Co., Inc. North Carolina
Carolina Recycling, Inc. North Carolina
Carotell Paper Board Corporation South Carolina
Chattanooga Paperboard Corporation Tennessee
Chicago Paperboard Corporation Illinois
Cincinnati Paperboard Corporation Ohio
Columbus Recycling, Inc. Georgia
Federal Packaging Corporation Delaware
Federal Transport, Inc. Ohio
GAR Holding Company Delaware
Macon Recycling, Inc. Georgia
Mid-State Paper Box Company, Inc. North Carolina
Packrite Packaging, Inc. North Carolina
Paper Recycling, Inc. Georgia
Paragon Plastics, Inc. (80% owned) South Carolina
Quality Design Products, Inc. Georgia
Reading Paperboard Corporation Pennsylvania
Richmond Paperboard Corporation Virginia
Special Packaging, Inc. Delaware
Standard Gypsum Corporation Texas
Star Paper Tube de Mexico, S.A.
de C.V. (65% owned) Mexico
Star Paper Tube, Inc. South Carolina
Star Recycling Incorporated Georgia
Sweetwater Paper Board Company, Inc. Georgia
The Garber Company Delaware
The Mid/Packaging Group, Inc. Tennessee
- ------------
* Each subsidiary is wholly-owned by Caraustar Industries, Inc. unless
otherwise indicated.
** Holds 80% interest in partnership joint venture which does business in
Ohio as Rittman Paperboard, Caraustar Paper Sales-North, and Cleveland
Paper Stock and in Iowa as Tama Paperboard.
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 4, 1997 included in this Form 10-K, into Caraustar
Industries, Inc.'s previously filed Registration Statements on Form S-8 (File
No. 33-77682, File No. 33-75838, File No. 33-53808, File No. 33-53726, and File
No. 33-53728).
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR END DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,989
<SECURITIES> 0
<RECEIVABLES> 59,789<F1>
<ALLOWANCES> 0
<INVENTORY> 46,648
<CURRENT-ASSETS> 127,053
<PP&E> 402,954
<DEPRECIATION> 146,120
<TOTAL-ASSETS> 476,280
<CURRENT-LIABILITIES> 74,717
<BONDS> 183,261<F2>
0
0
<COMMON> 2,505
<OTHER-SE> 168,065
<TOTAL-LIABILITY-AND-EQUITY> 476,280
<SALES> 602,695
<TOTAL-REVENUES> 602,695
<CGS> 422,783
<TOTAL-COSTS> 422,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,698
<INCOME-PRETAX> 95,230
<INCOME-TAX> 36,574
<INCOME-CONTINUING> 57,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,902
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
<FN>
<F1>(RECEIVABLES) ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F1>(BONDS) REPRESENT LONG-TERM DEBT, LESS CURRENT MATURITIES, AND REVOLVING
CREDIT LOANS.
</FN>
</TABLE>
