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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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
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Commission file number 0-20646
CARAUSTAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
North Carolina 581388387
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 Washington Street
Austell, Georgia 30106
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(Address of principal executive offices) (Zip Code)
(770) 948-3101
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(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
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(Title of Class)
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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
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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, 1998, computed by reference to the closing sale
price on such date, was $775,892,706. As of the same date, 25,282,840 shares of
Common Stock, $.10 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement pertaining to the 1998
Annual Meeting of Shareholders ("the Proxy Statement") and filed pursuant to
Regulation 14A are incorporated herein by reference into Part III.
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INTRODUCTION
Caraustar Industries, Inc., a manufacturer of recycled paperboard and
converted paperboard products, operates its business through 36 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 82
facilities in the United States, Mexico and the United Kingdom, and manufactures
its products primarily from recovered fiber, which is derived from recycled
paperstock. At its 15 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 48 converting plants. These plants include 30
tube and core converting plants, two composite container plants, 10 folding
carton plants and six specialty converting plants. The Company also operates
three plastics manufacturing plants, a composite extrusion manufacturing plant,
eight paperstock recycling and processing facilities, and four 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, a specialty paperboard converting plant and a tube 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 15 paperboard mills in the following states: North Carolina, South
Carolina, Georgia, Maryland, Virginia, New Jersey, Illinois, Iowa, Ohio,
Tennessee, Pennsylvania and New York. In 1997, approximately 32% of the recycled
paperboard sold by the Company's paperboard mills was consumed internally by the
Company's converting facilities; the other 68% 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 38% and 36% of the Company's net sales in 1997 and
1996, respectively.
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 33% and 36% of the Company's
net sales in 1997 and 1996, respectively. Sales of folding cartons and related
products, together with external sales of boxboard grades of unconverted
paperboard, accounted for approximately 32% and 27%, respectively, of net sales
in 1997 and 1996. Sales of gypsum wallboard and wallboard facing paper accounted
for approximately 15% and 17%, respectively, of net sales in 1997 and 1996.
Sales of other specialty, converted and laminated products accounted for
approximately 13% and 14%, respectively, of the Company's net sales in 1997 and
1996. Additionally, the Company's sales of injection-molded and extruded plastic
products accounted for approximately 3% of net sales in both 1997 and 1996, and
external sales of paperstock accounted for approximately 4% and 3%,
respectively, of net sales in 1997 and 1996.
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Caraustar continually maintains and improves its paperboard mills.
During the past five years, the Company spent an average of $29.4 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 48 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 30 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 10
carton plants - four in North Carolina and one each in Connecticut,
Massachusetts, Maryland, Ohio, Pennsylvania and Tennessee. The Company's
Maryland plant, acquired in March 1998, also produces specialty corrugated
products. These facilities obtain approximately 50% of their recycled paperboard
from the Company's paperboard mills and the remaining 50% from other
manufacturers. The Company's boxes and cartons are used principally for hosiery
boxes, hardware boxes, candy boxes, sports related boxes, cosmetics containers,
dry food containers, film containers and containers for various other industrial
applications, including textile and apparel applications.
The Company, through its six 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 four 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.
Plastic cartridges are produced in a new facility located in New Smyrna Beach,
Florida. Composite extruded products with a wide variety of end-uses are
produced in a Lancaster, South Carolina facility from recycled waste
thermoplastics.
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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.
The Company also operates four specialty packaging facilities, two in
Ohio and one each in New Jersey and 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 1997, the Company acquired all of the
outstanding stock of The New General Packaging Service, Inc. ("NGP"). NGP,
located in Clifton, New Jersey, is a primary packager of pharmaceutical and
medical products as well as numerous health, beauty and personal care products.
Also in 1997, the Company acquired all of the common stock of Oak Tree Packaging
Corporation ("Oak Tree"). Oak Tree's operations consist of three folding carton
plants located in Versailles, Connecticut; Thorndike, Massachusetts; and York,
Pennsylvania. Additionally in 1997, the Company and its subsidiary, Star Paper
Tube, Inc., acquired substantially all of the assets and business of Baxter Tube
Company ("Baxter"). Baxter manufactures spiral-wound tubes at four facilities
located in Ware Shoals, South Carolina; Perrysburg, Ohio; Minerva, Ohio; and
Leyland, Lancaster, United Kingdom (under the name Unity Paper Tube, Ltd.).
In March 1998, the Company acquired Chesapeake Paperboard Company and its wholly
owned subsidiary, Chesapeake Fiber Packaging Corporation ("Chesapeake").
Chesapeake operates an uncoated recycled paperboard mill in Baltimore, Maryland
and a converting facility in Hunt Valley, Maryland which manufactures folding
cartons and specialty corrugated products.
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
129 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 68% 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.
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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 1997. 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, 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 somewhat higher on average in 1997 compared
to 1996. The Company's average cost for recovered fiber per ton of recycled
paperboard produced was approximately $83 during 1997, which was up 24% from $67
per ton in 1996. 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 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
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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
1997 and 1996, unbaled paperstock represented approximately 12% and 14%,
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, 1997, the Company had approximately 4,701
employees, of whom 3,724 are hourly and 977 are salaried. Hourly employees at
the Chicago, Cincinnati, Chattanooga, Buffalo, Reading, Richmond, Rittman and
Tama paperboard mills, two Federal Packaging Corporation plants, Cleveland
Paperstock, General Packaging Services, two Oak Tree Packaging plants and The
Garber Company (approximately 1,739 employees) are represented by labor unions.
All principal union contracts expire during the period 1998-2002. The Company
considers its relations with its employees to be excellent.
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.
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<TABLE>
<CAPTION>
Name and Age Position Period of Service as Executive Officer
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<S> <C> <C>
Thomas V. Brown (57) President and Chief Executive Officer; President since 1/91; CEO since 10/91;
Director Director since 4/91
Bob M. Prillaman (65) Senior Vice President; Director Senior Vice President from 1980 until
retirement effective 3/98; Director since 1980
Edward G. Schmitt (52) Vice President, Mills Since 4/97
H. Lee Thrash, III (47) Vice President, Planning and Development; Vice President and CFO since 1986;
Chief Financial Officer; Director Director since 1987
Jimmy A. Russell (50) 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 (52) Vice President, Carton and Custom Packaging Since 2/93
Richard E. France (66) Vice President, Human Resources Since 4/94
and Public Relations
John R. Foster (52) 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
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<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.
Baltimore, MD.............................. Uncoated folding and set-up
boxboard, white lined and
colored paperboard and specialty
laminates.
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.
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.
</TABLE>
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<TABLE>
<CAPTION>
TYPE OF FACILITY
AND LOCATION PRODUCTION CAPABILITIES
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<S> <C>
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.
Minerva, OH................................ Spiral-wound and forming tubes.
Perrysburg, OH............................. Spiral-wound tubes.
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.
Ware Shoals, SC (leased)................... Spiral-wound and forming tubes.
Amarillo, TX (leased)...................... Yarn carriers.
Arlington, TX.............................. Spiral-wound tubes.
Silsbee, TX................................ Spiral-wound tubes.
Texarkana, TX.............................. Spiral-wound tubes.
Leland, Lancaster, United Kingdom.......... Spiral-wound and forming 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
Versailles, CT............................. Printed and unprinted folding
cartons.
Thorndike, MA.............................. Printed and unprinted folding
cartons.
Hunt Valley, MD............................ Printed and unprinted folding
cartons and specialty corrugated
products.
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.
York, PA................................... Printed and unprinted folding
cartons.
Kingston Springs, TN ...................... Printed and unprinted folding
cartons.
</TABLE>
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<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.
Lancaster, PA.............................. Edge protectors.
Taylors, SC................................ Laminated paperboard and
specialty conversion.
Arlington, TX.............................. Edge protectors.
PLASTICS PLANTS
New Smyrna Beach, FL (leased).............. Plastic cartridges.
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
Clifton, NJ................................ Contract packaging.
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.
TUBE AND CORE PLANT (50% INTEREST)
Tacoma, WA................................. Spiral-wound tubes.
</TABLE>
- ------------------
9
<PAGE> 10
(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.
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.
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, 1997.
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 20, 1998, there were approximately 585 shareholders of record and, as
of that date, the Company estimates that there were approximately 7,900
beneficial owners holding stock in nominee or "street" name.
The table below sets forth high and low stock prices during the years
1997 and 1996.
<TABLE>
<CAPTION>
1997 HIGH LOW DIVIDEND 1996 HIGH LOW DIVIDEND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter 36 22 $0.14 First Quarter 25 3/4 18 5/8 $0.12
Second Quarter 35 23 3/8 $0.14 Second Quarter 28 1/4 24 1/4 $0.12
Third Quarter 37 1/8 29 1/2 $0.14 Third Quarter 30 3/4 26 $0.12
Fourth Quarter 38 1/8 31 $0.16 Fourth Quarter 37 1/4 28 1/2 $0.14
</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 $0.14 per share
during each of the first three quarters of 1997 and $0.16 per share during the
fourth quarter of 1997. The Company intends to continue paying quarterly
dividends at the same rate as the fourth quarter 1997 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 1997 fourth quarter dividend.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data, Compound Growth Rate Year Ended December 31,
ratios and growth rates) 5 Years 10 Years 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Sales ............................................ $ 696,093 $ 629,674 $ 569,455 $ 455,808 $ 365,410
Freight .......................................... 27,955 26,979 24,827 24,583 22,963
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales ........................................ 16.9% 11.8% 668,138 602,695 544,628 431,225 342,447
Cost of sales .................................... 17.7% 12.2% 482,964 422,783 401,570 307,652 244,578
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit ..................................... 14.9% 10.7% 185,174 179,912 143,058 123,573 97,869
Selling, general and administrative expenses ..... 16.0% 12.7% 88,978 81,003 67,361 59,247 49,355
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income ................................. 13.9% 9.1% 96,196 98,909 75,697 64,326 48,514
Other (expense) income:
Interest expense ................................. (14,111) (10,698) (6,955) (6,870) (6,822)
Interest income .................................. 312 591 821 353 612
Equity in income (loss) of
unconsolidated affiliates ..................... 1,665 2,154 -- -- --
Other, net ....................................... (674) 4,274 (463) (249) 167
- ----------------------------------------------------------------------------------------------------------------------------------
(12,808) (3,679) (6,597) (6,766) (6,043)
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 17.1% 16.0% 83,388 95,230 69,100 57,560 42,471
Minority interest ................................ (1,721) (754) 153 13 15
Tax provision .................................... 15.5% 14.0% 30,543 36,574 26,265 22,095 15,165
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
discontinued operations, extraordinary
items and accounting changes .................. 17.2% 17.0% $ 51,124 $ 57,902 $ 42,988 $ 35,478 $ 27,321
- ----------------------------------------------------------------------------------------------------------------------------------
Net income ....................................... 17.4% 17.0% $ 51,124 $ 57,902 $ 42,988 $ 35,478 $ 32,471
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding ...... 25,216 25,377 25,896 25,639 25,387
PER SHARE DATA
Income from continuing operations before
discontinued operations, extraordinary
items and accounting changes .................. 11.7% 12.8% $ 2.03 $ 2.28 $ 1.66 $ 1.38 $ 1.08
Net income ....................................... 11.8% 12.8% 2.03 2.28 1.66 1.38 1.28
Cash dividends declared .......................... 0.58 0.50 0.435 0.375 0.33
Market price on December 31 ...................... $ 34.25 $ 33.25 $ 20.00 $ 22.25 $ 16.75
Shares outstanding December 31 ................... 25,331 25,053 25,682 25,280 24,968
Price/Earnings ratio ............................. 16.87 14.58 12.05 16.12 13.09
TOTAL MARKET VALUE OF COMMON STOCK ............... $ 867,587 $ 833,012 $ 513,640 $ 562,480 $ 418,214
BALANCE SHEET DATA
Cash and cash equivalents ........................ $ 1,391 $ 11,989 $ 8,785 $ 12,465 $ 14,371
Property, plant and equipment-net ................ 291,036 256,834 181,930 150,391 127,773
Depreciation and amortization .................... 33,661 26,314 17,671 14,542 12,493
Capital expenditures ............................. 36,275 32,059 28,041 29,331 21,251
Total assets ..................................... 550,090 476,280 322,076 266,863 221,366
Current maturities of long-term debt ............. 9 29 36 72 64
Revolving credit loans ........................... 129,000 100,000 10,000 -- --
Long-term debt, less current maturities .......... 83,129 83,261 83,380 83,446 83,515
Shareholders' equity (deficit) ................... 213,931 170,570 139,243 102,274 74,424
Total capital .................................... $ 426,069 $ 353,860 $ 232,659 $ 185,792 $ 158,003
OTHER KEY FINANCIAL MEASURES
Total debt-to-total capital ...................... 49.8 51.8% 40.2% 45.0% 52.9%
Net debt-to-net capital .......................... 49.6 50.1% 37.8% 41.0% 48.2%
Effective tax rate ............................... 37.4 38.7% 38.0% 38.4% 35.7%
Return on shareholders' equity ................... 26.6 37.4% 35.6% 40.2% 44.8%
Return on average capital ........................ 15.4 22.0% 22.6% 23.1% 21.9%
Dividend payout ratio ............................ 28.6 21.9% 26.2% 27.2% 25.8%
Economic profit (B) .............................. $ 30,419 $ 43,663 $ 29,104 $ 30,649 $ 19,512
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data, Year Ended December 31,
ratios and growth rates) 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Sales ............................................ $ 325,620 $ 288,773 $ 286,410 $ 287,076 $ 266,661 $ 230,560
Freight .......................................... 19,674 17,646 17,011 18,858 18,461 10,744
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales ........................................ 305,946 271,127 269,399 268,218 248,200 219,816
Cost of sales .................................... 213,405 187,952 184,292 184,012 170,839 152,538
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit ..................................... 92,541 83,175 85,107 84,206 77,361 67,278
Selling, general and administrative expenses ..... 42,402 36,655 37,555 34,982 31,704 26,957
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income ................................. 50,139 46,520 47,552 49,224 45,657 40,321
Other (expense) income:
Interest expense ................................. (12,315) (17,754) (22,343) (26,721) (24,639) (20,821)
Interest income .................................. 243 246 412 491 617 995
Equity in income (loss) of
unconsolidated affiliates ..................... -- -- -- -- (807) (934)
Other, net ....................................... (151) (297) (409) (19) 106 (599)
- ---------------------------------------------------------------------------------------------------------------------------------
(12,223) (17,805) (22,340) (26,249) (24,723) (21,359)
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ....................... 37,916 28,715 25,212 22,975 20,934 18,962
Minority interest ................................ -- -- 235 1,369 617 (56)
Tax provision .................................... 14,839 11,095 9,468 8,774 8,331 8,243
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
discontinued operations, extraordinary
items and accounting changes .................. $ 23,077 $ 17,620 $ 15,979 $ 15,570 $ 13,220 $ 10,663
- ---------------------------------------------------------------------------------------------------------------------------------
Net income ....................................... $ 22,899 $ 17,620 $ 15,979 $ 15,570 $ 13,220 $ 10,663
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding ...... 19,791 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 .................. $ 1.17 $ 0.99 $ 0.90 $ 0.88 $ 0.75 $ 0.61
Net income ....................................... 1.16 0.99 0.90 0.88 0.75 0.61
Cash dividends declared .......................... 0.08 -- -- -- -- --
Market price on December 31 ...................... $ 18.75 N/A N/A N/A N/A N/A
Shares outstanding December 31 ................... 24,639 17,649 17,649 17,619 17,618 17,622
Price/Earnings ratio ............................. 16.45 N/A N/A N/A N/A N/A
TOTAL MARKET VALUE OF COMMON STOCK ............... $ 461,981 N/A N/A N/A N/A N/A
BALANCE SHEET DATA
Cash and cash equivalents ........................ $ 23,667 $ 4,547 $ 1,900 $ 13,364 $ 4,908 $ 404
Property, plant and equipment-net ................ 103,004 86,005 87,445 90,180 90,175 68,697
Depreciation and amortization .................... 10,661 10,515 13,077 11,756 7,531 6,523
Capital expenditures ............................. 16,880 10,647 10,634 12,486 10,612 7,562
Total assets ..................................... 187,513 144,519 141,216 153,671 146,874 117,812
Current maturities of long-term debt ............. 71 36,292 36,216 39,514 34,633 14,052
Revolving credit loans ........................... -- -- -- -- -- --
Long-term debt, less current maturities .......... 83,388 126,021 145,459 173,170 189,736 198,663
Shareholders' equity (deficit) ................... 47,558 (68,732) (86,352) (102,578) (118,220) (131,484)
Total capital .................................... $ 131,017 $ 93,581 $ 95,323 $ 110,106 $ 106,149 $ 81,231
OTHER KEY FINANCIAL MEASURES
Total debt-to-total capital ...................... 63.7% (A) (A) (A) (A) (A)
Net debt-to-net capital .......................... 55.7% (A) (A) (A) (A) (A)
Effective tax rate ............................... 39.1% 38.6% 37.6% 38.2% 39.8% 43.5%
Return on shareholders' equity ................... (A) (A) (A) (A) (A) (A)
Return on average capital ........................ 27.2% 30.2% 29.1% 29.7% 29.9% 26.8%
Dividend payout ratio ............................ 7.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Economic profit (B) .............................. (A) (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.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS 1997 - 1996
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------- %
1997 1996 Change Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Production source of tons of
paperboard sold (in thousands):
From paperboard mill
production .................. 928.6 826.9 101.7 12.3%
Outside purchases ............. 78.2 102.5 (24.3) -23.7%
- ----------------------------------------------------------------------------------------
Total paperboard tonnage ... 1,006.8 929.4 77.4 8.3%
========================================================================================
Tons sold by market
(in thousands):
Tube, core and can volume ..... 262.2 268.0 (5.8) -2.2%
Folding carton volume ......... 287.4 197.1 90.3 45.8%
Gypsum facing paper volume .... 261.3 263.3 (2.0) -0.8%
Other specialty volume ........ 195.9 201.0 (5.1) -2.5%
- ----------------------------------------------------------------------------------------
Total paperboard tonnage ... 1,006.8 929.4 77.4 8.3%
========================================================================================
Gross paper margins ($/ton):
Mill:
Average same-mill net
selling price ............ $ 406 $ 399 $ 7 1.8%
Average same-mill
recovered fiber cost ..... 83 67 16 23.9%
- ----------------------------------------------------------------------------------------
Mill gross paper margin .. $ 323 $ 332 $ (9) -2.7%
========================================================================================
Tube and core:
Average net selling price .. $ 720 $ 723 $ (3) -0.4%
Average paperboard cost .... 400 396 4 1.0%
- ----------------------------------------------------------------------------------------
Tube and core gross
paper margin ........... $ 320 $ 327 $ (7) -2.1%
========================================================================================
</TABLE>
Net sales increased 10.9 percent to $668.1 million from $602.7 million in 1996.
Acquisitions completed during 1997 and 1996 contributed incremental sales of
$72.3 million in 1997. These acquisitions included The New General Packaging
Service, Oak Tree Packaging Corporation and Baxter Tube Company, all completed
in 1997, and the Company's joint venture with Tenneco Packaging Inc., completed
in the second half of 1996. On a same-plant basis, excluding acquisitions and
dispositions, net sales rose $5.1 million, or 0.9 percent.
Total paperboard tonnage increased 8.3 percent to 1,007 thousand tons from 929
thousand tons last year. On a same-plant basis, excluding acquisitions, total
paperboard tonnage decreased 1.1 percent. As part of its strategy to optimize
capacity utilization, the Company regularly purchases paperboard from other
manufacturers, in an effort to minimize the potential impact of demand declines
on the Company's own mill system. Additionally, each of the Company's mills can
produce recycled paperboard for more than one product market, which allows it to
shift production between mills in response to customer or market demands. The
slight decline in total paperboard tonnage (excluding acquisitions) resulted
from reduced purchases of paperboard from outside manufacturers (purchases of
various grades of paperboard for internal conversion and gypsum facing paper for
resale) partially offset by increased tonnage sold from paperboard mill
production (including sales to outside customers and transfers to the Company's
converting operations). Including acquisitions, tube, core and can volume
decreased 2.2 percent in 1997 versus 1996; folding carton volume increased 45.8
percent; and other specialty volume decreased 2.5 percent. Excluding
acquisitions, tube, core and can volume decreased 2.8 percent; folding carton
volume increased 2.0 percent; and other specialty volume decreased 3.9 percent.
Total tonnage converted increased 2.0 percent in 1997 to 358 thousand tons from
351 thousand tons in 1996 but decreased 1.1 percent excluding acquisitions.
Consolidated gross margin decreased to 27.7 percent of net sales from 29.9
percent in 1996. This margin decrease was due primarily to lower gross paper
margins (selling prices less raw materials costs) at paperboard mills and tube
and core converting facilities combined with lower margins at folding carton
converting operations.
Recovered fiber, which is derived from recycled paperstock, 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. 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 declined $2.7 million, or 2.7 percent, to $96.2 million from
$98.9 million last year. Operating income at comparable facilities declined $8.0
million, or 8.1 percent. This decline was due primarily to lower margins at
paperboard mills and converting operations, partially offset by improved margins
at paperstock recycling operations. Selling, general and administrative expenses
increased $8.0 million in 1997 versus 1996. Excluding acquisitions and
dispositions, these expenses were unchanged.
Interest expense increased to $14.1 million for 1997 from $10.7 million in 1996
primarily due to higher average outstanding borrowings under the revolving
credit facility. The Company's effective tax rate declined to 37.4 percent in
1997 versus 38.7 percent in 1996, owing in large part to the implementation of
several tax strategies which reduced state and local taxes.
Net income decreased 11.7 percent from $57.9 million in 1996 to $51.1 million.
Excluding the nonrecurring gain on the sale of a 50 percent interest in the net
assets of Standard Gypsum from 1996, net income declined $4.2 million, or 7.6
percent. Diluted net income per common share decreased 11.0 percent to $2.03
from $2.28 in 1996. Excluding the nonrecurring gain, net income per common share
decreased $0.15, or 6.9 percent.
12
<PAGE> 13
RESULTS OF OPERATIONS 1996 - 1995
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated:
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------- %
1996 1995 Change Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Production source of tons of
paperboard sold (in thousands):
From paperboard mill
production .................. 826.9 720.9 106.0 14.7%
Outside purchases ............. 102.5 94.9 7.6 8.0%
- ------------------------------------------------------------------------------------------
Total paperboard tonnage .... 929.4 815.8 113.6 13.9%
==========================================================================================
Tons sold by market
(in thousands):
Tube, core and can volume ..... 268.0 248.0 20.0 8.1%
Folding carton volume ......... 197.1 109.2 87.9 80.5%
Gypsum facing paper volume .... 263.3 250.5 12.8 5.1%
Other specialty volume ........ 201.0 208.1 (7.1) -3.4%
- ------------------------------------------------------------------------------------------
Total paperboard tonnage .... 929.4 815.8 113.6 13.9%
==========================================================================================
Gross paper margins ($/ton):
Mill:
Average same-mill net
selling price ............. $ 392 $ 425 $ (33) -7.8%
Average same-mill
recovered fiber cost ...... 66 144 (78) -54.2%
- ------------------------------------------------------------------------------------------
Mill gross paper margin ... $ 326 $ 281 $ 45 16.0%
==========================================================================================
Tube and core:
Average net selling price ... $ 723 $ 715 $ 8 1.1%
Average paperboard cost ..... 396 408 (12) -2.9%
- ------------------------------------------------------------------------------------------
Tube and core gross
paper margin ............ $ 327 $ 307 $ 20 6.5%
==========================================================================================
</TABLE>
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.
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.
Tons sold from paperboard mill production increased 14.7 percent to 827 thousand
tons in 1996. On a same-plant basis, tons sold increased 0.7 percent year over
year to 726 thousand tons. Purchases of paperboard from outside manufacturers
increased 8.0 percent from 95 thousand tons to 103 thousand tons in 1996. Of
this amount, converting facilities acquired in 1995 and 1996 accounted for 19
thousand tons. Total paperboard tonnage thus increased 13.9 percent to 929
thousand tons in 1996 versus 816 thousand tons in 1995. On a same-plant basis,
total paperboard tonnage was essentially unchanged for the year. Including
acquisitions, tube, core and can volume increased 8.1 percent year over year
and folding carton volume increased 80.5 percent. Excluding acquisitions, tube,
core and can volume increased 3.9 percent and folding carton volume decreased
14.5 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. 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 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.
Diluted net income per common share rose 37.3 percent to $2.28 from $1.66 in
1995. Diluted weighted average shares outstanding declined in 1996 as the result
of share repurchases under the Company's stock repurchase 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.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1997, the Company had loans of $129.0 million outstanding under
its revolving credit facility versus $100.0 million on December 31, 1996. 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 years ended
December 31, 1997 and 1996, the weighted average borrowings outstanding under
the revolving credit facility during such periods bore interest at 5.86 percent
and 5.71 percent, respectively. Other long-term debt, less current maturities,
primarily the Company's 7.74 percent senior notes, was $83.1 million at December
31, 1997 versus $83.3 million at December 31, 1996.
In the second quarter of 1997, the Company replaced its $200 million bank
revolving credit facility with a $400 million, five-year bank revolving credit
facility and refinanced the loans outstanding with loans from the new facility.
The new credit facility 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 general corporate purposes, including acquisitions. Interest under the
new 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, should it attain such a rating in the
future. 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.
Cash generated from operations was $70.8 million for the year ended December 31,
1997 compared with $97.2 million last year. The decrease in 1997 compared to
1996 was primarily due to increased net working capital needs and lower net
income.
13
<PAGE> 14
Capital expenditures, excluding acquisitions, were $36.3 million in 1997 versus
$32.1 million for 1996. Capital expenditures of approximately $45.0 million are
anticipated for 1998.
On March 31, 1997, the Company acquired all of the outstanding stock of The New
General Packaging Service, Inc. ("NGP") in exchange for approximately 429,000
shares of the Company's common stock, valued at $10.3 million. NGP, located in
Clifton, New Jersey, is a primary packager of pharmaceutical and medical
products as well as numerous health, beauty and personal care products.
In August 1997, the Company acquired all of the outstanding common stock of Oak
Tree Packaging Corporation ("Oak Tree") in exchange for approximately 556,000
shares of the Company's common stock, valued at $16.8 million. Simultaneous with
the acquisition, the Company redeemed Oak Tree's preferred stock for
approximately $8.5 million and repaid Oak Tree's debt of approximately $11.7
million. Oak Tree's operations consist of three folding carton plants located in
Versailles, Connecticut; Thorndike, Massachusetts; and York, Pennsylvania.
In October 1997, the Company acquired substantially all of the assets and
business of Baxter Tube Company, a subsidiary of The Tranzonic Companies, for
approximately $13.5 million in cash. Baxter Tube Company manufactures
spiral-wound tubes at four facilities located in Ware Shoals, South Carolina;
Perrysburg, Ohio; Minerva, Ohio; and Leyland, Lancaster, United Kingdom (under
the name Unity Paper Tube, Ltd.).
Cash dividends of $14.0 million were paid for the year ended December 31, 1997
versus $12.0 million in the same period last year. The Company's senior notes
agreement contains a provision which limits the payment of dividends, on a
cumulative basis, to a base amount plus 33 percent of the Company's cumulative
consolidated net income since October 1992. The Company does not believe that
this provision will limit its ability to pay dividends at its current rate or
limit its ability to increase dividends in the future. The revolving credit
agreement contains no specific limitations on the payment of dividends.
During 1997, the Company purchased and retired 1,106,000 shares of its common
stock. These purchases were made in a series of open market transactions, at
prices ranging from $22.25 to $31.94 per share, totaling $29.4 million. These
purchases were funded with borrowings under the revolving credit facility and
internally generated cash. The Company has cumulatively purchased 2,192,000
shares since January 1996. The Company's board of directors has authorized
purchases of up to 1,808,000 additional shares, and the Company intends to
continue such purchases, subject to market conditions and availability, but
there can be no assurance as to the completion, timing or prices of such future
purchases.
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.
The Company uses software and related information technologies throughout its
businesses that may be affected by the date change in the year 2000. An internal
study is currently under way to determine the full scope and related costs to
ensure that the Company's systems continue to meet its internal needs and those
of its customers. Although final cost estimates regarding the year 2000 issue
have yet to be determined, the Company anticipates that these costs will result
in an increase in Company expenses during 1998 and 1999. The Company expects to
complete these cost estimates during early 1998 and incur them during 1998 and
1999 to resolve this issue. These expenses are not expected to materially impact
the Company's financial condition or results of operations.
FORWARD-LOOKING INFORMATION
This report on Form 10-K, 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. Although 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 and other matters discussed in this report and
the Company's other filings with the Securities and Exchange Commission.
14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................................ $ 1,391 $ 11,989
Receivables, net of allowances for doubtful accounts, returns, and discounts
of $1,139 and $1,314 at December 31, 1997 and 1996, respectively ....................... 70,944 59,789
Inventories .............................................................................. 62,319 46,468
Refundable income taxes .................................................................. 1,190 5,620
Other current assets ..................................................................... 5,312 3,187
- ----------------------------------------------------------------------------------------------------------------------
Total current assets .................................................................. 141,156 127,053
- ----------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land ..................................................................................... 6,305 5,640
Buildings and improvements ............................................................... 86,967 74,837
Machinery and equipment .................................................................. 362,384 313,379
Furniture and fixtures ................................................................... 10,103 9,098
- ----------------------------------------------------------------------------------------------------------------------
465,759 402,954
Less accumulated depreciation ............................................................ (174,723) (146,120)
- ----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net ..................................................... 291,036 256,834
- ----------------------------------------------------------------------------------------------------------------------
GOODWILL, net of accumulated amortization of $4,858 and $2,228 at
December 31, 1997 and 1996, respectively ................................................. 104,323 81,124
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS ............................................................................... 13,575 11,269
- ----------------------------------------------------------------------------------------------------------------------
$550,090 $476,280
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..................................................... $ 9 $ 29
Accounts payable ......................................................................... 43,861 42,347
Accrued liabilities ...................................................................... 21,414 28,840
Dividends payable ........................................................................ 4,052 3,501
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities ............................................................. 69,336 74,717
- ----------------------------------------------------------------------------------------------------------------------
REVOLVING CREDIT LOANS ..................................................................... 129,000 100,000
- ----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities .................................................... 83,129 83,261
- ----------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES ...................................................................... 30,731 24,787
- ----------------------------------------------------------------------------------------------------------------------
DEFERRED COMPENSATION ...................................................................... 4,190 5,727
- ----------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES .......................................................................... 4,616 3,782
- ----------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST .......................................................................... 15,157 13,436
- ----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares authorized, no shares issued at
December 31, 1997 and 1996 ............................................................. _ _
Common stock, $.10 par value; 60,000,000 shares authorized, 25,330,670 and 25,053,460
shares issued and outstanding at December 31, 1997 and 1996, respectively .............. 2,533 2,505
Additional paid-in capital ............................................................... 144,442 140,144
Retained earnings ........................................................................ 66,956 27,921
- ----------------------------------------------------------------------------------------------------------------------
213,931 170,570
- ----------------------------------------------------------------------------------------------------------------------
$550,090 $476,280
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
15
<PAGE> 16
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES .................................................... $696,093 $629,674 $569,455
FREIGHT .................................................. 27,955 26,979 24,827
- --------------------------------------------------------------------------------------------------------
Net sales ........................................... 668,138 602,695 544,628
COST OF SALES ............................................ 482,964 422,783 401,570
- --------------------------------------------------------------------------------------------------------
Gross profit ........................................ 185,174 179,912 143,058
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ............. 88,978 81,003 67,361
- --------------------------------------------------------------------------------------------------------
Operating income ....................................... 96,196 98,909 75,697
- --------------------------------------------------------------------------------------------------------
OTHER (EXPENSE) INCOME:
Interest expense ....................................... (14,111) (10,698) (6,955)
Interest income ........................................ 312 591 821
Equity in income of unconsolidated affiliates .......... 1,665 2,154 _
Other, net ............................................. (674) 4,274 (463)
- --------------------------------------------------------------------------------------------------------
(12,808) (3,679) (6,597)
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST ......... 83,388 95,230 69,100
MINORITY INTEREST ........................................ (1,721) (754) 153
PROVISION FOR INCOME TAXES ............................... 30,543 36,574 26,265
- --------------------------------------------------------------------------------------------------------
NET INCOME ............................................... $ 51,124 $ 57,902 $ 42,988
========================================================================================================
BASIC INCOME PER COMMON SHARE ............................ $ 2.05 $ 2.33 $ 1.69
========================================================================================================
BASIC WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING ............................................ 24,939 24,904 25,512
========================================================================================================
DILUTED INCOME PER COMMON SHARE .......................... $ 2.03 $ 2.28 $ 1.66
========================================================================================================
DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ..................................... 25,216 25,377 25,896
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
16
<PAGE> 17
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(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, 1994 ....................... 25,279,669 $2,528 $148,595 $(48,849) $102,274
Net income ..................................... -- -- -- 42,988 42,988
Issuance of common stock under nonqualified
stock option plans ........................... 320,605 32 3,944 -- 3,976
Issuance of common stock under 1993
stock purchase plan .......................... 82,097 8 1,474 -- 1,482
Foreign currency translation adjustment ........ -- -- -- (356) (356)
Dividends declared of $.435 per share .......... -- -- -- (11,121) (11,121)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 ....................... 25,682,371 2,568 154,013 (17,338) 139,243
Net income ..................................... -- -- -- 57,902 57,902
Issuance of common stock under nonqualified
stock option plans ........................... 359,519 36 6,055 -- 6,091
Issuance of common stock under 1993
stock purchase plan .......................... 30,394 3 884 -- 887
Issuance of common stock under
director equity plan ......................... 1,176 -- 31 -- 31
Purchase and retirement of common stock ........ (1,020,000) (102) (20,839) -- (20,941)
Pension liability adjustment ................... -- -- -- (274) (274)
Foreign currency translation adjustment ........ -- -- -- 49 49
Dividends declared of $.50 per share ........... -- -- -- (12,418) (12,418)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 ....................... 25,053,460 2,505 140,144 27,921 170,570
Net income ..................................... -- -- -- 51,124 51,124
Issuance of common stock for acquisitions ...... 985,041 99 27,078 -- 27,177
Issuance of common stock under nonqualified
stock option plans ........................... 301,410 30 4,181 -- 4,211
Issuance of common stock under 1993
stock purchase plan .......................... 94,923 10 2,309 -- 2,319
Issuance of common stock under
director equity plan ......................... 1,836 -- 62 -- 62
Purchase and retirement of common stock ........ (1,106,000) (111) (29,332) -- (29,443)
Pension liability adjustment ................... -- -- -- 2,364 2,364
Foreign currency translation adjustment ........ -- -- -- 57 57
Dividends declared of $.58 per share ........... -- -- -- (14,510) (14,510)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 ....................... 25,330,670 $2,533 $144,442 $66,956 $213,931
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
17
<PAGE> 18
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................................................ $51,124 $ 57,902 $42,988
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ........................................................... 33,661 26,314 17,671
Equity in income of unconsolidated affiliates ........................................... (1,665) (2,154) _
Gain on sale of interest in subsidiary .................................................. _ (4,228) _
Change in deferred income taxes ......................................................... 1,109 2,742 952
Provision for deferred compensation ..................................................... 279 596 441
Minority interest ....................................................................... 1,721 754 (153)
Changes in operating assets and liabilities, net of acquisitions:
Receivables ........................................................................... (4,820) (1,015) (1,432)
Inventories ........................................................................... (5,245) 3,873 (3,832)
Other current assets .................................................................. (2,046) 2,145 (1,184)
Accounts payable and accrued liabilities .............................................. (11,057) 13,110 (1,908)
Income taxes .......................................................................... 7,783 (2,791) 5,083
- -----------------------------------------------------------------------------------------------------------------------------------
Total adjustments ................................................................. 19,720 39,346 15,638
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ......................................... 70,844 97,248 58,626
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment ................................................ (36,275) (32,059) (28,041)
Acquisition of businesses, net of cash acquired ........................................... (22,032) (138,402) (35,071)
Proceeds from the sale of interest in subsidiary, net ..................................... _ 10,524 _
Cash acquired in stock acquisition ........................................................ 1,083 _ _
Other ..................................................................................... 2,073 5,655 (633)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ............................................. (55,151) (154,282) (63,745)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from revolving credit loans ...................................................... 85,000 145,000 20,000
Repayments of revolving credit loans ...................................................... (56,000) (55,000) (10,000)
Repayments of long-term debt .............................................................. (14,101) (126) (111)
Dividends paid ............................................................................ (13,959) (11,993) (10,699)
Proceeds from issuances of stock .......................................................... 2,986 4,092 2,874
Purchases of stock ........................................................................ (29,443) (20,941) _
Other ..................................................................................... (774) (794) (625)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities ............................... (26,291) 60,238 1,439
- -----------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........................................ (10,598) 3,204 (3,680)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............................................. 11,989 8,785 12,465
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................................................... $ 1,391 $ 11,989 $ 8,785
===================================================================================================================================
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest ................................................................ $14,186 $ 10,309 $ 6,973
===================================================================================================================================
Cash payments for income taxes ............................................................ $22,655 $ 36,221 $19,462
===================================================================================================================================
Stock issued for acquisitions ............................................................. $27,177 $ _ $ -
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
18
<PAGE> 19
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 95 percent and 94 percent at
December 31, 1997 and 1996, 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, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies ...................................................... $ 29,567 $ 24,784
Finished goods and work in process .............................................. 32,752 21,684
- -----------------------------------------------------------------------------------------------------------
$ 62,319 $ 46,468
===========================================================================================================
</TABLE>
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 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. subsidiaries 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.
subsidiaries 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 using 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.
INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." Under SFAS No. 128, primary income per share is
replaced by "Basic" income per share, which excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. "Diluted" income per share, which
is computed similarly to fully diluted income per share, reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. The dilution effect of stock
options outstanding during 1997, 1996 and 1995 added 277,000, 473,000 and
384,000, respectively, to the weighted average shares outstanding for purposes
of calculating diluted income per share.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information About
Capital Structure." SFAS No. 129 requires companies to disclose descriptive
information about an entity's capital structure. It also requires disclosure of
information about the liquidation preference of preferred stock and redeemable
stock. SFAS No. 129 was effective for the Company's fiscal year ending
December 31, 1997. SFAS No. 129 did not require revision of prior disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 is designed to improve the reporting of changes in equity from
period to period. SFAS No. 130 is effective for the Company's fiscal year ending
December 31, 1998. Management does not expect SFAS No. 130 to have a significant
impact on the Company's financial statements.
19
<PAGE> 20
In June 1997, the FASB issued SFAS No. 131, "Disclosure 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, "Employers' 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 as
useful. SFAS No. 132 is effective for the Company's fiscal year ending December
31, 1998.
PRIOR YEAR RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the 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 1997 and 1996, the Company purchased and retired 1,106,000 and 1,020,000
shares, respectively, of its common stock pursuant to a plan authorized and
approved by its board of directors allowing purchases of up to 4,000,000 common
shares. These purchases were made in a series of open market transactions at an
aggregate cost of $29,443,000 and $20,941,000 in 1997 and 1996, respectively,
and at prices ranging from $22.25 to $31.94 per share in 1997 and $18.81 to
$31.50 per share in 1996.
3. ACQUISITIONS
Each of the following acquisitions was accounted for under the purchase method
of accounting, applying the provisions of Accounting Principles Board ("APB")
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. The financial statements for the years ended 1997, 1996 and 1995
reflect the operations of the acquired businesses for the periods after their
respective dates of acquisition.
On March 31, 1997, the Company acquired all of the outstanding stock of The New
General Packaging Service, Inc. ("NGP") in exchange for approximately 429,000
shares of the Company's common stock valued at $10,300,000. NGP, located in
Clifton, New Jersey, is a primary packager of pharmaceutical and medical
products as well as numerous health, beauty, and personal care products.
Goodwill in the amount of $6,100,000 was recorded in connection with the
acquisition and is being amortized over 40 years.
On August 18, 1997, the Company acquired all of the outstanding common stock of
Oak Tree Packaging Corporation ("Oak Tree") in exchange for approximately
556,000 shares of the Company's common stock valued at $16,800,000. Simultaneous
with the acquisition, the Company redeemed Oak Tree's preferred stock for
approximately $8,500,000 and repaid Oak Tree's outstanding debt of approximately
$11,700,000 with funding from the Company's line of credit. Oak Tree's
operations consist of three folding carton plants located in Versailles,
Connecticut; Thorndike, Massachusetts; and York, Pennsylvania. Goodwill in the
amount of $11,300,000 was recorded in connection with the acquisition and is
being amortized over 40 years.
In October 1997, the Company acquired substantially all of the assets and
business of Baxter Tube Company, a subsidiary of The Tranzonic Companies, for
approximately $13,500,000 in cash. Baxter Tube Company manufactures spiral-wound
tubes at four facilities located in Ware Shoals, South Carolina; Perrysburg,
Ohio; Minerva, Ohio; and Leyland, Lancaster, United Kingdom (under the name
Unity Paper Tube, Ltd.). Goodwill in the amount of $8,100,000 was recorded in
connection with the acquisition and is being amortized over 40 years.
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
20
<PAGE> 21
in cash. In conjunction with this acquisition, the Company recorded
approximately $13,800,000 in goodwill, which is being amortized over 40 years.
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 in the partnership
was funded primarily with borrowings of $110,000,000 from its revolving credit
facility. 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.
The following unaudited pro forma financial information assumes that the
above acquisitions occurred on January 1, 1996. These results have been prepared
for comparative purposes only and do not purport to be indicative of what would
have resulted had the acquisitions occurred on January 1, 1996 or the results
which may occur in the future (in thousands except per share data):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales ......................................................... $710,948 $716,960
Net income ........................................................ 52,214 60,273
Diluted income per common share ................................... 2.03 2.29
</TABLE>
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. Allocation of the purchase price of the GAR
acquisition resulted in goodwill of approximately $10,700,000, which is being
amortized over 20 years.
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 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. The Company's
equity interest in the earnings of Standard for the year ended December 31, 1997
was $1,703,000.
5. REVOLVING CREDIT FACILITY
In July 1997, the Company replaced its $200,000,000 bank revolving credit
facility with a $400,000,000, five-year bank revolving credit facility and
refinanced the loans outstanding with loans under the new facility. The new
credit facility may be increased up to $500,000,000 and its maturity extended by
up to three additional years, subject to certain conditions and approvals.
Interest under the new 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. As of December 31, 1997 and
1996, borrowings of $129,000,000 and $100,000,000, respectively, were
outstanding under revolving credit facilities at weighted average interest rates
of 6.15 percent and 5.88 percent, respectively.
6. LONG-TERM DEBT
At December 31, 1997 and 1996, long-term debt consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior notes, dated October 8, 1992,
terms as described below .................................................. $82,750 $82,750
Other notes payable ........................................................ 388 540
- -----------------------------------------------------------------------------------------------------
83,138 83,290
Less current maturities .................................................... 9 29
- -----------------------------------------------------------------------------------------------------
$83,129 $83,261
=====================================================================================================
</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 provide for optional prepayments, in whole or in part, with a penalty,
as defined, during specified periods.
The Notes and revolving credit facilities (Note 5) 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 leverage and interest coverage ratios (as
defined), investments, and minimum working capital requirements.
21
<PAGE> 22
Aggregate maturities of long-term debt at December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998............... $ 9
1999............... 103
2000............... 16,626
2001............... 16,560
2002............... 16,550
Thereafter......... 33,290
----------------------------------
$83,138
==================================
</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, 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals .................................. $6,905 $4,895 $7,025
Contingent rentals ............................... 371 563 911
- --------------------------------------------------------------------------------------------------
$7,276 $5,458 $7,936
</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, 1997 (in thousands):
<TABLE>
<S> <C>
1998.............. $ 6,767
1999.............. 5,806
2000.............. 4,512
2001.............. 2,562
2002.............. 1,793
Thereafter........ 1,656
---------------------------------
$23,096
=================================
</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.
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 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 1997 and 1996, 1,836 and 1,176 shares,
respectively, of common stock and options to purchase 6,000 shares of common
stock were issued in each year 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 expired 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
terminated 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 1997, 1996 and 1995, the Company issued 189,215, 142,060
and 136,020 nonqualified incentive stock options, respectively, under the 1993
Plan. During 1997, 1996 and 1995, the Company issued 31,816, 10,859 and 26,420
bonus shares, respectively, with a respective aggregate market value of
$934,000, $264,000 and $505,000, respectively. Compensation expense of $451,000,
$359,000 and $264,000 related to bonus shares was recorded in 1997, 1996 and
1995, respectively.
A summary of stock option activity for the years ended December 31, 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
Shares Price Range
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted ............................................................ 195,215 25.25-33.75
Forfeited .......................................................... (13,805) 10.00-30.13
Exercised .......................................................... (364,813) 2.70-19.75
---------
OUTSTANDING AT DECEMBER 31, 1997 ....................................... 720,638 $ 4.00-33.75
=========
</TABLE>
22
<PAGE> 23
Accruals of approximately $301,000 and $1,344,000 related to the outstanding
incentive stock options are included in deferred compensation in the
accompanying balance sheets at December 31, 1997 and 1996, respectively.
During 1995, the FASB 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 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 1997 and
1996 using the Black-Scholes option pricing model as prescribed by SFAS No. 123
using the following weighted average assumptions for grants in 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 and 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate.............. 5.97%-6.86% 5.40%-6.79%
Expected dividend yield.............. 1.90%-2.53% 1.61%-2.46%
Expected option lives................ 8-10 years 6-8 years
Expected volatility.................. 30% 25%
</TABLE>
The total values of the options granted during the years ended December 31, 1997
and 1996 were computed to be approximately $2,061,000 and $763,000,
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 and net income per share for the
years ended December 31, 1997, 1996 and 1995 would have been as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported .................................... $51,124 $57,902 $42,988
Pro forma ...................................... 50,824 57,659 42,925
Diluted income per common share:
As reported .................................... $ 2.03 $ 2.28 $ 1.66
Pro forma ...................................... 2.02 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 $368,000, $483,000 and
$480,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Accruals of approximately $3,889,000 and $4,383,000 related to these plans are
included in deferred compensation in the accompanying balance sheets at December
31, 1997 and 1996, respectively.
9. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT 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
$3,478,000, $4,651,000 and $2,019,000 in 1997, 1996 and 1995, 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.
During 1997, the Company adopted a supplemental executive retirement plan
("SERP"), which provides benefits to participants based on average compensation.
The SERP covers certain executives of the Company commencing upon retirement.
The SERP is unfunded at December 31, 1997.
23
<PAGE> 24
Pension expense for the Pension Plan and the SERP includes the following
components for the years ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned .................. $ 2,153 $ 1,493 $ 1,448
Interest cost on projected
benefit obligation ............................. 2,629 2,191 2,045
Actual gain on plan assets ....................... (4,480) (1,146) (1,914)
Net amortization and deferral .................... 2,622 (110) 1,131
- --------------------------------------------------------------------------------------------
Net pension expense .............................. $ 2,924 $ 2,428 $ 2,710
============================================================================================
</TABLE>
The table below represents a reconciliation of the funded status of the Pension
Plan and the SERP to prepaid pension cost as of December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997
-----------------------
Pension
SERP Plan 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested ......................................... $1,313 $31,235 $28,062
Nonvested ...................................... 53 1,192 969
- --------------------------------------------------------------------------------------------------
1,366 32,427 29,031
Effect of projected future
compensation levels ............................ 552 4,568 5,287
- --------------------------------------------------------------------------------------------------
Projected benefit obligation ..................... 1,918 36,995 34,318
Plan assets, at fair value ....................... _ 31,725 25,204
- --------------------------------------------------------------------------------------------------
Projected benefit obligation in
excess of plan assets .......................... (1,918) (5,270) (9,114)
Unrecognized net loss ............................ _ 6,042 9,317
Prior service cost ............................... _ 442 326
Transition assets from initial
adoption of SFAS No. 87 ........................ _ (73) (267)
Unrecognized net transition
obligation for SERP ............................ 1,593 _ _
- --------------------------------------------------------------------------------------------------
(Accrued) prepaid pension cost
before minimum pension
liability adjustment ........................... $ (325) $ 1,141 $ 262
==================================================================================================
</TABLE>
In accordance with SFAS No. 87, the Company has recorded 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 $2,884,000 and $4,150,000 at
December 31, 1997 and 1996, 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 charges to
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, 1997 and 1996
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.
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, 1997,
1996 and 1995 included the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned .................. $100 $ 86 $ 86
Interest cost on accumulated
postretirement benefit obligation .............. 287 239 281
- -----------------------------------------------------------------------------------
Net periodic postretirement
benefit cost ................................. $387 $325 $367
===================================================================================
</TABLE>
Postretirement benefits totaling $305,000, $203,000 and $151,000 were paid
during 1997, 1996 and 1995, respectively.
The accrued postretirement benefit cost as of December 31, 1997 and 1996
consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ...................................................................... $1,141 $1,961
Fully eligible active plan participants ....................................... 394 197
Other active plan participants ................................................ 2,528 1,266
- -----------------------------------------------------------------------------------------------------------
4,063 3,424
Unrecognized net loss ......................................................... (285) (39)
- -----------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost ........................................... $3,778 $3,385
===========================================================================================================
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1997 and 1996
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 1998, gradually decreasing to 5 percent by the year 2002. Increasing
the assumed health care costs trend rate by one percentage point would increase
the accumulated postretirement benefit obligation as of December 31, 1997 by
approximately $482,000 and would increase net periodic postretirement benefit
cost by approximately $53,000 for the year ended December 31, 1997.
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.
24
<PAGE> 25
The provision for income taxes for the years ended December 31, 1997, 1996 and
1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ........................................ $26,128 $29,989 $22,026
State .......................................... 3,306 3,843 3,286
- --------------------------------------------------------------------------------------------------
29,434 33,832 25,312
Deferred ......................................... 1,109 2,742 953
- --------------------------------------------------------------------------------------------------
$30,543 $36,574 $26,265
==================================================================================================
</TABLE>
The principal differences between the federal statutory tax rate and the
provision for income taxes for the years ended December 31, 1997, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate ....................... 35.0% 35.0% 35.0%
State taxes, net of federal
tax benefit .................................... 3.2 3.5 3.3
Other ............................................ (0.8) 0.2 (0.3)
- --------------------------------------------------------------------------------------------------
Effective tax rate ............................... 37.4% 38.7% 38.0%
==================================================================================================
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1997 and 1996 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Deferred employee benefits ................................................... $ 1,834 $ 1,909
Postemployment benefits ...................................................... 431 643
Postretirement benefits other
than pensions .............................................................. 989 619
Accounts receivable .......................................................... 439 627
Other ........................................................................ 396 238
- ----------------------------------------------------------------------------------------------------------
Total deferred income tax assets ........................................... 4,089 4,036
- ----------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Depreciation and amortization ................................................ (30,720) (27,170)
Asset revaluations ........................................................... (3,460) (854)
Other ........................................................................ (640) (799)
- ----------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities ...................................... (34,820) (28,823)
- ----------------------------------------------------------------------------------------------------------
Valuation allowance ............................................................ - -
- ----------------------------------------------------------------------------------------------------------
Deferred income taxes ...................................................... $(30,731) $ (24,787)
==========================================================================================================
</TABLE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data for the periods
indicated (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Net sales ............................. $157,583 $160,834 $173,720 $176,001
Gross profit .......................... 43,820 47,822 46,800 46,732
Net income ............................ 11,741 12,819 12,624 13,940
Diluted income per common share ....... $ 0.47 $ 0.51 $ 0.50 $ 0.55
1996:
Net sales ............................. $144,519 $140,400 $158,199 $159,577
Gross profit .......................... 43,340 43,766 47,002 45,804
Net income ............................ 13,551 15,327 14,766 14,258
Diluted income per common share ....... $ 0.53 $ 0.61 $ 0.58 $ 0.56
</TABLE>
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, 1997:
- - 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, 1997,
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.
25
<PAGE> 26
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, 1997 and 1996 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 29, 1998
26
<PAGE> 27
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.
27
<PAGE> 28
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, 1997 and 1996
Consolidated Statements of Income for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996 and
1995
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.
The Company filed two current reports on Form 8-K during the quarter
ending December 31, 1997. The first report, filed October 9, 1997, incorporated
the contents of a press release in which the Company announced that it was
considering the possibility of making a cash offer for United Kingdom-based
Britton Group plc. The second report, filed October 14, 1997, incorporated the
contents of a press release in which the Company announced that it did not then
intend to proceed with a cash offer for Britton.
28
<PAGE> 29
SCHEDULE II
CARAUSTAR INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 and 1997
(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>
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
------ ------ ------- ------
1997: Allowances for doubtful accounts
receivable, returns, and discounts $1,314 $4,734 $(4,909) $1,139
------ ------ ------- ------
</TABLE>
* Principally charges for which reserves were provided, net of recoveries.
29
<PAGE> 30
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, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Form 10-K and have issued our report thereon dated January 29, 1998. 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 14a.(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.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 29, 1998
30
<PAGE> 31
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, 1998
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, 1998.
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
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <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
Registration Statement on Form S-4 [SEC File No.
333-29937])
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* 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])
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])
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
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])
10.13 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 Lyonnais, 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])
10.14+* 1998 Key Employee Incentive Compensation Plan
21.01+ Subsidiaries of the Company
23.01+ Consent of Arthur Andersen LLP
27.01+ Financial Data Schedule for the year ended December 31,
1997 (For SEC purposes only)
27.02+ Restated Financial Data Schedule for the year ended
December 31, 1996, which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share" (For SEC purposes
only).
27.03+ Restated Financial Data Schedule for three months ended
March 31, 1996, which is hereby restated pursuant to
SFAS NO. 128, "Earnings Per Share" (For SEC purposes
only).
27.04+ Restated Financial Data Schedule for the six months
ended June 30, 1996, which is hereby restated pursuant
to SFAS No. 128, "Earnings Per Share" (For SEC purposes
only).
27.05+ Restated Financial Data Schedule for the nine months
ended September 30, 1996, which is hereby
restated pursuant to SFAS No. 128, "Earnings Per Share"
(For SEC purposes only).
27.06+ Restated Financial Data Schedule for three months ended
March 31, 1997, which is hereby restated pursuant to
SFAS No. 128, "Earnings Per Share" (For SEC purposes
only).
27.07+ Restated Financial Data Schedule for the six months
ended June 30, 1997, which is hereby restated pursuant
to SFAS No. 128, "Earnings Per Share" (For SEC purposes
only).
27.08+ Restated Financial Data Schedule for the nine months
ended September 30, 1997, which is hereby restated
pursuant to SFAS No. 128, "Earnings Per Share" (For SEC
purposes only).
</TABLE>
+ Filed herewith
* Management contract or compensatory plan required to be
filed under Item 14(c) of Form 10-K and Item 601 of
Regulation S-K of the Securities and Exchange
Commission.
33
<PAGE> 1
EXHIBIT 10.14
CARAUSTAR INDUSTRIES, INC.
1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE 1
PURPOSE AND TERM OF PLAN
1.1 Purpose. The purposes of this Caraustar Industries, Inc. 1998 Key
Employee Incentive Compensation Plan (the "Plan") are to (1) align the interests
of participating employees of Caraustar Industries, Inc. ("Caraustar") and its
Related Companies (the "Company") with the interests of Caraustar's shareholders
by reinforcing the relationship between participants' rewards and shareholder
value; (2) encourage equity ownership in Caraustar by participants; and (3)
provide an incentive to participants for continuous employment with the Company.
1.2 Term. This Plan will be effective as of March 10, 1998, subject to
the Plan's approval by the shareholders of Caraustar at the 1998 annual
shareholders meeting. No Awards shall be exercisable or payable before such
shareholder approval of the Plan. Awards shall not be granted under this Plan
after April 15, 2003.
ARTICLE 2
DEFINITIONS
2.1 "1993 Plan" shall mean the Caraustar Industries, Inc. 1993 Key
Employees' Share Ownership Plan.
2.2 "Award" means any form of Stock Option, Restricted Share Right,
share of Common Stock or Restricted Stock or cash granted under the Plan to a
Participant by the Committee.
2.3 "Base Salary" shall have the meaning set forth in Section 8.2.
2.4 "Bonus Formula" shall have the meaning set forth in Section 8.3(b).
2.5 "Bonus Matrix" shall have the meaning set forth in Section 8.3.
2.6 "Bonus Period" means the one year periods, as the Committee may
select, over which the attainment of one or more Performance Goals will be
measured for purposes of determining a Participant's right to an Award under the
Bonus Award Program.
2.7 "Caraustar" shall have the meaning set forth in Section 1.1.
<PAGE> 2
2.8 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.
2.9 "Committee" shall have the meaning set forth in Section 5.1.
2.10 "Common Stock" shall have the meaning set forth in Section 3.1.
2.11 "Company" has the meaning set forth in Section 1.1.
2.12 "Covered Employee" means an Employee who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.13 "Disability" means a disability under the terms of the Caraustar
Industries, Inc. Long-Term Disability plan maintained by the Company or any
successor plan thereto.
2.14 "Economic Profit" means a measure of the after-tax operating
profit of the Company less a charge for the cost of all debt and equity capital
of the Company.
2.15 "Effective Date" means the date an Award is determined to be
effective by the Committee upon its grant of such Award. In the case of Stock
Options, the Effective Date shall be the date of grant.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.
2.17 "Incentive Stock Option" shall have the meaning set forth in
Section 6.2(b).
2.18 "Key Employee" has the meaning set forth in Article 4.
2.19 "Negative Discretion" means the discretion authorized by the Plan
to be applied by the Committee in determining the size of a Bonus Award or a
Stock Option Award if, in the Committee's sole judgment, such application is
appropriate. Negative Discretion may only be used by the Committee to eliminate
or reduce the size of an Award.
2.20 "Non-Qualified Stock Option" shall have the meaning set forth in
Section 6.2(c).
2.21 "Option Period" means the one year periods, as the Committee may
select, over which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Participant's right to an Award under
the Option Program.
2.22 "Option Target Award" means, for an Option Period, the target
Award amount, expressed as a number of Stock Options, established for each
Participant for the Option Period.
2.23 "Participant" means any Key Employee who for an Option Period has
been selected to participate in the Option Program pursuant to Article 7 or who
for a Bonus Period has been selected to participate in the Bonus Program
pursuant to Article 8 or who has been selected
<PAGE> 3
for an Award of a Non-Qualified Traditional Stock Option or Restricted Share
Rights pursuant to Article 9.
2.24 "Performance Criteria" means the one or more criteria that the
Committee shall select for purposes of establishing the Performance Goal(s) for
an Option Period or Bonus Period. The Performance Criteria that will be used to
establish such Performance Goal(s) shall be limited to the following: Economic
Profit, return on net assets, return on shareholders' equity, return on assets,
return on capital, earnings per share, net earnings, operating earnings and
Common Stock price per share.
2.25 "Performance Goal" means, for an Option Period or Bonus Period,
the one or more goals established by the Committee for the Option or Bonus
Period based upon the Performance Criteria. The Committee is authorized at any
time during the first 90 days of an Option Period or Bonus Period, or at any
time thereafter (but only to the extent the exercise of such authority after the
first 90 days of an Option Period or Bonus Period would not cause the Awards
granted to the Covered Employees for the Option Period or Bonus Period to fail
to qualify as "performance-based compensation" under Section 162(m) of the
Code), in its sole and absolute discretion, to adjust or modify the calculation
of a Performance Goal for such Option Period or Bonus Period in order to prevent
the dilution or enlargement of the rights of Participants, (a) in the event of,
or in anticipation of, any unusual or extraordinary corporate item, transaction,
event or development; (b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the financial
statements of the Company, or in response to, or in anticipation of, changes in
applicable laws, regulations, accounting principles, or business conditions; and
(c) in view of the Committee's assessment of the business strategy of the
Company, performance of comparable organizations, economic and business
conditions and any other circumstances deemed relevant.
2.26 "Performance Stock Option" shall have the meaning set forth in
Section 6.2(a).
2.27 "Plan" shall have the meaning set forth in Section 1.1.
2.28 "Related Companies" means any company during any period in which
it is a "parent company" (as that term is defined in Section 424(e) of the Code)
with respect to the Company, or a "subsidiary corporation" (as that term is
defined in Code Section 424(f) of the Code) with respect to Caraustar.
2.29 "Restricted Share Right" shall have the meaning set forth in
Section 6.4.
2.30 "Restricted Share Right Percentage" shall have the meaning set
forth in Section 7.5.
2.31 "Restricted Stock" means Common Stock subject to the restrictions
set forth in Section 6.3 awarded to a Key Employee pursuant to the exercise of a
Restricted Stock Right.
2.32 "Restriction Period" means the period of time beginning on the
Effective Date of an Award of Restricted Stock and ending five (5) year(s) after
such date, or such other period as the Committee shall determine in its sole
discretion.
<PAGE> 4
2.33 "Retirement" means a termination of employment from the Company on
or after attainment of Normal Retirement Age as defined under the Caraustar
Industries, Inc. Defined Benefit Pension Plan, or such other termination of
employment from the Company after age 55 specifically approved by the Committee,
in its sole discretion, as a "Retirement."
2.34 "Stock Option" means an Award granted to a Key Employee in the
form of a Traditional or Performance Stock Option (either Non-Qualified or
Incentive) pursuant to Article 7, 8 or 9.
2.35 "Stock Option Matrix" shall have the meaning set forth in Section
7.4.
2.36 "Stock Option Percentage" shall have the meaning set forth in
Section 8.4(c).
2.37 "Target Ownership Level" for any Participant shall mean the target
ownership of shares of Common Stock (Restricted or unrestricted) set by the
Committee for such Participant. For purposes of determining a Participant's
Target Ownership Level, there shall be counted all shares of Common Stock
(restricted or unrestricted) owned by (i) the Participant, the Participant's
spouse or dependent children, either directly or indirectly through nominees,
including shares held in the Participant's account in the Caraustar Industries,
Inc. Employee Savings Plan 401(k) and any IRA account of the Participant and
(ii) any trust over which the Participant has voting control, to the extent such
shares were contributed to the trust by the Participant.
2.38 "Traditional Stock Option" shall have the meaning set forth in
Section 6.2(a).
2.39 "Underlying Shares" shall have the meaning set forth in Section
6.3(a).
ARTICLE 3
SHARES SUBJECT TO PLAN
3.1 Available Shares.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued shares of common stock of Caraustar ("Common Stock").
The maximum number of shares of Common Stock which may be issued under the Plan
shall be 1,600,000, subject to adjustment as set forth in this Article 3. On the
date of each annual Caraustar shareholders meeting during the term of this Plan
(other than the 1998 meeting), the number of shares of Common Stock available
for issuance under the Plan shall be increased by an amount equal to 6.3% of the
net increase in the number of issued and outstanding shares of Common Stock
since the previous annual Caraustar shareholders meeting, excluding in each case
shares issued pursuant to director or employee benefit plans of the Company
(including but not limited to this Plan and the 1993 Plan); provided that in the
event the shares available for issuance under this Plan are increased pursuant
to this sentence as a result of a share issuance, no adjustment will be made
pursuant to Section 3.2 with respect to such share issuance; provided, further,
that any reduction in shares outstanding resulting from the receipt by the
Company of shares as set forth in Section
<PAGE> 5
3.1(b)(iii) shall not be counted in determining such net increase. In addition,
the number of shares of Common Stock available for issuance under the Plan shall
be increased by an amount equal to the number of shares covered by Stock Options
issued pursuant to Section 8.4.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan:
(i) all the shares of Common Stock and shares of Restricted
Stock issued directly or as a result of the exercise of Stock Options
and Restricted Share Rights (including the shares, if any, withheld for
tax withholding requirements) shall be counted.
(ii) any shares of Common Stock subject to a Stock Option
that for any reason is terminated unexercised or expires shall again be
available for issuance under the Plan, but shares of Restricted Stock
that are forfeited or shares subject to Restricted Share Rights
terminated without the issuance of shares shall not again be available
for issuance under the Plan.
(iii) shares of Common Stock received by the Company in
connection with the exercise of Stock Options by delivery of other
shares of Common Stock, and received in connection with payment of
withholding taxes related to Awards under this Plan, shall again be
available for issuance under the Plan.
(c) The maximum number of shares available for issuance under the
Plan shall not be reduced to reflect any dividends or dividend equivalents that
are reinvested into additional shares of Common Stock.
(d) The shares of Common Stock available for issuance under the
Plan may be newly issued shares, authorized and unissued shares, treasury
shares, shares issued and outstanding or shares owned by a Related Company.
3.2 Adjustment to Shares.
(a) In General. The provisions of this Subsection 3.2(a) are
subject to the limitation contained in Subsection 3.2(b). If there is any change
in the number of outstanding shares of Common Stock through the declaration of
stock dividends, stock splits or the like, the number of shares available for
Awards, the shares subject to any Award and the option prices or exercise prices
of Awards shall be automatically adjusted. If there is any change in the number
of outstanding shares of Common Stock through any change in the capital account
of Caraustar, or through a merger, consolidation, separation (including a
spin-off or other distribution of stock or property), reorganization (whether or
not such reorganization comes within the meaning of such term in Section 368(a)
of the Code) or partial or complete liquidation, the Committee shall make
appropriate adjustments in the maximum number of shares of Common Stock that may
be issued under the Plan and any adjustments and/or modifications to outstanding
Awards as it, in its sole discretion, deems appropriate. In event of any other
change in the capital structure or in the Common Stock, the Committee shall also
be authorized to make such appropriate adjustments in
<PAGE> 6
the maximum number of shares of Common Stock available for issuance under the
Plan and any adjustments and/or modifications to outstanding Awards as it, in
its sole discretion, deems appropriate.
(b) Covered Employees. In no event shall the Award of any
Participant who is a Covered Employee be adjusted pursuant to Subsection 3.2(a)
to the extent it would cause such Award to fail to qualify as "performance-based
compensation" under Section 162(m) of the Code.
ARTICLE 4
ELIGIBILITY
Participants in the Plan shall be selected by the Committee from the
executive officers and other key employees of the Company who occupy responsible
managerial or professional positions and who have the capability of making a
substantial contribution to the success of the Company ("Key Employees"). In
making this selection and in determining the form and amount of awards, the
Committee shall consider any factors deemed relevant, including the individual's
functions, responsibilities, value of services to the Company and past and
potential contributions to the Company's profitability and sound growth.
ARTICLE 5
PLAN ADMINISTRATION
5.1 Administration of Plan by Committee. The Plan shall be administered
by a committee of two or more members of the Board of Directors of Caraustar
selected by the Board (the "Committee"), as constituted from time to time.
5.2 Authority of Committee.
(a) The Committee shall have the authority, in its sole discretion
and from time to time, to:
(i) designate the Key Employees eligible to participate in
the Plan;
(ii) grant Awards provided in the Plan in such form and
amount as the Committee shall determine;
(iii) impose such terms, limitations, restrictions and
conditions upon any such Award as the Committee shall deem appropriate,
including but not limited to an acceleration of the vesting and lapsing
of the restrictions of such Award upon a change in control of the
ownership of Caraustar; and
<PAGE> 7
(iv) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, correct any default, supply any
omission and construe any ambiguity in the Plan, accelerate the
vesting, exercise or payment of any Award when such action would be in
the best interest of the Company and make all other determinations and
take all other action necessary or advisable for the implementation and
administration of the Plan.
(b) The Committee shall have full discretionary authority in all
matters related to the discharge of its responsibilities and the exercise of its
authority under the Plan, including without limitation its construction of the
terms of the Plan and its determination of eligibility for participation and
Awards under the Plan. The decisions and determinations of the Committee and its
action with respect to the Plan shall be final, binding and conclusive upon all
persons having or claiming to have any right or interest in or under the Plan.
(c) No member of the Committee shall be liable for any action
taken or decision made in good faith relating to the Plan or any Award
thereunder.
5.3 Section 162(m) of the Code. With regard to all Covered Employees,
the Plan shall, for all purposes, be interpreted and construed in accordance
with Section 162(m) of the Code, except as provided in Article 9.
5.4 Delegation by Committee. Except to the extent prohibited by
applicable law or the rules of an applicable stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any person or
persons selected by it. Any such allocation or delegation may be resolved by the
Committee at any time.
ARTICLE 6
FORMS OF AWARDS
6.1 In General. Awards under the Plan may be in the form of any one or
more of the following:
(a) Traditional Stock Options (either Non-Qualified or Incentive)
as described in Section 6.2(a);
(b) Performance Stock Options (either Non-qualified or Incentive)
as described in Section 6.2(a);
(c) Restricted Stock, as described in Section 6.3;
(d) Restricted Share Rights, as described in Section 6.4;
(e) Shares of Common Stock (unrestricted), as described in Section
8.4(a); and
<PAGE> 8
(f) Cash, as set forth in Article 8.
6.2 Stock Options.
(a) Traditional and Performance Options. Stock Options may be
awarded under the Plan in the form of Traditional Stock Options, Performance
Stock Options, or a combination of both. The price at which Common Stock may be
purchased upon exercise of a Traditional Stock Option shall be 100% of the
closing price at which a share of Common Stock trades on the Effective Date of
the Traditional Stock Option Award, or the next preceding trading day if such
date was not a trading date, on the primary securities exchange on which the
Common Stock is then traded. The price at which Common Stock may be purchased
upon exercise of a Performance Stock Option shall be 120% of the closing price
at which a share of Common Stock trades on the Effective Date of the Performance
Stock Option Award, or the next preceding trading day if such date was not a
trading date, on the primary securities exchange on which the Common Stock is
then traded.
(b) Incentive Stock Options. Stock Options may be issued in the
form of incentive stock options, intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended
("Incentive Stock Options"). To the extent that the aggregate fair market value
(determined on the date the Stock Option is granted) of shares of Common Stock
with respect to which Incentive Stock Options first become exercisable by any
Participant in any calendar year exceeds $100,000, such Stock Options shall be
treated as Non-Qualified Options. The maximum number of shares of Common Stock
that may be issued under this Plan by Incentive Stock Options shall be
1,600,000.
(c) Non-Qualified Stock Options. Stock Options may be issued in the
form of non-qualified stock options (Stock Options that are not Incentive Stock
Options) ("Non-Qualified Stock Options").
(d) Terms and Conditions of Stock Options. A Stock Option shall be
exercisable in whole or in such installments and at such times as may be
determined by the Committee. All Stock Options shall expire not later than 10
years after the Effective Date of the grant. Stock Options shall not be
repriced, i.e., there shall be no grant of a Stock Option(s) to a Participant in
exchange for a Participant's agreement to cancellation of a higher-priced Stock
Option(s) that was previously granted to such Participant. The Committee may, by
way of an award notice or otherwise, establish such other terms, conditions,
restrictions, and limitations, if any, of any Award of Stock Options, provided
they are not inconsistent with the Plan.
(e) Exercise. Upon exercise, the option price of a Stock Option may
be paid in cash, shares of Common Stock, a combination of the foregoing, or such
other consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock, whether Restricted or
unrestricted, and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise a Stock Option. Subject to Section 13.12, the
Committee may permit a Participant to elect to pay the option price upon the
exercise of a Stock Option by authorizing a third party to sell shares of Common
Stock (or a sufficient portion of the shares) acquired upon exercise of the
Stock Option and remit to the Company a sufficient portion of the sale proceeds
to pay the entire option price and any tax
<PAGE> 9
withholding resulting from such exercise. The Committee may permit a Participant
to satisfy any amounts required to be withheld under the applicable Federal,
state and local tax laws in effect from time to time, by electing to have the
Company withhold a portion of the shares of Common Stock to be delivered for the
payment of such taxes.
6.3 Restricted Stock.
(a) In General. Restricted Stock may be issued by the Company as a
result of the exercise of a Restricted Share Right upon the purchase of two
additional shares of unrestricted Common Stock, all as more fully set forth in
Section 6.4. The two (2) shares of unrestricted Common Stock purchased by the
Participant as a condition precedent to the issuance of a share of Restricted
Stock pursuant to a Restricted Share Right shall be the "Underlying Shares" of
such share of Restricted Stock; provided that during the Restriction Period of a
share of Restricted Stock, the Participant may designate other unrestricted
Common Stock held by the Participant as the "Underlying Shares" of such share of
Restricted Stock, but only to the extent such unrestricted shares are not then
Underlying Shares of any other share of Restricted Stock. The Committee may, at
its discretion, require that the certificates representing Underlying Shares be
deposited with and held by the Company for the Participant until the
restrictions on the related Restricted Stock have lapsed.
(b) Terms and Conditions. Shares of Restricted Stock shall be
subject to the following terms and conditions:
(i) Subject to the provisions of the Plan and such other
terms, conditions, restrictions and limitations as the Committee may
establish by way of the Restricted Stock Agreement, the Participant
shall not be permitted to sell, assign, transfer, pledge, or otherwise
encumber shares of Restricted Stock during the Restriction Period of
the Restricted Stock.
(ii) Except to the extent otherwise provided in the
applicable Restricted Stock Agreement, upon the transfer of any
Underlying Shares (if any) of a share of Restricted Stock during an
unexpired Restriction Period applicable to such share of Restricted
Stock, such share of Restricted Stock shall be forfeited by the holder.
(iii) Except as provided in the Restricted Stock Agreement and
this Plan, the Participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a shareholder of the Company
holding shares of the Common Stock, including, if applicable, the right
to vote the shares and the right to receive any cash dividends. If so
determined by the Committee in the applicable Restricted Stock
Agreement, dividends payable in Common Stock shall be paid in the form
of Restricted Stock on which such dividend was paid, held subject to
the same conditions and restrictions of the underlying Performance
Restricted Stock.
(iv) Each Restricted Stock award shall be confirmed by, and
be subject to the terms of, a Restricted Stock Agreement.
<PAGE> 10
(c) The Committee may require that the certificates evidencing such
shares of Restricted Stock be held in custody by the Company until the
restrictions thereon shall have lapsed and that, as a condition of any Award of
Restricted Stock, the Participant shall have delivered a stock power, endorsed
in blank, relating to the Common Stock covered by such Award.
6.4 Restricted Share Rights.
(a) In General. The Committee may grant to any Participant the
right ("Restricted Share Right") to acquire one share of Restricted Stock
contingent upon the direct purchase of two shares of unrestricted Common Stock
(the "Underlying Shares") by the Participant (either by stock option exercise,
including stock options granted under this Plan and the 1993 Plan, or purchase
of unrestricted shares of Common Stock for full market value).
(b) Term and Exercise. Each Restricted Share Right shall be fully
exercisable on the date of Effective Date of Award of such Restricted Share
Right and may be exercised up until the date five (5) years after the Effective
Date of the Award of such Restricted Share Right.
(c) Restricted Share Right Agreement. The award of any Restricted
Share Right shall be evidenced by a written Restricted Share Right Agreement,
executed by the Company and the holder of the Restricted Share Rights, stating
the number of shares of Restricted Stock that may be purchased pursuant to the
Restricted Share Rights, and shall provide for any other terms, restrictions and
limitations as the Committee deems appropriate.
ARTICLE 7
STOCK OPTION PROGRAM
7.1 In General. Awards may be granted to Key Employees in the form of
Stock Options pursuant to this Article 7. These Stock Options may be Incentive
Stock Options, Non-Qualified Stock Options or a combination of both as
determined by the committee in its sole discretion. All Awards under the Plan
issued to Covered Employees in the form of Stock Options shall qualify as
"performance-based compensation" under Section 162(m) of the Code.
7.2 Selection of Key Employee Participants. Within the first 90 days of
an Option Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall select those Key Employees who will be
Participants for such Option Period. However, designation of a Key Employee as a
Participant for an Option Period shall not in any manner entitle the Participant
to receive an Award of Stock Options for the Option Period. The entitlement of
any Participant to payment of a Stock Option Award for such Option Period shall
be decided solely in accordance with the provisions of this Article 7 and the
Plan. Moreover, designation of a Key Employee as a Participant for a particular
Option Period shall not require designation of such Key Employee as a
Participant in any subsequent Option Period, and designation of one Key Employee
as a Participant shall not require designation of any other Key Employee as a
Participant in such Option Period or in any other Option Period.
<PAGE> 11
7.3 Calculation of Option Target Award. Within the first 90 days of an
Option Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall calculate the Participant's Option
Target Award for the Option Period then beginning.
7.4 Procedure for Determining Awards. Within the first 90 days of an
Option Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall establish in writing for such Option
Period:
(a) the specific Performance Criteria that will be used to
establish the Performance Goal(s) for such Option Period and the kind(s) and
level(s) of such Performance Goal(s), and
(b) a Stock Option Matrix detailing the number and combination of
Traditional Stock Options and Performance Stock Options to be awarded to the
Participant upon the attainment of the Performance Goal(s).
7.5 Election of Payment in Restricted Share Rights. Each Participant in
the Stock Option Plan shall have the right to elect to receive up to fifty
percent (50%) of the value of such Participant's Stock Option Award in
Restricted Share Rights in lieu of Stock Options, up to a maximum of Restricted
Share Rights covering that number of Common Stock with a fair market value on
date of grant of $400,000. Such election must be made by written notice to the
Company within the first ninety (90) days of the calendar year in which such
Stock Option Award is granted, or such earlier date determined by the Committee
in its discretion. Such notice shall set forth the percentage (rounded to the
nearest ten percent (10%)) of the Participant's Stock Option Award the
Participant elects to receive in Restricted Share Rights ("Restricted Share
Right Percentage"), and such notice shall be binding on the Participant and
shall not be revocable after the date given.
7.6 Option Program Awards.
(a) Condition to Receipt of Awards. A Participant must be employed
by the Company on the last day of an Option Period to be eligible for an Award
with respect to such Option Period.
(b) Limitation. A Participant shall be eligible to receive Stock
Options for an Option Period only if the Stock Option Matrix for such Option
Period as applied against such Performance Goals for such Option Period
determines that Stock Options have been earned by that Participant.
(c) Certification. Following the completion of an Option Period,
the Committee shall meet to review and certify in writing whether, and to what
extent, the Performance Goals for the Option Period have been achieved and,
based upon application of the Performance Matrix to the Performance Goals and a
Participant's Option Target Award for such Option Period, also shall calculate
and certify in writing for each Participant what number of Traditional Options
and Performance Options have been earned for the Option Period and which of such
Stock Options are Incentive Stock Options and which are Non-Qualified Stock
Options.
<PAGE> 12
(d) Negative Discretion. In determining the size of an individual
Award to be paid for an Option Period, the Committee may, through the use of
Negative Discretion, reduce or eliminate the number of Stock Options earned
under the Stock Option Matrix for the Option Period if, in its sole discretion,
such reduction or elimination is appropriate.
(e) Timing of Award Payments. The Performance Awards granted by the
Committee for an Option Period shall be paid to Participants on or reasonably
soon after the certification set forth in Section 7.6(c).
(f) Payment in Restricted Share Rights and Options. If a
Participant has elected (pursuant to Section 7.5) to receive a portion of a
Stock Option Award in Restricted Share Rights (in lieu of Stock Options) such
Restricted Share Rights shall be granted as follows. The Award for an Option
Period (as determined by the certification process set forth in Section 7.6(c),
whether paid in Traditional Stock Options or Performance Stock Options,
Incentive Stock Options or Non-Qualified Stock Options), shall be converted into
a cash value using the Black-Scholes option pricing method, with such
calculation being done as of the Effective Date of the Stock Option Award. The
Participant shall be granted a number of Restricted Share Rights equal to the
quotient of (a) the product of (i) the Restricted Share Right Percentage
multiplied by (ii) the cash value of the Stock Option Award so determined,
divided by (b) the closing price at which Common Stock trades on the Effective
Date of the Stock Option Award, or the next preceding trading day if such date
was not a trading date, on the primary securities exchange or quotation system
on which the Common Stock is then traded (such quotient to be rounded to the
nearest whole). The remainder of the Award shall be paid in Stock Options as
determined pursuant to Section 7.6(c).
7.7 Maximum Award Stock Options Per Year Per Participant.
Notwithstanding any provision contained in the Plan to the contrary, the maximum
number of shares of Common Stock for which Stock Options may be granted under
this Article 7 to any Participant in any calendar year is 100,000.
ARTICLE 8
BONUS AWARD PROGRAM
8.1 Eligibility. Within the first 90 days of a Bonus Period (or, if
longer, within the maximum period allowed under Section 162(m) of the Code), the
Committee shall select those Key Employees who will be Participants for such
Bonus Period. However, designation of a Key Employee as a Participant for a
Bonus Period shall not in any manner entitle the Participant to receive a Bonus
Award for the Bonus Period. The entitlement of any Participant to payment of a
Bonus Award for such Bonus Period shall be decided solely in accordance with the
provisions of this Article 8. Moreover, designation of a Key Employee as a
Participant for a particular Bonus Period shall not require designation of such
Key Employee as a Participant in any subsequent Bonus Period, and designation of
one Key Employee as a Participant shall not require designation of any other Key
Employee as a Participant in such Bonus Period or in any other Bonus Period.
<PAGE> 13
All of the Bonus Awards issued under the Bonus Award Program to Covered
Employees are intended to qualify as "performance-based compensation" under
Section 162(m) of the Code.
8.2 Calculation of Base Salary. Within the first 90 days of a Bonus
Period (or, if longer, within the maximum period allowed under Section 162(m) of
the Code), the Committee shall calculate the Participant's Base Salary for the
Bonus Period then beginning. The Base Salary for any Bonus Period shall be the
Participant's base salary as of the date the Performance Goal(s) for such Bonus
Period is set by the Committee. Once the Base Salary is determined for any Bonus
Period, the Base Salary will not change for that Bonus Period.
8.3 Procedure for Determining Awards. Within the first 90 days of a
Bonus Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall establish in writing for such Bonus
Period:
(a) the specific Performance Criteria that will be used to
establish the Performance Goal(s) for such Bonus Period and the kind(s) and
level(s) of such Performance Goal(s); and
(b) a Bonus Matrix detailing the Bonus Award for each Participant
if such Performance Goals are attained. The amount of a Participant's Bonus
Award will be calculated from the Bonus Formula for the Bonus Period, which
Bonus Formula shall be the product of the Participant's Base Salary and the
percentage derived from the Bonus Matrix.
8.4 Form of Payment of Bonus Award. The form of Bonus Awards shall be
determined as follows:
(a) Unrestricted Shares. In the event on the Effective Date of the
Bonus Award the ownership of Common Stock by (i) the Participant, the
Participant's spouse and dependent children, either directly or indirectly
through nominees, including shares held in such Participant's account in the
Caraustar Industries, Inc. Employee Savings Plan (401(k)) and any IRA account of
the Participant and (ii) any trust over which the Participant has voting power,
to the extent such shares were contributed to the trust by the Participant, is
less than the Participant's Target Ownership Level (if applicable to such
Participant), then a portion of the Participant's Bonus Award shall be paid in
shares of Common Stock, with such number of Common Stock shares equal to the
quotient of (a) thirty-percent (30%) of the Participant's Bonus Award divided by
(b) the price at which a share of Common Stock trades on the Effective Date of
the Bonus Award, or the next preceding date if such date was not a trading date,
on the primary securities exchange system on which the Common Stock is then
traded (with such quotient being rounded by the nearest whole); provided that
such Participant's Bonus Award shall be paid in shares of Common Stock hereunder
only up to the point such Participant reaches his or her Target Ownership Level.
(b) Election of Payment in Non-Qualified Traditional Stock Options.
Each Participant in the Plan shall have the right to elect to receive up to
fifty percent (50%) of the Participant's Bonus Award (after application of
Section 8.4(a)) in fully vested Non-Qualified Traditional Stock Options in lieu
of cash. Such election must be made by written notice to the Company within the
first ninety (90) days of the Bonus Period to which such Award relates. Such
<PAGE> 14
notice shall set forth the percentage (rounded to the nearest ten percent (10%))
of the Participant's Bonus Award the Participant elects to receive in fully
vested Non-Qualified Traditional Stock Options ("Stock Option Percentage"), and
such notice shall be binding on the Participant and shall not be revocable after
the date given.
(c) Payment in Stock Options. Bonus Awards for a Bonus Period
elected by a Participant to be paid in fully vested Non-Qualified Traditional
Stock Options shall be paid as follows. The Stock Option Percentage of a
Participant's cash Bonus Award for a Bonus Period (as determined by the
certification process set forth in Section 8.5(c) and after application of
Section 8.4(a)), shall be converted into a number of fully vested Non-Qualified
Traditional Stock using the Black-Scholes option pricing method, with such
calculation being done as of the Effective Date of the Bonus Award. The
Participant shall be paid that number of fully vested Non-Qualified Traditional
Stock Options.
(d) Cash. The portion of a Participant's Bonus Award not paid in
shares of Common Stock pursuant to Section 8.4(a) or paid in Stock Options
pursuant to Section 8.4(c) shall be paid in cash.
8.5 Payment of Awards.
(a) Condition to Receipt of Awards. Except as provided in Section
8.6, a Participant must be employed by the Company on the last day of a Bonus
Period to be eligible for a Bonus Award for such Bonus Period.
(b) Limitation. A Participant shall be eligible to receive a Bonus
Award for a Bonus Period only if the Bonus Matrix for such Bonus Period
determines that all or some portion of the Bonus Award has been earned by that
Participant for the Bonus Period.
(c) Certification. Following the completion of a Bonus Period, the
Committee shall meet to review and certify in writing whether, and to what
extent, the Performance Goals for the Bonus Period have been achieved and, based
upon application of the Bonus Matrix to the Performance Goals for such Bonus
Period and application of the Bonus Formula, also shall calculate and certify in
writing for each Participant the Bonus Award earned for the Bonus Period.
(d) Negative Discretion. In determining the size of an individual
Bonus Award to be paid for a Bonus Period, the Committee may, through the use of
Negative Discretion, reduce or eliminate the amount of the Bonus Award earned
under the Bonus Matrix (after application of the Bonus Formula) for the Bonus
Period if, in its sole discretion, such reduction or elimination is appropriate.
(e) Timing of Award Payments. The Bonus Awards granted by the
Committee for a Bonus Period shall be paid to Participants reasonably soon after
the certifications set forth in Section 8.5(c).
8.6 Termination of Employment During Bonus Period. In the event the
employment of a Participant in a Bonus Period terminates because of death,
Disability or Retirement prior to the last day of a Bonus Period, the
Participant shall receive, if Awards are payable for such Bonus
<PAGE> 15
Period, a pro rata Bonus Award. The amount of the pro rata Bonus Award shall be
determined by multiplying the Bonus Award the Participant would have otherwise
been paid if he or she had been a Participant for the full Bonus Period by a
fraction, the numerator of which is the number of full months he or she was a
Participant during such Bonus Period and the denominator of which is twelve
(12). For purposes of this calculation, a partial month of participation shall:
(1) be treated as a full month of participation to the extent a Participant is a
Participant in the Bonus Period for 15 or more days of such month; and (2) not
be taken into consideration to the extent the Participant is a Participant in
the Bonus Period for less than 15 days of such month. Such pro rata Bonus Award
shall be paid in the form of cash. In the event of Disability or Retirement, the
pro rata Bonus Award shall be paid directly to the Participant and, in the event
of death, to the Participant's estate. In the event a Participant's employment
terminates for any reason other than death, Disability or Retirement, such
Participant shall have no right to any Bonus Award for the Bonus Period in which
such Participant's employment is terminated.
8.7 Maximum Award Payable. Notwithstanding any provision contained in
the Plan to the contrary, the maximum Bonus Award payable to any Participant for
any Bonus Period is the Participant's Base Salary with respect to such Bonus
Period; provided further that the maximum Bonus Award payable to any Participant
in any calendar year is $1,000,000.
ARTICLE 9
STOCK OPTION AND RESTRICTED STOCK GRANTS
The Committee shall have the right to grant Awards of Non-Qualified
Stock Options to a Key Employee as determined in the Committee's discretion,
which Awards will not be made under the Stock Option Program or Bonus Award
Program. The Committee shall also have the right to grant Awards of Restricted
Share Rights as determined in the Committee's discretion, which Awards will not
be made under the Stock Option Program, and such grants of Restricted Share
Rights may not qualify as "performance-based compensation" under Section 162(m)
of the Code. Notwithstanding any provision to the contrary, the maximum number
of shares of Common Stock for which Stock Options may be granted to any
Participant in any calendar year under this Article 9 is 10,000.
ARTICLE 10
TERMINATION OF EMPLOYMENT OF PARTICIPANT
10.1 Termination Because of Death or Disability. If a Key Employee's
employment with the Company terminates because of death or Disability, then
issued and outstanding Stock Options, Restricted Share Rights and shares of
Restricted Stock awarded to such Participant pursuant to this Plan (whether or
not then held by the Participant) shall be treated as follows:
(a) Restricted Stock. To the extent permitted under Rule 16b-3, in
the event of the termination of employment of a Participant because of death or
Disability, the unexpired
<PAGE> 16
Restriction Period(s) of outstanding Restricted Stock awarded to such
Participant shall lapse and such Restricted Stock shall become unrestricted
Common Stock.
(b) Stock Options. To the extent permitted under Rule 16b-3, on
the date of a Participant's termination of employment with the Company because
of death or Disability, all of the unexercised and outstanding Stock Options
awarded to the Participant under this Plan shall become fully vested and
exercisable, and shall remain exercisable for a period of up to one year after
the date of such Participant's termination (but in no event beyond the original
expiration date of such Stock Option), but otherwise shall be subject to all
other restrictions and limitations of such Stock Option.
(c) Restricted Share Rights. To the extent permitted under Rule
16b-3, on the date of a Participant's termination of employment with the Company
because of death or Disability, all of the unexercised and outstanding
Restricted Share Rights awarded to the Participant under this Plan shall remain
exercisable for a period of up to one year after the date of such Participant's
termination (but in no event beyond the original expiration date of such
Restricted Share Rights), provided that such Restricted Share Right shall be
exercisable for Shares of unrestricted Common Stock instead of shares of
Restricted Stock.
10.2 Termination Because of Retirement. If a Key Employee's employment
with the Company terminates because of Retirement, then issued and outstanding
Stock Options, Restricted Share Rights and shares of Restricted Stock awarded to
such Participant pursuant to this Plan (whether or not then held by the
Participant) shall be treated as follows:
(a) Restricted Stock. To the extent permitted by Rule 16b-3, in
the event of the termination of employment of a Participant because of
Retirement, the outstanding shares of Restricted Stock awarded to a Participant
shall remain outstanding and the terms of such Restricted Stock shall not be
affected by such termination of employment by Retirement; provided that in the
event of the Participant's death subsequent to such Retirement, upon the
Participant's death, the unexpired Restriction Period(s) of then outstanding
Restricted Stock awarded to such Participant shall lapse and such Restricted
Stock shall become unrestricted Common Stock.
(b) Stock Options. To the extent permitted under Rule 16b-3, on
the date of a Participant's termination of employment with the Company because
of Retirement, the unexercised and outstanding Stock Options awarded to the
Participant shall remain outstanding and the terms of such Stock Options shall
not be affected by such termination of employment by Retirement; provided that
in the event of the Participant's death subsequent to such Retirement, all of
the unexercised and outstanding Stock Options awarded to the Participant under
this Plan shall become fully vested and exercisable, and shall remain
exercisable for a period of up to one year after the date of such Participant's
death (but in no event beyond the original expiration date of such Stock
Option), but otherwise shall be subject to all other restrictions and
limitations of such Stock Option. Incentive Stock Options awarded to a
Participant and not exercised within ninety (90) days of the termination of a
Participant's employment because of Retirement will, to the extent required by
law, become Non-Qualified Stock Option.
(c) Restricted Share Rights. To the extent permitted under Rule
16b-3, on the date of a Participant's termination of employment with the Company
because of Retirement, all of
<PAGE> 17
the unexercised Restricted Share Rights awarded to the Participant under this
Plan shall remain outstanding and the terms of such Restricted Share Rights
shall not be affected by such termination of employment by Retirement; provided
that in the event of the Participant's death subsequent to such Retirement, all
of the unexercised and outstanding Restricted Share Rights awarded to the
Participant under this Plan shall remain exercisable for a period of up to one
year after the date of such Participant's death (but in no event beyond the
original expiration date of such Restricted Share Rights) and that such
Restricted Share Right shall be exercisable for shares of unrestricted Common
Stock instead of shares of Restricted Stock.
10.3 Termination for any Reason Other Than Death, Disability or
Retirement. Upon the termination of Participant's employment by reason other
than Death, Disability or Retirement, issued and outstanding Stock Options,
Shares of Restricted Stock and Stock Rights awarded to a Participant (whether or
not then held by the Participant) shall be treated as follows:
(a) Restricted Stock. Upon a Participant's termination of
employment during an unexpired Restriction Period for any reason other than
death, Disability or Retirement, all outstanding shares of Restricted Stock
awarded to such Participant still subject to such unexpired Restriction Period
shall be forfeited by the holder.
(b) Stock Options. If a Participant's employment with the Company
terminates for any reason other than death, Disability or Retirement, all of the
unexercised and outstanding Stock Options awarded to such Participant shall
remain exercisable for a period of up to 90 days after the Participant's
termination (but not beyond the original expiration date of such Stock Options)
to the same extent as they were exercisable on the date of Participant's
termination. The remaining portion of the Stock Option shall be forfeited by the
holder.
(c) Restricted Share Rights. If a Participant's employment with
the Company terminates for any reason other than death, Disability or
Retirement, all of the unexercised Restricted Share Rights awarded to the
Participant under this Plan shall terminate and shall be forfeited by such
Participant.
ARTICLE 11
DIVIDEND AND DIVIDEND EQUIVALENT
If an Award is granted in the form of a Restricted Share Right, Stock
Option, shares of Restricted Stock or Common Stock, or in the form of any other
stock-based grant, the Committee may choose, at the time of the grant of the
Award or any time thereafter up to the time of the Award's payment, to include
as part of such Award an entitlement to receive dividends or dividend
equivalents, subject to such terms, conditions, restrictions, and limitations,
if any, as the Committee may establish. Dividends and dividend equivalents shall
be paid in such form and manner (i.e., lump sum or installments) and at such
time(s) as the Committee shall determine. All dividends or dividend equivalents
that are not paid currently may, at the Committee's discretion, accrue interest
or be reinvested into additional shares of Common Stock. The total number of
<PAGE> 18
shares available for grant under Section 3.1 shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into additional shares of
Common Stock.
ARTICLE 12
DEFERRAL OF AWARDS
At the discretion of the Committee, payment of any Award, dividend, or
dividend equivalent, or any portion thereof, may be deferred by a Participant
until such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery of a written, irrevocable election by the
Participant prior to the time established by the Committee for such purpose, on
a form provided by the Company. Further, all deferrals shall be made in
accordance with administrative guidelines established by the Committee to ensure
that such deferrals comply with all applicable requirements of the Code.
Deferred payments shall be paid in a lump sum or installments, as determined by
the Committee. Deferred Awards may also be credited with interest, at such rates
to be determined by the Committee and, with respect to those deferred Awards
denominated in the form of Common Stock, with dividends or dividend equivalents.
ARTICLE 13
MISCELLANEOUS
13.1 Transferability. Except as provided in Section 13.2, any Award
under the Plan will be non-transferable and, accordingly, shall not be
assignable, alienable, salable or otherwise transferable by the holder; provided
that:
(a) Awards may be transferred by a Participant by will or the laws
of descent and distribution;
(b) Awards other than Incentive Stock Options may be transferred
by a Participant pursuant to a qualified domestic relations order, to the extent
permitted by the Committee, either at the time of grant or subsequently; and
(c) Awards other than Incentive Stock Options may be transferred
to a Participant by gift or other transfer to, either (i) a trust in which the
Participant or such person's spouse, or other immediate family member, or entity
owned by such a person, has an exclusive interest, or (ii) the Participant's
spouse, or other immediate family member, in each case to the extent permitted
by the Committee, either at time of grant or subsequently.
13.2 Third Party Exercises. In the event a Participant terminates
employment with the Company to assume a position with a governmental,
charitable, educational or similar non-profit institution, the Committee may
subsequently authorize a third party, including but not limited to a "blind"
trust, to act on behalf of and for the benefit of the respective Participant
with respect to any outstanding grants held by the Participant subsequent to
such termination of employment. If permitted by the Committee, a Participant may
designate a beneficiary or beneficiaries to exercise
<PAGE> 19
the rights of the Participant and receive any distributions under the Plan upon
the death of the Participant.
13.3 Withholding Taxes. The Company shall be entitled to deduct from
any payment under the Plan, regardless of the form of such payment, the amount
of all applicable income and employment taxes required by law to be withheld
with respect to such payment or may require the Participant to pay to it such
tax prior to and as a condition of the making of such payment. In accordance
with any applicable administrative guidelines it establishes, the Committee may
allow a Participant to pay the amount of taxes required by law to be withheld
from an Award by withholding from any payment of Common Stock due as a result of
such Award, or by permitting the Participant to deliver to the Company shares of
Common Stock having a fair-market value (as determined by the Committee) equal
to the amount of such required withholding taxes.
13.4 Amendments to Awards. The Committee may at any time unilaterally
amend any unexercised, unearned, or unpaid Award, including, but not by way of
limitation, Awards earned but not yet paid, to the extent it deems appropriate;
provided, however, that any such amendment which, in the opinion of the
Committee, is adverse to the Participant shall require the Participant's
consent.
13.5 Regulatory Approvals and Listings. Notwithstanding anything
contained in this Plan to the contrary, the Company shall have no obligation to
issue or deliver certificates of Common Stock evidencing any Award resulting in
the payment of Common Stock prior to (i) the obtaining of any approval from any
governmental agent which the Company shall, in its sole discretion, determine to
be necessary or advisable, (ii) the admission of such shares to listing on the
stock exchange on which the Common Stock may be listed and (iii) the completion
of any registration or other qualification of said shares under any state or
Federal law or ruling of any governmental body that the Company shall, in its
sole discretion, determine to be necessary or advisable.
13.6 No Right to Continued Employment or Grants. Participation in the
Plan shall not give any Key Employee any right to remain in the employ of the
Company. Caraustar, or, in the case of employment with a Related Company, the
Related Company, reserves the right to terminate any Employee at any time.
Further, the adoption of this Plan shall not be deemed to give any Key Employee
or any other individual any right to be selected as a Participant or to be
granted an Award.
13.7 Amendment/Termination. The Committee may suspend or terminate the
Plan at any time with or without prior notice. In addition, the Committee may,
from time to time and with or without prior notice, amend the Plan in any
manner, but may not without shareholder approval adopt any amendment that would
require the vote of the shareholders of Caraustar pursuant to Section 16 of the
Exchange Act or Section 162(m) of the Code, but only insofar as such amendment
affects Covered Employees.
13.8 Non-Uniform Determinations. Under the Plan (including without
limitation determinations of the persons to receive Awards, the form, amount and
timing of such Awards, the terms and provisions of such Awards and the
agreements evidencing same) need not be
<PAGE> 20
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
13.9 Leave of Absence. The Committee shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any award. Without
limiting the generality of the foregoing, the Committee shall be entitled to
determine (i) whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan and (ii) the impact, if
any, of any such leave of absence on Awards under the Plan theretofore made to
any Participant who takes such leave of absence.
13.10 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of North Carolina, except as superseded by
applicable federal law.
13.11 No Right, Title, or Interest in Company Assets. No Participant
shall have any rights as a shareholder as a result of participation in the Plan
until the date of issuance of a stock certificate. To the extent any person
acquires a right to receive payments from the Company under the Plan, such
rights shall be no greater than the rights of an unsecured creditor of the
Company and the Participant shall not have any rights in or against any specific
assets of the Company. All of the Awards granted under the Plan shall be
unfunded.
13.12 Section 16 of the Exchange Act. In order to avoid any Exchange
Act violations, the Committee may, from time to time, impose additional
restrictions upon an Award, including but not limited to, restrictions regarding
tax withholdings and restrictions regarding the Participant's ability to
exercise Awards under any broker or third-party assisted exercise program.
13.13 No Guarantee of Tax Consequences. No person connected with the
Plan in any capacity, including, but not limited to, Caraustar and its Related
Companies and their directors, officers, agents and employees makes any
representation, commitment, or guarantee that any tax treatment, including, but
not limited to, Federal, state and local income, estate and gift tax treatment,
will be applicable with respect to amounts deferred under the Plan, or paid to
or for the benefit of a Participant under the Plan, or that such tax treatment
will apply to or be available to a Participant on account of participation in
the Plan.
13.14 Compliance with Section 162(m). If any provision of the Plan
would cause the Awards, other than an Award of Restricted Share Rights pursuant
to Article 9, granted to a Covered Person not to qualify as "performance-based
compensation" under Section 162(m) of the Code, that provision, insofar as it
pertains to the Covered Person, shall be severed from, and shall be deemed not
to be a part of this Plan, but the other provisions hereof shall remain in full
force and effect.
13.15 Other Benefits. No Award granted under the Plan shall be
considered compensation for purposes of computing benefits under any retirement
plan of the Company nor affect any benefits or compensation under any other
benefit or compensation plan of the Company now or subsequently in effect,
provided however that any Bonus Award paid in cash shall be considered
compensation for purposes of the Caraustar Industries, Inc. Defined Benefit
Pension Plan.
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES* OF CARAUSTAR INDUSTRIES, INC.
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION TRADE, D/B/A NAMES
---- ------------- ------------------
<S> <C> <C>
ACC Services, Inc. North Carolina
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
Chesapeake Fiber Packaging Corporation Maryland
Chesapeake Paperboard Company Maryland
Chicago Paperboard Corporation Illinois
Cincinnati Paperboard Corporation Ohio
Columbus Recycling, Inc. Georgia
Federal Packaging Corporation Delaware
Federal Transport, Inc. Ohio
Macon Recycling, Inc. Georgia
McQueeny Gypsum Corporation Delaware
Mid-State Paper Box Company, Inc. North Carolina
The New General Packaging Service, Inc. New Jersey General Packaging Services
Oak Tree Packaging Corporation New Jersey
Packrite Packaging, Inc. North Carolina
Paper Recycling, Inc. Georgia
Paragon Plastics, Inc. (80% owned) South Carolina
Reading Paperboard Corporation Pennsylvania
Richmond Paperboard Corporation Virginia
Special Packaging, Inc. Delaware
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
</TABLE>
* 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 January 29, 1998 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), Form S-3 (File No. 333-24431) and Form S-4 (File No. 333-29937).
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,391
<SECURITIES> 0
<RECEIVABLES> 70,944<F1>
<ALLOWANCES> 0
<INVENTORY> 62,319
<CURRENT-ASSETS> 141,156
<PP&E> 465,759
<DEPRECIATION> 174,723
<TOTAL-ASSETS> 550,090
<CURRENT-LIABILITIES> 69,336
<BONDS> 212,129<F2>
0
0
<COMMON> 2,533
<OTHER-SE> 211,398
<TOTAL-LIABILITY-AND-EQUITY> 550,090
<SALES> 668,138
<TOTAL-REVENUES> 668,138
<CGS> 482,964
<TOTAL-COSTS> 482,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,111
<INCOME-PRETAX> 83,388
<INCOME-TAX> 30,543
<INCOME-CONTINUING> 51,124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,124
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.03
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA 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>
<RESTATED>
<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> 2.33
<EPS-DILUTED> 2.28
<FN>
<F1>(RECEIVABLES) ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>(BONDS) REPRESENT LONG-TERM DEBT, LESS CURRENT MATURITIES, AND REVOLVING CREDIT
LOANS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,639
<SECURITIES> 0
<RECEIVABLES> 59,304<F1>
<ALLOWANCES> 0
<INVENTORY> 45,589
<CURRENT-ASSETS> 119,727
<PP&E> 336,677
<DEPRECIATION> 145,966
<TOTAL-ASSETS> 350,951
<CURRENT-LIABILITIES> 105,141
<BONDS> 83,368<F2>
0
0
<COMMON> 2,474
<OTHER-SE> 127,723
<TOTAL-LIABILITY-AND-EQUITY> 350,951
<SALES> 144,519
<TOTAL-REVENUES> 144,519
<CGS> 101,179
<TOTAL-COSTS> 101,179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,154
<INCOME-PRETAX> 22,269
<INCOME-TAX> 8,718
<INCOME-CONTINUING> 13,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,551
<EPS-PRIMARY> .54
<EPS-DILUTED> .53
<FN>
<F1>"RECEIVABLES" ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>"BONDS" REPRESENT LONG-TERM DEBT, LESS CURRENT MATURITIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX
MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,431
<SECURITIES> 0
<RECEIVABLES> 55,639<F1>
<ALLOWANCES> 0
<INVENTORY> 44,987
<CURRENT-ASSETS> 109,339
<PP&E> 321,023
<DEPRECIATION> 133,723
<TOTAL-ASSETS> 337,865
<CURRENT-LIABILITIES> 62,487
<BONDS> 100,341<F2>
0
0
<COMMON> 2,476
<OTHER-SE> 140,394
<TOTAL-LIABILITY-AND-EQUITY> 337,865
<SALES> 284,919
<TOTAL-REVENUES> 284,919
<CGS> 197,813
<TOTAL-COSTS> 197,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,220
<INCOME-PRETAX> 47,343
<INCOME-TAX> 18,460
<INCOME-CONTINUING> 28,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,878
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.14
<FN>
<F1>RECEIVABLES - ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>BONDS - REPRESENT REVOLVING CREDIT LOANS AND LONG-TERM DEBT, LESS CURRENT
MATURITIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,658
<SECURITIES> 0
<RECEIVABLES> 66,417<F1>
<ALLOWANCES> 0
<INVENTORY> 47,224
<CURRENT-ASSETS> 122,599
<PP&E> 399,792
<DEPRECIATION> 140,181
<TOTAL-ASSETS> 472,897
<CURRENT-LIABILITIES> 74,307
<BONDS> 198,274<F2>
0
0
<COMMON> 2,482
<OTHER-SE> 152,869
<TOTAL-LIABILITY-AND-EQUITY> 472,897
<SALES> 443,118
<TOTAL-REVENUES> 443,118
<CGS> 309,010
<TOTAL-COSTS> 309,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,506
<INCOME-PRETAX> 71,906
<INCOME-TAX> 27,966
<INCOME-CONTINUING> 43,644
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,644
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.72
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,635
<SECURITIES> 0
<RECEIVABLES> 65,110<F1>
<ALLOWANCES> 0
<INVENTORY> 46,170
<CURRENT-ASSETS> 131,982
<PP&E> 419,373
<DEPRECIATION> 152,745
<TOTAL-ASSETS> 495,787
<CURRENT-LIABILITIES> 74,582
<BONDS> 205,458<F2>
0
0
<COMMON> 2,482
<OTHER-SE> 164,220
<TOTAL-LIABILITY-AND-EQUITY> 495,787
<SALES> 157,583
<TOTAL-REVENUES> 157,583
<CGS> 113,763
<TOTAL-COSTS> 113,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,255
<INCOME-PRETAX> 19,682
<INCOME-TAX> 7,579
<INCOME-CONTINUING> 11,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,741
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<FN>
<F1>(RECEIVABLES) ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>(BONDS) REPRESENT LONG-TERM DEBT, LESS CURRENT MATURITIES, AND REVOLVING CREDIT
LOANS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX
MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,815
<SECURITIES> 0
<RECEIVABLES> 63,523<F1>
<ALLOWANCES> 0
<INVENTORY> 49,238
<CURRENT-ASSETS> 124,075
<PP&E> 429,623
<DEPRECIATION> 159,979
<TOTAL-ASSETS> 491,252
<CURRENT-LIABILITIES> 71,664
<BONDS> 199,175<F2>
0
0
<COMMON> 2,467
<OTHER-SE> 168,140
<TOTAL-LIABILITY-AND-EQUITY> 491,252
<SALES> 318,417
<TOTAL-REVENUES> 318,417
<CGS> 226,775
<TOTAL-COSTS> 226,775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,779
<INCOME-PRETAX> 41,238
<INCOME-TAX> 15,918
<INCOME-CONTINUING> 24,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,560
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.98
<FN>
<F1>RECEIVABLES ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>BONDS REPRESENT REVOLVING CREDIT LOANS AND LONG-TERM DEBT, LESS CURRENT
MATURITIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,600
<SECURITIES> 0
<RECEIVABLES> 73,964<F1>
<ALLOWANCES> 0
<INVENTORY> 59,569
<CURRENT-ASSETS> 149,523
<PP&E> 457,741
<DEPRECIATION> 167,162
<TOTAL-ASSETS> 548,059
<CURRENT-LIABILITIES> 79,534
<BONDS> 217,203<F2>
0
0
<COMMON> 2,529
<OTHER-SE> 194,715
<TOTAL-LIABILITY-AND-EQUITY> 548,059
<SALES> 492,137
<TOTAL-REVENUES> 492,137
<CGS> 353,695
<TOTAL-COSTS> 353,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,408
<INCOME-PRETAX> 62,620
<INCOME-TAX> 24,205
<INCOME-CONTINUING> 37,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,184
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.48
<FN>
<F1>(RECEIVABLES) ARE PRESENTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>(BONDS) REPRESENT REVOLVING CREDIT LOANS AND LONG TERM DEBT, LESS CURRENT
MATURITIES.
</FN>
</TABLE>
