-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E61PFc+4J0UjVCDrsgaD+9pN3NFji38dzJIU74dVTSWqIP7LqAR1Zb0CV4YjAFfi yLOx9xeRSpvrH6vI0lltPw== 0000950144-96-005389.txt : 19960816 0000950144-96-005389.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950144-96-005389 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCK TENN CO CENTRAL INDEX KEY: 0000230498 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD CONTAINERS & BOXES [2650] IRS NUMBER: 620342590 STATE OF INCORPORATION: GA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-73312 FILM NUMBER: 96611585 BUSINESS ADDRESS: STREET 1: 504 THRASHER ST CITY: NORCROSS STATE: GA ZIP: 30071 BUSINESS PHONE: 7704482193 MAIL ADDRESS: STREET 1: PO BOX 4098 CITY: NORCROSS STATE: GA ZIP: 30091 10-Q 1 ROCK-TENN COMPANY 10-Q 1 - ------------------------------------------------------------------------------ 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 JUNE 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-23340 ROCK-TENN COMPANY (Exact name of registrant as specified in its charter) Georgia 62-0342590 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 504 Thrasher Street, Norcross, Georgia 30071 ---------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (770) 448-2193 N/A ------------------------------------------------------------- (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 August 12, 1996 ----------------------------------- --------------------------------- Class A Common Stock, .01 par value 19,270,812 Class B Common Stock, .01 par value 10,865,215 - ------------------------------------------------------------------------------- 2 ROCK-TENN COMPANY INDEX
Page No. ------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Income for the three months and nine months ended June 30, 1996 and 1995 1 Condensed Consolidated Balance Sheets at June 30, 1996 and September 30, 1995 2 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 1996 and 1995 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 6. Exhibits and Reports on Form 8-K 12 Index to Exhibits 14
3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ROCK-TENN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 - --------------------------------------------------------------------------------------- Net sales $216,211 $243,828 $652,050 $660,611 Cost of goods sold 153,648 186,872 471,141 500,130 -------- -------- -------- -------- Gross profit 62,563 56,956 180,909 160,481 Selling, general and administrative expenses 38,438 36,840 112,804 103,472 -------- -------- -------- -------- Income from operations 24,125 20,116 68,105 57,009 Interest income 360 41 832 166 Interest expense (2,670) (2,342) (8,328) (5,295) -------- -------- -------- -------- Income before income taxes 21,815 17,815 60,609 51,880 Provision for income taxes 8,290 6,948 23,032 20,234 -------- -------- -------- -------- Net income $ 13,525 $ 10,867 $ 37,577 $ 31,646 ======== ======== ======== ======== Earnings per common and common equivalent share $ .44 $ .35 $ 1.22 $ 1.02 ======== ======== ======== ======== Cash dividends per common share $ .075 $ .075 $ .225 $ .225 ======== ======== ======== ========
See accompanying notes 1 4 ROCK-TENN COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, September 30, 1996 1995 - ---------------------------------------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 46,820 $ 21,532 Accounts receivable (net of allowance for doubtful accounts of $3,398 and $2,144) 73,805 88,196 Inventories 60,728 63,608 Other current assets 2,167 6,979 -------- --------- TOTAL CURRENT ASSETS 183,520 180,315 Property, plant and equipment at cost: Land and buildings 109,692 101,850 Machinery and equipment 467,023 432,994 Leasehold improvements 3,471 3,063 Transportation equipment 11,711 10,193 -------- --------- 591,897 548,100 Less accumulated depreciation and amortization (264,010) (238,024) -------- --------- Net property, plant and equipment 327,887 310,076 Goodwill 49,291 51,265 Other assets 10,690 13,598 -------- --------- $571,388 $ 555,254 ======== ========= - ---------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 26,384 $ 29,888 Income taxes payable 226 --- Accrued compensation and benefits 23,328 23,071 Current maturities of long-term debt 6,746 17,842 Other current liabilities 11,472 9,793 -------- --------- TOTAL CURRENT LIABILITIES 68,156 80,594 Long-term debt due after one year 140,107 144,245 Deferred income taxes 20,835 18,032 Other liabilities 3,492 4,485 Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value; 50,000,000 shares authorized; no shares outstanding at June 30, 1996 and September 30, 1995 --- --- Class A common stock, $.01 par value; 175,000,000 shares authorized, 19,391,564 outstanding at June 30, 1996 and 18,581,791 outstanding at September 30, 1995; Class B common stock, $.01 par value; 60,000,000 shares authorized; 10,865,615 outstanding at June 30, 1996 and 11,538,470 outstanding at September 30, 1995 303 301 Capital in excess of par value 50,466 48,682 Retained earnings 290,744 260,252 Other (2,715) (1,337) -------- --------- TOTAL SHAREHOLDERS' EQUITY 338,798 307,898 -------- --------- $571,388 $ 555,254 ======== =========
See accompanying notes 2 5 ROCK-TENN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended June 30, June 30, 1996 1995 - --------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 37,577 $ 31,646 Items in income not affecting cash: Depreciation and amortization 35,737 31,118 Deferred income taxes 2,823 4,191 Gain on sale of building and equipment (717) (121) Change in operating assets and liabilities (excluding acquisitions): Accounts receivable 14,273 (5,694) Inventories 2,760 (12,892) Other assets 6,013 (2,792) Accounts payable (3,409) 1,780 Accrued liabilities 345 (5,378) Income taxes payable 228 657 -------- --------- CASH PROVIDED BY OPERATING ACTIVITIES 95,630 42,515 FINANCING ACTIVITIES: Net additions to revolving credit facilities --- 94,000 Additions to long-term debt 1,500 2,622 Repayments of long-term debt (16,746) (15,420) Sales of common stock 1,818 1,208 Purchases of common stock (323) (7,765) Cash dividends paid (6,795) (6,819) Other (270) --- -------- --------- CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (20,816) 67,826 INVESTING ACTIVITIES: Cash paid for purchase of businesses --- (61,651) Capital expenditures (52,274) (55,434) Proceeds from sale of building, equipment and other 1,745 1,482 Cash paid for intangibles (331) (1,997) Decrease (increase) in unexpended industrial revenue bond proceeds 1,363 (945) Other --- 28 -------- --------- CASH USED FOR INVESTING ACTIVITIES (49,497) (118,517) Effect of exchange rate changes on cash (29) (10) Increase (decrease) in cash and cash equivalents 25,288 (8,186) Cash and cash equivalents at beginning of period 21,532 15,227 -------- --------- Cash and cash equivalents at end of period $ 46,820 $ 7,041 ======== ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes $ 16,306 $ 17,503 Interest 6,807 5,220 Supplemental disclosure of noncash investing and financing activities: Liabilities assumed and note issued in connection with acquisitions --- 24,731
See accompanying notes 3 6 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, 1995 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 necessary for a fair presentation of the results of operations for the three-month and nine-month periods ended June 30, 1996 and 1995, the Company's financial position at June 30, 1996 and September 30, 1995, and the cash flows for the nine-month periods ended June 30, 1996 and 1995. 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, 1995. The results for the nine months ended June 30, 1996 are not necessarily indicative of results that may be expected for the full year. NOTE 2. 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. Inventories at June 30, 1996 and September 30, 1995 were as follows (in thousands):
June 30, September 30, 1996 1995 ----------- ------------- (Unaudited) Finished goods and work in process $ 48,602 $ 49,926 Raw materials 29,013 34,104 Supplies 5,545 6,122 -------- --------- Inventories at first-in, first-out (FIFO) cost 83,160 90,152 LIFO reserve (22,432) (26,544) -------- --------- Net inventories $ 60,728 $ 63,608 ======== =========
NOTE 3. FACILITY CLOSURES AND CONSOLIDATION On June 24, 1996, the Company announced several components of a facility closure and consolidation plan. This plan was developed to reduce the operating losses historically incurred at the Company's Lynchburg converting facility and is intended to optimize the utilization of certain other Company assets. As part of this plan, in the fourth quarter of fiscal 1996 the Company will close its laminated recycled paperboard book cover panels operation in Lynchburg, Virginia and relocate that operation to other manufacturing facilities. A recycled paperboard mill and a second converting operation will remain in Lynchburg. The Company's Vineland, New Jersey recycled paperboard partition plant will cease production of partitions and will be equipped to manufacture book cover panels and other laminated recycled paperboard products during the fourth quarter of fiscal 1996. A recently purchased facility in Hartwell, Georgia will absorb some of the Vineland and most of the Macon, Georgia partition production. The Macon facility was closed in May of this year. 4 7 In connection with these closures and consolidation, the Company incurred non-recurring expenses of approximately $1,300,000 ($.03 per share) consisting primarily of employee severance, asset impairment and lease termination costs. The Company expects to incur additional non-recurring expenses of approximately $2,500,000 ($.05 per share) during the Company's fourth quarter, which will consist primarily of equipment and inventory relocation costs and employee relocation and training costs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements." All such non-recurring expenses have been or will be, as the case may be, charged against income from operations. The Company expects that the employment of an immaterial number of employees will be terminated in connection with these closures and consolidation. 5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the 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, 1995 which have been filed with the Securities and Exchange Commission as part of the Company's Annual Report on Form 10-K. SEGMENT INFORMATION The Company operates in two industry segments: paperboard and converted products. The Company conducts its paperboard operations through three divisions: the Mill Division, the Paperboard Products Division and the Recycled Fiber Division. The Company conducts its converted products operations through five divisions: the Folding Carton Division, the Paperboard Products Division, the Partition Division, the Corrugated Division and the Plastic Packaging Division. ROCK-TENN COMPANY INDUSTRY SEGMENT INFORMATION (UNAUDITED) (IN THOUSANDS EXCEPT FOR TONNAGE DATA)
============================================================================================= FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED June 30, June 30, June 30, June 30, 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------- NET SALES: Converted Products $193,667 $201,010 $ 580,103 $552,331 Paperboard 69,858 88,292 214,717 245,010 Intersegment Eliminations (47,314) (45,474) (142,770) (136,730) - --------------------------------------------------------------------------------------------- TOTAL $216,211 $243,828 $ 652,050 $660,611 - --------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES: Converted Products $ 9,620 $10,545 $ 23,888 $ 24,413 Paperboard 16,328 11,194 49,664 37,501 Corporate Expense (1,823) (1,623) (5,447) (4,905) Interest Expense (2,670) (2,342) (8,328) (5,295) Interest Income 360 41 832 166 - --------------------------------------------------------------------------------------------- TOTAL $ 21,815 $ 17,815 $ 60,609 $ 51,880 ============================================================================================= Paperboard shipped (in tons) 161,540 178,089 464,671 538,031 =============================================================================================
6 9 RESULTS OF OPERATIONS Net Sales (Unaffiliated Customers). Net sales for the quarter ended June 30, 1996 decreased 11.3% to $216.2 million from $243.8 million for the quarter ended June 30, 1995. Net sales decreased for the quarter ended June 30, 1996 as a result of reduced customer demand and reduced selling prices. Net sales for the nine months ended June 30, 1996 decreased 1.3% to $652.1 million from $660.6 million for the nine months ended June 30, 1995. This decrease resulted from reduced customer demand and reduced selling prices, which were offset partially by sales increases resulting from the acquisitions of Olympic Packaging, Inc. ("Olympic") and Alliance Display and Packaging ("Alliance") during January 1995. Net Sales (Aggregate) - Paperboard Segment. Net sales before intersegment eliminations for the quarter ended June 30, 1996 decreased 20.8% to $69.9 million from $88.3 million for the quarter ended June 30, 1995. Net sales of paperboard before intersegment eliminations for the nine months ended June 30, 1996 decreased 12.4% to $214.7 million from $245.0 million for the nine months ended June 30, 1995. The decrease for the quarter ended June 30, 1996 resulted from a 9.3% decrease in tons shipped and an 8.9% decrease in average selling prices. The decrease for the nine months ended June 30, 1996 resulted from a 13.6% decrease in tons shipped, which was partially offset by a 4.5% increase in average selling prices. The decrease in tons shipped during both the quarter and nine months ended June 30, 1996 was primarily the result of (i) a reduction by several outside customers of their purchases of paperboard manufactured by the Company as they increased consumption of internally manufactured paperboard and (ii) reduced customer demand. The decrease in average selling prices for the quarter ended June 30, 1996 was the result of declines in both clay coated and uncoated paperboard prices. The increase in average selling prices for the nine months ended June 30, 1996 was the result of price increases implemented during fiscal 1995 to offset increased raw material costs. Recent declines in both clay coated and uncoated paperboard prices limited the impact of these fiscal 1995 selling price increases for the quarter ended June 30, 1996. Net Sales (Aggregate) - Converted Products Segment. Net sales of converted products before intersegment eliminations for the quarter ended June 30, 1996 decreased 3.6% to $193.7 million from $201.0 million for the quarter ended June 30, 1995. Net sales of converted products before intersegment eliminations for the nine months ended June 30, 1996 increased 5.0% to $580.1 million from $552.3 million for the nine months ended June 30, 1995. The decrease for the quarter ended June 30, 1996 was primarily the result of reductions in volumes. The increase for the nine months ended June 30, 1996 was primarily the result of the acquisitions of Alliance and Olympic during January 1995, which was partially offset by reduced customer demand at other facilities. Cost of Goods Sold. Cost of goods sold for the quarter ended June 30, 1996 decreased 17.8% to $153.6 million from $186.9 million for the quarter ended June 30, 1995. Cost of goods sold for the nine months ended June 30, 1996 decreased 5.8% to $471.1 million from $500.1 million for the nine months ended June 30, 1995. Cost of goods sold as a percentage of net sales for the quarter ended June 30, 1996 decreased to 71.0% from 76.7% for the quarter ended June 30, 1995. Cost of goods sold as a percentage of net sales for the nine months ended June 30, 1996 decreased to 72.2% from 75.7% for the nine months ended June 30, 1995. During fiscal 1995, the Company implemented price increases that were intended to recover increased costs of recovered paper, the Company's primary raw material. In general, these price increases were implemented subsequent to the cost increases, resulting in an increase in cost of goods sold as a percentage of net sales during fiscal 1995. During the quarter and nine months ended June 30, 1996, the cost of recovered paper decreased, resulting in a reduction of cost of goods sold as a percentage of net sales. Manufacturing costs, other than raw material costs, as a percentage of net sales did not change significantly from the prior year for the quarter and nine months ended June 30, 1996. 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. 7 10 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 $1.6 million lower and $1.7 million higher than it would have been under the FIFO method in the quarter ended June 30, 1996 and 1995, respectively. Cost of goods sold determined under the LIFO method was $4.1 million lower and $5.7 million higher than it would have been under the FIFO method for the nine months ended June 30, 1996 and 1995, respectively. Net income was $1.0 million higher and $1.0 million lower than it would have been under the FIFO method in the quarter ended June 30, 1996 and 1995, respectively. Net income was $2.5 million higher and $3.5 million lower than it would have been under the FIFO method for the nine months ended June 30, 1996 and 1995, respectively. These supplemental FIFO earnings reflect the after tax effect of LIFO each year. Gross Profit. Gross profit for the quarter ended June 30, 1996 increased 9.8% to $62.6 million from $57.0 million for the quarter ended June 30, 1995. Gross profit for the nine months ended June 30, 1996 increased 12.7% to $180.9 million from $160.5 million for the nine months ended June 30, 1995. Gross profit as a percentage of net sales increased to 29.0% for the quarter ended June 30, 1996 from 23.4% for the quarter ended June 30, 1995. Gross profit as a percentage of net sales increased to 27.7% for the nine months ended June 30, 1996 from 24.3% for the nine months ended June 30, 1995. The increases in gross profit as a percentage of net sales for the quarter ended and the nine months ended June 30, 1996 were primarily the result of the decreased cost of recovered paper, the Company's primary raw material, and increased manufacturing efficiencies in the Company's laminated paperboard products converting division and at the Company's Missisquoi, Vermont mill, which were partially offset by the impact of reduced volumes in several divisions. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the quarter ended June 30, 1996 increased 4.3% to $38.4 million from $36.8 million for the quarter ended June 30, 1995. Selling, general and administrative expenses for the nine months ended June 30, 1996 increased 9.0% to $112.8 million from $103.5 million for the nine months ended June 30, 1995. Selling, general and administrative expenses as a percentage of net sales for the quarter ended June 30, 1996 increased to 17.8% from 15.1% for the quarter ended June 30, 1995. Selling, general and administrative expenses as a percentage of net sales for the nine months ended June 30, 1996 increased to 17.3% from 15.7% for the nine months ended June 30, 1995. These increases in selling, general and administrative expenses as a percentage of net sales resulted from increases in salary and benefit costs together with the decreases in net sales for the quarter and nine months ended June 30, 1996. Segment Operating Income. Operating Income - Paperboard Segment. Operating income attributable to the paperboard segment for the quarter ended June 30, 1996 increased 45.5% to $16.3 million from $11.2 million for the quarter ended June 30, 1995. Operating income attributable to the paperboard segment for the nine months ended June 30, 1996 increased 32.5% to $49.7 million from $37.5 million for the nine months ended June 30, 1995. Operating margin for the quarter ended June 30, 1996 was 23.3% compared to 12.7% for the quarter ended June 30, 1995. Operating margin for the nine months ended June 30, 1996 was 23.1% compared to 15.3% for the nine months ended June 30, 1995. This increase in operating income and margin during both periods was the result of decreases in the cost of recovered paper, the primary raw material utilized in this segment, which were partially offset by decreases in tons of paperboard shipped. The Company's weighted average cost per ton of recovered paper during the quarter ended June 30, 1996 was $43.11 compared to $171.35 during the quarter ended June 30, 1995. The Company's weighted average cost per ton of recovered paper during the nine months ended June 30, 1996 was $53.67 compared to $128.37 during the nine months ended June 30, 1995. Tons of paperboard shipped decreased to 161,540 for the quarter ended June 30, 1996 from 178,089 for the quarter ended June 30, 1995. Tons of paperboard shipped decreased to 464,671 for the nine months ended June 30, 1996 from 538,031 for the nine months ended June 30, 1995. 8 11 Operating Income - Converted Products Segment. Operating income attributable to the converted products segment for the quarter ended June 30, 1996 decreased 8.6% to $9.6 million from $10.5 million for the quarter ended June 30, 1995. Operating income attributable to the converted products segment for the nine months ended June 30, 1996 decreased 2.0% to $23.9 million from $24.4 million for the nine months ended June 30, 1995. Operating margin for the quarter ended June 30, 1996 was 5.0% compared to 5.2 % for the quarter ended June 30, 1995. Operating margin for the nine months ended June 30, 1996 was 4.1% compared to 4.4% for the nine months ended June 30, 1995. The decreases in operating income and operating margin for the quarter and nine months ended June 30, 1996 were primarily the result of (i) reduced customer demand for converted products, (ii) non-recurring severance and other expenses of $1.3 million related to a facility closure and consolidation plan that involves the closing of the Company's laminated recycled paperboard book cover panels operation in Lynchburg, Virginia and its relocation to other Rock-Tenn manufacturing facilities, the conversion of the Company's Vineland, New Jersey recycled paperboard partition plant to a manufacturer of book cover panels and other recycled paperboard products, the closing of the Macon, Georgia partition plant and the start-up of a recently purchased partition plant in Hartwell, Georgia to absorb some of the Vineland and most of the Macon, Georgia partition production, and (iii) operating losses incurred at the Olympic and Alliance facilities all of which were offset somewhat by (x) price increases implemented after the quarter ended June 30, 1995 primarily to recover increased costs of paperboard and (y) improvements in productivity and efficiency in the production of laminated paperboard products as a result of further implementation of equipment with new technology. In connection with the recent facility closure and consolidation plan which has been previously announced and reported in a filing with the Securities and Exchange Commission on a Current Report on Form 8-K dated June 24, 1996, the Company expects to incur non-recurring severance and other expenses during its fourth quarter of fiscal 1996 of approximately $2.5 million or $0.05 per share. Management believes these measures will result in approximately $2.5 to $3.0 million in annual cost savings commencing in fiscal 1997. See "- Forward-Looking Statements." Interest Expense. Interest expense for the quarter ended June 30, 1996 increased to $2.7 million from $2.3 million for the quarter ended June 30, 1995. Interest expense for the nine months ended June 30, 1996 increased to $8.3 million from $5.3 million for the nine months ended June 30, 1995. The increase in interest expense for the quarter ended June 30, 1996 is primarily due to an increase in the Company's average borrowing rate. Interest expense for the nine months ended June 30, 1996 increased primarily as a result of increased borrowings. In August of 1995, the Company issued $100.0 million of aggregate principal amount of 7.25% notes due August 1, 2005, the net proceeds of which were used to repay outstanding indebtedness incurred under the Company's revolving credit facilities primarily to finance the Olympic and Alliance acquisitions. Provision for Income Taxes. Provision for income taxes increased to $8.3 million for the quarter ended June 30, 1996 from $6.9 million for the quarter ended June 30, 1995. Provision for income taxes increased to $23.0 million for the nine months ended June 30, 1996 from $20.2 million for the nine months ended June 30, 1995. The Company's effective tax rate decreased to 38.0% for the nine months ended June 30, 1996 compared to 39.0% for the nine months ended June 30, 1995. This decrease in the effective rate is primarily due to a lower projected tax rate. Net Income and Earnings Per Common and Common Equivalent Share. Net income for the quarter ended June 30, 1996 increased 23.9% to $13.5 million from $10.9 million for the quarter ended June 30, 1995. Net income for the nine months ended June 30, 1996 increased 19.0% to $37.6 million from $31.6 million for the nine months ended June 30, 1995. Net income as a percentage of net sales increased to 6.2% for the quarter ended June 30, 1996 from 4.5% for the quarter ended June 30, 1995. Net income as a percentage of net sales increased to 5.8% for the nine months ended June 30, 1996 from 4.8% for the nine months ended June 30, 1995. Earnings per common and common equivalent share for the quarter ended June 30, 1996 increased 25.7% to $.44 from $.35 for the quarter ended June 30, 1995. Earnings per common and common equivalent share for the nine months ended June 30, 1996 increased 19.6% to $1.22 from $1.02 for the nine months ended June 30, 1995. 9 12 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. The Company maintains revolving credit facilities under which it has $100.0 million in aggregate borrowing availability. At June 30, 1996, the Company had no borrowings outstanding under its credit facilities. Cash and cash equivalents, $46.8 million at June 30, 1996, increased from $21.5 million at September 30, 1995. Net cash provided by operating activities for the nine months ended June 30, 1996 was $95.6 million compared to $42.5 million for the nine months ended June 30, 1995. This increase was primarily the result of increased earnings before depreciation and amortization and a reduction in net operating asset requirements. Net cash used for financing activities aggregated $20.8 million for the nine months ended June 30, 1996 and consisted primarily of repayments of long-term debt and dividend payments. Net cash provided by financing activities aggregated $67.8 million for the nine months ended June 30, 1995 and was primarily the result of borrowings under the Company's revolving credit facilities. Net cash used for investing activities was $49.5 million for the nine months ended June 30, 1996 compared to $118.5 million for the nine months ended June 30, 1995 and consisted primarily of capital expenditures for the nine months ended June 30, 1996 and capital expenditures and cash paid for the purchase of Olympic and Alliance for the nine months ended June 30, 1995. The Company estimates that its capital expenditures will aggregate approximately $21.0 million for the remainder of fiscal 1996. These expenditures will be applied toward (i) three printers, two die-cutters, several plant and warehouse expansions in the Folding Carton Division, (ii) the upgrading of the paperforming, coating and drying equipment at the Company's paperboard mills, (iii) the capital costs associated with the relocation of one facility in the Recycled Fiber Division and (iv) the upgrading of computer hardware in approximately ten of the Company's manufacturing facilities as well as enhancements to its Home Office systems. The Company has also approved the engineering work required to convert one of the uncoated recycled paperboard machines at its Chattanooga mill to a clay-coated recycled paperboard machine. Until the engineering work is complete, the Company cannot estimate the cost or exact timing of the conversion. The Company historically has expanded its business through the acquisition of other related businesses and the Company plans to continue to focus on making acquisitions. 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 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 Nasdaq Stock Market's National Market. This authorization was extended from July 28, 1996 to July 31, 1998 at the Company's Board of Directors meeting on April 25, 1996. 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 nine months ended June 30, 1996 the Company repurchased 20,000 shares of Class A Common Stock. The Company funded these repurchases with available cash balances. The Company anticipates that it will make additional purchases through July 1998. The Company anticipates that it will be able to fund its capital expenditures, acquisitions, stock repurchases, dividends and working capital needs for the foreseeable future from cash generated from operations, borrowings under its bank credit facilities, proceeds from the issuance of debt or equity securities or other additional long-term debt financing. 10 13 NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 121 ("SFAS 121") establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill. Statement of Financial Accounting Standards No. 123 ("SFAS 123") establishes financial accounting and reporting standards for stock-based employee compensation plans, such as stock purchase plans and stock option plans. These statements were issued in 1995 and are required to be adopted October 1, 1996. Currently, the Company has not completed the analysis necessary to determine what the impact of SFAS 121 and SFAS 123 will be on the Company's consolidated financial statements; however, the Company does not anticipate a material impact. FORWARD-LOOKING STATEMENTS Statements herein regarding anticipated non-recurring expenses and annual cost savings constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such statements are subject to certain risks and uncertainties that could cause actual amounts to differ materially from those projected. With respect to estimated non-recurring expenses and annual cost savings, management has made assumptions regarding, among other things, the amount and timing of expected short-term operating losses and reductions in fixed, labor and transportation costs. The amount of non-recurring expenses and realization of annual cost savings are subject to certain risks including, among others, the risks that estimated expenses and operating losses have been underestimated, expected cost reductions have been overestimated, unexpected costs and expenses will be incurred and anticipated operating efficiencies will not be achieved. Further, any statements herein regarding the Company's performance in future periods are subject to risks relating to, among other things, decreases in demand for the Company's products, increases in raw material costs, fluctuations in selling prices and adverse changes in general market and industry conditions. Management believes these estimates are reasonable; however, undue reliance should not be placed on such estimates, which are based on current expectations. 11 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 - Statement regarding Computation of Per Share Earnings 27 - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K None 12 15 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 August 12, 1996 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) 13 16 ROCK-TENN COMPANY INDEX TO EXHIBITS Page No. Exhibit 11 Statement Regarding Computation of Per Share Earnings 15 Exhibit 27 Financial Data Schedule (for SEC use only) 14 EX-11 2 EARNINGS PER SHARE 1 Exhibit 11 ROCK-TENN COMPANY COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine months Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------- PRIMARY EARNINGS PER SHARE Net income $13,525 $10,867 $37,577 $31,646 ======= ======= ======= ======= Average common shares outstanding 30,234 30,332 30,186 30,305 Average common shares outstanding including common equivalent shares 31,019 31,043 30,915 31,119 Primary earnings per common share $ 0.45 $ 0.36 $ 1.24 $ 1.04 Primary earnings per common and common equivalent share $ 0.44 $ 0.35 $ 1.22 $ 1.02 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE Net income $13,525 $10,867 $37,577 $31,646 ======= ======= ======= ======= Average common shares outstanding 30,234 30,332 30,186 30,305 Average common shares outstanding including common equivalent shares 31,054 31,076 31,015 31,144 Fully diluted earnings per common share $ 0.45 $ 0.36 $ 1.24 $ 1.04 Fully diluted earnings per common and common equivalent share $ 0.44 $ 0.35 $ 1.21 $ 1.02 ======= ======= ======= =======
15 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q. 1,000 9-MOS SEP-30-1996 OCT-01-1995 JUN-30-1996 46,820 0 77,203 3,398 60,728 183,520 591,897 264,010 571,388 68,156 140,107 0 0 303 338,495 571,388 652,050 652,050 471,141 471,141 0 0 8,328 60,609 23,032 37,577 0 0 0 37,577 1.22 0
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