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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-23340
ROCK-TENN COMPANY
(Exact name of registrant as specified in its charter)
Georgia 62-0342590
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
504 Thrasher Street, Norcross, Georgia 30071
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 448-2193
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N/A
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(Former name or former address, if changed since last report.)
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 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
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of May 5, 1998
- ----------------------------------- -----------------------------
Class A Common Stock, .01 par value 23,067,876
Class B Common Stock, .01 par value 11,700,732
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ROCK-TENN COMPANY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations for the three months and
six months ended March 31, 1998 and 1997 1
Condensed Consolidated Balance Sheets
at March 31, 1998 and
September 30, 1997 2
Condensed Consolidated Statements of
Cash Flows for the six months
ended March 31, 1998 and 1997 3
Notes to Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Index to Exhibits 14
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
Net sales $ 327,854 $ 275,397 $ 644,329 $ 483,715
Cost of goods sold 243,161 209,653 477,795 364,378
--------- --------- --------- ---------
Gross profit 84,693 65,744 166,534 119,337
Selling, general and
administrative expenses 56,741 48,889 112,976 88,400
Plant closure and other costs -- 12,784 -- 12,784
--------- --------- --------- ---------
Income from operations 27,952 4,071 53,558 18,153
Interest income 80 111 178 607
Interest expense (8,874) (6,804) (17,874) (9,246)
Minority interest in income
of consolidated subsidiary (1,430) -- (2,395) --
--------- --------- --------- ---------
Income (loss) before income taxes 17,728 (2,622) 33,467 9,514
Provision for income taxes 7,942 4,569 15,004 9,306
--------- --------- --------- ---------
Net income (loss) $ 9,786 $ (7,191) $ 18,463 $ 208
========= ========= ========= =========
Weighted average number of
common and common
equivalent shares outstanding 35,208 33,266 35,210 34,114
========= ========= ========= =========
Basic earnings (loss) per share $ .28 $ (.22) $ .54 $ .01
========= ========= ========= =========
Diluted earnings (loss) per share $ .28 $ (.22) $ .52 $ .01
========= ========= ========= =========
Cash dividends per common share $ .075 $ .075 $ .15 $ .15
========= ========= ========= =========
See accompanying notes
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ROCK-TENN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, September 30,
1998 1997
- ------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,998 $ 3,345
Accounts receivable (net of allowance for
doubtful accounts of $3,357 and $3,632) 112,740 115,162
Inventories 97,712 94,035
Other current assets 6,562 5,073
----------- -----------
TOTAL CURRENT ASSETS 222,012 217,615
Property, plant and equipment at cost:
Land and buildings 169,758 163,528
Machinery and equipment 722,202 696,039
Leasehold improvements 4,180 13,636
Transportation equipment 14,548 4,117
----------- -----------
910,688 877,320
Less accumulated depreciation
and amortization (352,302) (326,146)
----------- -----------
Net property, plant and equipment 558,386 551,174
Goodwill 320,847 325,697
Other assets 17,347 19,200
----------- -----------
$ 1,118,592 $ 1,113,686
=========== ===========
- ------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 48,712 $ 54,471
Accrued compensation and benefits 33,052 34,500
Current maturities of long-term debt 54,460 41,282
Other current liabilities 18,722 21,892
----------- -----------
TOTAL CURRENT LIABILITIES 154,946 152,145
Long-term debt due after one year 480,260 492,340
Deferred income taxes 80,464 78,288
Other liabilities 5,766 6,296
Commitments and contingencies
Minority interest 12,013 13,405
Shareholders' equity:
Preferred stock, $.01 par value;
50,000,000 shares authorized; no
shares outstanding at March 31,
1998 and September 30, 1997 -- --
Class A common stock, $.01 par value;
175,000,000 shares authorized,
22,999,937 outstanding at March
31, 1998 and 22,582,976 outstanding at
September 30, 1997; Class B common
stock, $.01 par value; 60,000,000 shares
authorized; 11,700,732 outstanding
at March 31, 1998 and 11,791,350
outstanding at September 30, 1997 347 344
Capital in excess of par value 128,565 126,363
Retained earnings 258,674 245,592
Other (2,443) (1,087)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 385,143 371,212
----------- -----------
$ 1,118,592 $ 1,113,686
=========== ===========
See accompanying notes
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ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
March 31, March 31,
1998 1997
- ------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 18,463 $ 208
Items in income not affecting cash:
Depreciation and amortization 34,971 27,540
Plant closure and other costs -- 12,784
Deferred income taxes 2,176 5,017
Gain on sale of property, plant
and equipment (435) (229)
Minority interest in income of
consolidated subsidiary 2,394 --
Change in operating assets and
liabilities (excluding acquisition):
Accounts receivable 2,231 6,718
Inventories (3,872) (1,152)
Other assets (4,782) (7,340)
Accounts payable (5,681) (1,406)
Accrued liabilities (2,494) (14,683)
Income taxes payable -- (17)
Other 116 (484)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 43,087 26,956
FINANCING ACTIVITIES:
Net additions to revolving credit facilities 9,000 388,853
Additions to long-term debt -- 1,500
Repayment of long-term debt (7,897) (144,954)
Sales of common stock 1,993 2,254
Cash dividends paid to shareholders (5,167) (4,990)
Cash dividends paid to minority interest (3,850) --
--------- ---------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (5,921) 242,663
INVESTING ACTIVITIES:
Cash paid for purchase of business -- (267,152)
Capital expenditures (37,232) (45,590)
Proceeds from sale of property,
plant and equipment 1,100 851
Cash paid for intangibles -- (1,397)
Decrease in unexpended industrial
revenue bond proceeds 610 --
--------- ---------
CASH USED FOR INVESTING ACTIVITIES (35,522) (313,288)
Effect of exchange rate changes on cash 9 4
Increase (decrease) in cash and cash equivalents 1,653 (43,665)
Cash and cash equivalents at beginning of period 3,345 50,876
--------- ---------
Cash and cash equivalents at end of period $ 4,998 $ 7,211
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Income taxes 13,098 $ 12,328
Interest (net of amounts capitalized) 18,965 9,059
Supplemental disclosure of noncash investing
and financing activities:
Indebtedness assumed in connection
with acquisition -- 143,706
See accompanying notes
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements of Rock-Tenn
Company and its subsidiaries (the "Company") have not been audited by
independent auditors. The condensed consolidated balance sheet at September 30,
1997 has been derived from the audited consolidated financial statements. In the
opinion of the Company's management, the condensed consolidated financial
statements reflect all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of the results of operations for the
three-month and six-month periods ended March 31, 1998 and 1997, the Company's
financial position at March 31, 1998 and September 30, 1997, and the cash flows
for the six-month periods ended March 31, 1998 and 1997.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1997.
The results for the three months and six months ended March 31, 1998 are not
necessarily indicative of results that may be expected for the full year.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
NOTE 2. ACCOUNTING POLICIES
The Company uses interest cap agreements to synthetically manage the interest
rate characteristics of a portion of its outstanding debt and to partially limit
the Company's exposure to rising interest rates. Interest rate differentials to
be received as a result of interest rate cap agreements are accrued and
recognized as an adjustment of interest expense related to the designated debt.
Interest rate cap purchase expenses are amortized to interest expense ratably
during the life of the agreement.
The Company uses swap agreements to synthetically manage the selling prices of
certain of its board and to limit the Company's exposure to falling board
prices. Board price differentials to be paid or received as a result of the
board swap agreements are recognized as an adjustment to sales in the period in
which the sale is made.
NOTE 3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results will differ from those estimates and the differences could be
material.
NOTE 4. INVENTORIES
Substantially all U.S. inventories are stated at the lower of cost or market,
with cost determined on the last-in, first-out (LIFO) basis. An actual valuation
of inventory under the LIFO method can only be made at the end of each year
based on the inventory levels and costs at that time. Accordingly, interim LIFO
estimates must necessarily be based on management's projection of expected
year-end inventory levels and costs. Because these are subject to many factors
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation.
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Inventories at March 31, 1998 and September 30, 1997 were as follows (in
thousands):
March 31, September 30,
1998 1997
---------- -------------
(Unaudited)
Finished goods and work in process $ 70,899 $ 64,933
Raw materials 36,760 37,474
Supplies 12,543 12,318
--------- ---------
Inventories at first-in, first-out (FIFO) cost 120,202 114,725
LIFO reserve (22,490) (20,690)
--------- ---------
Net inventories $ 97,712 $ 94,035
========= =========
NOTE 5. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128 ("SFAS 128") establishes
accounting standards for computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock. The Company
adopted SFAS 128 effective October 1, 1997. This adoption did not have a
material impact on the Company's consolidated financial statements.
In October 1996, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 96-1 ("SOP 96-1"). SOP 96-1 provides accounting
guidance on issues relating to the recognition, measurement and disclosure of
environmental liabilities. The Company adopted SOP 96-1 effective October 1,
1997. This adoption did not have a material impact on the Company's consolidated
financial statements.
NOTE 6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
Numerator:
Net income $ 9,876 $ (7,191) $ 18,463 $ 208
Denominator:
Denominator for basic earnings
per share-weighted
average shares 34,524 33,266 34,469 33,218
Effect of dilutive stock options 684 -- 741 896
-------- -------- -------- --------
Denominator for diluted earnings
per share - weighted average
shares and assumed conversions 35,208 33,266 35,210 34,114
======== ======== ======== ========
Basic earnings (loss) per share $ .28 $ (.22) $ .54 $ .01
======== ======== ======== ========
Diluted earnings (loss) per share $ .28 $ (.22) $ .52 $ .01
======== ======== ======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto, included herein,
and the Company's audited consolidated financial statements and notes thereto
for the fiscal year ended September 30, 1997 which have been filed with the
Securities and Exchange Commission as part of the Company's Annual Report on
Form 10-K for the year ended September 30, 1997.
GENERAL
On January 21, 1997, the Company acquired all of the outstanding capital stock
of the parent of Waldorf Corporation ("Waldorf"), a manufacturer of folding
cartons and 100% recycled paperboard and a manufacturer of 100% recycled
corrugating medium (the "Waldorf Acquisition"). On June 9, 1997, the Company
acquired substantially all of the assets of Rite Paper Products, Inc., a
manufacturer of laminated paperboard components primarily for the
ready-to-assemble furniture industry. On July 9, 1997, the Company acquired
substantially all of the assets and certain of the liabilities of The Davey
Company, a manufacturer of recycled paperboard used by the book manufacturing
industry for book covers. On September 5, 1997, the Company and Sonoco Products
Company combined their respective fiber partition businesses into a new entity
named RTS Packaging, LLC ("RTS") which is owned 65% by the Company.
SEGMENT INFORMATION
The Company operates principally in two industry segments: converted products
and paperboard. The converted products segment is comprised of facilities that
produce folding cartons, fiber partitions, corrugated containers, corrugated
displays, thermoformed plastic products and laminated paperboard products. The
paperboard segment consists of facilities that manufacture 100% recycled
clay-coated and uncoated paperboard and corrugating medium and that collect
recovered paper.
ROCK-TENN COMPANY
INDUSTRY SEGMENT INFORMATION
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR TONNAGE DATA)
=========================================================================================
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------
NET SALES:
Converted Products $ 267,999 $ 231,520 $ 528,587 $ 415,957
Paperboard 118,686 100,396 240,054 166,942
Intersegment Eliminations (58,831) (56,519) (124,312) (99,184)
- -----------------------------------------------------------------------------------------
TOTAL $ 327,854 $ 275,397 $ 644,329 $ 483,715
- -----------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES:
Converted Products $ 11,860 $ (4,580) $ 21,440 $ 359
Paperboard 18,298 12,187 36,302 23,191
Corporate Expense (2,206) (2,706) (4,184) (4,567)
Intersegment Eliminations -- (830) -- (830)
Interest Expense (8,874) (6,804) (17,874) (9,246)
Interest Income 80 111 178 607
Minority Interest in Income of
Consolidated Subsidiary (1,430) -- (2,395) --
- -----------------------------------------------------------------------------------------
TOTAL $ 17,728 $ (2,622) $ 33,467 $ 9,514
=========================================================================================
PAPERBOARD SHIPPED (IN TONS) 281,843 246,387 568,831 406,692
=========================================================================================
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RESULTS OF OPERATIONS
Net Sales (Unaffiliated Customers). Net sales for the quarter ended March 31,
1998 increased 19.1% to $327.9 million from $275.4 million for the quarter ended
March 31, 1997. Net sales for the six months ended March 31, 1998 increased
33.2% to $644.3 million from $483.7 million for the six months ended March 31,
1997. Net sales increased for the quarter and for the six months ended March 31,
1998 primarily as a result of the acquisitions discussed in the General section
above and as a result of volume and selling price increases.
Net Sales (Aggregate) - Converted Products Segment. Net sales of converted
products before intersegment eliminations for the quarter ended March 31, 1998
increased 15.8% to $268.0 million from $231.5 million for the quarter ended
March 31, 1997. Net sales of converted products before intersegment eliminations
for the six months ended March 31, 1998 increased 27.1% to $528.6 from $416.0
for the six months ended March 31, 1997. The increase for the quarter and for
the six months ended March 31, 1998 was primarily the result of the acquisitions
discussed in the General section above and as a result of volume and selling
price increases.
Net Sales (Aggregate) - Paperboard Segment. Net sales of paperboard before
intersegment eliminations for the quarter ended March 31, 1998 increased 18.2%
to $118.7 million from $100.4 million for the quarter ended March 31, 1997. Net
sales of paperboard before intersegment eliminations for the six months ended
March 31, 1998 increased 43.9% to $240.1 million from $166.9 million for the six
months ended March 31, 1997. The increase for the quarter and the six months
ended March 31, 1998 was primarily the result of the Waldorf Acquisition on
January 21, 1997 and as a result of volume and selling price increases.
Cost of Goods Sold. Cost of goods sold for the quarter ended March 31, 1998
increased 16.0% to $243.2 million from $209.7 million for the quarter ended
March 31, 1997. Cost of goods sold as a percentage of net sales for the quarter
ended March 31, 1998 decreased to 74.2% from 76.1% for the quarter ended March
31, 1997. Cost of goods sold for the six months ended March 31, 1998 increased
31.1% to $477.8 million from $364.4 million for the six months ended March 31,
1997. Cost of goods sold as a percentage of net sales for the six months ended
March 31, 1998 decreased to 74.2% from 75.3% for the six months ended March 31,
1997. The average cost of recovered paper, the Company's primary raw material,
increased to $68 per ton for the quarter ended March 31, 1998 compared to $57
per ton for the quarter ended March 31, 1997 and increased to $69 per ton for
the six months ended March 31, 1998 compared to $54 for the six months ended
March 31, 1997. These higher raw material costs were more than offset by higher
selling prices and production efficiencies from increased volumes. As a result
cost of goods sold as a percentage of net sales decreased for the quarter and
six month periods ending March 31, 1998 compared to the same periods last year.
Substantially all U.S. inventories of the Company are valued at the lower of
cost or market with cost determined on the last-in, first-out (LIFO) inventory
valuation method, which management believes generally results in a better
matching of current costs and revenues than under the first-in, first-out (FIFO)
inventory valuation method. In periods of increasing costs, the LIFO method
generally results in higher cost of goods sold than under the FIFO method. In
periods of decreasing costs, the results are generally the opposite. The
Company's quarterly results of operations reflect LIFO estimates based on
management's projection of expected year-end inventory levels and costs. Because
these estimates are subject to many factors beyond management's control, interim
results are subject to the final year-end LIFO inventory valuation.
Since some of the Company's competitors principally use the FIFO method, the
following supplemental data is presented to illustrate the comparative effect of
LIFO and FIFO accounting on the Company's results of operations. Cost of goods
sold determined under the LIFO method was $0.8 million higher and $0.4 million
higher than it would have been under the FIFO method in the quarter ended March
31, 1998 and 1997, respectively. Cost of goods sold determined under the LIFO
method was $1.8 million higher than it would have been and the same as it would
have been under the FIFO method for the six months ended March 31, 1998 and
1997, respectively. Net income was $0.5 million lower and $0.2 million lower
than it would have been under the FIFO method in the quarter ended March 31,
1998 and 1997, respectively. Net income was $1.1 million lower than it would
have been and the same as it would have been under the FIFO method for the six
months ended March 31, 1998 and 1997, respectively. These supplemental FIFO
earnings reflect the after tax effect of LIFO each year.
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Gross Profit. Gross profit for the quarter ended March 31, 1998 increased 28.9%
to $84.7 million from $65.7 million for the quarter ended March 31, 1997. Gross
profit for the six months ended March 31, 1998 increased 39.6% to $166.5 million
from $119.3 for the six months ended March 31, 1997. Gross profit as a
percentage of net sales increased to 25.8% for the quarter ended March 31, 1998
from 23.9% for the quarter ended March 31, 1997. Gross profit as a percentage of
net sales increased to 25.8% for the six months ended March 31, 1998 from 24.7%
for the six months ended March 31, 1997. Gross profit as a percentage of net
sales increased for the quarter and six months ended March 31, 1998 compared to
the same periods last year as a result of the decreases in cost of goods sold as
a percentage of net sales discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended March 31, 1998 increased 16.0% to
$56.7 million from $48.9 million for the quarter ended March 31, 1997. Selling,
general and administrative expenses for the six months ended March 31, 1998
increased 27.8% to $113.0 million from $88.4 million for the six months ended
March 31, 1997. Selling, general and administrative expenses as a percentage of
net sales for the quarter ended March 31, 1998 decreased to 17.3% from 17.8% for
the quarter ended March 31, 1997. Selling, general and administrative expenses
as a percentage of net sales for the six months ended March 31, 1998 decreased
to 17.5% from 18.3% for the six months ended March 31, 1997. The decrease in
these expenses as a percentage of net sales for the quarter and six months ended
March 31, 1998 compared to the same periods last year are a result of selling
price increases and volume growth which did not require a corresponding increase
in selling, general and administrative expenses.
Plant Closure and Other Costs. In connection with the Waldorf Acquisition the
Company began a review of the combined operations of Rock-Tenn and Waldorf in
order to most efficiently serve its markets, eliminate geographic overlaps and
coordinate production. In connection with this review, in the second quarter of
fiscal 1997, management decided to close the Company's existing folding carton
plant at Mundelein, Illinois. The Mundelein facility was acquired in 1995 in
connection with the acquisition of Olympic Packaging. In connection with this
planned closure (which was announced to employees and customers in April 1997)
and considering the impact of the Waldorf Acquisition, the Company charged to
earnings, in the quarter ended March 31, 1997, $12.8 million consisting
primarily of the non-cash write-off of goodwill associated with the Company's
Olympic Packaging subsidiary. The write-off of goodwill was required based upon
the determination that such goodwill would not be recoverable.
Segment Operating Income (Loss).
Operating Income (Loss) - Converted Products Segment. Excluding the $12.8
million non-cash write-off during the quarter ended March 31, 1997 of goodwill
associated with the Company's Olympic Packaging subsidiary, ("the 1997 Olympic
Charge") operating income attributable to the converted products segment for the
quarter ended March 31, 1998 increased 45.1% to $11.9 million from $8.2 million
for the quarter ended March 31, 1997. Excluding the 1997 Olympic Charge,
operating income attributable to the converted products segment for the six
months ended March 31, 1998 increased 63.4% to $21.4 million from $13.1 million
for the six months ended March 31, 1997. Excluding the 1997 Olympic Charge,
operating margin for the quarter ended March 31, 1998 was 4.4% compared to 3.5%
for the quarter ended March 31, 1997. Excluding the 1997 Olympic Charge,
operating margin for the six months ended March 31, 1998 was 4.0% compared to
3.1% for the six months ended March 31, 1998. The converted products segment
results for the quarter and six month period ended March 31, 1998 include the
results for the acquisitions and RTS as discussed in the General section. In
fiscal 1997, these acquisitions and RTS are only included after the acquisition
or formation dates outlined in the General section. In addition, the converted
products segment results include 100% of the earnings of RTS with minority
interests in RTS eliminated in another line of the Industry Segment Information
Table. These factors contributed to the higher levels of segment operating
income. Operating margins in this segment increased in the fiscal 1998 periods
compared to the fiscal 1997 periods as a result of generally higher selling
prices and higher volumes. The increases in operating income and operating
margins for the fiscal 1998 periods were reduced by decreases in volume and
certain operating inefficiencies within the former Waldorf folding carton
operations.
Operating Income - Paperboard Segment. Operating income attributable to the
paperboard segment for the quarter ended March 31, 1998 increased 50% to $18.3
million from $12.2 million for the quarter ended March 31, 1997. Operating
margin for the quarter ended March 31, 1998 was 15.4% compared to 12.2% for the
quarter ended March 31, 1997. Operating income attributable to the paperboard
segment for the six months ended March 31, 1998 increased 56.5% to $36.3 million
from $23.2 million for the six months ended March 31, 1997. Operating margin for
the six months ended March 31, 1998 was 15.1% compared to 13.9% for the same
period in the prior year. The
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Company's weighted average cost per ton of paper recovered during the quarter
ended March 31, 1998 increased to $68 per ton compared to $57 per ton during the
quarter ended March 31, 1997 and increased to $69 per ton for the six months
ended March 31, 1998 compared to $54 for the six months ended March 31, 1997.
Tons of paperboard shipped increased to 280,000 for the quarter ended March 31,
1998 from 246,000 for the quarter ended March 31, 1997. Tons of paperboard
shipped increased to 567,000 tons for the six months ended March 31, 1998
compared to 407,000 tons for the same period in the prior year. Average
paperboard selling prices increased to $409 per ton for the quarter ended March
31, 1998 from $384 per ton for the quarter ended March 31, 1997. Average
paperboard selling prices increased to $407 per ton for the six months ended
March 31, 1998 compared to $386 for the same period in the prior year. The
increase in volume of paperboard shipped is primarily the result of the Waldorf
Acquisition. Operating margins increased primarily due to higher average selling
price increases than the increases in the average cost of recovered paper. This
operating margin increase was largest in the recycled medium grade of
paperboard.
Interest Expense. Interest expense for the quarter ended March 31, 1998
increased to $8.9 million from $6.8 million for the quarter ended March 31,
1997. Interest expense for the six months ended March 31, 1998 increased to
$17.9 million from $9.2 million for the six months ended March 31, 1997. The
increase in interest expense for the quarter and the six months ended March 31,
1998 was primarily due to an increase in the average outstanding borrowings
during such periods resulting from the Waldorf Acquisition.
Provision for Income Taxes. Provision for income taxes increased to $7.9 million
for the quarter ended March 31, 1998 from $4.6 million for the quarter ended
March 31, 1997. Provision for income taxes for the six months ended March 31,
1998 increased to $15.0 million from $9.3 million for the six months ended March
31, 1997. Excluding the effect of the 1997 Olympic charge, which is not
deductible for income tax purposes, the Company's effective tax rate increased
to 44.8% for the six months ended March 31, 1998 compared to 41.7% for the six
months ended March 31, 1997. This increase in the effective tax rate was
primarily due to the effect of amortization of goodwill associated with the
Waldorf Acquisition that is not deductible for income tax purposes.
Net Income (Loss) and Earnings (Loss) Per Common and Common Equivalent Share.
Net income (loss) for the quarter ended March 31, 1998 increased 236.1% to $9.8
million from a loss of $7.2 million for the quarter ended March 31, 1997. Net
income for the six months ended March 31, 1998 increased to $18.5 million from
$0.2 million for the six months ended March 31, 1997. Net income (loss) as a
percentage of net sales increased to 3.0% for the quarter ended March 31, 1998
from (2.6)% for the quarter ended March 31, 1997. Net income as a percentage of
net sales increased to 2.9% for the six months ended March 31, 1998 from less
than 1% for the six months ended March 31, 1997. Earnings (loss) per common and
common equivalent share for the quarter ended March 31, 1998 increased to $.28
from $(.22) for the quarter ended March 31, 1997. Earnings per common and common
equivalent share for the six months ended March 31, 1998 increased to $.52 from
$.01 for the six months ended March 31, 1997.
Liquidity and Capital Resources
The Company has funded its working capital requirements and capital expenditures
(including acquisitions) from net cash provided by operating activities,
borrowings under term notes and bank credit facilities and proceeds received in
connection with the issuance of industrial revenue bonds and debt and equity
securities. In 1997, the Company entered into a new credit facility under which
it has aggregate borrowing availability of $450.0 million, which replaced the
Company's then existing revolving credit facilities, under which it had
aggregate borrowing availability of $100.0 million. At March 31, 1998, the
Company had $395.0 million outstanding under its new revolving credit facility.
Cash and cash equivalents, $5.0 million at March 31, 1998, increased from $3.3
million at September 30, 1996.
Net cash provided by operating activities for the six months ended March 31,
1998 was $43.1 million compared to $27.0 million for the six months ended March
31, 1997. This increase was primarily the result of increased earnings before
depreciation and amortization and a decrease in net operating asset
requirements. Net cash used for financing activities aggregated $5.9 million for
the six months ended March 31, 1998 and consisted primarily of borrowings under
the Company's $450.0 million revolving credit facility, net of scheduled
repayments of long-term debt and dividend payments. Net cash provided by
financing activities aggregated $242.7 million for the six months ended March
31, 1997 and consisted primarily of borrowings under the revolving credit
facilities less repayments of certain acquired indebtedness of Waldorf and
dividend payments. Net cash used for investing activities was $35.5 million for
the six months ended March 31, 1998 compared to $313.3 million for the quarter
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ended March 31, 1997 and consisted primarily of capital expenditures for the six
months ended March 31, 1997 and cash paid for the Waldorf Acquisition and
capital expenditures for the six months ended March 31, 1997.
The Company estimates that its capital expenditures will aggregate approximately
$35 million for the remainder of fiscal 1998. These expenditures will be used
primarily for the purchase and upgrading of certain machinery and equipment in
essentially all of the Company's divisions, warehouse expansions and facility
relocations in two of the Company's division.
The Company historically has expanded its business through the acquisition of
other related businesses. The recycled paperboard and converted paperboard
products industries have undergone significant consolidation in recent years,
and the Company believes it will be able to capitalize on this trend in the
future.
The Company, however, is currently in the process of integrating the operations
it acquired during fiscal 1997 into the Company's other operations and
rationalizing the operations contributed to RTS Packaging. Consequently,
although the Company cannot predict the extent to which it will pursue future
acquisitions, the Company currently expects that it will be less likely to
pursue additional acquisitions in the near term.
The Board of Directors has authorized the Company to repurchase from time to
time prior to July 31, 1998 up to 1.5 million shares of Class A common stock in
open market transactions on the New York Stock Exchange. In addition, the Board
has authorized the Company to repurchase from time to time shares of Class B
common stock pursuant to certain first offer rights contained in the Company's
Restated and Amended Articles of Incorporation, provided that the aggregate
number of shares of Class A and Class B common stock purchased under these
programs may not exceed 1.5 million shares. During the first six months of
fiscal 1998, the Company did not repurchase any shares of Class A or Class B
common stock. As of March 31, 1998, an aggregate of 716,500 shares had been
repurchased under these programs.
The Company anticipates that it will be able to fund its capital expenditures,
acquisitions, interest expense, stock repurchases, dividends and working capital
needs for the foreseeable future from cash generated from operations, borrowings
under its revolving credit facility, proceeds from the issuance of debt or
equity securities or other additional long-term debt financing.
The Company is utilizing both internal and external resources to evaluate the
potential impact of the situation commonly referred to as the "Year 2000
problem." The Year 2000 problem, which is common to most businesses, concerns
the inability of computer systems and devices to properly recognize and process
date-sensitive information when the year changes to 2000. The Company currently
believes it will be able to modify, upgrade or replace its affected systems and
devices in time to minimize any detrimental effects on operations. While it is
not possible at present to give an accurate estimate of the cost of this work,
the company expects that such costs may be material to the Company's results of
operations in one or more fiscal quarters or years, but will not have a material
adverse impact on the long-term results of operations, liquidity or financial
position of the Company.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on Thursday, January 22, 1998 at
which several matters were submitted to a vote of the shareholders:
(a) Votes cast for or withheld regarding the four individuals elected as
directors of the Company for a term expiring in 2001 and the one
individual elected as director of the Company for a term expiring in
1999 were as follows (there were no abstentions or broker non-votes):
For Withheld
----------- --------
Stephen G. Anderson 113,804,124 93,232
Robert B. Currey 113,806,434 90,922
John W. Spiegel 113,806,434 90,922
L.L. Gellerstedt, III 113,806,434 90,922
A.D. Fraizer, Jr. 113,805,317 92,039
Additional directors, whose terms of office as directors continued
after the meeting, are as follows:
Term expiring in 1999 Term expiring in 2000
--------------------- ---------------------
Bradley Currey, Jr. J. Hyatt Brown
Mary Louise Morris Brown Eugene U. Frey
John D. Hopkins C. Randolph Sexton
James W. Johnson Jay Shuster
(b) Votes cast for or against and the number of abstentions regarding each
other matter voted upon at the meeting were as follows:
Broker
Description of Matter For Against Abstain Non-Votes
----------- --------- ------- ---------
Ratification of the
appointment of Ernst &
Young LLP as independent
auditors of the Company
to serve for the 1998 fiscal year 112,664,569 1,204,562 28,225 --
Approval of Amended and
Restated Stock Purchase Plan 111,504,018 2,232,823 160,515 --
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
27.1 Financial Data Schedule (For SEC use only) - September 30, 1995 (restated
in accordance with SFAS 128)
27.2 Financial Data Schedule (For SEC use only) - December 31, 1995 (restated
in accordance with SFAS 128)
27.3 Financial Data Schedule (For SEC use only) - March 31, 1996 (restated in
accordance with SFAS 128)
27.4 Financial Data Schedule (For SEC use only) - June 30, 1996 (restated in
accordance with SFAS 128)
27.5 Financial Data Schedule (For SEC use only) - September 30, 1996 (restated
in accordance with SFAS 128)
27.6 Financial Data Schedule (For SEC use only) - December 31, 1996 (restated
in accordance with SFAS 128)
27.7 Financial Data Schedule (For SEC use only) - March 31, 1997 (restated in
accordance with SFAS 128)
27.8 Financial Data Schedule (For SEC use only) - June 30, 1997 (restated in
accordance with SFAS 128)
27.9 Financial Data Schedule (For SEC use only) - September 30, 1997 (restated
in accordance with SFAS 128)
(b) Reports on Form 8-K
1 On March 10, 1998, the Company filed a Current Report on Form 8-K,
dated March 10, 1998, under which the Company filed a press
release commenting on its sales and earnings outlook for the
remainder of its fiscal year ending September 30, 1998.
2. On March 17, 1998, the Company filed a Current Report on Form 8-K,
dated March 17, 1998, under which the Company restated its
earnings per share amounts in conjunction with the adoption of
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share".
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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.
ROCK-TENN COMPANY
(Registrant)
Date May 5, 1997 By: /s/ DAVID C. NICHOLSON
----------------- --------------------------------------------
David C. Nicholson, Senior Vice-President,
Chief Financial Officer, Secretary
(Principal Financial Officer, Principal
Accounting Officer and duly
authorized officer)
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ROCK-TENN COMPANY
INDEX TO EXHIBITS
Page No.
Exhibit 27 Financial Data Schedule (For SEC use only) - March 31, 1998
Exhibit 27.1 Financial Data Schedule (For SEC use only) - September 30, 1995 (restated
in accordance with SFAS 128)
Exhibit 27.2 Financial Data Schedule (For SEC use only) - December 31, 1995 (restated
in accordance with SFAS 128)
Exhibit 27.3 Financial Data Schedule (For SEC use only) - March 31, 1996 (restated in
accordance with SFAS 128)
Exhibit 27.4 Financial Data Schedule (For SEC use only) - June 30, 1996 (restated in
accordance with SFAS 128)
Exhibit 27.5 Financial Data Schedule (For SEC use only) - September 30, 1996 (restated
in accordance with SFAS 128)
Exhibit 27.6 Financial Data Schedule (For SEC use only) - December 31, 1996 (restated
in accordance with SFAS 128)
Exhibit 27.7 Financial Data Schedule (For SEC use only) - March 31, 1997 (restated in
accordance with SFAS 128)
Exhibit 27.8 Financial Data Schedule (For SEC use only) - June 30, 1997 (restated in
accordance with SFAS 128)
Exhibit 27.9 Financial Data Schedule (For SEC use only) - September 30, 1997 (restated
in accordance with SFAS 128)
14