<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
<TABLE>
<C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER: 0-20646
---------------------
CARAUSTAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NORTH CAROLINA 58-1388387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3100 JOE JERKINS BLVD., AUSTELL, GEORGIA 30106
(Address of principal executive offices) (Zip Code)
</TABLE>
(770) 948-3101
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date, May 3, 2000.
<TABLE>
<CAPTION>
COMMON STOCK, $.10 PAR VALUE 25,765,946
---------------------------- ----------
<S> <C>
(Class) (Outstanding)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
CARAUSTAR INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2000
and
December 31, 1999........................................... 3
Condensed Consolidated Statements of Income for the
three-month period
ended March 31, 2000 and March 31, 1999..................... 4
Condensed Consolidated Statements of Cash Flows for the
three-month
periods ended March 31, 2000 and March 31, 2000............. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results
of Operations for the three-month periods ended March 31,
2000 and
March 31, 1999.............................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 14
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders......... 15
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signatures.............................................................. 16
Exhibit Index........................................................... 17
</TABLE>
2
<PAGE> 3
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999*
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,612 $ 18,771
Receivables, net.......................................... 117,642 108,819
Inventories............................................... 101,059 89,770
Refundable income taxes................................... 4,319 1,985
Other current assets...................................... 8,314 7,777
--------- ---------
Total current assets............................... 240,946 227,122
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 12,320 12,312
Buildings and improvements................................ 126,998 125,126
Machinery and equipment................................... 590,894 580,892
Furniture and fixtures.................................... 11,076 8,984
--------- ---------
741,288 727,314
Less accumulated depreciation............................. (259,826) (247,458)
--------- ---------
Property, plant and equipment, net........................ 481,462 479,856
--------- ---------
GOODWILL, net............................................... 146,157 140,763
--------- ---------
OTHER ASSETS................................................ 30,822 30,902
--------- ---------
$ 899,387 $ 878,643
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 16,598 $ 16,615
Accounts payable.......................................... 75,773 62,454
Accrued liabilities....................................... 55,112 43,755
Dividends payable......................................... 4,624 4,572
--------- ---------
Total current liabilities.......................... 152,107 127,396
--------- ---------
REVOLVING CREDIT LOANS...................................... 130,000 140,000
--------- ---------
LONG-TERM DEBT, less current maturities..................... 269,738 269,739
--------- ---------
DEFERRED INCOME TAXES....................................... 53,610 49,153
--------- ---------
DEFERRED COMPENSATION....................................... 3,004 3,164
--------- ---------
OTHER LIABILITIES........................................... 8,603 9,786
--------- ---------
MINORITY INTEREST........................................... 1,022 946
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares
authorized; none issued................................. 0 0
Common stock, $.10 par value; 60,000,000 shares
authorized, 25,763,026 and 25,488,280 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively............................................ 2,576 2,549
Additional paid-in capital................................ 154,864 149,509
Retained earnings......................................... 124,440 126,935
Accumulated other comprehensive income.................... (577) (534)
--------- ---------
281,303 278,459
--------- ---------
$ 899,387 $ 878,643
========= =========
</TABLE>
- ---------------
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE> 4
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
SALES....................................................... $260,850 $197,412
FREIGHT..................................................... 12,297 9,847
-------- --------
Net sales......................................... 248,553 187,565
COST OF SALES............................................... 194,416 138,789
-------- --------
Gross profit...................................... 54,137 48,776
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 38,490 28,470
RESTRUCTURING COSTS......................................... 6,913 0
-------- --------
Operating income.................................. 8,734 20,306
OTHER (EXPENSE) INCOME:
Interest expense.......................................... (7,787) (4,071)
Interest income........................................... 174 119
Equity in income of unconsolidated affiliates............. 2,910 1,830
Other, net................................................ (68) (132)
-------- --------
(4,771) (2,254)
-------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 3,963 18,052
MINORITY INTEREST........................................... (75) (118)
PROVISION FOR INCOME TAXES.................................. 1,746 6,519
-------- --------
NET INCOME.................................................. $ 2,142 $ 11,415
======== ========
BASIC
NET INCOME PER COMMON SHARE................................. $ 0.08 $ 0.46
======== ========
Weighted average number of shares outstanding............... 25,624 24,759
======== ========
DILUTED
NET INCOME PER COMMON SHARE................................. $ 0.08 $ 0.46
======== ========
Diluted weighted average number of shares outstanding....... 25,649 24,910
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of income.
4
<PAGE> 5
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash provided by (used in)
Operating activities:
Net income............................................. $ 2,142 $ 11,415
Depreciation and amortization.......................... 14,858 10,186
Restructuring costs.................................... 5,696 0
Other noncash adjustments.............................. 445 (596)
Changes in current assets and liabilities.............. 1,284 (1,381)
-------- --------
Net cash provided by operating activities......... 24,425 19,624
-------- --------
Investing activities:
Purchases of property, plant and equipment............. (17,151) (8,810)
Acquisitions of businesses, net of cash acquired....... (4,071) 0
Other.................................................. 2,380 1,163
-------- --------
Net cash used in investing activities............. (18,842) (7,647)
-------- --------
Financing activities:
Proceeds from revolving credit loans................... 4,000 14,000
Repayments of revolving credit loans................... (14,000) (12,000)
Repayments of long-term debt........................... (42) (28)
Dividends paid......................................... (4,570) (4,476)
Proceeds from issuances of stock....................... 86 443
Other.................................................. (216) (215)
-------- --------
Net cash used in financing activities............. (14,742) (2,276)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (9,159) 9,701
Cash and cash equivalents at beginning of period............ 18,771 2,610
-------- --------
Cash and cash equivalents at end of period.................. $ 9,612 $ 12,311
======== ========
Supplemental Disclosures:
Cash payments for interest................................ $ 1,822 $ 2,089
======== ========
Cash payments for income taxes............................ $ 935 $ 1,732
======== ========
Stock issued for acquisitions............................. $ 5,303 $ 5,991
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of cash flows.
5
<PAGE> 6
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. The results of
operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. ACQUISITION
The following acquisition is being accounted for under the purchase
method of accounting, applying the provisions of Accounting Principles
Board Opinion No. 16. As a result, the Company records the assets and
liabilities of the acquired company at its estimated fair value with
the excess of the purchase price over this amount 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.
In February 2000, the Company acquired all of the outstanding stock of
MilPak, Inc. in exchange for 244,422 shares of the Company's common
stock valued at $4.7 million and $4.7 million in cash. MilPak operates
a facility located in Pine Brook, New Jersey that provides blister
packaging, cartoning and labeling, and other contract packaging
services. Goodwill of approximately $6.0 million was recorded in
connection with the acquisition and is being amortized over 40 years.
NOTE 3. COMPREHENSIVE INCOME
Total comprehensive income, consisting of net income plus other
nonowner changes in equity, for the three months ended March 31, 2000
and 1999 was $2,099,000 and $11,314,000, respectively.
NOTE 4. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. It also requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. In June 1999, the FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement 133."
This statement defers the effective date of SFAS No. 133 until the
fiscal year ending December 31, 2001. Management does not expect SFAS
No. 133 to have a significant impact on the Company's financial
statements.
NOTE 5. SEGMENT INFORMATION
The Company operates principally in three business segments organized by
products. The paperboard segment consists of facilities that
manufacture 100 percent recycled uncoated and clay-
6
<PAGE> 7
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 1.
coated paperboard and facilities that collect recycled paper and broker
recycled paper and other paper rolls. The tube, core and composite
container segment is principally made up of facilities that produce
spiral and convolute-wound tubes, cores and cans. The carton and custom
packaging segment consists of facilities that produce printed and
unprinted folding and set-up cartons and facilities that provide
contract manufacturing and contract packaging services. Intersegment
sales are recorded at prices which approximate market prices. Operating
income includes all costs and expenses directly related to the segment
involved. Corporate expenses include corporate general, administrative
and unallocated information systems expenses.
The following table presents certain business segment information for
the periods indicated (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales (external customers):
Paperboard................................................ $107,078 $ 75,102
Tube, core and composite container........................ 64,981 63,894
Carton and custom packaging............................... 76,494 48,569
-------- --------
Total............................................. $248,553 $187,565
======== ========
Net sales (intersegment):
Paperboard................................................ $ 33,329 $ 27,683
Tube, core and composite container........................ 1,046 664
Carton and custom packaging............................... 167 70
-------- --------
Total............................................. $ 34,542 $ 28,417
======== ========
Operating income:
Paperboard(A)............................................. $ 5,074 $ 15,015
Tube, core and composite container........................ 4,387 5,275
Carton and custom packaging............................... 2,519 2,907
-------- --------
Total............................................. 11,980 23,197
Corporate expense........................................... (3,246) (2,891)
-------- --------
Operating income............................................ 8,734 20,306
Interest expense.......................................... (7,787) (4,071)
Interest income........................................... 174 119
Equity in income of unconsolidated affiliates............. 2,910 1,830
Other (net)............................................... (68) (132)
-------- --------
Income before income taxes and minority interest............ $ 3,963 $ 18,052
======== ========
</TABLE>
- ---------------
(A) During the first quarter of 2000, the Company recorded a charge to
operations of approximately $6.9 million related to the closing of
its Baltimore, Maryland paperboard mill (see Note 6). These costs
were related to the paperboard segment and are reflected in the
segment's operating income.
NOTE 6. RESTRUCTURING COSTS
In February 2000, the Company initiated a plan to close its paperboard
mill located in Baltimore, Maryland and recorded a charge to operations
of approximately $6.9 million. The plan to close the mill was adopted
in conjunction with the Company's ongoing efforts to increase
manufacturing efficiency and reduce costs in its mill system. The $6.9
million charge included a $5.7 million
7
<PAGE> 8
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 1.
noncash asset impairment charge to write-down machinery and equipment
to net realizable value. The charge also included a $604 thousand
accrual for severance and termination benefits for 21 salaried and 83
hourly employees terminated in connection with this plan and a $613
thousand accrual for post-closing security, utilities and other exit
costs. As of March 31, 2000, eight employees remained to market the
land and building, sell remaining inventory, collect receivables and
provide human resources services to terminated employees. The Company
has received a deposit from a potential buyer of the land and building
and expects to close the sale and complete the exit plan in the third
quarter of 2000. The remaining severance and termination benefits will
be paid by August 31, 2000.
The following is a summary of restructuring activity from plan
adoption to March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
SEVERANCE AND
OTHER
ASSET TERMINATION OTHER EXIT
IMPAIRMENT BENEFITS COSTS TOTAL
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
First quarter 2000 provision........... $5,696,000 $ 604,000 $ 613,000 $6,913,000
Noncash.............................. 5,696,000 0 0 5,696,000
---------- --------- --------- ----------
Cash................................. 0 604,000 613,000 1,217,000
First quarter 2000 cash activity....... 0 (275,000) (204,000) (479,000)
---------- --------- --------- ----------
Balance as of March 31, 2000........... $ 0 $ 329,000 $ 409,000 $ 738,000
========== ========= ========= ==========
</TABLE>
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation arising in the ordinary
course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material adverse effect on
the Company's financial condition or results of operations.
8
<PAGE> 9
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 2.
CARAUSTAR INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
GENERAL
The Company is a major manufacturer of recycled paperboard and converted
paperboard products, operating principally in three business segments. The
paperboard segment consists of facilities that manufacture 100 percent recycled
uncoated and clay-coated paperboard and facilities that collect recycled paper
and broker recycled paper and other paper rolls. The tube, core and composite
container segment is principally made up of facilities that produce spiral and
convolute-wound tubes, cores and cans. The carton and custom packaging segment
consists of facilities that produce printed and unprinted folding and set-up
cartons and facilities that provide contract manufacturing and contract
packaging services.
The Company is vertically integrated to the extent that a large portion of its
paperboard production is consumed internally by its converting segments
(approximately 37 percent in the first quarter of 2000). 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 end-use product market,
which allows it to shift production between mills in response to customer or
market demands. The Company is also the only major manufacturer to serve all
four recycled boxboard end-use markets: tube and core, folding carton, gypsum
wallboard facing paper and other specialty.
Recovered fiber, which is derived from recycled paper stock, is the Company's
only significant raw material. Historically, the cost of recovered fiber has
fluctuated significantly due to market and industry conditions. For example, the
Company's average recovered fiber cost per ton of paperboard produced increased
from $43 per ton in 1993 to $144 per ton in 1995, an increase of 235 percent,
before dropping to $66 per ton in 1996. Recovered fiber cost per ton averaged
$78 during 1999 and $102 during the first quarter of 2000. 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.
9
<PAGE> 10
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 2.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated. The volume information
shown below includes shipments of unconverted paperboard and converted
paperboard products. Tonnage volumes from the Company's business segments are
combined and presented along end-use market lines. Net sales and operating
income are reported by segment in Note 5 to the consolidated financial
statements as part of Part 1, Item 1 of this report.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------- %
2000 1999 CHANGE CHANGE
------ ------ ------ ------
<S> <C> <C> <C> <C>
Production source of paperboard tons sold (in thousands):
From paperboard mill production........................... 269.9 227.8 42.1 18.5%
Outside purchases......................................... 31.6 16.8 14.8 88.1%
------ ------ -----
Total paperboard tonnage.......................... 301.5 244.6 56.9 23.3%
====== ====== =====
Tons sold by market (in thousands):
Tube, core and can volume
Paperboard (internal).................................. 49.7 50.6 (0.9) -1.8%
Outside purchases...................................... 5.9 4.4 1.5 34.1%
------ ------ -----
Tube, core and can converted products..................... 55.6 55.0 0.6 1.1%
Unconverted paperboard.................................... 9.3 11.6 (2.3) -19.8%
------ ------ -----
Tube, core and can volume......................... 64.9 66.6 (1.7) -2.6%
Folding carton volume
Paperboard (internal).................................. 19.3 13.8 5.5 39.9%
Outside purchases...................................... 23.2 10.2 13.0 127.5%
------ ------ -----
Folding carton converted products......................... 42.5 24.0 18.5 77.1%
Unconverted paperboard.................................... 74.9 48.9 26.0 53.2%
------ ------ -----
Folding carton volume............................. 117.4 72.9 44.5 61.0%
Gypsum facing paper volume
Unconverted paperboard................................. 54.7 59.0 (4.3) -7.3%
Outside purchases (for resale)......................... 0.5 0.5 0.0 0.0%
------ ------ -----
Gypsum facing volume.............................. 55.2 59.5 (4.3) -7.2%
Other specialty volume
Paperboard (internal).................................. 32.1 19.8 12.3 62.1%
Outside purchases...................................... 2.0 1.7 0.3 17.6%
------ ------ -----
Other specialty converted products........................ 34.1 21.5 12.6 58.6%
Unconverted paperboard.................................... 29.9 24.1 5.8 24.1%
------ ------ -----
Other specialty volume............................ 64.0 45.6 18.4 40.4%
------ ------ -----
Total paperboard tonnage.......................... 301.5 244.6 56.9 23.3%
====== ====== =====
Gross paper margins ($/ton):
Paperboard mill:
Average same-mill net selling price.................... $ 442 $ 402 $ 40 10.0%
Average same-mill recovered fiber cost................. 102 61 41 67.2%
------ ------ -----
Paperboard mill gross paper margin................ $ 340 $ 341 $ (1) -0.3%
====== ====== =====
Tube and core:
Average net selling price.............................. $ 762 $ 711 $ 51 7.2%
Average paperboard cost................................ 420 382 38 9.9%
------ ------ -----
Tube and core gross paper margin.................. $ 342 $ 329 $ 13 4.0%
====== ====== =====
</TABLE>
10
<PAGE> 11
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 2.
Consolidated net sales for the quarter ended March 31, 2000 increased 32.5
percent to $248.6 million from $187.6 million in 1999. Acquisitions accounted
for $51.5 million of sales during the first quarter of 2000. Excluding
acquisitions, net sales increased 5.1 percent. This increase was primarily due
to higher selling prices in the paperboard segment and higher sales from the
tube, core and composite container and carton and custom packaging segments.
Total paperboard tonnage for the quarter increased 23.3 percent to 301.5
thousand tons from 244.6 thousand tons. Excluding acquisitions, total paperboard
tonnage increased 2.2 percent to 249.9 thousand tons. This increase was the
result of higher shipments of converted products, primarily other specialty
converted products and folding cartons, partially offset by lower shipments of
unconverted paperboard to external customers in the gypsum facing paper and tube
and core end-use markets. Excluding acquisitions, outside purchases increased
24.4 percent to 20.9 thousand tons. Tons sold from paperboard mill production
increased 18.5 percent for the quarter to 269.9 thousand tons compared with
227.8 thousand tons in the first quarter last year, but decreased 0.6 percent
excluding the Sprague and Halifax acquisitions. Total tonnage converted
increased 31.5 percent in the first quarter of 2000 to 132.2 thousand tons
versus 100.5 thousand tons in 1999 and increased 7.2 percent excluding
acquisitions. Excluding acquisitions, volumes in the folding carton and other
specialty end-use markets increased 3.0 percent and 19.7 percent, respectively.
Gross margin for the first quarter of 2000 decreased to 21.8 percent of net
sales from 26.0 percent in 1999. This margin decrease was due primarily to the
acquisition of operations with lower margins, as a percent of sales, than the
Company's other operations.
In February 2000, the Company initiated a plan to close its paperboard mill
located in Baltimore, Maryland and recorded a charge to operations of
approximately $6.9 million. The plan to close the mill was adopted in
conjunction with the Company's ongoing efforts to increase manufacturing
efficiency and reduce costs in its mill system. The $6.9 million charge included
a $5.7 million noncash asset impairment charge to write-down machinery and
equipment to net realizable value. The charge also included a $604 thousand
accrual for severance and termination benefits for 21 salaried and 83 hourly
employees terminated in connection with this plan and a $613 thousand accrual
for post-closing security, utilities and other exit costs. In the first quarter
of 2000, the Company paid $275 thousand in severance and termination benefits
and paid $204 thousand in other exit costs. As of March 31, 2000, eight
employees remained to market the land and building, sell remaining inventory,
collect receivables and provide human resources services to terminated
employees. The Company has received a deposit from a potential buyer of the land
and building and expects to close the sale and complete the exit plan in the
third quarter of 2000. The remaining severance and termination benefits will be
paid by August 31, 2000. The Company does not expect the mill closure to have a
material impact on future operations.
Operating income for the first quarter of 2000 was $8.7 million, a decrease of
$11.6 million, or 57.0 percent from the first quarter of 1999. Operating income
for comparable facilities and excluding restructuring costs increased 1.0
percent over the prior year. This increase was the result of improved operating
income from the paperboard segment's recovered fiber operations, partially
offset by lower operating income from the tube, core and composite container and
the carton and custom packaging segments. Selling, general and administrative
expenses increased $10.0 million in the first quarter of 2000 versus 1999 due
primarily to acquisitions and higher information technology costs.
Interest expense increased 91.3 percent to $7.8 million for the first quarter of
2000 from $4.1 million in 1999. This increase was primarily due to the June 1,
1999 public debt securities offering and higher interest rates on the revolving
credit facility, partially offset by lower average borrowings under the
revolving credit facility.
Equity income from unconsolidated affiliates for the first quarter of 2000 was
$2.9 million, up 59.0 percent from 1999 due to improved results for the
Company's gypsum wallboard joint venture with Temple-Inland. The joint venture
realized a significant contribution from the new wallboard plant located in
Cumberland City, Tennessee, which began operations in the fourth quarter of
1999.
11
<PAGE> 12
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 2.
As discussed above, results for the first quarter of 2000 included a
nonrecurring restructuring charge recorded in conjunction with the closing of
the Company's Baltimore, Maryland paperboard mill of $6.9 million ($4.3 million,
net of tax benefit, or $0.17 per common share on a diluted basis). Excluding
this charge, net income was $6.5 million, or $0.25 per common share. Including
the restructuring charge, net income decreased 81.2 percent to $2.1 million in
the first quarter of 2000 from $11.4 million last year. Diluted net income per
common share, including the restructuring charge, decreased 82.6 percent to
$0.08 for the first quarter of 2000 from $0.46 in the same period of 1999.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2000, the Company had loans of $130.0 million outstanding under its
revolving credit facility versus $149.0 million on March 31, 1999 and $140.0
million on December 31, 1999. Loans under the revolving credit facility bear
interest, payable monthly, at the Eurodollar rate plus a margin based upon the
Company's investment grade rating, as defined in the revolving credit agreement.
For the three months ended March 31, 2000 and 1999 and for the year ended
December 31, 1999, the weighted average borrowings outstanding under the
revolving credit facility during such periods bore interest at 6.45 percent,
5.37 percent and 5.44 percent, respectively. Other long-term debt consisted of
the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------ ------------
2000 1999 1999
-------- ------- ------------
<S> <C> <C> <C>
7.375 percent 10-year notes................................. $198,667 $ -- $198,691
7.74 percent senior notes................................... 82,750 82,750 82,750
Other notes payable......................................... 4,919 206 4,913
-------- ------- --------
286,336 82,956 286,354
Less current maturities..................................... 16,598 103 16,615
-------- ------- --------
$269,738 $82,853 $269,739
======== ======= ========
</TABLE>
In 1998, the Company registered with the Securities and Exchange Commission a
total of $300 million in public debt securities for issuance in one or more
series and with such specific terms as to be determined from time to time. On
June 1, 1999, the Company issued $200 million in aggregate principal amount of
its 7.375 percent notes due June 1, 2009. The 7.375 percent notes were issued at
a discount to yield an effective interest rate of 7.473 percent, are unsecured
obligations of the Company and pay interest semiannually.
The Company has a $400 million, five-year bank revolving credit facility which
may be increased up to $500 million and its maturity extended by up to three
additional years beyond the second quarter of 2002, subject to certain
conditions and approvals. The Company can use the facility to fund ongoing
working capital needs and for general corporate purposes, including
acquisitions. Interest under the facility is computed using the Company's choice
of: (a) the Eurodollar rate plus a margin; or (b) the higher of the Federal
Funds Rate plus a margin or the bank's prime lending rate. The Company can also
choose the basis for determining the margin above the Eurodollar rate as either:
(a) its consolidated leverage ratio; or (b) its investment grade rating. The
revolving 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 $24.4 million for the three months ended
March 31, 2000 compared with $19.6 million for the same period last year. The
increase in the first quarter of 2000 compared to the same period last year was
due primarily to favorable changes in working capital, partially offset by lower
net income.
Capital expenditures, excluding acquisitions, were $17.2 million in the first
three months of 2000 versus $8.8 million for the same period last year.
Aggregate capital expenditures of approximately $41.9 million are anticipated
for 2000.
12
<PAGE> 13
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 2.
In February 2000, the Company acquired all of the outstanding stock of MilPak,
Inc. in exchange for 244,422 shares of the Company's common stock valued at $4.7
million and $4.7 million in cash. MilPak operates a facility located in Pine
Brook, New Jersey that provides blister packaging, cartoning and labeling, and
other contract packaging services.
Cash dividends of $4.6 million were paid in the first three months of 2000
versus $4.5 million in the same period last year. The Company's debt agreements
contain no specific limitations on the payment of dividends.
The Company did not purchase any shares of its common stock during the first
three months of 2000 pursuant to its common stock purchase plan. The Company has
cumulatively purchased 3,169,000 shares since January 1996. The Company's board
of directors has authorized purchases of up to 831,000 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.
During the second quarter of 1999, the Company formed a joint venture with
Temple-Inland Inc. to own and operate Temple's Newport, Indiana containerboard
mill. The joint venture, Premier Boxboard Limited LLC ("PBL"), is undertaking a
14-month, $75 million project to modify the mill to enable it to produce a new,
lightweight gypsum facing paper along with other containerboard grades. The mill
is anticipated to begin operations as modified in the third quarter of 2000.
Under the joint venture agreement, the Company will contribute $50 million to
the joint venture during the second quarter of 2000 and Temple will contribute
the net assets of the mill. Each partner will have a 50 percent interest in the
joint venture.
The Company anticipates that it will be able to meet its funding needs for the
possible acquisition of additional facilities, the investment in PBL, working
capital, capital expenditures and additional stock purchases through internally
generated cash and borrowings under its revolving credit facility and the
issuance of debt securities in the public markets.
FORWARD-LOOKING INFORMATION
This Report on Form 10-Q, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's belief and
assumptions, as well as information currently available to management. When used
in this document, the words "anticipate," "estimate," "expect," and similar
expressions may identify forward-looking statements. 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.
13
<PAGE> 14
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I, ITEM 3.
CARAUSTAR INDUSTRIES, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of certain market risks related to the Company, see Part II,
Item 7A, "Quantitative and Qualitative Disclosures about Market Risk", in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999. There have been no significant developments with respect to the Company's
exposure to interest rate market risk.
14
<PAGE> 15
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART II, ITEM 4.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual shareholders' meeting was held on April 19, 2000. The
matters voted upon at the meeting were (1) a proposal to elect three Class II
directors (Bob M. Prillaman, Russell M. Robinson, II and H. Lee Thrash, III) (2)
a proposal to ratify the amendment to the Company's 1998 Key Employee Incentive
Compensation Plan as described in the Company's Proxy Statement and (3) a
proposal to ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for fiscal 2000. Proposals (1), (2) and (3) were
approved by the following margins:
<TABLE>
<CAPTION>
VOTES AGAINST OR BROKER
PROPOSAL VOTES FOR WITHHELD ABSTENTIONS NONVOTES
- -------- ---------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Election of Directors
Bob M. Prillaman..................... 19,673,710 853,335 0 0
Russell M. Robinson, II.............. 19,292,688 1,234,357 0 0
H. Lee Thrash, III................... 19,141,404 1,385,641 0 0
Ratification of Amendment to 1998 Key
Employee Incentive Compensation
Plan................................. 15,784,420 2,368,377 48,537 2,325,711
Ratification of Selection of
Independent Public Accountants....... 20,437,012 33,453 56,580 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits to this Report on Form 10-Q are listed in the accompanying Exhibit
Index.
(b) Reports on Form 8-K
During the quarter ended March 31, 2000, the Company filed one current report on
Form 8-K. This report, dated March 20, 2000, incorporated by reference the
contents of a Company press release stating the Company's expectations regarding
its operating results for the quarter ended March 31, 2000.
15
<PAGE> 16
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARAUSTAR INDUSTRIES, INC.
By: /s/ H. LEE THRASH, III
------------------------------------
H. Lee Thrash, III
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Dated: May 12, 2000
16
<PAGE> 17
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
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 Amended and Restated Rights Agreement, dated as of May 24,
1999, between Caraustar Industries, Inc. and The Bank of New
York as Rights Agent (Incorporated by reference -- Exhibit
10.1 to current report on Form 8-K dated June 1, 1999 [SEC
File No. 020646])
4.05 Indenture, dated as of June 1, 1999, between Caraustar
Industries, Inc. and The Bank of New York, as Trustee
(Incorporated by reference -- Exhibit 4.05 to report on Form
10-Q for the quarter ended June 30, 1999 [SEC File No.
0-20646])
4.06 First Supplemental Indenture, dated as of June 1, 1999,
between Caraustar Industries, Inc. and The Bank of New York,
as Trustee (Incorporated by reference -- Exhibit 4.06 to
report on Form 10-Q for the quarter ended June 30, 1999 [SEC
File No. 0-20646])
10.01 Note Agreement, dated as of October 1, 1992, between the
Company and the Prudential Insurance Company of America,
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.02 to Annual Report
for 1992 on Form 10-K [SEC File No. 0-20646])
10.02 Amendment Agreement, dated as of June 2, 1995, between the
Company and the Prudential Insurance Company of America
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.03 to report on
Form 10-Q for the quarter ended September 30, 1995 [SEC File
No. 0-20646])
10.03 Amendment Agreement, dated as of July 23, 1997, between the
Company and the Prudential Insurance Company of America
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.03 to report on
Form 10-Q for the quarter ended June 30, 1997 [SEC File No.
0-20646])
10.04 Amendment Agreement, dated as of August 12, 1998, between
the Company and the Prudential Insurance Company of America
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.04 to report on
Form 10-Q for the quarter ended September 30, 1998 [SEC File
No. 0-20646])
10.05 Employment Agreement, dated December 31, 1990, between the
Company and Thomas V. Brown (Incorporated by
reference -- Exhibit 10.06 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
10.06 Asset Purchase Agreement, dated August 7, 1992, between the
Company and Domtar Gypsum Inc. (Incorporated by
reference -- Exhibit 10.07 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
10.07 Deferred Compensation Plan, together with copies of existing
individual deferred compensation agreements (Incorporated by
reference -- Exhibit 10.08 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
</TABLE>
17
<PAGE> 18
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.08 1987 Executive Stock Option Plan (Incorporated by
reference -- Exhibit 10.09 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
10.09 1993 Key Employees' Share Ownership Plan (Incorporated by
reference -- Exhibit 10.10 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
10.10 Energy Purchase Agreement, dated December 18, 1989, between
Camden Paperboard Corporation and Camden Cogen, L.P.
(Incorporated by reference -- Exhibit 10.11 to Registration
Statement on Form S-1 [SEC File No. 33-50582])
10.11 Incentive Bonus Plan of the Company (Incorporated by
reference -- Exhibit 10.10 to Annual Report for 1993 on Form
10-K [SEC File No. 0-20646])
10.12 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 Amendment No. 1 to the Company's 1996 Director Equity Plan,
dated July 16, 1998 (Incorporated by reference -- Exhibit
10.2 to Current Report on Form 8-K dated June 1, 1999 [SEC
File No. 0-20646])
10.14+ 1998 Key Employee Incentive Compensation Plan, as amended.
10.15 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])
10.16 Amendment No. 1 to Credit Agreement, dated as of October 8,
1997, by and among the Company, as Borrower, the banks
listed therein, Bankers Trust Company, as Administrative
Agent, NationsBank, N.A., as Syndication Agent, SunTrust
Bank, Atlanta, as Documentation Agent, First Union National
Bank, as Managing Agent and each of Credit 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 10.15 to report on
Form 10-Q for the quarter ended September 30, 1998 [SEC File
No. 0-20646])
10.17 Amendment No. 2 to Credit Agreement, dated as of October 30,
1998, by and among the Company, as Borrower, the banks
listed therein, Bankers Trust Company, as Administrative
Agent, NationsBank, N.A., as Syndication Agent, SunTrust
Bank, Atlanta, as Documentation Agent, First Union National
Bank, as Managing Agent and each of Credit 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 10.16 to report on
Form 10-Q for the quarter ended September 30, 1998 [SEC File
No. 0-20646])
10.18 Asset Purchase Agreement between Caraustar Industries, Inc.,
Sprague Paperboard, Inc. and International Paper Company,
dated as of March 4, 1999 (Incorporated by reference --
Exhibit 10.17 to report on Form 10-Q for the quarter ended
March 31, 1999 [SEC File No. 0-20646])
11.01+ Computation of Earnings Per Share
27.01+ Financial Data Schedule (For SEC purposes only)
</TABLE>
- ---------------
+ Filed herewith
18
<PAGE> 1
EXHIBIT 10.14
CARAUSTAR INDUSTRIES, INC.
1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
(AMENDED AND RESTATED AS OF APRIL 19, 2000)
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.
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.
<PAGE> 2
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 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
2
<PAGE> 3
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.
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."
3
<PAGE> 4
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 3,800,000, 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 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.
4
<PAGE> 5
(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 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
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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
(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
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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
(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
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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 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
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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.
(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.
(d) Of the 2,200,000 additional shares of common stock authorized at
the 2000 annual meeting of shareholders for issuance under the Plan, a maximum
of 200,000 of such shares may be issued as Restricted Stock.
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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.
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.
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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) 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.
(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.
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(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. 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
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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 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
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
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(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 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 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
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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 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
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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 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
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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
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.
17
<PAGE> 18
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 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
18
<PAGE> 19
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 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
19
<PAGE> 20
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.
20
<PAGE> 1
EXHIBIT 11.01
CARAUSTAR INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
COMPUTATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Earnings:
Net income available to common stock...................... $ 2,142 $11,415
------- -------
Shares:
Weighted average common shares outstanding................ 25,624 24,759
Dilutive effect of stock options.......................... 25 151
------- -------
Average diluted shares outstanding and equivalents........ 25,649 24,910
------- -------
Basic earnings per common share:
Net income................................................ $ 0.08 $ 0.46
======= =======
Diluted earnings per common share:
Net income................................................ $ 0.08 $ 0.46
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,612
<SECURITIES> 0
<RECEIVABLES> 117,642<F1>
<ALLOWANCES> 0
<INVENTORY> 101,059
<CURRENT-ASSETS> 240,946
<PP&E> 741,288
<DEPRECIATION> 259,826
<TOTAL-ASSETS> 899,387
<CURRENT-LIABILITIES> 152,107
<BONDS> 399,738<F2>
0
0
<COMMON> 2,576
<OTHER-SE> 278,727
<TOTAL-LIABILITY-AND-EQUITY> 899,387
<SALES> 248,553
<TOTAL-REVENUES> 248,553
<CGS> 194,416
<TOTAL-COSTS> 194,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,787
<INCOME-PRETAX> 3,963
<INCOME-TAX> 1,746
<INCOME-CONTINUING> 2,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,142
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
<FN>
<F1>ARE PRESENTED NET OF THE ALLOWANCES FOR DOUBTFUL ACCOUNTS
<F2>REPRESENTS REVOLVING CREDIT LOANS AND LONG-TERM DEBT, LESS CURRENT
MATURITIES
</FN>
</TABLE>
