<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
<TABLE>
<C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER: 0-20646
---------------------
CARAUSTAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NORTH CAROLINA 58-1388387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3100 WASHINGTON STREET, AUSTELL, GEORGIA 30106
(Address of principal executive offices) (Zip Code)
</TABLE>
(770) 948-3101
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date, November 9, 1998.
<TABLE>
<CAPTION>
COMMON STOCK, $.10 PAR VALUE 25,040,288
---------------------------- ----------
<S> <C>
(Class) (Outstanding)
</TABLE>
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<PAGE> 2
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
CARAUSTAR INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997................................ 3
Condensed Consolidated Statements of Income for the
three-month and nine-month periods ended September 30,
1998 and September 30, 1997............................... 4
Condensed Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 1998 and September
30, 1997.................................................. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the three-month and
nine-month periods ended September 30, 1998 and September
30, 1997.................................................. 8
PART II -- OTHER INFORMATION
Item 2. Changes in Securities....................................... 15
Item 5. Other Information........................................... 15
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signatures.............................................................. 16
Exhibit Index........................................................... 17
</TABLE>
2
<PAGE> 3
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997*
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,421 $ 1,391
Receivables, net.......................................... 80,481 70,944
Inventories............................................... 68,793 62,319
Refundable income taxes................................... 0 1,190
Other current assets...................................... 7,318 5,312
--------- ---------
Total current assets............................... 160,013 141,156
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 6,725 6,305
Buildings and improvements................................ 97,424 86,967
Machinery and equipment................................... 403,374 362,384
Furniture and fixtures.................................... 9,986 10,103
--------- ---------
517,509 465,759
Less accumulated depreciation............................. (197,381) (174,723)
--------- ---------
Property, plant and equipment, net........................ 320,128 291,036
--------- ---------
GOODWILL, net............................................... 115,729 104,323
--------- ---------
OTHER ASSETS................................................ 16,518 13,575
--------- ---------
$ 612,388 $ 550,090
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 9 $ 9
Accounts payable.......................................... 48,640 43,861
Accrued liabilities....................................... 25,976 21,414
Income taxes payable...................................... 2,913 0
Dividends payable......................................... 4,055 4,052
Other note payable........................................ 26,000 0
--------- ---------
Total current liabilities.......................... 107,593 69,336
--------- ---------
REVOLVING CREDIT LOANS...................................... 141,000 129,000
--------- ---------
LONG-TERM DEBT, less current maturities..................... 83,040 83,129
--------- ---------
DEFERRED INCOME TAXES....................................... 34,166 30,731
--------- ---------
DEFERRED COMPENSATION....................................... 3,994 4,190
--------- ---------
OTHER LIABILITIES........................................... 4,611 4,616
--------- ---------
MINORITY INTEREST........................................... 455 15,157
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares
authorized; none issued................................. 0 0
Common stock, $.10 par value; 60,000,000 shares
authorized, 25,129,753 and 25,330,670 shares issued and
outstanding at September 30, 1998 and December 31, 1997,
respectively............................................ 2,513 2,533
Additional paid-in capital................................ 140,808 144,442
Retained earnings......................................... 95,957 68,823
Accumulated other comprehensive income.................... (1,749) (1,867)
--------- ---------
237,529 213,931
--------- ---------
$ 612,388 $ 550,090
========= =========
</TABLE>
- ---------------
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE> 4
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES................................................. $198,148 $180,705 $582,762 $513,009
FREIGHT............................................... 9,616 6,985 27,701 20,872
-------- -------- -------- --------
Net sales................................... 188,532 173,720 555,061 492,137
COST OF SALES......................................... 137,016 126,920 402,561 353,695
-------- -------- -------- --------
Gross profit................................ 51,516 46,800 152,500 138,442
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 28,278 21,660 79,605 66,500
-------- -------- -------- --------
Operating income............................ 23,238 25,140 72,895 71,942
OTHER (EXPENSE) INCOME:
Interest expense.................................... (4,294) (3,629) (11,983) (10,408)
Interest income..................................... 92 92 268 227
Equity in income of unconsolidated affiliates....... 1,257 25 3,158 1,206
Other, net.......................................... (274) (246) (597) (347)
-------- -------- -------- --------
(3,219) (3,758) (9,154) (9,322)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST...... 20,019 21,382 63,741 62,620
MINORITY INTEREST..................................... (36) (471) (594) (1,231)
PROVISION FOR INCOME TAXES............................ 7,190 8,287 23,846 24,205
-------- -------- -------- --------
NET INCOME............................................ $ 12,793 $ 12,624 $ 39,301 $ 37,184
======== ======== ======== ========
BASIC
NET INCOME PER COMMON SHARE........................... $ 0.50 $ 0.51 $ 1.55 $ 1.50
======== ======== ======== ========
Weighted average number of shares outstanding......... 25,402 24,975 25,353 24,815
======== ======== ======== ========
DILUTED
NET INCOME PER COMMON SHARE........................... $ 0.50 $ 0.50 $ 1.54 $ 1.48
======== ======== ======== ========
Diluted weighted average number of shares
outstanding......................................... 25,539 25,240 25,545 25,104
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of income.
4
<PAGE> 5
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash provided by (used in)
Operating activities:
Net income............................................. $ 39,301 $ 37,184
Adjustments for noncash charges........................ 26,071 24,906
Changes in current assets and liabilities.............. 877 (9,786)
-------- --------
Net cash provided by operating activities......... 66,249 52,304
-------- --------
Investing activities:
Purchases of property, plant and equipment............. (28,741) (30,031)
Acquisitions of businesses............................. (14,433) (8,479)
Other.................................................. 1,424 2,538
-------- --------
Net cash used in investing activities............. (41,750) (35,972)
-------- --------
Financing activities:
Proceeds from revolving credit loans................... 47,000 67,000
Repayments of revolving credit loans................... (35,000) (33,000)
Repayments of long-term debt........................... (10,325) (14,007)
Dividends paid......................................... (12,165) (10,418)
Proceeds from issuances of stock....................... 602 2,728
Purchases of stock..................................... (8,895) (29,444)
Distributions to minority interest holder.............. (3,100) 0
Other.................................................. (586) (580)
-------- --------
Net cash used in financing activities............. (22,469) (17,721)
-------- --------
Net increase (decrease) in cash and cash equivalents...... 2,030 (1,389)
Cash and cash equivalents at beginning of period.......... 1,391 11,989
-------- --------
Cash and cash equivalents at end of period................ $ 3,421 $ 10,600
======== ========
Supplemental Disclosures:
Cash payments for interest............................. $ 9,794 $ 8,761
======== ========
Cash payments for income taxes......................... $ 21,171 $ 14,903
======== ========
Stock issued for acquisition........................... $ 4,660 $ 27,100
======== ========
Note payable issued for acquisition.................... $ 26,000 $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of cash flows.
5
<PAGE> 6
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. The results of
operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
Certain amounts in the prior period financial statements have been
reclassified to conform with the 1998 presentation.
NOTE 2. COMMON STOCK PURCHASE PLAN
During the first nine months of 1998, the Company purchased and retired
364,000 shares of its common stock in a series of transactions at
market prices ranging from $21.69 to $33.00 per share, totaling $8.9
million. Subsequent to the close of the third quarter, the Company
purchased an additional 321,000 shares at market prices ranging from
$21.25 to $23.00 per share, totaling $7.0 million. The Company has
cumulatively purchased 2,811,000 shares since January 1996. The
Company's board of directors has authorized purchases of up to
1,189,000 additional shares.
NOTE 3. ACQUISITIONS
Each of the following acquisitions was accounted for under the purchase
method of accounting, applying the provisions of Accounting Principles
Board Opinion No. 16 and, as a result, the Company recorded the assets
and liabilities of the acquired companies at their estimated fair
values with the excess of the purchase price over these amounts being
recorded as goodwill. Actual allocations of goodwill and other
identifiable assets will be based on further studies and may change
during the allocation period, generally one year following the date of
acquisition. These acquisitions are not expected to have a material
impact on the operations of the Company.
In March 1998, the Company acquired all of the outstanding common stock
of Chesapeake Paperboard Company and its wholly owned subsidiary,
Chesapeake Fiber Packaging Corporation, ("Chesapeake") for
approximately $21.0 million, including approximately $8.2 million of
Chesapeake's debt, which was repaid by the Company. Chesapeake
Paperboard, located in Baltimore, Maryland, produces recycled
paperboard used primarily in the folding carton and other specialty
markets. Chesapeake Fiber Packaging, located in Hunt Valley, Maryland,
manufactures folding cartons and specialty corrugated products. No
goodwill was recorded in connection with the Chesapeake acquisition.
In May 1998, the Company acquired all of the outstanding stock of
Etowah Recycling, Inc. ("Etowah") in exchange for approximately 140,000
shares of the Company's common stock, valued at $4.7 million.
Simultaneously, the Company repaid Etowah's debt of approximately $2.1
million. Etowah operates two recovered fiber facilities, located in
Canton, Georgia and Hardeeville, South Carolina. Goodwill in the amount
of $3.3 million was recorded in connection with the Etowah acquisition
and is being amortized over 40 years.
In June 1998, the Company acquired the 20 percent interest in the CPI
partnership held by Tenneco Packaging, Inc. ("TPI") for $27.4 million.
The CPI partnership had operated as a joint venture of the Company and
TPI since July of 1996. As a result of this transaction, the Company
6
<PAGE> 7
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 1.
now owns 100 percent of the partnership's operations, which include
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. The purchase price consisted of
$1.4 million in cash paid at closing and a note payable to TPI for the
remaining $26.0 million due in June of 1999. Goodwill in the amount of
$9.7 million was recorded in connection with this transaction and will
be amortized over 40 years.
In October 1998, subsequent to the third quarter ended September 30,
1998, the Company acquired all of the outstanding stock of Boxall, Inc.
("Boxall") in exchange for approximately 230,000 shares of the
Company's common stock valued at approximately $5.5 million.
Simultaneously, the Company repaid Boxall's debt of approximately $1.5
million. Boxall operates a folding carton manufacturing facility in
Birmingham, Alabama.
NOTE 4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is designed to improve
the reporting of changes in equity from period to period. The Company
adopted SFAS No. 130 on January 1, 1998. Total comprehensive income,
consisting of net income plus other nonowner changes in equity, for the
nine months ended September 30, 1998 and 1997, was $39,420,000 and
$37,192,000, respectively.
NOTE 5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 requires that
an enterprise disclose certain information about operating segments.
SFAS No. 131 is effective for the Company's fiscal year ending December
31, 1998. Management has not yet determined the impact of SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those
plans. It standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer deemed as useful.
SFAS No. 132 is effective for the Company's fiscal year ending December
31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and
hedging activities and is effective for all fiscal quarters for fiscal
years beginning after June 15, 1999. Management does not expect SFAS
No. 133 to have a material impact on the Company's financial condition
or results of operations.
NOTE 6. COMMITMENTS AND CONTINGENCIES
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 condition or results of operations.
7
<PAGE> 8
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 2.
CARAUSTAR INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED
SEPTEMBER 30,
-------------- %
1998 1997 CHANGE CHANGE
----- ----- ------ ------
<S> <C> <C> <C> <C>
Production source of paperboard tons sold (in thousands):
From paperboard mill production......................... 231.8 237.5 (5.7) -2.4%
Outside purchases....................................... 20.0 16.2 3.8 23.5%
----- ----- ----
Total paperboard tonnage........................ 251.8 253.7 (1.9) -0.7%
===== ===== ====
Tons sold by market (in thousands):
Tube, core and can volume............................... 66.1 65.8 0.3 0.5%
Folding carton volume................................... 73.0 74.8 (1.8) -2.4%
Gypsum facing paper volume.............................. 64.4 63.6 0.8 1.3%
Other specialty volume.................................. 48.3 49.5 (1.2) -2.4%
----- ----- ----
Total paperboard tonnage........................ 251.8 253.7 (1.9) -0.7%
===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
SEPTEMBER 30,
-------------- %
1998 1997 CHANGE CHANGE
----- ----- ------ ------
<S> <C> <C> <C> <C>
Gross paper margins ($/ton):
Paperboard mill:
Average same-mill net selling price................... $414 $408 $ 6 1.5%
Average same-mill recovered fiber cost................ 67 93 (26) -28.0%
---- ---- ----
Paperboard mill gross paper margin.................. $347 $315 $ 32 10.2%
==== ==== ====
Tube and core:
Average net selling price............................. $732 $726 $ 6 0.8%
Average paperboard cost............................... 409 399 10 2.5%
---- ---- ----
Tube and core gross paper margin.................... $323 $327 $ (4) -1.2%
==== ==== ====
</TABLE>
Consolidated net sales for the quarter ended September 30, 1998 increased 8.5
percent to $188.5 million from $173.7 million for the same period last year.
Acquisitions completed since the third quarter of 1997 accounted for $25.3
million of sales during the third quarter of 1998. Excluding acquisitions from
the current quarter's sales, net sales decreased 6.0 percent.
Total paperboard tonnage in the quarter decreased 0.7 percent to 251.8 thousand
tons from 253.7 thousand tons. Tons sold from paperboard mill production
(consisting of sales to outside customers and transfers to the Company's
converting operations) decreased 2.4 percent (5.3 percent excluding
acquisitions) in the quarter versus the year-earlier quarter. Total tonnage
converted increased 9.4 percent (decreased 0.7
8
<PAGE> 9
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 2.
percent excluding acquisitions) to 100.8 thousand tons in the quarter versus
92.1 thousand tons in the third quarter last year. Excluding acquisitions, tube,
core and can volume decreased 0.9 percent; folding carton volume decreased 10.6
percent; and other specialty volume decreased 10.2 percent.
The Company's gross margin increased to 27.3 percent of net sales from 26.9
percent in the third quarter of 1997. This margin increase was due to improved
margins at the Company's paperboard mills, partially offset by lower margins at
paper stock recycling facilities and converting operations and by the
acquisition of operations with lower margins, as a percent of sales, than the
Company's existing operations.
Recovered fiber, which is derived from recycled paper stock, is the Company's
only significant raw material. Historically, the cost of recovered fiber has
fluctuated significantly due to market and industry conditions. For example, the
Company's average recovered fiber cost per ton of paperboard produced increased
from $43 per ton in 1993 to $144 per ton in 1995, an increase of 235 percent,
before dropping to $66 per ton in 1996. Recovered fiber cost per ton averaged
$83 during 1997 and $67 during the third quarter of 1998. Although the Company
raises its selling prices in response to increases in raw material costs, it
often is unable to maintain its operating margins in the face of dramatic cost
increases, and it experiences short-term margin shrinkage during all periods of
price increases due to customary time lags in the implementation of price
increases. There can be no assurance that the Company will be able to recoup any
future increases in the cost of recovered fiber by raising the prices of its
products. There also can be no assurance that, even if the Company is able to
recoup such cost increases, its operating margins and results of operations will
not be materially and adversely affected by time delays in the implementation of
price increases.
Operating income for the third quarter of 1998 was $23.2 million, a decrease of
$1.9 million, or 7.6 percent, from the year-earlier period. Excluding
acquisitions, operating income declined by essentially the same amount due
primarily to lower margins at paper stock recycling facilities and converting
operations. Selling, general and administrative expenses increased $6.6 million
in the third quarter of 1998 compared with the year-earlier period due primarily
to acquisitions and increased information systems costs.
Interest expense increased 18.3 percent to $4.3 million in the third quarter
compared with $3.6 million in the same period last year due to higher average
outstanding borrowings under the revolving credit facility.
Equity income from unconsolidated affiliates for the third quarter of 1998 was
$1.3 million, up $1.2 million from the year-earlier quarter due to improved
results from the Company's gypsum wallboard joint venture with Temple-Inland.
Net income increased 1.3 percent to $12.8 million in the third quarter from
$12.6 million in the third quarter last year. Diluted net income per common
share for the third quarter of 1998 was $0.50, unchanged from the same period
last year.
9
<PAGE> 10
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 2.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
------------- %
1998 1997 CHANGE CHANGE
----- ----- ------ ------
<S> <C> <C> <C> <C>
Production source of paperboard tons sold (in thousands):
From paperboard mill production........................... 694.0 696.0 (2.0) -0.3%
Outside purchases......................................... 66.5 55.3 11.2 20.3%
----- ----- ----
Total paperboard tonnage.......................... 760.5 751.3 9.2 1.2%
===== ===== ====
Tons sold by market (in thousands):
Tube, core and can volume................................. 199.9 195.5 4.4 2.3%
Folding carton volume..................................... 222.0 210.8 11.2 5.3%
Gypsum facing paper volume................................ 192.8 195.5 (2.7) -1.4%
Other specialty volume.................................... 145.8 149.5 (3.7) -2.5%
----- ----- ----
Total paperboard tonnage.......................... 760.5 751.3 9.2 1.2%
===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
------------- %
1998 1997 CHANGE CHANGE
----- ----- ------ ------
<S> <C> <C> <C> <C>
Gross paper margins ($/ton):
Paperboard mill:
Average same-mill net selling price.................... $ 415 $ 405 $ 10 2.5%
Average same-mill recovered fiber cost................. 76 80 (4) -5.0%
----- ----- ----
Paperboard mill gross paper margin................... $ 339 $ 325 $ 14 4.3%
===== ===== ====
Tube and core:
Average net selling price.............................. $ 738 $ 714 $ 24 3.4%
Average paperboard cost................................ 411 397 14 3.5%
----- ----- ----
Tube and core gross paper margin..................... $ 327 $ 317 $ 10 3.2%
===== ===== ====
</TABLE>
Net sales for the nine months ended September 30, 1998 increased 12.8 percent to
$555.1 million from $492.1 million in the same period last year. Acquisitions
accounted for $76.1 million of sales during the nine-month period ended
September 30, 1998. Excluding acquisitions, net sales declined 2.7 percent.
Total paperboard tonnage for the first nine months of 1998 increased 1.2 percent
to 760.5 thousand tons compared with the first nine months of 1997. Excluding
acquisitions, total paperboard tonnage declined 2.6 percent to 731.7 thousand
tons. Tons sold from paperboard mill production decreased 0.3 percent for the
first nine months of 1998 versus the first nine months of 1997 and declined 2.4
percent excluding the Chesapeake Paperboard acquisition. Total tonnage converted
increased 13.3 percent (0.6 percent excluding acquisitions) in the first nine
months of 1998 versus 1997. Excluding acquisitions, tube, core and can volume
increased 0.1 percent; folding carton volume decreased 2.5 percent; and other
specialty volume decreased 7.9 percent.
Gross margin for the first nine months of 1998 decreased to 27.5 percent of net
sales from 28.1 percent for the same period of 1997. This margin decrease was
due primarily to the acquisition of operations with lower margins, as a percent
of sales, than the Company's other operations, combined with lower margins at
the Company's converting operations. These lower margins were partially offset
by improved margins at the Company's paperboard mills.
10
<PAGE> 11
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 2.
Operating income increased $1.0 million, or 1.3 percent, to $72.9 million from
$71.9 million for the first nine months of 1997. Operating income at comparable
facilities declined $2.5 million, or 3.5 percent. This decline was due primarily
to lower margins at paper stock recycling facilities and converting operations,
partially offset by improved margins at paperboard mills. Selling, general and
administrative expenses increased $13.1 million in the first nine months of 1998
versus the year-earlier period due primarily to acquisitions and increased
information systems costs.
Interest expense increased to $12.0 million in the first nine months of 1998
from $10.4 million in the same period of 1997 due to higher average borrowings
under the revolving credit facility.
Equity income from unconsolidated affiliates was $3.2 million, up 161.9 percent
from the first nine months of 1997 due to improved results for the Company's
gypsum wallboard joint venture with Temple-Inland.
Net income increased 5.7 percent from $37.2 million in the first nine months of
1997 to $39.3 million. Diluted net income per common share increased 4.1 percent
to $1.54 for the first nine months of 1998 from $1.48 for the year-earlier
period.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1998, the Company had loans of $141.0 million outstanding under
its revolving credit facility versus $134.0 million on September 30, 1997 and
$129.0 million on December 31, 1997. Loans under the revolving credit facility
bear interest, payable monthly, at the Eurodollar rate plus a margin based upon
the Company's consolidated leverage ratio, as defined in the revolving credit
agreement. For the nine months ended September 30, 1998 and 1997 and for the
year ended December 31, 1997, the weighted average borrowings outstanding under
the revolving credit facility during such periods bore interest at 5.93 percent,
5.84 percent and 5.86 percent, respectively. Other long-term debt, less current
maturities, primarily the Company's 7.74 percent senior notes, was $83.0 million
at September 30, 1998 versus $83.2 million and $83.1 million at September 30,
1997 and December 31, 1997, respectively.
The Company has a $400 million, five-year bank revolving credit facility which
may be increased up to $500 million and its maturity extended by up to three
additional years, subject to certain conditions and approvals. The Company can
use the facility to fund ongoing working capital needs and for general corporate
purposes, including acquisitions. Interest under the facility is computed using
the Company's choice of: (a) the Eurodollar rate plus a margin; or (b) the
higher of the Federal Funds Rate plus a margin or the bank's prime lending rate.
The Company can also choose the basis for determining the margin above the
Eurodollar rate as either: (a) its consolidated leverage ratio; or (b) its
investment grade rating. The credit agreement contains certain restrictive
covenants regarding, among other matters, the incurrence of additional
indebtedness and the maintenance of certain leverage and interest coverage
ratios, as defined in the agreement.
The Company recently registered with the Securities and Exchange Commission a
total of $300,000,000 in public debt securities for issuance in one or more
series and with such specific terms as to be determined from time to time. The
debt securities will be unsecured obligations of the Company. It is currently
anticipated that the proceeds from the sale of these debt securities will be
used for general corporate purposes, including, but not limited to, repayment of
debt, working capital, capital expenditures and acquisitions.
Cash generated from operations was $66.2 million for the nine months ended
September 30, 1998 compared with $52.3 million for the same period last year.
The increase in 1998 over the same period last year was due to higher net income
and decreased working capital needs.
Capital expenditures, excluding acquisitions, were $28.7 million in the first
nine months of 1998 versus $30.0 million for the same period last year.
Aggregate capital expenditures of approximately $42.0 million are anticipated
for 1998.
11
<PAGE> 12
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 2.
In March 1998, the Company acquired all of the outstanding common stock of
Chesapeake Paperboard Company and its wholly owned subsidiary, Chesapeake Fiber
Packaging Corporation, for approximately $21.0 million, including approximately
$8.2 million of Chesapeake's debt, which was repaid by the Company. Chesapeake
Paperboard, located in Baltimore, Maryland, produces recycled paperboard used
primarily in the folding carton and other specialty markets. Chesapeake Fiber
Packaging, located in Hunt Valley, Maryland, manufactures folding cartons and
specialty corrugated products.
In May 1998, the Company acquired all of the outstanding stock of Etowah
Recycling, Inc. in exchange for approximately 140,000 shares of the Company's
common stock, valued at $4.7 million. Simultaneously, the Company repaid
Etowah's debt of approximately $2.1 million. Etowah operates two recovered fiber
facilities, located in Canton, Georgia and Hardeeville, South Carolina.
In June 1998, the Company acquired Tenneco Packaging, Inc.'s 20 percent interest
in the CPI partnership for $27.4 million. The CPI Partnership had operated as a
joint venture of the Company and TPI since July 1996. As a result of this
transaction, the Company now owns 100 percent of CPI's operations which include
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. The purchase price consisted of $1.4 million in cash paid at
closing and a note payable to TPI for the remaining $26.0 million due in June
1999.
In October 1998, subsequent to the third quarter ended September 30, 1998, the
Company acquired all of the outstanding stock of Boxall, Inc. ("Boxall") in
exchange for approximately 230,000 shares of the Company's common stock valued
at approximately $5.5 million. Simultaneously, the Company repaid Boxall's debt
of approximately $1.5 million. Boxall operates a folding carton manufacturing
facility in Birmingham, Alabama.
Cash dividends of $12.2 million were paid in the first nine months of 1998
versus $10.4 million in the same period last year. The Company's senior notes
agreement and its revolving credit agreement contain no specific limitations on
the payment of dividends.
During the first nine months of 1998, the Company purchased and retired 364,000
shares of its common stock in a series of transactions at market prices ranging
from $21.69 to $33.00 per share, totaling $8.9 million. Subsequent to the close
of the third quarter, the Company purchased an additional 321,000 shares at
market prices ranging from $21.25 to $23.00 per share, totaling $7.0 million.
The Company has cumulatively purchased 2,811,000 shares since January 1996. The
Company's board of directors has authorized purchases of up to 1,189,000
additional shares.
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,
borrowings under its revolving credit facility and the issuance of debt
securities in the public markets.
YEAR 2000
The Company uses software and related information technologies and other
equipment throughout its businesses that may be affected by the date change in
the year 2000. The use of systems and equipment that cannot correctly interpret
and process dates after 1999 could result in system or equipment failures. Such
failures could cause disruptions of operations including, among other things,
inaccurate processing of financial information and/or temporary inabilities to
process transactions, manufacture products or engage in similar normal business
activities.
The Company has attempted to identify and assess its areas of risk related to
the year 2000 issue. As called for in its overall plan to prepare for the year
2000, the Company has conducted a comprehensive inventory and evaluation of its
information technology ("IT") systems to determine their year 2000
12
<PAGE> 13
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 2.
compliance. The primary financial computer systems were upgraded in December
1997. This system and the Company's computerized financial software systems are
year 2000 compliant. Certain systems at individual operating company sites,
primarily involving order entry, shipping and inventory control, are undergoing
remediation or replacement and are expected to be year 2000 compliant by
mid-year 1999. Non-IT electronic equipment, including equipment engaged in
manufacturing and other processes, is being tested and modified or replaced as
needed, and the Company anticipates that this process will continue through the
end of 1999. In 1998, the Company began soliciting information on year 2000
readiness from critical third parties including suppliers and customers, and the
Company anticipates that this process will be complete by early 1999. Ongoing
efforts are being made to identify third parties who indicate that they may be
unable to become year 2000 compliant and to make contingency plans. However, the
Company has no means of ensuring that third parties with whom it deals will be
year 2000 compliant or that the information obtained from such third parties
regarding year 2000 compliance will prove to be accurate.
The total cost associated with required modifications and replacement of the
Company's systems in response to the year 2000 issue is not expected to
materially effect the Company's financial condition or results of operations.
The estimated total cost of the year 2000 effort is approximately $4.2 million.
This estimate does not include costs to replace or upgrade systems that were
previously planned and not accelerated due to the year 2000 issue. The total
amount expended through September 1998 was approximately $1.7 million. The
future cost related to the year 2000 is estimated to be approximately $2.5
million. The Company's year 2000 efforts are funded primarily from the existing
IT budget and have been ongoing since 1997. The total cost of these efforts
represents approximately 20 percent of the total IT budget for the three-year
period 1997-1999.
The Company believes the most reasonably likely worst case year 2000 scenario
would be the failure of key customers or suppliers (e.g., utility providers) to
achieve year 2000 compliance, resulting in lost sales to such key customers or
lost production due to forced shutdowns at one or more mill operations for an
indefinite period of time. Such failures could materially and adversely affect
the Company's financial condition or results of operations. Currently, based on
responses obtained from third parties to date, the Company is not aware of any
material third parties that do not expect to be year 2000 compliant. However,
due to uncertainty surrounding the readiness of third parties, the Company is
unable to presently determine whether the consequences of year 2000 failures
will materially impact the Company's financial condition or results of
operations. Ongoing efforts are expected to significantly reduce this
uncertainty.
The Company has developed contingency plans to address potential material year
2000 issues primarily arising from failures of third party suppliers or
customers to become year 2000 compliant. These contingency plans include plans
to minimize the impact of any lost mill production. The Company normally
schedules downtime for regular maintenance and capital improvements during the
year-end period. To the extent possible, the Company plans to take a more
flexible approach to such scheduling to allow maintenance and capital-
improvement downtime to coincide with any year 2000 related forced downtime. In
addition, the Company can increase inventory levels prior to year-end 1999 to
mitigate any forced downtime based on assessments made closer to the end of
1999. The Company also plans to minimize the impact of any lost mill production
by shifting production from any facilities affected by year 2000 failures to
unaffected facilities. As mentioned above, the Company is continuing its efforts
to identify third parties who indicate that they may be unable to become year
2000 compliant and will develop and modify its contingency plans as needed.
Readers are cautioned that the year 2000 disclosures above contain certain
forward looking statements and should be read in conjunction with
"Forward-Looking Information," which follows.
FORWARD-LOOKING INFORMATION
This Report on Form 10-Q, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's belief and
assumptions, as well as information currently available to management. When used
in this document, the words "anticipate," "estimate," "expect," and similar
expressions may identify forward-looking statements. Al-
13
<PAGE> 14
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I, ITEM 2.
though the Company believes that the expectations reflected in any such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Any such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
the Company's actual financial results, performance or condition may vary
materially from those anticipated, estimated or expected. Among the key factors
that may have a direct bearing on the Company's actual financial results,
performance or condition are fluctuations in raw material prices and the economy
in general, the degree and nature of competition, demand for the Company's
products, changes in government regulations, the Company's ability to complete
acquisitions and integrate the operations of acquired businesses, the ability of
the Company and third parties with whom the Company deals to achieve year 2000
compliance, as described above, and other matters discussed in this Report and
the Company's other filings with the Securities and Exchange Commission.
14
<PAGE> 15
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART II, ITEM 2.
ITEM 2. CHANGES IN SECURITIES.
In October 1998, subsequent to the third quarter ended September 30, 1998, the
Company acquired all of the outstanding stock of Boxall, Inc. ("Boxall") in
exchange for approximately 230,000 shares of the Company's common stock valued
at approximately $5.5 million. Simultaneously, the Company repaid Boxall's debt
of approximately $1.5 million. The shares were issued to the holders of the
outstanding capital stock of Boxall in a transaction not involving a public
offering in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933 and Regulation D promulgated thereunder.
ITEM 5. OTHER INFORMATION
The Company's Bylaws prescribe the procedures a shareholder must follow to make
nominations for director candidates or propose any other business for
consideration at an annual meeting. Shareholder nominations for director will be
considered at an annual meeting or any other meeting at which an election is to
be held if the shareholder delivers to the Secretary of the Company, not later
than the close of business on the fifth business day following the date on which
notice is first given to shareholders of the meeting at which such election is
to be held, a notice setting forth the information specified in Section 3 of
Article III of the Company's Bylaws. Other proposals will be considered at an
annual meeting if the shareholder delivers to the Secretary of the Company at
its principal executive offices, no less than 60 nor more than 90 days prior to
the meeting, a written notice setting forth the information specified in Section
15 of Article II of the Company's Bylaws. If, however, the annual meeting is not
held on the third Wednesday in April (or the next succeeding business day, in
case the third Wednesday in April is a legal holiday), and public disclosure of
the annual meeting date is first made less than 70 days in advance of such
meeting date, such other proposals will be considered timely if received no
later than the close of business on the tenth day after public disclosure of
such annual meeting date. Any shareholder desiring a copy of the Company's
Bylaws will be furnished one without charge upon written request to the
Secretary at the following address: Caraustar Industries, Inc., 3100 Washington
Street, Austell, Georgia 30106.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits to this Report on Form 10-Q are listed in the accompanying
Exhibit Index.
(b) Reports on Form 8-K
The Company filed no current reports on Form 8-K during the quarter ended
September 30, 1998.
15
<PAGE> 16
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARAUSTAR INDUSTRIES, INC.
By: /s/ H. LEE THRASH, III
------------------------------------
H. Lee Thrash, III
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Dated: November 11, 1998
16
<PAGE> 17
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION FILED HEREWITH (*)
- ------- ----------- ------------------
<S> <C> <C>
2.01 Contribution Agreement between Tenneco Packaging Inc. and
Caraustar Industries, Inc. regarding the formation 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 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])...............
10.02 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])...............................................
10.03 Amendment Agreement, dated as of July 23, 1997, 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 June 30, 1997 [SEC File No.
0-20646])...................................................
10.04 Amendment Agreement, dated as of August 12, 1998, between
the Company and the Prudential Insurance Company of America
regarding the Company's 7.89% Senior Subordinated Notes..... *
10.05 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])................................
</TABLE>
17
<PAGE> 18
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION FILED HEREWITH (*)
- ------- ----------- ------------------
<S> <C> <C>
10.06 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])................................
10.07 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])................................
10.08 1987 Executive Stock Option Plan (Incorporated by
reference -- Exhibit 10.09 to Registration Statement on Form
S-1 [SEC File No. 33-50582])................................
10.09 1993 Key Employees' Share Ownership Plan (Incorporated by
reference -- Exhibit 10.10 to Registration Statement on Form
S-1 [SEC File No. 33-50582])................................
10.10 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])..............
10.11 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])................................
10.12 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]).....................................
10.13 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])........
10.14 Credit Agreement, dated as of July 23, 1997, by and among
the Company, as Borrower, the banks listed therein, Bankers
Trust Company, as Administrative Agent, NationsBank, N.A.,
as Syndication Agent, SunTrust Bank, Atlanta, as
Documentation Agent, First Union National Bank, as Managing
Agent and each of Credit Lyannais, The Bank of New York, The
Bank of Nova Scotia, The Bank of Tokyo -- Mitsubishi, Ltd.,
and Wachovia Bank, as Co-Agents (Incorporated by
Reference -- Exhibit 10.13 to Report on Form 10-Q for the
Quarter Ended June 30, 1997 [SEC File No. 0-20646]).........
10.15 Amendment No. 1 to Credit Agreement, dated as of October 8,
1997, by and among the Company, as Borrower, the banks
listed therein, Bankers Trust Company, as Administrative
Agent, NationsBank, N.A., as Syndication Agent, SunTrust
Bank, Atlanta, as Documentation Agent, First Union National
Bank, as Managing Agent and each of Credit Lyannais, The
Bank of New York, The Bank of Nova Scotia, The Bank of
Tokyo -- Mitsubishi, Ltd., and Wachovia Bank, as
Co-Agents................................................... *
</TABLE>
18
<PAGE> 19
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION FILED HEREWITH (*)
- ------- ----------- ------------------
<S> <C> <C>
10.16 Amendment No. 2 to Credit Agreement, dated as of October 30,
1998, by and among the Company, as Borrower, the banks
listed therein, Bankers Trust Company, as Administrative
Agent, NationsBank, N.A., as Syndication Agent, SunTrust
Bank, Atlanta, as Documentation Agent, First Union National
Bank, as Managing Agent and each of Credit Lyannais, The
Bank of New York, The Bank of Nova Scotia, The Bank of
Tokyo -- Mitsubishi, Ltd., and Wachovia Bank, as
Co-Agents................................................... *
10.17 1998 Key Employee Incentive Compensation Plan (Incorporated
by reference -- Exhibit 10.14 to Annual Report for 1997 on
Form 10-K [SEC File No. 0-20646]............................
11.01 Computation of Earnings per Share........................... *
27.01 Financial Data Schedule (For SEC purposes only)............. *
</TABLE>
19
<PAGE> 1
EXHIBIT 10.04
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT dated as of August 12, 1998 (this "Amendment") to the
Note Agreement dated as of October 1, 1992 (as heretofore amended, the
"Agreement") between CARAUSTAR INDUSTRIES, INC. (the "Company") and The
Prudential Insurance Company of America ("Prudential"). Capitalized terms used
herein have the meanings ascribed to such terms in the Agreement unless
otherwise defined herein.
W I T N E S S E T H:
WHEREAS, Prudential and the Company have executed and delivered the
Agreement, which has heretofore been amended; and
WHEREAS, the company has entered into the Credit Agreement dated July 23,
1997 with BANKERS TRUST COMPANY, as Administrative Agent, NATIONSBANK, N.A., as
Syndicated Agent, SUNTRUST BANK, ATLANTA, as Document Agent, FIRST UNION
NATIONAL BANK, as Managing Agent, the Co-agents party thereto, and the other
banks named therein (as amended from time to time, the "Credit Agreement"); and
WHEREAS, the Company has requested that Prudential amend certain terms of
the Agreement; and
WHEREAS, Prudential is willing to amend the Agreement on the terms, and
subject to the conditions, contained herein;
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment to the Agreement. Paragraph 6B of the Agreement is hereby amended
to read in its entirety as follows:
"6B DIVIDEND LIMITATION. The Company covenants that it will not
declare or pay any dividends upon any of its capital stock or purchase,
redeem, retire or otherwise acquire, directly or indirectly, any shares of
its capital stock or make any distribution of cash, property or assets
among the holders of shares of its capital stock; provided that (a) the
Company may pay dividends solely in shares of its own capital stock, (b)
any Subsidiary may pay cash dividends to the Company or any Material
Subsidiary and (c) so long as no Default or Event of Default has occurred
and is continuing or shall occur after giving effect thereto, the Company
may pay cash dividends to the holders of shares of its capital stock and
may purchase shares of its capital stock."
2. Conditions to Effectiveness. This Amendment shall be effective and the
Agreement shall be deemed amended hereby upon Prudential's receipt of a
fully executed copy hereof.
3. Company Representations. The Company hereby represents and warrants that no
Default or Event of Default exists or, after giving effect to this
Amendment, will exist.
4. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF PARTIES SHALL BE GOVERNED BY, THE LAWS
OF THE STATE OF NEW YORK.
<PAGE> 2
5. Effect of Agreement. Except as expressly provided herein, the Agreement
shall remain in full force and effect and this Amendment shall not operate
as a waiver of any right, power or remedy of any holder of a Note, nor
constitute a waiver of any provision of the Agreement.
6. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Amendment to produce or account for more than one such
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective officers as of the date and year first above
written.
CARAUSTAR INDUSTRIES, INC.
By: /s/ H. Lee Thrash III
-------------------------
Title: V.P. & CFO
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Robert R. Derrick
-------------------------
Vice President
2
<PAGE> 1
EXHIBIT 10.15
AMENDMENT NO. 1, dated as of October 8, 1997 (the "AMENDMENT"),
to the CREDIT AGREEMENT, dated as of July 23, 1997, by and among CARAUSTAR
INDUSTRIES, INC., a corporation organized under the laws of North Carolina (the
"Borrower"), the Lenders party to the Credit Agreement, BANKERS TRUST COMPANY,
as Administrative Agent, NATIONSBANK, NA., as Syndication Agent, SUNTRUST BANK,
ATLANTA, as Documentation Agent, FIRST UNION NATIONAL BANK, as Managing Agent,
and the Co-Agents party thereto.
W I T N E S S E T H :
WHEREAS, the Borrower, the Administrative Agent, the Syndication
Agent, the Documentation Agent, the Managing Agent and the Lenders have entered
into a Credit Agreement, dated as of July 23, 1997 (as amended, the "Credit
Agreement");
WHEREAS, the parties hereto desire to amend the
Credit Agreement as set forth herein;
NOW, THEREFORE, upon the terms and conditions hereinafter set
forth, the parties hereto hereby agree to amend the Credit Agreement as
follows:
ARTICLE I
AMENDMENTS
Section 1. Amendments to Section 10.3 of the Credit Agreement.
Section 10.3 of the Credit Agreement shall be amended as follows:
(i) The word "and" shall be deleted from clause
(f) thereto;
(ii) The period at the end of clause (g) shall be deleted and
the words ";and" shall be inserted in lieu thereof;
(iii) The following clause (h) shall be inserted at the end
thereof: "(h) investments (other than those described in clauses (a) -
(g) above) in an aggregate amount not to exceed $10,000,000".
--1--
<PAGE> 2
ARTICLE II
MISCELLANEOUS
Section 1. Applicable Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York (without
giving effect to its conflict of laws rules), and each of the parties hereby
submits itself to the jurisdiction of the courts in the State of New York.
Section 2. Expenses. The Borrower agrees to pay all reasonable
expenses incurred by the Administrative Agent and the Lenders in connection
with the preparation, execution and delivery of this Amendment by the
Administrative Agent and the Lenders, including, without limitation, reasonable
fees and expenses of counsel to the Administrative Agent and the Lenders.
Section 3. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which when so executed and delivered shall be an
original, but all the counterparts shall together constitute one and the same
instrument.
Section 4. No Waiver. Except as expressly set forth in this
Amendment, all terms, provisions, covenants, representations, warranties,
agreements and conditions contained in the Credit Agreement shall remain in
full force and effect and shall not otherwise be deemed to be waived, modified
or amended hereby.
--2--
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of October 8, 1997.
CARAUSTAR INDUSTRIES, INC.,
as Borrower
By: /s/ H. Lee Thrash III
-------------------------------------
Name: H. Lee Thrash III
Title: V.P. & C.F.O.
BANKERS TRUST COMPANY,
as Administrative Agent, a
Lender and Swingline Lender
By: /s/ Robert R. Telesca
-------------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
NATIONSBANK, N.A.,
as Syndication Agent and a Lender
By: /s/ Michael Short
-------------------------------------
Name: Michael Short
Title: Senior Vice President
SUNTRUST BANK, ATLANTA,
as Documentation Agent and a
Lender
By: /s/ Dennis H. James, Jr.
-------------------------------------
Name: Dennis H. James, Jr.
Title: Vice President
By: /s/ Kim Willis
-------------------------------------
Name: Kim Willis
Title: Banking Officer
FIRST UNION NATIONAL BANK,
as Managing Agent and a Lender
By: /s/ Thomas M. Cambern
-------------------------------------
Name: Thomas M. Cambern
Title: Vice President
--3--
<PAGE> 4
THE BANK OF NEW YORK,
as Co-Agent and a Lender
By: /s/ David C. Siegel
-------------------------------------
Name: David C. Siegel
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI,
LTD., as Co-Agent and a Lender
By: /s/ Brandon A. Meyerson
-------------------------------------
Name: Brandon A. Meyerson
Title: Assistant Vice President
CREDIT LYONNAIS ATLANTA AGENCY,
as Co-Agent and a Lender
By: /s/ Robert Ivosevich
-------------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
THE BANK OF NOVA SCOTIA,
as Co-Agent and a Lender
By: /s/ William E. Zarrett
-------------------------------------
Name: William E. Zarrett
Title: Senior Relationship Manager
WACHOVIA BANK,
as Co-Agent and a Lender
By: /s/ Tammie S. Fabbrini
-------------------------------------
Name: Tammie S. Fabbrini
Title: VP
--4--
<PAGE> 5
CHRISTIANA BANK,
as a Lender
By: /s/ Carl Petter Svendsen
-------------------------------------
Name: Carl Petter Svendsen
Title: First Vice President
By: /s/ Peter M. Dodge
-------------------------------------
Name: Peter M. Dodge
Title: First Vice President
MELLON BANK, N.A.,
as a Lender
By: /s/ Clifford A. Mull
-------------------------------------
Name: Clifford A. Mull
Title: Assistant Vice President
THE FUJI BANK, LIMITED,
as a Lender
By: /s/ Toshihiro Mitsui
-------------------------------------
Name: Toshihiro Mitsui
Title: SVP & Senior Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY,
as a Lender
By: /s/ Koichi Hasegawa
-------------------------------------
Name: Koichi Hasegawa
Title: Senior Vice President and
Deputy General Manager
THE SAKURA BANK LIMITED,
as a Lender
By: /s/ Masayuki Kobayashi
-------------------------------------
Name: Masayuki Kobayashi
Title: VP & Senior Manager
--5--
<PAGE> 6
THE SANWA BANK LIMITED,
as a Lender
By: /s/ Dennis S. Losin
-------------------------------------
Name: Dennis S. Losin
Title: Vice President
TORONTO DOMINION (TEXAS), INC.,
as a Lender
By: /s/ Neva Nesbitt
-------------------------------------
Name: Neva Nesbitt
Title: Vice President
FLEET BANK,
as a Lender
By: /s/ Elizabeth McNeilly
-------------------------------------
Name: Elizabeth McNeilly
Title: Vice President
--6--
<PAGE> 1
EXHIBIT 10.16
CARAUSTAR INDUSTRIES, INC.
AMENDMENT NO. 2
TO CREDIT AGREEMENT
AMENDMENT NO. 2, dated as of October 30, 1998 (the "Amendment"), to the
CREDIT AGREEMENT, dated as of July 23, 1997, by and among CARAUSTAR INDUSTRIES,
INC., a North Carolina corporation (the "Borrower"), BANKERS TRUST COMPANY, as
Administrative Agent, NATIONSBANK, NA, as Syndication Agent, SUNTRUST BANK,
ATLANTA, as Documentation Agent, FIRST UNION NATIONAL BANK, as Managing Agent,
and the lenders party thereto (the "Lenders").
W I T N E S S E T H :
WHEREAS, the Borrower, the Administrative Agent, the Syndication Agent,
the Documentation Agent, the Managing Agent and the Lenders have entered into a
Credit Agreement, dated as of July 23, 1997 (as amended, the "Credit
Agreement");
WHEREAS, the Borrower has requested and the Lenders have agreed to amend
the Credit Agreement as set forth herein;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, the
parties hereto hereby agree to amend the Credit Agreement as follows:
ARTICLE 1
AMENDMENTS
Section 1.01 Amendment to Section 1.1 of the Credit Agreement. Section
1.1 of the Credit Agreement shall be amended by deleting the terms
"Intercompany Subordination Agreement" and "Subsidiary Guarantee" in their
entirety and by deleting the references thereto in the term "Loan Documents".
Section 1.02 Amendment to Section 2.10 of the Credit Agreement. Section
2.10 of the Credit Agreement shall be deleted in its entirety.
Section 1.03 Amendment to Section 4.1(c)(i). Whereas Section 9.1 of the
Credit Agreement has been amended to prohibit the Leverage Ratio of the
Borrower to be greater than 3.50 to 1.00, reference to the Leverage Ratio of
"Greater than 3.50 to 1.00" and the corresponding Eurodollar Margin under
Section 4.1(c)(i) of the Credit Agreement shall be deleted and the words "but
less than or equal to 3.50 to 1.00" under the Leverage Ratio referred to as
"Greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00" under
Section 4.1(c)(i) shall be deleted.
<PAGE> 2
Section 1.04 Amendment to Section 8.11 of the Credit Agreement. Section
8.11 of the Credit Agreement shall be deleted in its entirety.
Section 1.05 Amendment to Section 9.1 of the Credit Agreement. Section
9.1 of the Credit Agreement shall be amended by deleting the words "4.00 to
1.00" and inserting the words "3.50 to 1.00" in lieu thereof.
Section 1.06 Amendment to Section 9.2 of the Credit Agreement. Section
9.2 of the Credit Agreement shall be amended by deleting the words "2.50 to
1.00" and inserting the words "3.00 to 1.00" in lieu thereof.
Section 1.07 Amendment to Section 10.1 of the Credit Agreement. Section
10.1 of the Credit Agreement shall be amended (i) by deleting the last proviso
in clause (e) thereof; (ii) by deleting clause (f) in its entirety and inserting
the following clause (f) in lieu thereof: "(f) additional Debt of the Borrower
(excluding the Subsidiaries); provided, that, after giving effect to the
incurrence of such Debt, there does not exist a Default or Event of Default;
and"; (iii) deleting clauses (g) and (i) in their entirety; and (iv) by
re-lettering clause (h) as clause (g).
Section 1.08 Amendment to Section 10.3 of the Credit Agreement. Section
10.3 (g) of the Credit Agreement shall be amended by deleting subclause (v)
thereof in its entirety.
Section 1.09 Amendment to Section 10.10 of the Credit Agreement. Section
10.10 of the Credit Agreement shall be amended by inserting the following
proviso at the end thereof: "provided, that the Borrower may enter into
agreements evidencing Debt issued by the Borrower pursuant to an effective
registration statement under the Securities Act of 1933, as amended or under
Rule 144A thereunder if the covenants set forth in such agreements are no more
restrictive than the covenants set forth on Annex I to Amendment No. 2 hereto".
Section 1.10 Amendment to Section 11.1 of the Credit Agreement. Section
11.1 of the Credit Agreement shall be amended by inserting the following
subclause (C) to clause (f)(ii) thereof; "(C) an event of default shall occur
under the indenture (as amended, supplemented or otherwise modified) relating
to the debt securities described in the Description of Debt Securities
attached as Annex II to Amendment No. 2 hereto or any other agreement governing
Debt in an aggregate principal amount in excess of $10,000,000 entered into
after the date of Amendment No. 2 hereto".
ARTICLE II
EFFECTIVENESS OF AMENDMENTS
This Amendment shall become effective on the opening of business in New
York on the Business Day on which the Administrative Agent has notified the
Borrower and the Banks that the Administrative Agent has executed a counterpart
-2-
<PAGE> 3
signature page of this Amendment and has received executed counterpart
signature pages of this Amendment from the Borrower and the Required Lenders.
ARTICLE III
MISCELLANEOUS
3.01 Expenses. The Borrower agrees to pay all reasonable expenses incurred
by the Administrative Agent and the Lenders in connection with the preparation,
execution and delivery of this Amendment by the Administrative Agent and the
Lenders, including, without limitation, reasonable fees and expenses of counsel
to the Administrative Agent and the Lenders.
3.02 Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(a) This Amendment modifies the Credit Agreement to the extent set
forth herein, is hereby incorporated by reference into the Credit
Agreement and is made a part thereof. On and after the effective date,
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like import referring to
the Credit Agreement shall mean and be a reference to the Credit Agreement
as amended by this Amendment.
(b) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(c) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the
Administrative Agent or any Lender under, the Credit Agreement or any of
the other Loan Documents.
3.03 Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
3.04 Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
3.05 Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when
-3-
<PAGE> 4
so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute one and the same instrument.
[Remainder of Page Intentionally Blank]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of October 30, 1998.
CARAUSTAR INDUSTRIES, INC.,
as Borrower
By: /s/ H. Lee Thrash III
-------------------------------
Name: H. Lee Thrash III
Title: V.P. & CFO
BANKERS TRUST COMPANY,
as Administrative Agent, a
Lender and Swingline Lender
By: /s/ Robert R. Telesca
-------------------------------
Name: ROBERT R. TELESCA
Title: ASSISTANT VICE PRESIDENT
NATIONSBANK, N.A.,
as Syndication Agent and a Lender
By: /s/ Michael L. Short
-------------------------------
Name: Michael L. Short
Title: Senior Vice President
SUNTRUST BANK, ATLANTA,
as Documentation Agent and a
Lender
By: /s/ Jenna H. Kelly
-------------------------------
Name: Jenna H. Kelly
Title: Vice President
By: /s/ Samuel M. Jannetta, Jr.
-------------------------------
Name: Samuel M. Jannetta, Jr.
Title: Banking Officer
FIRST UNION NATIONAL BANK,
as Managing Agent and a Lender
By: /s/ Scott Santa Cruz
------------------------------
Name: Scott Santa Cruz
Title: Vice President
<PAGE> 6
THE BANK OF TOKYO - MITSUBISHI LTD.,
as Co-Agent and a Lender
By:
--------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Co-Agent and a Lender
By: /s/ David C. Siegel
--------------------------------
Name: DAVID C. SIEGEL
Title: Vice President
THE BANK OF NOVA SCOTIA,
as Co-Agent and a Lender
By: /s/ William E. Zarrett
--------------------------------
Name: William E. Zarrett
Title: Senior Relationship Manager
CREDIT LYONNAIS ATLANTA AGENCY,
as Co-Agent and a Lender
By:
---------------------------------
Name:
Title:
WACHOVIA BANK,
as Co-Agent and a Lender
By: /s/ TAMMIE S. FABBRINI
---------------------------------
Name: Tammie S. Fabbrini
Title: Vice President
<PAGE> 7
CHRISTIANA BANK,
as a Lender
By: /s/ Carl Petter Svendsen
--------------------------------
Name: CARL PETTER SVENDSEN
Title: SENIOR VICE PRESIDENT
/s/ Peter M. Dodge
--------------------------------
Name: PETER M. DODGE
Title: SENIOR VICE PRESIDENT
FLEET BANK,
as a Lender
By: /s/ Barrett O. Bencivenga
--------------------------------
Name: Barrett O. Bencivenga
Title: SVP
THE FUJI BANK, LIMITED,
as a Lender
By:
--------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY,
as a Lender
By:
--------------------------------
Name:
Title:
MELLON BANK, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE> 8
THE SANWA BANK LIMITED,
as a Lender
By:
--------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
as a Lender
By: /s/ Debbie A. Greene
--------------------------------
Name: DEBBIE A. GREENE
Title: VICE PRESIDENT
<PAGE> 1
EXHIBIT 11.01
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
CARAUSTAR INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
COMPUTATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Earnings:
Net income available to common stock................ $12,793 $12,624 $39,301 $37,184
------- ------- ------- -------
Shares:
Weighted average common shares outstanding.......... 25,402 24,975 25,353 24,815
Dilutive effect of stock options.................... 137 265 192 289
------- ------- ------- -------
Average diluted shares outstanding and
equivalents...................................... 25,539 25,240 25,545 25,104
------- ------- ------- -------
Basic earnings per common share:
Net income.......................................... $ 0.50 $ 0.51 $ 1.55 $ 1.50
======= ======= ======= =======
Diluted earnings per common share:
Net income.......................................... $ 0.50 $ 0.50 $ 1.54 $ 1.48
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,421
<SECURITIES> 0
<RECEIVABLES> 80,481<F1>
<ALLOWANCES> 0
<INVENTORY> 68,793
<CURRENT-ASSETS> 160,013
<PP&E> 517,509
<DEPRECIATION> (197,381)
<TOTAL-ASSETS> 612,388
<CURRENT-LIABILITIES> 107,593
<BONDS> 224,040<F2>
0
0
<COMMON> 2,513
<OTHER-SE> 235,016
<TOTAL-LIABILITY-AND-EQUITY> 612,388
<SALES> 555,061
<TOTAL-REVENUES> 555,061
<CGS> 402,561
<TOTAL-COSTS> 402,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,983
<INCOME-PRETAX> 63,741
<INCOME-TAX> 23,846
<INCOME-CONTINUING> 39,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,301
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.54
<FN>
<F1>ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>REPRESENT REVOLVING CREDIT LOANS AND LONG-TERM DEBT, LESS CURRENT MATURITIES.
</FN>
</TABLE>
