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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported): July 11, 1997
Riverwood Holding, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-11113 58-2205241
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(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
1013 Centre Road, Suite 350
Wilmington, Delaware 19805
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(Address of principal executive offices)
c/o Riverwood International Corporation
(770) 644-3000
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(Registrant's telephone number)
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ITEM 5. OTHER EVENTS.
The following discussion relates to Riverwood Holding, Inc., the registrant
(the "Registrant"), its direct subsidiary RIC Holding, Inc. ("RIC Holding"),
RIC Holding's direct subsidiary Riverwood International Corporation
("Riverwood"), and Riverwood's subsidiaries. The term "Company" as used herein
means the Registrant and its subsidiaries, for periods after the acquisition of
Riverwood on March 27, 1996, and the corporation formerly known as Riverwood
International Corporation and its subsidiaries, for periods prior to such
acquisition.
RECENT FINANCIAL PERFORMANCE. The Company's EBITDA (as defined herein)
in the first quarter of 1997 decreased by $6.2 million, or 15.8%, compared
with the first quarter of 1996 (excluding EBITDA of the former U.S.
Timberlands/Wood Products business segment). EBITDA in the Containerboard
business segment decreased by $6.8 million to a loss of $8.0 million in the
first quarter of 1997 from a loss of $1.2 million in the first quarter of
1996. This decrease was due principally to decreased selling prices for
containerboard that was sold in higher volumes but at prices that were below
related total production costs. This trend in the Containerboard business
segment has continued through May 1997. Effective June 1, 1997, the Company
began to implement a previously announced price increase for corrugating
medium of $40 per ton. Additionally, in June 1997 the Company announced
price increases effective with shipments on August 1, 1997 for linerboard and
corrugating medium of $40 per ton and kraft paper of $50 per ton. There can
be no assurance that the June and August price increases will be accepted in
containerboard markets. EBITDA in the Coated Board business segment
decreased by $2.7 million, or 5.7%, to $44.5 million in the first quarter of
1997 from $47.2 million in the first quarter of 1996, due primarily to lower
selling prices for the Company's open market folding cartonboard both
domestically and abroad, offset in part by increased sales volume for such
products. In addition, in its domestic integrated beverage business, the
Company experienced increased sales volume, slightly improved selling prices
and lower distribution costs. At June 28, 1997, the total amount outstanding
under Riverwood's revolving credit facility under its senior secured credit
agreement was $206 million.
Based upon preliminary results of operations for the three months ended
June 28, 1997, the Company estimates that EBITDA in the second quarter of
1997 will exceed the Company's EBITDA of $33.2 million in the first quarter
of 1997 but will be less than EBITDA, excluding EBITDA of the U.S.
Timberlands/Woods Product business segment, of $45.8 million in the second
quarter of 1996. This estimate is based upon preliminary interim results and
is subject to quarter-end review and adjustment. The Company's long-term
prospects will depend on its realizing improved pricing for its open market
folding cartonboard and containerboard products.
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As used herein, "EBITDA" means consolidated net income (exclusive of
non-cash charges resulting from purchase accounting) before consolidated
interest expense, consolidated income taxes, consolidated depreciation and
amortization, cost of timber harvested and other non-cash charges deducted in
determining consolidated net income and extraordinary items and the cumulative
effect of accounting changes and earnings of, but including dividends from,
non-controlled affiliates. EBITDA also excludes certain "Other Costs" for
periods prior to the acquisition of the Company on March 27, 1996, and certain
"Purchased Asset Costs" for periods subsequent to such acquisition.
PROPOSED CREDIT AGREEMENT COVENANT MODIFICATIONS. The Company has
proposed to its senior secured lenders certain financial covenant
modifications and other amendments to reflect, among other things, the
Company's recent financial results and market and operating conditions. The
effectiveness of such amendments is expected to be conditioned, among other
things, on the consummation of a proposed refinancing of a portion of the
Company's indebtedness under its senior secured credit agreement. After
giving effect to such refinancing as presently proposed, outstanding
revolving credit borrowings under the senior secured credit agreement are
expected to be approximately $69 million (on a pro forma basis as of June 28,
1997) and scheduled principal payments on the term loans thereunder are
expected to be approximately $1 million, $3 million, $4 million, $4 million,
$120 million, $173 million, $184 million and $156 million for 1997 through
2004, respectively. Although the Company believes that its senior secured
lenders have received the proposed modifications favorably, no assurance can
be given that such modifications will become effective or that such
refinancing will be consummated. The proposed covenant modifications include
reductions in permitted capital expenditures, the elimination of the minimum
consolidated net worth requirement, and reductions in minimum EBITDA and
interest coverage ratio requirements.
The Company expects that the amended covenants will specify permitted
capital expenditures (subject to certain carryover allowances and other
adjustments) of no more than $175 million, $140 million, $140 million and $135
million for 1997 through 2000, respectively, and $130 million per year
thereafter. The Company also expects the amended covenants to specify, among
other changes, at least the following amended minimum EBITDA and interest
coverage ratio requirements for each four quarter period ending during the
following test periods:
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Period EBITDA Coverage ratio
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December 31, 1996 - December 30, 1997 $130 million 0.80 to 1.00
December 31, 1997 - December 30, 1998 $140 million 0.85 to 1.00
December 31, 1998 - December 30, 1999 $200 million 1.00 to 1.00
December 31, 1999 - December 30, 2000 $265 million 1.25 to 1.00
December 31, 2000 - December 30, 2001 $325 million 1.50 to 1.00
December 31, 2001 - December 30, 2002 $350 million 1.75 to 1.00
December 31, 2002 - December 30, 2003 $375 million 2.00 to 1.00
Thereafter $400 million 2.25 to 1.00
COMPLETION OF MACON MILL PAPER MACHINE UPGRADE. In June 1997, the
Company completed the conversion of the second paper machine in its Macon,
Georgia mill to production of coated unbleached kraft paperboard ("CUK
Board") for a cost of approximately $85 million, and commenced CUK Board
production on the machine. The Company expects that the machine will achieve
its full, annual production capacity of approximately 275,000 tons of CUK
Board in 18 to 24 months. Efficient start-up and production of CUK Board from
the upgraded machine is dependent upon many manufacturing process and
engineering factors, and there can be no assurance that the Company will not
experience equipment failures, lengthy shut-downs or other production
disruptions during the start-up process. The Company currently estimates
that it will take several years for coated board markets to absorb the
significant increase in the Company's CUK Board production capacity resulting
from the upgrade of this machine, and in the interim, the Company will use
excess capacity on its CUK Board paper machines for production of linerboard,
subject to market conditions. The Company expects to produce linerboard on
CUK Board paper machines in the second half of 1997. The Company expects to
sell a significant portion of its additional CUK Board production in open
markets, principally internationally. There can be no assurance that
additional CUK Board output can be sold in these markets or that such
additional CUK Board can be sold without experiencing price reductions.
UPGRADE OF INFORMATION SYSTEMS. The Company has begun to upgrade its
information systems through an initiative expected to cost up to approximately
$30
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million to be spent through 1999. When the upgrade is complete, the Company
expects a major improvement in its information systems and business processes.
This initiative is expected to be complete by June 1999. In conjunction with
the information systems upgrade, the Company is also in the process of replacing
its computer software applications and systems to accommodate the "Year 2000"
dating changes necessary to permit correct recording of yearly dates for 2000
and later years. The Company does not expect that the cost of its Year 2000
compliance program will be material to its financial condition or results of
operations (other than the initial investment in information systems of up to
approximately $30 million).
CERTAIN TAX MATTERS. In connection with the acquisition of the Company on
March 27, 1996, the former majority owner of the Company agreed to bear the cost
of a Section 338(h)(10) election for federal tax purposes and for purposes of
state taxes for which the former majority owner and the Company filed returns on
a combined basis. The Company agreed to bear the cost of this election for
purposes of other state taxes ("stand-alone taxes"), including Louisiana income
tax. During 1997, the Company has paid $33.1 million in estimated stand-alone
taxes relating to the election, including $27.5 million in Louisiana income tax.
The Company's calculation of its Louisiana tax was based on the state law in
effect at the time of the March 27, 1996 acquisition of the Company, including a
1993 amendment. In May 1997, the Louisiana Supreme Court declared the 1993
amendment to be void under the Louisiana constitution, retroactive to 1993. It
is possible that the voiding of the 1993 amendment could result in the Company
being required to pay significant additional Louisiana income tax relating to
the election (plus interest on the additional taxes). The Company's Louisiana
tax return for the period that includes the March 27, 1996 acquisition of the
Company is due in November 1997. After consultation with Louisiana tax counsel,
the Company believes that it has a reasonable basis for filing its Louisiana
income tax return for 1996 (which is due in November 1997) without the payment
of any additional tax due to the voiding of the 1993 amendment. There can be no
assurance, however, that the Company would ultimately prevail on this issue if
Louisiana were to challenge such filing position. If the Company were not to
prevail in such a challenge, significant additional Louisiana income tax
relating to the election could be payable. Management estimates that the
maximum amount of such additional tax is approximately $50 million (plus
statutory interest on any additional tax). The Company intends to file its tax
return without the payment of additional tax due to the voiding of the 1993
amendment, and management believes that the additional tax ultimately paid (if
any) would be substantially less than the estimated maximum amount, although no
assurance can be given in this regard. The Company and its advisors are
continuing to study this situation. Since the law is unclear and the amounts
involved could be significant, it may be several years before this matter is
resolved.
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CERTAIN CHANGES IN MANAGEMENT. Mr. Thomas H. Johnson, vice chairman and
former president and chief executive officer of the Company, has resigned from
his position as of June 30, 1997. Mr. Frank R. McCauley, senior vice president,
forest resources and corporate development, has indicated that he intends to
resign as an officer of Riverwood effective September 1, 1997. Mr. James O.
Egan, senior vice president and chief financial officer, will resign from his
position in July 1997. Mr. Egan has indicated that he intends to remain with
Riverwood to facilitate the transition of his successor, Mr. Thomas A. Gannon.
Mr. Gannon will assume the position of senior vice president and chief financial
officer of the Company in July 1997. Mr. Gannon previously served as corporate
vice president of finance and administration and chief financial officer of
Libbey-Owens-Ford since August 1995. Prior to that time he served in various
positions with Rockwell International Corporation.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RIVERWOOD HOLDING, INC.
Date: July 11, 1997 By: /s/ Bill H. Chastain
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Bill H. Chastain
Secretary
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