1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JANUARY 28, 1995 COMMISSION FILE NUMBER 0-15077
SHOREWOOD PACKAGING CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 11-2742734
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
55 ENGINEERS LANE, FARMINGDALE, NEW YORK 11735
(Address of principal executive offices)
(516) 694-2900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
March 10, 1995 19,354,437
-------------- ----------------
(Date) Number of Shares
1
2
SHOREWOOD PACKAGING CORPORATION
AND SUBSIDIARIES
INDEX PAGE
PART I: FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS -
JANUARY 28, 1995 (UNAUDITED) AND
APRIL 30, 1994 (AUDITED) 3
CONSOLIDATED STATEMENTS OF EARNINGS -
13 AND 39 WEEKS ENDED JANUARY 28, 1995
(UNAUDITED) AND 13 AND 39 WEEKS ENDED
JANUARY 29, 1994 (UNAUDITED) 4 - 5
CONSOLIDATED STATEMENTS OF CASH FLOWS -
39 WEEKS ENDED JANUARY 28, 1995 (UNAUDITED)
AND JANUARY 29, 1994 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 7 - 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - 9 - 11
PART II: OTHER INFORMATION 12
2
3
SHOREWOOD PACKAGING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JANUARY 28, APRIL 30,
ASSETS 1995 1994
------------ ------------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,093 $ 2,735
Accounts receivable, net 40,007 38,937
Inventories 41,036 31,790
Deferred tax assets 2,079 2,079
Prepaid expenses and other
current assets 2,452 2,699
----------- ------------
TOTAL CURRENT ASSETS $ 87,667 $ 78,240
PROPERTY, PLANT AND EQUIPMENT, net 124,790 135,376
OTHER ASSETS (including goodwill) 18,435 6,734
----------- ------------
$ 230,892 $ 220,350
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 36,180 $ 34,318
Income taxes payable 152 2,095
Current maturities of long-term debt 18,778 10,419
----------- ------------
TOTAL CURRENT LIABILITIES $ 55,110 $ 46,832
LONG-TERM DEBT 101,912 120,493
CONVERTIBLE SUBORDINATED DEBENTURE -- 17,500
DEFERRED INCOME TAXES 10,565 8,414
DEFERRED CREDIT 1,065 --
----------- ------------
$ 168,652 $ 193,239
----------- ------------
COMMITMENTS AND CONTINGENCIES
FAIR VALUE OF WARRANT, net of deferred
fair value of warrants ($1,357) -- --
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock, 21,755,937 issued and
19,422,937 outstanding in 1995 and
20,163,923 issued and 17,845,923
outstanding in 1994 216 202
Additional paid in capital 38,308 20,244
Retained earnings 47,505 29,566
Cumulative translation (2,773) (2,013)
Less: Treasury Stock (2,333,000 and
2,318,000 shares at cost,
respectively) (21,016) (20,888)
----------- ------------
62,240 27,111
----------- ------------
$ 230,892 $ 220,350
=========== ============
3
4
SHOREWOOD PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
39 WEEKS 39 WEEKS
ENDED ENDED
JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
NET SALES $ 267,477 $ 138,876
----------- -----------
COSTS AND EXPENSES:
Cost of sales 205,982 107,904
Selling, general and administrative 26,722(a) 16,022
Restructuring charge -- 3,400
----------- -----------
232,704 127,326
EARNINGS FROM OPERATIONS 34,773 11,550
----------- -----------
OTHER INCOME/(EXPENSE),net 549 1,059
INTEREST EXPENSE (6,771) (4,198)
----------- -----------
EARNINGS BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 28,551 8,411
PROVISION FOR INCOME TAXES 10,792 3,391
----------- -----------
EARNINGS BEFORE EXTRAORDINARY ITEM 17,759 5,020
EXTRAORDINARY ITEM -- (3,098)
----------- -----------
NET EARNINGS $ 17,759 $ 1,922
=========== ===========
SHARE DATA:
EARNINGS BEFORE EXTRAORDINARY ITEM $ .93 $ .28
EXTRAORDINARY ITEM -- (0.17)
----------- -----------
NET EARNINGS $ .93 $ .11
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 19,120 17,995
=========== ===========
4
(a) Includes $787 gain on lawsuit settlement and $770 charge for early
termination of lease.
5
SHOREWOOD PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
13 WEEKS 13 WEEKS
ENDED ENDED
JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
NET SALES $ 85,654 $ 52,427
----------- -----------
COSTS AND EXPENSES:
Cost of sales 66,122 42,388
Selling, general and administrative 9,168(a) 6,117
Restructuring charge -- 3,400
----------- -----------
75,290 51,905
----------- -----------
EARNINGS FROM OPERATIONS 10,364 522
----------- -----------
OTHER INCOME, net 455 715
INTEREST EXPENSE (2,005) (1,579)
----------- -----------
EARNINGS (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY ITEM 8,814 (342)
PROVISION (BENEFIT) FOR INCOME TAXES 3,292 (131)
----------- -----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM 5,522 (211)
EXTRAORDINARY ITEM -- (3,098)
----------- -----------
NET EARNINGS (LOSS) $ 5,522 $ (3,309)
============ ===========
SHARE DATA:
-----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM $ .28 $ (.01)
EXTRAORDINARY ITEM -- (.17)
----------- -----------
NET EARNINGS (LOSS) $ .28 $ (.18)
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 20,011 18,009
=========== ===========
(a) Includes $787 gain on lawsuit settlement and $770 charge for early
termination of lease.
5
6
SHOREWOOD PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
39 WEEKS 39 WEEKS
ENDED ENDED
JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
Cash Flows Provided from Operating Activities:
Net earnings $ 17,759 $ 1,922
Adjustments to reconcile net earnings
to net cash flows provided from operations
Depreciation and amortization 10,441 6,766
Deferred income taxes 2,219 347
Other non-cash items (217) 459
Changes in operating assets and liabilities:
Accounts receivable (1,555) 2,042
Inventories (9,549) 965
Prepaid and other current assets (565) (4,495)
Other assets (171) (2,509)
Accounts payable and accrued expenses (1,292) 888
Income taxes payable (984) (2,919)
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Net cash flows provided from operating activities $ 16,086 $ 3,466
---------- -----------
Cash Flows Used by Investing Activities:
Business acquisitions -- (102,996)
Capital expenditures, net (9,059) (7,867)
Other -- --
---------- -----------
Net cash flows used by investing activities: (9,059) (110,863)
---------- -----------
Cash Flows Used by Financing Activities:
Net increase (decrease) in revolver borrowings (2,905) (3,024)
Repayment of long-term debt (6,950) (35,000)
Additions to long-term debt -- 144,000
Purchase of treasury stock (128) (4,181)
Issuance of common stock 791 379
Proceeds from assignment of interest rate swap 1,283 --
Other 156 --
---------- -----------
Net cash flows used by financing activities (7,753) 102,174
---------- -----------
Effect of exchange rate changes on cash and
cash equivalents 84 31
---------- -----------
Decrease in cash and cash equivalents (642) (5,192)
Cash and cash equivalents at beginning of year 2,735 12,474
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Cash and cash equivalents at end of period $ 2,093 $ 7,282
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6
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SHOREWOOD PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position, the results of operations, and the changes in cash flows at
January 28, 1995 and for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the Consolidated Financial Statements
and Notes included in the Company's April 30, 1994 Annual Report to
Stockholders on Form 10-K as filed with the Securities and Exchange
Commission ("1994 Form 10-K").
The results of operations for the 13 and 39 week periods ended January 28,
1995 and January 29, 1994, respectively, are not necessarily indicative of
the results for the full year.
2. INCOME TAXES
The effective income tax rate is based on estimates of annual amounts of
taxable income and other factors. These estimates are updated periodically
and any increase or decrease in the provision for income taxes is reflected
in the period in which the estimate is changed.
3. INVENTORIES
Inventories consist of the following:
January 28, 1995 April 30, 1994
---------------- --------------
Raw material and supplies $ 19,111 $ 11,714
Work in progress 8,980 7,091
Finished goods 12,945 12,985
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$ 41,036 $ 31,790
============= ==============
4. CONVERSION OF DEBENTURES INTO COMMON STOCK
On September 30, 1994, the holders of the Company's 9.5% Convertible
Subordinated Debentures (the "Debentures") totalling $17.5 million
converted such Debentures at $13.00 per share into approximately 1.35
million shares of common stock. Annual interest expense related to
these Debentures was approximately $1.66 million.
7
8
SHOREWOOD PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS
CIGNA Corporation and its affiliates ("CIGNA"), was the holder of $15.0
million of the Company's Debentures, which upon conversion represented
1.15 million shares of common stock. Accordingly, CIGNA has been
considered a beneficial owner of more than 5% of the outstanding stock
of the Company for all of the periods presented. Amounts paid to CIGNA
for interest and insurance costs for the 13 and 39 week periods ended
January 28, 1995 were none and $632, respectively, as compared to $741
and $2,570, respectively, for the prior comparable periods.
In addition, in connection with the financing of the acquisition of the
Premium Group in January, 1994, the Company prepaid $16.9 million of
Senior Notes due to CIGNA, and incurred a pre-tax prepayment penalty to
CIGNA of $2.3 million. This penalty is included in the financial
statements as a part of the total extraordinary item of approximately
$3.1 million (after income tax benefit of $1.9 million) included in the
prior year financial statements.
6. SETTLEMENT OF LAWSUIT
In November, 1994, the Company announced that it had accepted a cash
settlement offer of $1.5 million related to a lawsuit, commenced in
January, 1990 against a general contractor with respect to damages
arising out of the construction work performed at the Company's facility
in LaGrange, Georgia. In addition, the contractor's counterclaim for
approximately $0.3 million, representing the final payment due from the
Company, was dismissed as part of the settlement. Included in the
current year fiscal periods is a $787 gain on this lawsuit settlement
which is classified in selling and administrative expenses.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
39 WEEKS 39 WEEKS
ENDED ENDED
JANUARY 28, JANUARY 29,
1995 1994
----------- -----------
Interest paid,
net of capitalized amounts $ 6,942 $ 5,840
Income taxes paid $ 9,860 $ 4,044
In September, 1994, 100% of the Company's Convertible Subordinated Notes
totalling $17.5 million were converted at $13.00 per share into
approximately 1.35 million shares of common stock.
The Company has completed its determination of the allocation of the
purchase price with respect to the acquisitions of the Premium Group and
Heminway. The result was to increase other assets by $12,460, increase
accrued expenses by $3,350 and reduce property, plant and equipment by
$9,110.
8
9
SHOREWOOD PACKAGING CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
OVERVIEW
Effective January 1, 1994, the Company acquired certain operating assets of the
Premium Packaging Group of Cascade Paperboard International, Inc. (the "Premium
Group"), and on January 17, 1994, the Company purchased the operating assets of
Heminway Packaging Corporation ("Heminway") (collectively "the Acquired
Companies"). The Premium Group manufactures and provides folding cartons to the
tobacco, cosmetics and toiletries and general consumer industries while Heminway
manufactures and provides rigid set-up boxes principally to the cosmetics
industry. These acquisitions were recorded using the purchase method of
accounting. Accordingly, the operating results related to the Acquired Companies
were included in the Company's results of operations for the periods subsequent
to each respective acquisition date.
RESULTS OF OPERATIONS
Net sales for the 13 and 39 week periods ended January 28, 1995 were $85.7
million and $267.5 million, increases of 63.4% and 92.6%, respectively, as
compared to net sales of $52.4 million and $138.9 million for the corresponding
prior periods. Included in the current 13 and 39 week fiscal periods are sales
of approximately $42.3 million and $128.7 million, respectively, produced by
facilities of the Acquired Companies as compared with sales of approximately
$11.0 million for the prior year fiscal periods.
Cost of sales as a percentage of sales for the quarter ended January 28, 1995
was 77.2%, consistent with other fiscal quarters during the current fiscal year,
while for the year-to-date period, the cost of sales percentage was 77.0%. Cost
of sales as a percentage of sales for the corresponding prior year periods were
80.9% and 77.7%, respectively. The prior year results include the impact
associated with the fair valuation of the assets acquired through the purchase
of the Acquired Companies. Specifically, the results for the prior fiscal
periods included approximately $0.8 million of non-recurring expense related to
the fair value of inventories at the acquisition date. Cost of sales as a
percentage of sales excluding this expense would have been 79.3% and 77.1% for
the 13 and 39 week periods ended January 29, 1994.
Selling, general and administrative expenses for the current fiscal periods
increased as compared with the prior year fiscal periods primarily due to the
inclusion of the applicable expenses related to the Acquired Companies. These
costs represented 10.7% and 10.0% of net sales, respectively, for the current 13
and 39 week periods as compared with 11.7% and 11.5% for the comparable fiscal
periods a year ago.
The prior year operating results include, in connection with the closing of the
Farmingdale, New York facility and the restructuring of the Company's operations
relating thereto, a restructuring charge before provision for income taxes
amounting to $3.4 million. Included in this charge were amounts provided for the
termination of leases, disposal of equipment, severance payments and other
related restructuring items. The impact on net earnings related to the
restructuring charge was a loss of approximately $2.1 million or ($.12) per
share.
9
10
Interest expense during the current fiscal periods increased compared with a
year ago primarily as a result of the additional borrowings required to finance
the purchase of the Acquired Companies. On September 30, 1994, the holders of
the Company's Debentures totalling $17.5 million converted such Debentures into
approximately 1.35 million shares of common stock. Annual interest expense
related to these Debentures was approximately $1.66 million.
The effective income tax rates were 37.3% and 37.8% for the current fiscal
periods as compared to 38.3% and 40.3%, respectively, for the 13 and 39 week
periods ended January 29, 1994. The prior year 39 week period included an
additional tax expense of approximately $0.2 million related to tax changes
enacted into law under the Omnibus Budget Reconciliation Act of 1993. The
effective income tax rate for the year ended April 30, 1994 was 40.6%. These
rates reflect a blend of domestic and foreign taxes.
Reflected in the prior year fiscal periods, in connection with the purchase of
the Acquired Companies, the Company prepaid $31.9 million of Senior Notes and
incurred prepayment penalties of approximately $4.5 million. In addition,
unamortized deferred debt costs of $0.5 million related to the prepaid Notes
were written off. The total expenses of $5.0 million related to the early
extinguishment of debt (after related tax benefit of $1.9 million) have been
classified as an extraordinary item.
IMPACT OF INFLATION
The Company from time to time experiences increases in the costs of materials
and labor, as well as in other manufacturing and operating expenses. The
Company's ability, consistent with that of its competitors, to pass on such
increased costs through increased prices has been affected differently at
various times.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at January 28, 1995 totaled approximately $2.1 million
and working capital at this date was $32.6 million as compared to $31.4 million
at the end of fiscal 1994. The current ratio was 1.6 to 1 at January 28, 1995
compared to 1.7 to 1 at the end of fiscal 1994, while the quick ratio was 0.8 to
1 compared with 0.9 at the end of fiscal year 1994.
Net capital expenditures, primarily for manufacturing equipment, for the 26 week
period ended January 28, 1995 were approximately $9.1 million which included
costs associated with the completion of previously approved projects from fiscal
1994. The Senior Term Note and long-term revolver agreements, as amended, limit
capital expenditures by the Company to $15.0 million during fiscal 1995. The
Company's long-term debt to stockholders' equity ratio at January 28, 1995 was
1.6 to 1.
At January 28, 1995, the Company had machinery and equipment with a net carrying
value of approximately $1.8 million which is not currently in use.
The purchase agreements relating to the acquisition of the Acquired Companies
indemnify the Company from all costs and expenses relating to environmental
matters which existed at the acquired facilities on or prior to the respective
closing dates. Accordingly, the Company has not accrued any liability relating
to any environmental matter with respect to the Acquired Companies.
10
11
The Company has a $50 million five-year revolving credit facility for its
working capital requirements. However, borrowings under this facility are
limited to the sum of 80% of accounts receivable and 50% of inventories. At
January 28, 1995, the Company had borrowings under this facility of $9 million.
At January 28, 1995, the Company had outstanding intermediate term interest rate
swap agreements relating to approximately $33 million of its Senior Term Notes.
Under the agreement, the Company pays a fixed rate of 6.45% and receives a
floating rate based on LIBOR, as determined in one-month intervals. The
transaction effectively changes a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis. In addition, the Company
has an intermediate term interest rate cap agreement relating to approximately
$17 million of its Senior Term Notes. This agreement caps the floating rate
percentage, based upon one-month LIBOR, at 8.5%.
The Company's loan agreement has covenants covering, among other things, minimum
levels of net worth and cash flow. In addition, the Company's loan agreement
restricts the amount of retained earnings available for payment of dividends
(other than in the Company's own stock) and purchase and redemption of its own
stock. At January 28, 1995, retained earnings free from restrictions under the
loan agreement was approximately $1.2 million.
The Company expects that cash flow from operations together with the borrowing
capacity under the revolving credit facility will be sufficient to meet the
needs of the business in the foreseeable future.
11
12
SHOREWOOD PACKAGING CORPORATION
AND SUBSIDIARIES
PART II OTHER INFORMATION
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ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's Form
10-K/A for the fiscal year ended April 30, 1994
for a description of litigation in which the
Company is a party.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
12
13
SIGNATURES
Pursuant to the regulations 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.
SHOREWOOD PACKAGING CORPORATION
(Registrant)
By:
/s/ Howard M. Liebman
-------------------------------
Howard M. Liebman
Executive Vice President and
Chief Financial Officer
DATED: March 14, 1994
14
EXHIBIT INDEX
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Exhibit
No. Description
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27 Financial Data Schedule