Document/Exhibit Description Pages Size
1: 10-K Annual Report 58 326K
3: EX-4.12(B) Supplemental Issuance Agreement 17 57K
4: EX-4.14(B) Amended and Restated Security Agreement 14 47K
5: EX-4.19(B) Amendment #4 to the Pooling and Service Agreement 10 33K
6: EX-4.20(B) Amendment #4 to the Receivable Purchase Agreement 5 19K
2: EX-4.3(B) Amended and Restated Revolving Credit Agreement 69 220K
7: EX-10.1(B) Amendment #2 to Employment Agreement 2 12K
8: EX-10.2(B) Amendment #1 to Employment Agreement 3 14K
9: EX-10.3(B) Amended and Restated Supplemental Exec. Ret. Plan 6 24K
10: EX-10.5(B) Amendment #1 to 1991 Severance Compensation Agmt. 11 43K
11: EX-23.1(B) Consent of Deloitte & Touche LLP 1 7K
12: EX-24.1(B) Power of Attorney 2± 12K
13: EX-27.1(B) Financial Data Schedule 1 8K
FORM
10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 For the fiscal year ended September 30, 2000
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 1-9915
GAYLORD CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3472452
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Lake Cook Road, Suite 400, Deerfield, Illinois 60015
--------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (847) 405-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
--------------------------------------------------------------------------------
CLASS A COMMON STOCK, $.0001 PAR VALUE PER SHARE AMERICAN STOCK EXCHANGE
(55,222,094 shares outstanding as of November 27, 2000)
REDEEMABLE EXCHANGEABLE WARRANTS AMERICAN STOCK EXCHANGE
(830,735 warrants outstanding as of November 27, 2000)
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
--- ---
The aggregate market value of voting stock held by non-affiliates of the
registrant, computed on the basis of the closing price of such stock as reported
on the composite tape on November 27, 2000, was approximately $75 million.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held February 7, 2001 is incorporated into Part 3 of this Annual
Report on Form 10-K.
PART 1
--------------------------------------------------------------------------------
Item 1. BUSINESS
--------------------------------------------------------------------------------
DEVELOPMENT Gaylord Container Corporation (including its subsidiaries, the
Company) acquired the business in 1986 for approximately $260 million. Since its
inception, the Company has expanded its business through strategic acquisitions
and capital investments. The Company financed the acquisitions and capital
expenditures with cash provided by operations, borrowings under its credit
agreements and the issuance of debt and equity securities. At September 30,
2000, the Company's facilities consisted of three containerboard and unbleached
kraft paper mills, fourteen corrugated container plants, four corrugated sheet
feeder plants, two multiwall bag plants, five retail bag plants, a preprint and
graphics center, a cogeneration facility and through a wholly owned,
independently operated subsidiary, a specialty chemical facility.
On October 28, 1999, the Company acquired the remaining 65 percent share of
S&G Packaging Company, L.L.C. (S&G Packaging) from its joint venture partner,
Smurfit-Stone Container Corporation. S&G Packaging is the largest U.S. producer
of retail bags. Its customer base includes supermarkets, quick-service
restaurants, paper distributors and non-food mass merchandisers throughout North
America and the Caribbean.
Since its inception in 1986, the Company has made significant capital
expenditures primarily to expand capacity, install advanced papermaking
technology, improve product quality, realize operating efficiencies and maintain
its existing facilities. The Company believes that all of its mills are low-cost
producers in their respective products and that its Bogalusa mill is one of the
premier mills in the industry. For fiscal 2001, capital spending is expected to
be in the range of $35 to $40 million, while capital spending beyond fiscal 2001
will be targeted to approximate the Company's annual depreciation expense.
Capital spending will, however, be adjusted from time to time as market
conditions and available cash flows dictate.
GENERAL Corrugated containers are a safe and economical way to transport
manufactured and bulk goods. Increasingly, corrugated containers are also used
as integrated transportation and marketing devices in the form of point-of-sale
displays. The major corrugated container end-use markets are food, beverage and
agricultural products; paper and fiber products; petroleum, petrochemical
resins, plastics and rubber products; glass and metal containers; electronic
appliances; and electrical and other machinery. Most corrugated containers are
produced and sold according to individual customer specifications.
Corrugated containers and sheets are primarily delivered by truck because
of the large number of customers and demand for timely service. The dispersion
of customers and the high bulk, low density and value of corrugated products
make shipping costs a relatively high percentage of total costs. As a result,
corrugated plants tend to be located close to customers to minimize freight
costs.
Containerboard, consisting of linerboard and corrugating medium, is the
principal raw material used in the manufacture of corrugated containers.
Linerboard provides the strength component of a container while corrugating
medium provides rigidity. Corrugating medium is fluted and laminated to
linerboard to produce corrugated sheets, which are subsequently printed, cut,
folded and glued to produce corrugated containers, in corrugated container or
sheet plants.
To reduce the cost of shipping containerboard from mills to widely
dispersed corrugated plants, vertically integrated containerboard manufacturers
routinely exchange containerboard with other manufacturers from mills in one
location for containerboard having a similar value from mills
1
located elsewhere in the United States. Containerboard producers also exchange
containerboard to take advantage of manufacturing efficiencies resulting from
operating paper machines in their most efficient basis-weight ranges and trim
widths and to obtain paper grades they do not produce.
Multiwall bags are used by producers in such industries as pet food,
chemical, agricultural, food, metal, plastics and rubber. Retail bags are used
by supermarkets, quick-service restaurants and non-food mass merchandisers.
Multiwall bags and retail bags are manufactured through a process of printing,
cutting, folding and gluing kraft paper to meet customer specifications.
Unbleached kraft paper is the principal raw material used in the manufacture of
multiwall bags and retail bags.
Cellulose fiber produced from wood chips and recycled fiber is the primary
raw material used in the manufacture of containerboard and kraft paper. Fiber
costs are generally the largest cost component in the manufacture of
containerboard and unbleached kraft paper.
Calendar 2000 U.S. containerboard and unbleached kraft paper capacity are
estimated by industry trade associations to be 36.5 million tons and 2.0 million
tons, respectively. In calendar 1999, industry trade associations estimated U.S.
corrugated product sales and multiwall bag sales to be $21.9 billion and $1.2
billion, respectively. Unbleached kraft containerboard and unbleached kraft
paper capacity utilization rates in the U.S. have been estimated to average 93
percent and 90 percent, respectively, for the first nine months of calendar 2000
and 97 percent and 98 percent, respectively, in calendar 1999.
Reduced capacity utilization rates, coupled with the rationalization of
capacity associated with industry consolidation activities over the past several
years and limited new containerboard capacity additions and stable domestic
demand have resulted in relatively balanced industry supply/demand conditions.
Demand for the Company's products are affected by the level of economic
activity and the strength of the U.S. dollar. For further information regarding
the industry and factors that influence prices and the demand for paper
packaging products, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - General."
SALES Corrugated containers and sheets, multiwall and retail bags, solid fibre
products, containerboard and unbleached kraft paper collectively represented
approximately 99 percent of the Company's net sales. Sales of the Company's
products are not seasonal to any significant degree. Corrugated products are
generally produced to customer order for delivery from one to ten days after
receipt of the order. As a result, the Company's backlog generally does not
exceed 3 percent of annual corrugated product sales.
The Company sells its products to thousands of customers, with the ten
largest, excluding sales to its affiliates, accounting for approximately 14
percent of net sales in fiscal 2000 and 15 percent in both fiscal 1999 and 1998.
Excluding sales to affiliates, the Company's largest customer accounted for
approximately 2 percent of the Company's net sales in fiscal 2000 and 1999 and 3
percent in fiscal 1998, respectively.
Each corrugated converting facility has its own sales force that is
responsible for marketing and distribution to local customers. A national
account sales force handles corrugated converted product sales to large
customers who utilize centralized purchasing for multiple locations. The
Company's corrugated converted products sales force at September 30, 2000
consisted of approximately 105 salespersons. The kraft paper converting
facilities have national sales forces in different geographic regions that are
responsible for marketing and distribution to local customers in that region. At
September 30, 2000, the kraft paper converted sales force consisted of
approximately 20 salespersons.
2
Sales and exchanges of containerboard and unbleached kraft paper are the
responsibility of a small, centralized marketing and sales group.
The Company exports linerboard and unbleached kraft paper, certain
converted products and specialty chemicals. Such sales totaled $69.6 million,
$59.9 million and $64.5 million in fiscal 2000, fiscal 1999 and fiscal 1998,
respectively.
PRODUCTS Corrugated Products. The Company produces many varieties of corrugated
containers and sells the majority of its production to manufacturing end-users.
The Company also produces corrugated sheets, which are subsequently converted
into corrugated containers by independent corrugated sheet plants. Corrugated
shipments were 15.6 billion square feet in fiscal 2000, an increase of
approximately 3 percent from the prior year. Corrugated shipments in fiscal 1999
increased approximately 6 percent from fiscal 1998.
Containerboard. The Company's containerboard mills in the aggregate have
the ability to manufacture containerboard in a broad spectrum of grades and
weights. The Company consumed the equivalent of approximately 89 percent in
fiscal 2000 and 84 percent and 82 percent in both fiscal 1999 and fiscal 1998,
respectively, of the Company's containerboard production and purchase
commitments. Containerboard production decreased approximately 4 percent in
fiscal 2000 to 1,242,400 tons from 1,293,600 tons in the prior year primarily as
a result of taking market related downtime. Production of containerboard
increased approximately 2 percent in fiscal 1999 compared to production of
1,264,500 tons in fiscal 1998. The Company has an agreement with one supplier to
purchase 24,000 tons annually of corrugating medium at market prices through
March of 2004.
Multiwall Bags. The Company produces a variety of small to large multiwall
bags and sells them to manufacturers and processors for packaging their
products. The Company's multiwall bag shipments increased approximately 8
percent in fiscal 2000 to 58,000 tons from 53,500 tons in fiscal 1999. The
Company's multiwall bag shipments decreased 10 percent in fiscal 1999 compared
to shipments of 59,200 in fiscal 1998.
Retail Bags. The Company produces retail bags in a variety of sizes and
sells them to wholesale and retail distributors. In fiscal 2000, the Company
shipped approximately 236,000 tons since the acquisition of S&G Packaging at the
end of October 1999.
Unbleached Kraft Paper. The Company is a supplier of unbleached kraft paper
to its retail bag converting facilities, its multiwall bag converting facilities
and to independent retail bag and multiwall bag converters. The Company's bag
plants consumed approximately 97 percent in fiscal 2000 and approximately 69
percent and 71 percent, respectively, in fiscal 1999 and fiscal 1998 of its
unbleached kraft paper production and purchase commitments. The increase in
integration from 1999 to 2000 is attributable to the acquisition of S&G
Packaging in October 1999. During fiscal 2000, the Company produced 263,200 tons
of unbleached kraft paper. This compares with 263,800 tons and 260,300 tons in
fiscal 1999 and fiscal 1998, respectively. In connection with the Company's
acquisition of S&G Packaging the Company agreed to purchase at market prices
60,000 tons and 48,000 tons of kraft paper in fiscal 2000 and fiscal 2001,
respectively, and 36,000 tons in each of fiscal 2002, fiscal 2003 and fiscal
2004 from Smurfit-Stone.
Specialty Chemicals. Gaylord Chemical Corporation, a wholly owned,
independently operated subsidiary of the Company, utilizes a process stream from
the Bogalusa, Louisiana paper mill manufacturing operations to produce dimethyl
sulfide (DMS) and dimethyl sulfoxide (DMSO). DMS is a low boiling-point liquid
used as a presulfiding agent for catalysts for the petroleum industry, a
processing aid in ethylene production and a feedstock for the manufacture of
DMSO. DMSO is used as a solvent for a wide range of complex manufacturing
processes used in the chemical, electronics, agricultural and
3
pharmaceutical industries. Gaylord Chemical Corporation also markets dimethyl
sulfone (DMSO2), a high-temperature solvent. Management believes that Gaylord
Chemical Corporation produces approximately 65 percent of the domestic supply of
DMSO and 35 to 40 percent of the world's supply of DMSO.
Other Products. At its Bogalusa, Louisiana corrugated container plant, the
Company produces solid fibre products, which are primarily used as beverage
carriers and pallet substitutes. Solid fibre is produced using technology and
manufacturing processes similar to those used for corrugated containers.
RAW MATERIALS Fiber costs represented approximately 41 percent of the Company's
containerboard and unbleached kraft paper costs in fiscal 2000. The Company had
contracts that covered approximately 55 percent of its pulpwood and wood chip
requirements and approximately 50 percent of its recycled fiber requirements in
fiscal 2000.
The Bogalusa, Louisiana mill uses approximately 70 to 75 percent pulpwood
and wood chips in the manufacture of containerboard and unbleached kraft paper,
of which approximately 55 percent in fiscal 2000 and approximately 35 to 45
percent in fiscal 1999 and 1998 was supplied by a single supplier. The remainder
was purchased on the open market. The Company has certain agreements through
2016, pursuant to which a single supplier is committed to supply the Company
with significant quantities of wood chips, roundwood and stumpage at market
prices. Recycled fiber, which consists primarily of old corrugated containers
(OCC) and double-lined kraft clippings (DLK), accounts for the remainder of the
mill's fiber requirements. In fiscal 2000, Bogalusa mill had contracts that
covered 95 percent of its OCC requirements, while its DLK requirements were
purchased on the open market.
The Antioch, California mill uses 100 percent recycled fiber, primarily
OCC. Over the last three fiscal years, approximately 50 percent of the OCC used
as a source of recycled fiber was supplied under annual contracts with several
suppliers at market prices, while the remainder of its fiber needs were
purchased on the open market. Upon expiration of such contracts, the Company
believes it will be able to negotiate new contracts with these or other
suppliers to provide sufficient quantities of OCC at market prices.
The Pine Bluff, Arkansas mill uses approximately 70 to 75 percent wood
chips, of which approximately 48 percent was purchased in fiscal 2000 and 32
percent was purchased in fiscal 1999 and 1998 from a single supplier, pursuant
to a supply contract. The remainder was purchased under annual contracts with a
number of different chip suppliers. The contract with this single supplier
provides for a supply of wood chips at market prices through June 30, 2001, at
which time the Company anticipates it will be renegotiated. Recycled fiber,
primarily DLK, accounts for the remainder of the mill's fiber requirements. The
Pine Bluff mill purchased 100 percent of its DLK requirements on the open
market.
The fiber market is difficult to predict and there can be no assurance of
the future direction of OCC, DLK and wood chip prices. Future increases in fiber
prices would adversely affect the Company's results of operations.
ENERGY The operations of the Company's mills require significant amounts of
steam, electricity and natural gas. Energy costs accounted for approximately 11
percent of the Company's containerboard and unbleached kraft paper production
costs in fiscal 2000 and 10 percent in both fiscal 1999 and fiscal 1998. The
Company procures natural gas that is used to produce steam and electrical power
through short-term contractual arrangements with various suppliers at market
prices. The Company has a supply agreement through 2003 at the Bogalusa mill,
pursuant to which a single supplier will provide at contractual prices hog fuel
(consisting of bark and other residual fiber from trees), which is used to
generate steam. The remainder of the hog fuel used by the Bogalusa mill is
either purchased on the open market or is generated
4
at several chip mills with which the Company has long-term supply agreements. In
fiscal 2000, the Bogalusa mill produced all of its steam and generated
approximately 74 percent of its electricity requirements. The Pine Bluff mill
produces all of its own steam, but purchases all of its electricity from a local
public utility. During the same period, the Antioch mill produced all of its
steam and 96 percent of its electricity needs.
The Company operates a natural gas powered cogeneration facility at its
Antioch, California mill, which produces steam and electricity for the mill. The
Company has a contract to sell a specified amount of electricity representing
the cogeneration facility's anticipated excess capacity at the contract date to
Pacific Gas & Electric Company through 2013, subject to certain adjustments.
Electricity sales pursuant to this agreement were $9.8 million, $8.2 million and
$8.4 million in fiscal 2000, fiscal 1999 and fiscal 1998, respectively.
Certain aspects of the energy operations of the Bogalusa mill and the
Antioch mill are regulated by the Federal Energy Regulatory Commission. Prices
for energy are difficult to predict and there can be no assurance of future
direction of prices. Future increases in energy prices would adversely affect
the Company's results of operations.
COMPETITION Many of the Company's competitors are substantially larger and have
significantly greater financial resources; however, the most important
competitive factors are price, quality and service. The manufacture of
containerboard and unbleached kraft paper is capital-intensive with high
barriers to entry, because new facilities require substantial capital and can
take at least two years to design and construct. Many of the Company's larger
competitors own timberlands. Although the Company does not own timberlands, it
has wood fiber supply agreements with forest products companies. See "Raw
Materials."
In contrast to paper mills, which manufacture containerboard and unbleached
kraft paper, converting facilities, which consume the containerboard and
unbleached kraft paper to produce corrugated products, multiwall bags and retail
bags, have comparatively low barriers to entry. Competition in corrugated
products and, to a lesser extent, multiwall bags and retail bags is primarily
localized, with proximity to customers an important factor in minimizing
shipping costs. There are a substantial number of competitors in each of the
geographic areas in which the Company's converting facilities are located.
ENVIRONMENTAL MATTERS Compliance with federal, state and local environmental
requirements, particularly relating to air and water quality and waste disposal,
is a significant factor in the Company's business. In fiscal 2000, fiscal 1999
and fiscal 1998, the Company made capital expenditures for environmental
purposes of approximately $10 million, $4 million and $2 million, respectively.
Currently, the Company believes that it is in compliance in all material
respects with current applicable federal, state and local environmental
regulations. Future expenditures, primarily of a capital nature, for
environmental compliance are estimated to be approximately $40 million over the
next 7 years, including approximately $26 million to comply with the Cluster
Rule as described below. Although future environmental regulations cannot be
predicted with any certainty because of continuing changes in laws, the Company
believes that compliance with such environmental regulations will not have a
material adverse effect upon its financial position.
In November 1997, the Environmental Protection Agency promulgated new air
standards for pulping processes together with new water quality discharge
limitations into what are commonly referred to as the "Cluster Rule" regulations
for pulp and paper mills. Regulations for phase I of the Cluster Rule, including
the Maxiumum Achievable Control Technology (MACT) I and MACT
5
III Standards, pertaining to air quality are applicable to kraft, soda, sulfite
or semi-chemical pulping processes; mechanical pulping processes and processes
using secondary or non-wood fibers, including unbleached paper mills of the type
the Company operates. The Company is currently working towards compliance with
the Cluster Rule MACT I and MACT III Standards pertaining to air quality. The
Company expects to be fully compliant with these initial standards by the
regulatory deadline April 2001 at a capital cost of approximately $10 million of
which $4.3 million has been spent through fiscal 2000.
New effluent (water) quality standards for unbleached paper mills were not
included in the phase I Cluster Rules as promulgated. These standards are
expected to be promulgated between 2000 and 2002. Also not included in the phase
I regulations was the proposed MACT II Standard for the control of hazardous air
pollutant emissions from pulp and paper mill combustion sources. The timeline
for final promulgation of the MACT II Standard for the control of hazardous air
pollutant emissions is expected in late 2000 or early 2001 pending resolution of
substantive issues raised during the public comment period and as subsequently
addressed by industry stakeholder groups. Preliminary estimates indicate that
the Company could be required to make total capital expenditures of
approximately $20 million (included in the overall number above) over eight
years following issuance of these final rules, with approximately 75 percent to
be spent in the first five years.
The ultimate financial impact to the Company of these regulations cannot be
predicted with certainty and will depend upon several factors, including an
unforeseen change in final rules, the outcome of litigation, new developments in
process-control technology and the impact of inflation.
EMPLOYEES At September 30, 2000, the Company employed approximately 5,100
people. Approximately 70 percent of the Company's employees are hourly wage
employees, who are members of various labor unions. In fiscal 2000, labor
contracts covering approximately 25 percent of the Company's union employees
expired, and were renegotiated. The Bogalusa mill contract expired July 31, 2000
and is currently being renegotiated. The Company believes that the new contract
will be signed in the near future. In addition, labor contracts covering
approximately 13 percent of the Company's union employees are scheduled to
expire before the end of fiscal 2001. The Company's labor agreements covering
its employees at its Antioch and Pine Bluff mills expire in fiscal 2001 and
fiscal 2002, respectively.
The Company believes it has satisfactory relations with its employees and
their unions and, based on previous experience, does not anticipate any
significant difficulties in renegotiating labor contracts as they expire.
6
Item 2. PROPERTIES
--------------------------------------------------------------------------------
MANUFACTURING PROPERTIES The Company's plants are maintained in generally good
condition and management believes they are suitable for their specific purposes.
Set forth below is certain information concerning these facilities at September
30, 2000:
[Enlarge/Download Table]
OWNED/
PLANT PRODUCTS LEASED
--------------------------------------------------------------------------------------------------------------------
Mills:
Antioch, California Containerboard Owned
Bogalusa, Louisiana Containerboard and unbleached kraft paper Owned
Pine Bluff, Arkansas Unbleached kraft paper and containerboard Owned
Corrugated Plants:
Antioch, California Corrugated containers Owned
Atlanta, Georgia Corrugated containers Owned
Bogalusa, Louisiana Corrugated containers and solid fibre Owned
Carol Stream, Illinois Corrugated containers Owned
City of Industry, California Corrugated sheets Owned
Dallas, Texas Corrugated containers Leased
Gilroy, California Corrugated containers Leased
Greenville, South Carolina Corrugated containers Owned
Marion, Ohio Corrugated containers Owned
Newark, Delaware Corrugated containers Owned
Phoenix, Arizona Corrugated containers Owned
Raleigh, North Carolina Corrugated containers Owned
St. Louis, Missouri Corrugated containers Owned
San Antonio, Texas Corrugated containers Leased
San Antonio, Texas Corrugated sheets Owned
Sunnyvale, California Corrugated sheets Owned
Tampa, Florida Corrugated containers Leased
Tipton, Indiana Corrugated sheets Leased
Bag Plants:
Alsip, Illinois Retail bags Leased
Elizabeth, New Jersey Retail bags Leased
Hodge, Louisiana Retail bags Leased
Pine Bluff, Arkansas Multiwall bags Owned
Plainfield, Illinois Retail bags Leased
Tolleson, Arizona Retail bags Leased
Twinsburg, Ohio Multiwall bags Leased
Other Facilities:
Antioch, California Electricity cogeneration Owned
Bogalusa, Louisiana Specialty chemicals Owned
Livermore, California Preprinted linerboard Leased
The Bogalusa mill has five paper machines with the capacity to produce
linerboard, corrugating medium and unbleached kraft paper. The mill uses
softwood and hardwood pulp and recycled fiber.
The Antioch mill has one paper machine with the capacity to produce
recycled linerboard and corrugating medium using 100 percent recycled fiber.
The Pine Bluff mill has one paper machine with the capacity to produce
unbleached kraft paper and linerboard. The mill uses softwood pulp and recycled
fiber. See "Business - Products."
7
OTHER PROPERTIES The Company leases its executive and general and administrative
offices in Deerfield, Illinois. It also leases numerous warehouse facilities and
sales offices throughout the United States.
Item 3. LEGAL PROCEEDINGS
--------------------------------------------------------------------------------
The Company is not a party to any legal proceedings other than litigation
incidental to normal business activities, except as described in "Note 16 of
Notes to Consolidated Financial Statements." The Company believes the outcome of
such litigation will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------------------------
No matters were submitted to a vote of security holders in the fourth quarter of
fiscal 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT Marvin A. Pomerantz has served as Chairman,
Chief Executive Officer and a director of the Company since its organization in
1986. Since 1980, Mr. Pomerantz has served as Chairman or President and a
director of Mid-America Group, Ltd., a real estate investment company. Mr.
Pomerantz formerly served as President of the Board of Regents for the state
universities in Iowa and formerly served on the Board of Directors of Stone
Container Corporation, a manufacturer of paper packaging products. He has served
on the Board of Directors of Wellmark Blue Cross and Blue Shield of Iowa since
1998, Norwest Bank Iowa, N.A. since 1975 and Berkley, Inc., a sporting goods
manufacturer, since 1976. He currently serves on the Board of Directors of the
American Forest and Paper Association.
Daniel P. Casey has served as Vice Chairman and Chief Financial Officer
and a director of the Company since April 2000. From February 1990 to April 2000
he served as Executive Vice President and Chief Financial Officer of the
Company. From July 1988 through February 1990, Mr. Casey served as Senior Vice
President-Financial and Legal Affairs of the Company and from January 1988
through June 1988 in the same position for each of the Company and Mid-America
Packaging, Inc. which merged with the Company in June 1988. From March 1987
through January 1988, Mr. Casey served as Vice President-Financial and Legal
Affairs for each of the Company and Mid-America Packaging, Inc.
Michael J. Keough has served as President and Chief Operating Officer of
the Company since April 2000. From 1993 to April 2000, Mr. Keough served as Vice
President and General Manager, Container Operations and from 1991 to 1993 as
Vice President and General Manager, Bag Operations. He also served as a general
manager and, subsequently, regional manager in the Container Division from 1986
to 1991.
Lawrence G. Rogna has served as Senior Vice President of the Company
since February 1990. From December 1988 through February 1990, Mr. Rogna served
as Vice President-Human Resources of the Company. From 1981 to 1988 he was
employed by Rohr Industries, Inc., a manufacturer of components for aircraft and
space vehicles, where he served as Vice President, Human Resources from 1983 to
1988.
8
PART 2
--------------------------------------------------------------------------------
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK, WARRANTS AND RELATED STOCKHOLDER
MATTERS
--------------------------------------------------------------------------------
The Company had 537 and 12 holders of record of its Class A Common Stock, par
value $.0001 per share (Class A Common Stock) and redeemable exchangeable
Warrants (Warrants), respectively, at November 27, 2000.
The Company's Class A Common Stock and Warrants are listed and traded on
the American Stock Exchange under the symbols GCR and GCRWS, respectively. On
July 31, 1996, all outstanding Warrants became exercisable and could be
exchanged for one share of Class A Common Stock. As of September 30, 2000, the
Company had outstanding 53,829,101 shares of Class A Common Stock (including
843,035 shares held in trust for the benefit of the Warrant holders) and 843,035
Warrants. See "Note 12 of Notes to Consolidated Financial Statements."
Information with respect to quarterly high and low stock prices for the
Company's Class A Common Stock and Warrants for each quarterly period for fiscal
2000 and fiscal 1999 is contained in "Note 21 of Notes to Consolidated Financial
Statements."
The Company's Board of Directors authorized in fiscal 1996 the repurchase
of up to 6 million shares of the Company's Class A Common Stock. The shares may
be repurchased from time to time on the open market and will be used for general
corporate purposes, including issuance in connection with the Company's employee
stock option plans and employee stock purchase plan. No shares were repurchased
in fiscal 2000, fiscal 1999 or fiscal 1998.
The Company neither declared nor paid any dividends on its common stock
during fiscal 2000, fiscal 1999 or fiscal 1998. The Company does not currently
intend to pay cash dividends on its Class A Common Stock, but intends instead to
retain future earnings for reinvestment in the business and for repayment of
debt.
The Company's ability to declare or pay dividends or distributions on its
capital stock or to repurchase or redeem shares of its capital stock is limited
under the terms of its debt agreements. See "Note 9 of Notes to Consolidated
Financial Statements."
9
Item 6. SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
The following table sets forth selected historical consolidated financial data
for the Company. The data set forth below should be read in conjunction with the
Company's consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein.
[Enlarge/Download Table]
INCOME STATEMENT DATA: Year Ended September 30, (1)
-------------------------------------------------------------
In millions, except per share data 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------
Net sales $ 1,167.6 $ 870.6 $ 842.6 $ 759.3 $ 922.0
Cost of goods sold 972.8 757.5 758.0 717.3 716.2
------------------------------------------------------------------------------------------------------------
Gross margin 194.8 113.1 84.6 42.0 205.8
Selling and administrative costs (113.9) (98.4) (91.3) (81.1) (99.1)
Non-recurring operating income (charges) (2) 14.4 -- -- -- (8.1)
------------------------------------------------------------------------------------------------------------
Operating earnings (loss) 95.3 14.7 (6.7) (39.1) 98.6
Interest expense - net (91.7) (85.4) (82.1) (80.7) (78.3)
Other income (expense) - net 1.5 (4.5) (4.2) (1.6) (0.2)
------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 5.1 (75.2) (93.0) (121.4) 20.1
Income tax benefit (provision) (2.7) 28.8 35.6 47.1 (8.3)
------------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary items 2.4 (46.4) (57.4) (74.3) 11.8
Extraordinary loss (3) -- -- (25.1) (7.7) (3.2)
------------------------------------------------------------------------------------------------------------
Net income (loss) $ 2.4 $ (46.4) $ (82.5) $ (82.0) $ 8.6
------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic:
Income (loss) before
extraordinary items $ 0.05 $ (0.87) $ (1.08) $ (1.40) $ 0.22
Extraordinary loss (3) -- -- (0.47) (0.15) (0.06)
------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.05 $ (0.87) $ (1.55) $ (1.55) $ 0.16
------------------------------------------------------------------------------------------------------------
Diluted (4):
Income (loss) before
extraordinary items $ 0.05 $ (0.87) $ (1.08) $ (1.40) $ 0.22
Extraordinary loss (3) -- -- (0.47) (0.15) (0.06)
------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.05 $ (0.87) $ (1.55) $ (1.55) $ 0.16
------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding 53.8 53.4 53.2 52.8 54.0
------------------------------------------------------------------------------------------------------------
Weighted average common and common
share equivalents 54.0 53.8 53.9 53.5 54.7
------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA: September 30,
-------------------------------------------------------------
In millions 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------
Current assets $ 261.1 $ 240.1 $ 210.8 $ 204.2 $ 236.1
Property - net 575.0 558.9 573.4 586.1 612.3
Other assets 198.1 219.0 195.6 139.6 84.6
------------------------------------------------------------------------------------------------------------
Total assets $ 1,034.2 $ 1,018.0 $ 979.8 $ 929.9 $ 933.0
------------------------------------------------------------------------------------------------------------
Current liabilities $ 162.3 $ 144.4 $ 127.3 $ 167.3 $ 166.3
Long-term debt (less current
maturities) 911.2 924.8 863.3 701.7 623.1
Other long-term liabilities 47.5 39.6 36.7 26.3 29.1
------------------------------------------------------------------------------------------------------------
Total liabilities 1,121.0 1,108.8 1,027.3 895.3 818.5
Stockholders' equity (deficit) (86.8) (90.8) (47.5) 34.6 114.5
------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity (deficit) $ 1,034.2 $ 1,018.0 $ 979.8 $ 929.9 $ 933.0
------------------------------------------------------------------------------------------------------------
(1) The Company operates on a 52/53-week fiscal year. All fiscal years from 1996
through 2000 are on a 52-week year except fiscal 1996, which was a 53-week year.
10
(2) In fiscal 2000, the Company recorded a $14.4 million gain on the sale of
emission credits that were held in California. In fiscal 1996, the Company
recorded an $8.1 million charge against operating earnings for costs associated
with a staff reduction program which eliminated approximately 8 percent of the
Company's salaried positions.
(3) In fiscal 1998, the Company issued $200 million principal amount of 9 3/8%
Senior Notes due in 2007 and $250 million principal amount of 9 7/8% Senior
Subordinated Notes due in 2008 and used the proceeds to redeem and retire all of
the then outstanding senior subordinated debentures ($404.3 million principal
amount) due in 2005. The early retirement of debt resulted in an extraordinary
loss of $23.9 million, net of an income tax benefit of $14.8 million. In
addition, in fiscal 1998, the Company refinanced its bank credit facility
establishing a term loan and a new revolving credit facility. The Company used
the proceeds to retire a revolving loan, repay a portion of the Trade Receivable
Facility and for general corporate purposes. In conjunction with this
refinancing, an extraordinary loss of $1.2 million was recognized, net of an
income tax benefit of $0.7 million. See "Note 3 of Notes to Consolidated
Financial Statements."
In fiscal 1997, the Company issued $225 million principal amount of 9
3/4% Senior Notes due in 2007 and used the proceeds to redeem and retire all of
the then outstanding senior notes ($179.7 million principal amount) due in 2001
and to repay borrowings under the revolving portion of its credit facilities.
The early retirement of debt resulted in an extraordinary loss of $7.7 million,
net of an income tax benefit of $5.0 million. See "Note 3 of Notes to
Consolidated Financial Statements."
In fiscal 1996, the Company recorded an extraordinary loss of $3.2
million, net of an income tax benefit of $2.3 million, on the early retirement
of approximately $75.2 million principal amount of the Company's publicly traded
debt.
(4) Basic and diluted loss per common share are equal in fiscal 1999, fiscal
1998 and fiscal 1997 due to the antidilutive effect of the common share
equivalents.
--------------------------------------------------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
GENERAL Demand for brown paper packaging has historically corresponded primarily
to changes in the rate of growth of the manufacturing sector in the U.S.
economy. Growth in the U.S. economy generally stimulates demand for packaging
products.
Historically, the industry's cyclical nature has been driven by the
inelasticity of supply due to the capital-intensive nature of the industry.
Because productive capacity cannot be added quickly, containerboard and
unbleached kraft paper inventory levels tend to fall during periods of rising
demand, exerting upward pressure on prices. In periods when capacity exceeds
demand, efforts to control inventory levels have been viewed as limited, because
containerboard and unbleached kraft paper mills operate most economically near
capacity operating levels. The rationalization of capacity associated with
industry consolidation activities and reduced capacity utilization rates over
the past several years combined with limited new containerboard capacity
additions and stable domestic demand have resulted in relatively balanced
industry supply/demand conditions.
Demand for unbleached kraft paper has declined in recent years due to
displacement by plastics. The Company can vary its production of unbleached
kraft paper, depending on market conditions, because all four of the
11
Company's paper machines that produce unbleached kraft paper also have the
capability to produce containerboard.
Published prices for linerboard recovered from the cyclical low in fiscal
1997 by average year over year increases of approximately 6 percent, 16 percent
and 12 percent in fiscal 1998, fiscal 1999 and fiscal 2000, respectively.
Average grocery sack paper prices remained flat in fiscal 1998 from fiscal 1997
and increased year over year 3 percent and 9 percent in fiscal 1999 and fiscal
2000, respectively.
RESULTS OF OPERATIONS Year ended September 30, 2000 (fiscal 2000) Compared with
Year ended September 30, 1999 (fiscal 1999). Net sales for fiscal 2000 were
$1,167.6 million, an increase of 34 percent compared with net sales of $870.6
million in fiscal 1999. Operating income for fiscal 2000 was $95.3 million
compared with $14.7 million in fiscal 1999. Fiscal 2000 resulted in a net profit
of $2.4 million, or $0.05 per share, compared to a net loss of $46.4 million, or
$0.87 per share in fiscal 1999.
Sales in fiscal 2000 were favorably affected by higher average net selling
prices and higher corrugated shipments, which increased net sales by
approximately $139.5 million and approximately $14.0 million, respectively.
Also, the acquisition of S&G Packaging increased net sales $143.6 million in
fiscal 2000.
Gross margin increased to $194.8 million in fiscal 2000 from $113.1 million
in the prior year primarily due to higher prices for the Company's products of
$118 million net of $22 million of higher containerboard and kraft paper costs.
The higher prices were somewhat offset by higher fiber costs of $25 million and
higher energy costs of $8 million.
Corrugated shipments increased approximately 3 percent in fiscal 2000 to
15.6 billion square feet compared to 15.2 billion square feet in fiscal 1999,
primarily as a result of increased demand for our products. Multiwall bag
shipments increased approximately 8 percent to 58.0 thousand tons in fiscal 2000
compared to 53.5 thousand tons in the prior year. Total mill production
decreased by 3.3 percent to 4,137 tons per day (TPD, calculated on the basis of
the number of days in the period) in fiscal 2000 compared to 4,279 TPD in fiscal
1999 as a result of the Company taking market related downtime. Containerboard
production decreased approximately 4 percent to 3,414 TPD in fiscal 2000
compared to 3,554 TPD in fiscal 1999. Unbleached kraft paper production
remained relatively unchanged at 723 TPD in fiscal 2000 compared to 725 TPD in
fiscal 1999.
Average selling prices increased approximately 17 percent for corrugated
products and increased approximately 4 percent for multiwall bags in fiscal 2000
compared to fiscal 1999. Average selling prices increased for the Company's
domestic linerboard, export linerboard and unbleached kraft paper by
approximately 27 percent, 24 percent and 19 percent, respectively, in fiscal
2000 compared to fiscal 1999.
Fiber costs increased primarily due to higher average delivered costs for
recycled fiber. The average delivered cost for OCC (old corrugated containers)
and DLK (double-lined kraft clippings) increased approximately 45 percent and 46
percent, respectively, in fiscal 2000 compared to fiscal 1999, primarily due to
increased global demand. In contrast, the average delivered cost for wood chips
decreased by approximately 7 percent in fiscal 2000 compared to the prior year.
Selling and administrative costs were $113.9 million in fiscal 2000
compared to $98.4 million in fiscal 1999. This increase was due primarily to the
inclusion of selling and administrative costs of S&G Packaging and management
reorganization costs.
In the fourth quarter of fiscal 2000, emission credits in California with a
book value of $5.6 million were sold for $20.1 million. This resulted in a gain
of $14.4 million after deducting costs associated with the sale of approximately
$0.1 million.
12
Net interest expense increased to $91.7 million in fiscal 2000 from $85.4
million in fiscal 1999. Higher average debt levels increased interest expense by
approximately $5.8 million and higher average borrowing rates increased interest
expense by approximately $0.5 million.
The Company recorded a tax provision of $2.7 million in fiscal 2000
compared to a tax benefit of $28.8 million in fiscal 1999. The effective tax
rate was approximately 53 and 38 percent in fiscal 2000 and fiscal 1999,
respectively. The unusually high tax rate in fiscal 2000 was the result of the
relatively high level of permanent differences between book and taxable income
compared to the low level of pre-tax income.
Year ended September 30, 1999 (fiscal 1999) Compared with Year ended
September 30, 1998 (fiscal 1998). Net sales for fiscal 1999 were $870.6 million,
an increase of 3 percent compared with net sales of $842.6 million in fiscal
1998. Operating income for fiscal 1999 was $14.7 million compared with an
operating loss of $6.7 million in fiscal 1998. Fiscal 1999 resulted in a net
loss of $46.4 million, or $0.87 per share, compared to a net loss of $82.5
million, or $1.55 per share in fiscal 1998, which included a $25.1 million
extraordinary loss ($0.47 per share) on the early retirement of debt.
Sales in fiscal 1999 were unfavorably affected by lower average net selling
prices, which decreased net sales by approximately $7 million. Higher corrugated
shipments increased net sales by approximately $36 million in the year-to-year
comparison.
Gross margin increased to $113.1 million in fiscal 1999 from $84.6 million
in the prior year primarily due to lower fiber costs ($19 million) and higher
volume ($11 million). These improvements were offset in part by reduced earnings
from the Company's chemical subsidiary, as a result of a significant decline in
demand for the subsidiary's products in Asian markets in the first half of
fiscal 1999 ($3 million).
Corrugated shipments increased approximately 6 percent in fiscal 1999 to
15.2 billion square feet compared to 14.3 billion square feet in fiscal 1998,
primarily as a result of opening a new sheet feeder plant in the first quarter
of fiscal 1998 and increased demand. Multiwall bag shipments decreased
approximately 9 percent to 53.5 thousand tons in fiscal 1999 compared to 59.0
thousand tons in the prior year. Total mill production increased by 2 percent to
4,279 tons per day (TPD, calculated on the basis of the number of days in the
period) in fiscal 1999 compared to 4,189 TPD in fiscal 1998. Containerboard
production increased approximately 2 percent to 3,554 TPD in fiscal 1999
compared to 3,474 TPD in fiscal 1999. Unbleached kraft paper production
increased approximately 1 percent to 725 TPD in fiscal 1999 from 715 TPD in
fiscal 1998.
Average selling prices were essentially unchanged for corrugated products
and increased approximately 5 percent for multiwall bags (due mainly to a mix
change) in fiscal 1999 compared to the prior year. Average selling prices
decreased for the Company's domestic linerboard, export linerboard and
unbleached kraft paper, by approximately 4 percent, 5 percent and 7 percent,
respectively, in fiscal 1999 compared to fiscal 1998.
Fiber costs decreased primarily due to lower average delivered costs for
recycled fiber and wood chips. The average delivered cost for OCC (old
corrugated containers) and DLK (double-lined kraft clippings) decreased
approximately 12 percent and 9 percent, respectively, in fiscal 1999 compared to
fiscal 1998, primarily due to decreased demand. In addition, the average
delivered cost for wood chips decreased by approximately 11 percent in fiscal
1999 compared to the prior year. Unusually wet weather in the southern U.S.
resulted in higher wood chip costs in fiscal 1998.
Selling and administrative costs were $98.4 million in fiscal 1999 compared
to $91.3 million in fiscal 1998. This increase was due primarily to higher
information system costs related primarily to the Year 2000 effort, and
increased long-term incentive and litigation costs.
13
Net interest expense increased to $85.4 million in fiscal 1999 from $82.1
million in fiscal 1998. Higher average debt levels increased interest expense by
approximately $7 million, while lower average borrowing rates reduced interest
expense by approximately $4 million. The lower average borrowing rates resulted
primarily from the refinancing of the Company's senior subordinated debentures
in the second quarter of fiscal 1998.
The Company recognized a tax benefit of $28.8 million in fiscal 1999
compared to $35.6 million in fiscal 1998. The tax benefit decreased in the
year-over-year comparison primarily due to improved operating results in fiscal
1999 over fiscal 1998. The effective tax rate was approximately 38 percent in
both fiscal 1999 and fiscal 1998.
During the second quarter of fiscal 1998, the Company issued $200 million
principal amount of 9 3/8% Senior Notes due in 2007 and $250 million principal
amount of 9 7/8% Senior Subordinated Notes due in 2008 and used the proceeds to
redeem and retire all of the then outstanding senior subordinated debentures
($404.3 million principal amount) due in 2005. In conjunction with the
retirement, approximately $6.1 million of deferred financing fees were written
off. The early retirement of debt resulted in an extraordinary loss of $23.9
million, net of an income tax benefit of $14.8 million.
In the third quarter of fiscal 1998, the Company refinanced its bank credit
facility establishing a term loan and a new revolving credit facility. In
conjunction with this refinancing, approximately $1.9 million of deferred
financing fees were written off. This transaction resulted in an extraordinary
loss of $1.2 million, net of an income tax benefit of $0.7 million.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
GENERAL The Company has historically financed its operations through cash
provided by operations, borrowings under its credit agreements and the issuance
of debt and equity securities. The Company's principal uses of cash are to pay
operating expenses, fund capital expenditures and service debt. The Company is
currently prohibited from paying dividends and making purchases of additional
common stock by the terms of its bank credit agreement and public debt
securities.
Net cash provided by operations for fiscal 2000 was $65.0 million as
compared to net cash used by operations of $21.7 million for fiscal 1999. The
improvement was due to an increase of operating income for fiscal 2000.
Capital expenditures of $34.6 million in fiscal 2000 increased by $14.9
million from fiscal 1999. Since its inception in 1986, the Company has made
significant capital expenditures primarily to expand capacity, install advanced
papermaking technology, improve product quality, realize operating efficiencies
and maintain its existing facilities. For fiscal 2001, capital spending is
expected to be in the range of $35 to $40 million, while capital spending beyond
fiscal 2001 will be targeted to approximate the Company's annual depreciation
expense. Capital spending will, however, be adjusted from time to time as market
conditions and available cash flows dictate.
In fiscal 1992, the Company determined it would be unlikely that its
Antioch, California unbleached kraft paper mill (the East Mill), which was
closed in fiscal 1991, could be sold as a mill site or that the East Mill, or a
portion thereof, could be operated economically by the Company. In fiscal 2000,
the Company incurred approximately $1.8 million of costs for demolition and
asbestos removal and to maintain the East Mill. Such costs were net of proceeds
from the sale of scrap. At the end of fiscal 2000 no material spending remained
for demolition work and the net book value of the East Mill was $6.1 million.
In connection with the acquisition of S&G Packaging, the Company paid
Smurfit-Stone $0.5 million for its 65 percent interest. In addition,
14
Smurfit-Stone forgave $4.0 million of its trade receivable for kraft paper sold
to S&G Packaging. The Company repaid, through borrowings on its own revolver,
$32.6 million outstanding on S&G Packaging's revolving loan facility, which was
then terminated. The Company recorded accruals of approximately $3.3 million to
purchase accounting reserves relating to severance and closure costs. In
addition, in the first and second quarters of fiscal 2000 the Company recorded
through income from operations $1.0 million related to such closure costs in
respect of its pre-existing 35% ownership of S&G Packaging. These costs were
associated primarily with the integration of S&G Packaging's Corporate
headquarters facility and the closure of the S&G Packaging facility in Yulee,
Florida. During fiscal 2000 $2.5 million was expended related to such costs and
$1.6 million was reversed within the purchase price allocation, as the cost of
management's plan was less than originally estimated. The balance of the related
reserves at September 30, 2000, was $0.2 million. Substantially all of the
remaining accrual (primarily lease termination costs) will be expended over the
next six months.
LIQUIDITY At September 30, 2000, the Company had cash and equivalents of $0.7
million, a decrease of $9.7 million from September 30, 1999 as cash used in
financing and investments exceeded cash provided by operations. Total debt of
$928.1 million decreased by $7.6 million from $935.7 million at September 30,
1999. The decrease in borrowings was primarily due to improved earnings from
operations and the gain from the sale of emission credits. In August 2000, the
Company extended and expanded its trade receivables-backed revolving credit
facility. The facility was extended to 2005 and the facility was expanded from
$70 million to $125 million of which approximately $98 million was available and
outstanding at September 30, 2000. In addition, during fiscal 2000, the Company
and its lenders amended the financial covenants of the bank credit agreement to
provide additional financial flexibility. The Company had approximately $118
million of revolver borrowings outstanding and approximately $147 million
available under the revolving portion of its credit agreements at September 30,
2000.
At September 30, 2000, the Company had primary working capital of $182.3
million, an increase of $21.6 million from September 30, 1999, due to increased
inventories, offset somewhat by increased trade payables, both of which were
primarily due to the acquisition of S&G Packaging.
The rationalization of capacity associated with industry consolidation
activities and reduced capacity utilization rates over the past several years
combined with limited new containerboard capacity additions and stable domestic
demand has resulted in relatively balanced industry supply/demand conditions.
During fiscal 2000, published prices of linerboard and grocery sack paper
increased by $50 per ton. Subsequently, the Company implemented corresponding
price increases for its corrugated products in fiscal 2000.
In the fourth quarter of fiscal 2000, average delivered costs for wood
chips increased by approximately 2 percent compared to the third quarter of the
fiscal year. Average delivered prices for OCC and DLK decreased approximately 38
and 17 percent, respectively, in the fourth quarter of fiscal 2000 compared to
the third quarter of fiscal 2000. Fiber markets are difficult to predict, and
there can be no assurance of the future direction of OCC, DLK and wood chip
prices.
Based on current prices for converted products, current raw material and
energy costs and assuming maintenance levels of capital spending, the Company
believes that cash provided by operations and borrowings available under its
credit agreements will provide adequate liquidity to meet debt service
obligations and other liquidity requirements over the next 12 to 24 months.
PENDING ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
15
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments. An amendment to SFAS 133,
SFAS 137, was issued in July 1999, which defers by one year the effective date
of SFAS 133 to fiscal years beginning after June 15, 2000. A further amendment
to SFAS 133, SFAS 138, was issued on June 15, 2000, which amends certain
accounting and reporting standards of SFAS 133 for certain derivative
instruments and hedging activities. These statements have been adopted by the
Company on October 1, 2000 and are not expected to have a significant effect on
the Company's consolidated results of operations or financial position.
YEAR 2000 ISSUE
Following the end of the Company's fiscal year in September 1999, the calendar
year in December 1999 and the passing of leap year 2000, the Company experienced
no major incidents related to the Year 2000 Issue, and does not expect to incur
any material additional costs related to this issue in the future.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
--------------------------------------------------------------------------------
The Company is subject to market risk associated with changes in interest rates
due to its variable rate debt. The impact on the Company's cash flows and
pre-tax results of operations from a 1 percent change in interest rates is
approximately $2.5 million.
-------------------------------------
FORWARD-LOOKING STATEMENTS IN THIS FILING, INCLUDING THOSE IN THE FOOTNOTES TO
THE FINANCIAL STATEMENTS, ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS FILING, THE
WORDS "BELIEVES," "PROJECTED," "EXPECTS," "ANTICIPATES," "ESTIMATES" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL
RESULTS COULD DIFFER MATERIALLY. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE
NOT LIMITED TO, GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITIVE MARKET
PRICING, INCREASES IN RAW MATERIAL, ENERGY AND OTHER MANUFACTURING COSTS,
FLUCTUATIONS IN DEMAND FOR THE COMPANY'S PRODUCTS, POTENTIAL EQUIPMENT
MALFUNCTIONS AND PENDING LITIGATION.
16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
INDEX TO FINANCIAL STATEMENTS
[Enlarge/Download Table]
Page
Independent Auditors' Report 18
--------------------------------------------------------------------------------------
Consolidated Balance Sheets at September 30, 2000 and 1999 19
--------------------------------------------------------------------------------------
Consolidated Statements of Operations for the Years
Ended September 30, 2000, 1999 and 1998 20
--------------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended September 30, 2000, 1999 and 1998 21
--------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows for the Years
Ended September 30, 2000, 1999 and 1998 22
--------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 23
--------------------------------------------------------------------------------------
17
INDEPENDENT AUDITORS' REPORT
Gaylord Container Corporation:
We have audited the accompanying consolidated balance sheets of Gaylord
Container Corporation and its subsidiaries (the Company) as of September 30,
2000 and 1999 and the related consolidated statements of operations, of
stockholders' equity (deficit) and of cash flows for each of the three years in
the period ended September 30, 2000. Our audits also included the financial
statement schedule of the Company for each of the three years in the period
ended September 30, 2000, listed in Item 14a. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at September 30,
2000 and 1999 and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 2000 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information shown therein.
Deloitte & Touche LLP
Chicago, Illinois
October 26, 2000
18
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2000 AND 1999
[Download Table]
In millions 2000 1999
---------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 0.7 $ 10.4
Trade receivables (less allowances of $7.8 and
$6.7, respectively) (Note 9) 149.6 149.8
Inventories (Note 5) 92.6 67.1
Prepaid expenses 5.5 5.1
Other 12.7 7.7
---------------------------------------------------------------------------
Total current assets 261.1 240.1
---------------------------------------------------------------------------
Property - net (Notes 6 and 14) 575.0 558.9
Other assets:
Deferred charges (Note 7) 19.1 20.0
Deferred income taxes (Note 8) 147.1 152.1
Other (Notes 4 and 9) 31.9 46.9
---------------------------------------------------------------------------
Total $1,034.2 $1,018.0
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt (Note 9) $ 16.9 $ 10.9
Trade payables 59.9 56.2
Accrued interest payable 16.7 16.2
Accrued and other liabilities (Note 10) 68.8 61.1
---------------------------------------------------------------------------
Total current liabilities 162.3 144.4
---------------------------------------------------------------------------
Long-term debt (Note 9) 911.2 924.8
Other long-term liabilities (Note 10) 47.5 39.6
Commitments and contingencies (Note 16) -- --
Stockholders' equity (deficit) (Notes 11, 12 and 13)
Class A common stock -- --
Capital in excess of par value 179.1 178.2
Accumulated deficit (254.9) (257.0)
Common stock in treasury - at cost (10.3) (10.9)
Accumulated other comprehensive income (loss):
Minimum pension liability (Note 15) (0.7) (1.1)
---------------------------------------------------------------------------
Total stockholders' equity (deficit) (86.8) (90.8)
---------------------------------------------------------------------------
Total $1,034.2 $1,018.0
===========================================================================
See notes to consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
[Enlarge/Download Table]
In millions, except per share data 2000 1999 1998
---------------------------------------------------------------------------------------------------------
Net sales $1,167.6 $ 870.6 $ 842.6
Cost of goods sold 972.8 757.5 758.0
---------------------------------------------------------------------------------------------------------
Gross margin 194.8 113.1 84.6
Selling and administrative costs (113.9) (98.4) (91.3)
Non-recurring operating income (Note 2) 14.4 -- --
---------------------------------------------------------------------------------------------------------
Operating earnings (loss) 95.3 14.7 (6.7)
Interest expense - net (Note 9) (91.7) (85.4) (82.1)
Other income (expense) - net 1.5 (4.5) (4.2)
---------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
extraordinary items 5.1 (75.2) (93.0)
Income tax (expense) benefit (Note 8) (2.7) 28.8 35.6
---------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items 2.4 (46.4) (57.4)
Extraordinary loss (Note 3) -- -- (25.1)
---------------------------------------------------------------------------------------------------------
Net income (loss) $ 2.4 $ (46.4) $ (82.5)
---------------------------------------------------------------------------------------------------------
Net income (loss) per common share (Note 19):
Basic and diluted:
Income (loss) before extraordinary items $ 0.05 $ (0.87) $ (1.08)
Extraordinary loss (Note 3) -- -- (0.47)
---------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.05 $ (0.87) $ (1.55)
---------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
[Enlarge/Download Table]
Common stock Accumulated
--------------------- other Total
Class A Capital in Accumulated Treasury stock Comprehensive Stockholders'
--------------------- excess of earnings ------------------- income equity
Dollars in millions Shares Dollars par value (deficit) Shares Dollars (loss) (deficit)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 1997 54,573,164 $ -- $ 175.6 $ (128.1) 1,546,203 $ (11.4) $ (1.5) $ 34.6
Comprehensive income (loss)
Net loss -- -- (82.5) -- -- -- (82.5)
Other comprehensive income
(loss):
Adjustment of minimum
pension liability -- -- -- -- -- -- (1.6) (1.6)
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
(loss): -- -- -- (82.5) -- -- (1.6) (84.1)
Options exercised 199,478 -- 1.5 -- -- -- -- 1.5
Restricted stock - net 13,850 -- 0.3 -- -- -- -- 0.3
Other -- -- -- -- (33,639) 0.2 -- 0.2
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 1998 54,786,492 -- 177.4 (210.6) 1,512,564 (11.2) (3.1) (47.5)
Comprehensive income (loss)
Net loss -- -- -- (46.4) -- -- -- (46.4)
Other comprehensive income
(loss):
Adjustment of minimum
pension liability -- -- -- -- -- -- 2.0 2.0
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
(loss): -- -- -- (46.4) -- -- 2.0 (44.4)
Options exercised 168,151 -- 0.6 -- -- -- -- 0.6
Restricted stock - net 4,650 -- 0.2 -- -- -- -- 0.2
Other 32,116 -- -- -- (44,598) 0.3 -- 0.3
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 1999 54,991,409 -- 178.2 (257.0) 1,467,966 (10.9) (1.1) (90.8)
Comprehensive income (loss)
Net income -- -- -- 2.4 -- -- -- 2.4
Other comprehensive income
(loss):
Adjustment of minimum
pension liability -- -- -- -- -- -- 0.4 0.4
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
(loss): -- -- -- 2.4 -- -- 0.4 2.8
Options exercised 29,235 -- 0.2 -- -- -- -- 0.2
Restricted stock - net 196,100 -- 0.7 -- -- -- -- 0.7
Other 6,950 -- -- (0.3) (73,373) 0.6 -- 0.3
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
SEPTEMBER 30, 2000 55,223,694 $ -- $ 179.1 $ (254.9) 1,394,593 $ (10.3) $ (0.7) $(86.8)
-----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
[Download Table]
In millions 2000 1999 1998
----------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS:
Net income (loss) $ 2.4 $(46.4) $(82.5)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Extraordinary loss (Note 3) -- -- 25.1
Depreciation and amortization 53.1 53.0 65.6
Deferred tax expense (benefit) 2.3 (28.8) (30.1)
Acquisition restructuring expenditures (1.5) (0.4) (0.6)
Change in current assets and liabilities,
excluding acquisitions and dispositions:
Receivables 15.2 (27.4) (21.8)
Inventories 3.2 6.1 4.1
Prepaid expenses and other current assets (1.1) (3.0) 4.7
Accounts payable and other accrued liabilities (13.9) 17.8 (24.7)
Other - net 5.3 7.4 2.7
----------------------------------------------------------------------------------
Net cash provided by (used in) operations 65.0 (21.7) (57.5)
----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTMENTS:
Capital expenditures (34.6) (19.7) (39.7)
Capitalized interest (0.5) (0.6) (1.6)
Acquisition - net 1.4 -- --
Other investments - net (0.8) (2.2) (1.4)
----------------------------------------------------------------------------------
Net cash used in investments (34.5) (22.5) (42.7)
----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING:
Early extinguishment of debt (Notes 3 and 9) -- -- (436.9)
Issuance of debt (Notes 3 and 9) -- -- 575.0
Senior debt repayments (Note 18) (63.7) (9.5) (15.7)
Debt issuance costs (1.8) -- (15.3)
Revolving credit agreement borrowings - net (Note 18) 23.0 56.5 (8.5)
Other financing - net 2.3 1.9 1.2
----------------------------------------------------------------------------------
Net cash provided by (used in) financing (40.2) 48.9 99.8
----------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (9.7) 4.7 (0.4)
Cash and equivalents, beginning of year 10.4 5.7 6.1
----------------------------------------------------------------------------------
Cash and equivalents, end of year $ 0.7 $ 10.4 $ 5.7
==================================================================================
See notes to consolidated financial statements.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
1. GENERAL/SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Gaylord Container Corporation (including its
subsidiaries, the Company) is engaged in the integrated production, conversion
and sale of brown paper packaging products. The Company is a major national
manufacturer and distributor of corrugated containers, corrugated sheets,
containerboard, unbleached kraft paper, multiwall and retail bags, and, through
a wholly owned, independently operated subsidiary, specialty chemicals.
Corrugated containers and sheets, multiwall and retail bags, solid fibre
products, containerboard and unbleached kraft paper collectively represent
approximately 99 percent of the Company's net sales. Corrugated containers are
produced to customer order primarily for use in shipping their products and as
point-of-sale displays. Containerboard, consisting of linerboard and corrugating
medium, is the principal raw material used to manufacture corrugated containers
and corrugated sheets. The Company also produces unbleached kraft paper, which
it converts into multiwall and retail bags or sells to independent converters.
At September 30, 2000, the Company's facilities, which are located
throughout the United States, consist of three containerboard and paper mills,
fourteen corrugated container plants, five retail bag plants, four corrugated
sheet feeder plants, two multiwall bag plants, a preprint and graphics center, a
cogeneration facility and, through a wholly owned, independently operated
subsidiary, a specialty chemical facility.
Use of Estimates - The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
amounts reported and disclosed in the financial statements and accompanying
notes. Such estimates include allowance for bad debts, credit memos, cash
discounts, LIFO valuation, recovery of long lived assets, insurance reserves,
and realization of deferred tax assets. Actual results may differ from such
estimates.
Summary of Significant Accounting Policies - The Company's accounting
policies conform to accounting principles generally accepted in the United
States of America. Significant policies followed are described below:
Basis of Consolidation - The consolidated financial statements at
September 30, 2000 and 1999, and for the years ended September 30, 2000 (fiscal
2000), September 30, 1999 (fiscal 1999), and September 30, 1998 (fiscal 1998),
include all the accounts of the Company after elimination of intercompany
transactions and balances. The Company operates on a 52/53-week fiscal year.
Fiscal 2000, fiscal 1999 and fiscal 1998 were 52-week fiscal years. Certain
amounts on the consolidated financial statements and footnotes have been
reclassified to conform with the current year presentation.
Revenue Recognition - Sales are recognized when the Company's products
are shipped. Shipments to companies with which the Company has reciprocal
purchase agreements (Exchange Partners) are not recognized as sale transactions
in the Consolidated Statements of Operations. In the Consolidated Balance
Sheets, however, trade receivables due from and trade payables due to Exchange
Partners are not eliminated because a contractual right of offset does not
exist.
Valuation of Long-Lived Assets - The Company reviews its long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Management believes
circumstances, including current product prices, support the recoverability of
such long-lived assets.
Cash and Equivalents - The Company considers all highly liquid debt
instruments, including time deposits, bank repurchase agreements and
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
commercial paper, with an original or purchased maturity of three months or
less, to be cash equivalents.
Inventories are stated at the lower of cost or market value. Cost
includes materials, transportation, direct labor and manufacturing overhead.
Cost is determined by the last-in, first-out (LIFO) method of inventory
valuation.
Property is stated at cost and includes interest capitalized during
construction periods. Maintenance and repairs are charged to expense as
incurred.
Depreciation is computed using the straight-line method over estimated
useful lives ranging from 10 to 45 years for buildings and improvements and
three to 20 years for machinery and equipment.
Deferred Financing Costs - Costs incurred in connection with the
issuance of long-term debt or other financing arrangements are capitalized.
Amortization of deferred financing costs is computed using the effective
interest rate method over the term of the related debt and is classified as
interest expense.
Investment in Affiliates - The equity method of accounting is applied
to affiliates in which the Company's ownership interest is greater than 20
percent but less than or equal to 50 percent. Goodwill is recognized for
investments in affiliates where cost exceeds the Company's equity in net assets
acquired. In general, goodwill is amortized over the average remaining useful
life of the unconsolidated affiliate's property, plant and equipment or such
shorter period as circumstances indicate. The Company's proportionate share of
earnings in unconsolidated affiliates accounted for by the equity method, net of
amortization of goodwill, is included in "Other income (expense) - net" in the
Company's Consolidated Statements of Operations. The cost method of accounting
is applied to affiliates in which the Company's ownership interest is less than
or equal to 20 percent.
Income Taxes - Deferred income taxes are provided using the liability
method for those items for which the period of reporting differs for financial
reporting and income tax purposes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (see Note 8).
Earnings Per Common Share is calculated in accordance with SFAS No.
128, "Earnings Per Share", (see Note 19).
2. NON-RECURRING OPERATING INCOME In the fourth quarter of fiscal 2000, emission
credits in California with a book value of $5.6 million were sold for $20.1
million. This resulted in a gain of $14.4 million after deducting costs
associated with the sale of approximately $0.1 million.
3. EXTRAORDINARY ITEMS In fiscal 1998, the Company issued $200 million principal
amount of 9 3/8% Senior Notes due in 2007 and $250 million principal amount of 9
7/8% Senior Subordinated Notes due in 2008 and used the proceeds to redeem and
retire all of the then outstanding senior subordinated debentures ($404.3
million principal amount) due in 2005. In conjunction with the retirement,
approximately $6.1 million of deferred financing fees were written off. The
early retirement of debt resulted in an extraordinary loss of $23.9 million, net
of an income tax benefit of $14.8 million.
Also in fiscal 1998, the Company refinanced its bank credit facility
establishing a term loan and a new revolving credit facility. In conjunction
with this refinancing, approximately $1.9 million of deferred financing fees
were written off. This transaction resulted in an extraordinary loss of $1.2
million, net of an income tax benefit of $0.7 million.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
4. INVESTMENT IN AFFILIATES On October 28, 1999, the Company acquired the
remaining 65 percent of S&G Packaging Company, L.L.C. (S&G Packaging) it did not
already own from Smurfit-Stone Container Corporation (Smurfit-Stone). S&G
Packaging was a joint venture formed with Smurfit-Stone in July 1996, when the
Company contributed retail bag manufacturing net assets with a carrying value of
approximately $32.3 million (of which Property - net accounted for approximately
$25.1 million) in exchange for a 35 percent equity interest in the new company.
S&G Packaging is the largest U.S. producer of retail paper bags. Product sales
to S&G Packaging during fiscal 2000 (pre acquisition), fiscal 1999 and fiscal
1998 were approximately $4.6 million, $42.2 million and $46.3 million,
respectively.
In connection with this transaction, the Company paid to Smurfit-Stone
$0.5 million for its 65 percent interest and repaid through borrowings on its
revolver, $32.6 million outstanding on S&G Packaging's revolving loan facility,
which was then terminated. In addition, Smurfit-Stone forgave $4.0 million of
its trade receivable for kraft paper sold to S&G Packaging. S&G Packaging also
entered into a paper supply agreement to purchase at market prices 60,000 tons
and 48,000 tons of kraft paper in fiscal 2000 and fiscal 2001, respectively, and
36,000 tons in each of fiscal 2002, fiscal 2003 and fiscal 2004, from
Smurfit-Stone. The Company has accounted for this transaction as a purchase
business combination. Beginning on October 29, 1999, the operating results of
S&G Packaging have been fully consolidated with the Company's Results of
Operations. Prior to acquiring the remaining 65 percent of S&G Packaging, the
Company accounted for S&G Packaging under the equity method and recognized its
proportionate share of earnings, net of amortization of goodwill, in Other
income (expense)-net. The Company recorded accruals of approximately $3.3
million to purchase accounting reserves relating to severance and closure costs.
In addition, in the first and second quarters of fiscal 2000 the Company
recorded through income from operations $1.0 million related to such closure
costs in respect of its pre-existing 35% ownership of S&G Packaging. These costs
were associated primarily with the integration of S&G Packaging's Corporate
headquarters facility and the closure of the S&G Packaging facility in Yulee,
Florida. During fiscal 2000 $2.5 million was expended related to such costs and
$1.6 million was reversed within the purchase price allocation, as the cost of
management's plan was less than originally estimated. The balance of the related
reserves at September 30, 2000, was $0.2 million. Substantially all of the
remaining accrual (primarily lease termination costs) will be expended over the
next six months.
The Company owns a 50 percent interest in Gaylord Central National,
Inc. (GCN), a joint venture formed with Central National-Gottesman, Inc. GCN is
the primary agent for the Company's export sales of containerboard. Product
sales to GCN during fiscal 2000, fiscal 1999 and fiscal 1998 were approximately
$24.0 million, $20.9 million and $22.1 million, respectively.
The Company has a 50 percent ownership interest in a joint venture
that, through a wholly owned subsidiary, produces corrugated sheets and
corrugated containers in Mexico. Product sales to this company during fiscal
2000, fiscal 1999 and fiscal 1998, were approximately $4.7 million, $2.9 million
and $4.1 million, respectively.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
5. INVENTORIES
Inventories consist of:
September 30,
----------------------
In millions 2000 1999
---------------------------------------------------------------------
Finished products $ 29.1 $ 9.1
In process 53.2 42.7
Raw materials 6.7 9.0
Supplies 14.9 15.0
---------------------------------------------------------------------
103.9 75.8
LIFO valuation adjustment (11.3) (8.7)
---------------------------------------------------------------------
Total $ 92.6 $ 67.1
=====================================================================
As a result of a LIFO inventory liquidation in fiscal 2000 and 1999,
the Company's "Cost of goods sold" in fiscal 2000 and fiscal 1999 was $0.1
million higher and $0.3 million less, respectively, than it would have been had
a liquidation not occurred.
6. PROPERTY - NET
Property consists of:
September 30,
-----------------------
In millions 2000 1999
----------------------------------------------------------------------
Land $ 18.4 $ 18.2
Buildings and improvements 164.8 158.0
Machinery and equipment 977.8 930.7
Construction-in-process 18.9 12.4
----------------------------------------------------------------------
1,179.9 1,119.3
Accumulated depreciation (604.9) (560.4)
----------------------------------------------------------------------
Total $575.0 $558.9
======================================================================
Depreciation expense was $49.5 million, $49.2 million and $60.4 million
in fiscal 2000, fiscal 1999 and fiscal 1998, respectively.
7. DEFERRED CHARGES
Deferred charges consist of:
September 30,
-----------------------
In millions 2000 1999
--------------------------------------------------------------------------
Deferred financing costs $ 25.5 $ 23.7
Intangibles 4.7 4.7
--------------------------------------------------------------------------
30.2 28.4
Accumulated amortization (11.1) (8.4)
--------------------------------------------------------------------------
Total $ 19.1 $ 20.0
==========================================================================
Amortization of deferred charges during fiscal 2000, fiscal 1999 and
fiscal 1998 was approximately $2.7 million, $2.8 million and $3.3 million,
respectively. Included in these amounts is amortization of deferred financing
costs incurred during fiscal 2000, fiscal 1999 and fiscal 1998, and recognized
in interest expense - net, of approximately $2.3 million, $2.5
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
million and $2.8 million, respectively. In fiscal 2000, the Company deferred
approximately $1.8 million of total financing fees in connection with the
extension and expansion of its Trade Receivables Credit Facility and the
amendment of the Credit Facility covenants. During fiscal 1998, the Company
wrote off approximately $6.1 million of deferred financing fees relating to the
early retirement of its senior subordinated debentures and $1.9 million relating
to the refinancing of the revolving credit facility and deferred approximately
$15.3 million of financing fees related to such refinancings.
8. INCOME TAXES
The net deferred current and non-current income tax assets, result from the tax
effects of the following temporary differences:
September 30,
-------------------
In millions 2000 1999
----------------------------------------------------------------------
CURRENT
Deferred tax assets:
Inventory valuation $ 3.1 $ 0.6
----------------------------------------------------------------------
Current deferred tax asset $ 3.1 $ 0.6
----------------------------------------------------------------------
NON-CURRENT
Deferred tax assets:
Net operating loss $261.5 $275.6
Asset write-down 39.2 38.8
Debt restructuring expenses 0.6 1.0
Other long-term liabilities 2.2 2.9
Deferred compensation 18.1 14.5
Other 7.3 5.5
----------------------------------------------------------------------
Sub-total 328.9 338.3
----------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 166.8 171.3
Capitalized interest 13.6 13.4
Other 1.4 1.5
----------------------------------------------------------------------
Sub-total 181.8 186.2
----------------------------------------------------------------------
Net non-current deferred tax asset $147.1 $152.1
======================================================================
The current income tax provision for fiscal 2000 of $0.4 million is
principally related to federal Alternative Minimum Taxes (AMT) and state income
taxes. The payment of AMT taxes will result in an AMT credit which may be used
to offset regular federal income taxes when they become payable in the future.
Such AMT credits may be carried forward indefinitely until utilized. In both
fiscal 1999 and fiscal 1998, the current income tax provision was $0.
The deferred income tax provision for fiscal 2000 was $2.3 million
including the AMT credit carryforward. In fiscal 1999 and fiscal 1998, the
deferred income tax benefit was $28.8 million and $51.1 million, respectively.
As a result of an adjustment to the minimum pension liability in Accumulated
other comprehensive income on the balance sheet, there was a resulting $0.2
million reduction of the net non-current deferred tax asset. Deferred income
taxes result from temporary differences in the period of reporting revenues,
expenses and credits in the financial statements and income tax return.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
Such temporary differences for fiscal 2000, fiscal 1999 and fiscal 1998 and
their related deferred income tax benefit follow:
[Enlarge/Download Table]
Year Ended September 30,
--------------------------------------
In millions 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 4.5 $ 0.7 $ 7.1
Original issue discount - - (58.6)
Asset write-down 0.4 (2.5) (0.6)
Debt restructuring expenses (0.4) (0.3) (0.4)
Inventory differences 2.5 0.6 (4.7)
Net operating (income) loss (14.1) 30.5 107.9
Other - net 4.8 (0.2) 0.4
-----------------------------------------------------------------------------------------------------------------------
Total deferred income tax (expense) benefit $(2.3) $28.8 $51.1
=======================================================================================================================
Although realization is not assured, management believes it is more
likely than not that all of the Company's deferred tax assets will be realized.
Management believes future taxable income, including but not limited to the
generation of future operating income and reversal of existing temporary
differences and implementation of tax planning strategies, if needed, will be
sufficient to allow the future realization of the September 30, 2000 deferred
tax assets.
At September 30, 2000, the Company had cumulative regular net operating
loss carryforwards of approximately $645 million, which may be carried forward
and expire beginning in 2007 through the year 2019. At September 30, 2000, AMT
net operating losses of approximately $403 million are available to be carried
forward through the year 2019.
A reconciliation of income tax (expense) benefit to the amount computed
by applying the statutory federal income tax rates to the income or loss before
income taxes follows (dollars in millions):
[Enlarge/Download Table]
Year Ended September 30,
----------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- -----------------------
PERCENTAGE OF Percentage of Percentage of
INCOME BEFORE loss before loss before
INCOME income income
AMOUNT TAXES Amount taxes Amount taxes
----------------------------------------------------------------------------------------------------------------------------------
Federal statutory income tax $(1.8) 35% $26.3 35% $32.8 35%
State income taxes - net of
Federal benefit (0.2) 3 2.5 3 3.1 3
Other, primarily permanent
differences (0.7) 15 -- -- (0.3) --
--------------------------------------------------------------------------------------------------------------------------------
Total income tax (expense) benefit $(2.7) 53% $28.8 38% $35.6 38%
--------------------------------------------------------------------------------------------------------------------------------
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
9. LONG-TERM DEBT
Long-term debt consists of the following:
[Enlarge/Download Table]
September 30,
IN MILLIONS 2000 1999
----------------------------------------------------------------------------------------------------------------------
Trade Receivable Facility, due May 2005 (a) $ 98.0 $ 70.0
Revolving Credit Facility, due June 2003 (b) 20.0 25.0
Term Loan, due June 2004 (b) 103.0 124.4
Senior Notes, 9 3/8%, due June 2007 (c) 200.0 200.0
Senior Notes, 9 3/4%, due June 2007 (c) 225.0 225.0
Pollution control and industrial revenue bonds,
interest at 5.7% to 8.3%, due at various dates to 2008 (d) 9.4 11.2
Capital lease obligations, interest at 7.6% to 11.8%, due at
various dates to 2011 (e) 9.6 13.1
Other senior debt, interest at 9.5% to 12.0%, due at various
dates to 2012 (f) 13.1 17.0
----------------------------------------------------------------------------------------------------------------------
Total Senior debt 678.1 685.7
Senior Subordinated Notes, 9 7/8%, due February 2008 (g) 250.0 250.0
----------------------------------------------------------------------------------------------------------------------
Total debt 928.1 935.7
Less current maturities (16.9) (10.9)
----------------------------------------------------------------------------------------------------------------------
Total $ 911.2 $924.8
----------------------------------------------------------------------------------------------------------------------
Scheduled aggregate annual principal payments due on long-term debt during
each of the next five years are (in millions) $16.9, $5.9, $7.5, $93.3 and $2.7,
respectively. These amounts exclude the debt that is outstanding under the GRC
trade receivable-backed revolving credit facility and the bank credit agreement
revolving credit facility reflecting the Company's intention to extend or
replace these facilities.
a) In fiscal 1993, the Company established a wholly owned, special-purpose
subsidiary, Gaylord Receivables Corporation (GRC). Concurrently, GRC and a group
of banks established a $70 million trade receivables-backed revolving credit
facility (the Trade Receivable Facility) due in July 2001. In August 2000 the
Company refinanced and expanded the facility. The refinancing extends the
facility to May 2005 and expands the facility to $125 million. The additional
available liquidity will be used for general corporate purposes, including
repayment of the bank revolver, working capital needs and capital expenditures.
Under this program, GRC purchases on an on-going basis substantially all of the
accounts receivable of the Company and transfers the accounts receivable to a
trust in exchange for trust certificates representing ownership interests in the
accounts receivable. The trust certificates received by GRC from the trust are
solely the property of GRC. In the event of liquidation of GRC, the creditors of
GRC would be entitled to satisfy their claims from GRC's assets prior to any
distribution to the Company.
Various interest rate options are available for Trade Receivable Facility
borrowings based on one or a combination of the following two rates: (i) prime
rate loans at the higher of (a) the prime rate in effect from time to time or
(b) the Federal Funds Rate plus 0.50 percent per annum, or (ii) LIBOR rate loans
at the relevant LIBOR rate plus a borrowing margin of 0.60 percent per annum for
interest periods of one, two or three months. GRC pays a commitment fee of 0.50
percent per annum on the unused credit available under the Trade Receivable
Facility. Credit available under the Trade Receivable Facility is on a
borrowing-base formula. As a result, the full amount of the facility may not be
available at all times. At September 30, 2000, $98.0 million was available and
outstanding under the Trade Receivable Facility.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
The highest outstanding principal balance under the Trade Receivable Facility
during fiscal 2000 was $98.0 million, and the weighted average interest rate was
6.78 percent in fiscal 2000 and 5.75 percent in fiscal 1999. At September 30,
2000 and 1999 the Company's consolidated balance sheet included $136.4 million
and $133.2 million respectively, of accounts receivable sold to GRC.
(b) At September 30, 2000, the Company's bank credit agreement included the
Term Loan Facility and the Revolving Credit Facility (collectively, the Credit
Facility). The Company entered into the Credit Facility in June 1998 and used
the proceeds of the Term Loan: (i) to retire the outstanding balance on a
revolving loan; (ii) to repay a portion of the Trade Receivable Facility; (iii)
to pay fees and expenses; and (iv) for general corporate purposes.
In August 2000, the Company amended certain financial covenants for the
period ending September 2000 and beyond under its bank credit agreement to
provide substantial additional financial flexibility.
Substantially all of the Company's assets, except for the accounts
receivable sold to GRC described in (a) above, are encumbered by liens under the
Credit Facility. This facility contains normal and customary terms and
conditions including restrictions on: liens, additional indebtedness,
investments, pre-payment of debt, declaration and payment of dividends,
repurchases of stock, guarantees, equity offerings, change of control, capital
expenditures, and asset sales. The Credit Facility also contains covenants
requiring the Company to achieve certain financial criteria each quarter. The
Company may be required to pre-pay the Term Loan Facility with the proceeds of
certain asset dispositions, equity offerings or certain property insurance and
condemnation recoveries. In September 2000, the Company prepaid $20.1 million of
the Term Loan Facility with proceeds from the sale of emission credits (see Note
2). This payment reduces the amount of the final payment due at the maturity
date of the Term Loan Facility. In addition, the Company may be required to
pre-pay a portion of the Term Loan Facility with 50 percent of excess cash flow
(as defined). Under the terms of this provision, the excess cash flow
computation for fiscal 2000 will result in a $7.5 million payment in January
2001. This prepayment will reduce the amount of the final payment due at the
maturity date of the Term Loan Facility. The Term Loan requires semi-annual
amortization payments of $0.6 million in June and December of each fiscal year
and increases to $59.7 and $33.3 million (net of the asset sale proceeds payment
and excess cash flow payment described above) for the payments due December 2003
and June 2004 (the maturity date), respectively.
Interest rate options available on Term Loan Facility borrowings consist of
one or a combination of the following rates: (i) the greater of (a) the prime
rate plus a borrowing margin of 2.625 percent per annum or (b) the federal funds
rate plus 3.125 percent per annum or (ii) the Eurodollar rate plus a borrowing
margin of 3.625 percent per annum for periods of one, two, three or six months.
Nine and twelve month options may also be made available by the lenders. The
weighted average interest rate on the Term Loan Facility was 9.5 percent in
fiscal 2000 and 8.4 percent in fiscal 1999.
The Revolving Credit Facility provides borrowings up to a maximum of $175.0
million and repayments in whole or in part without a prepayment penalty. The
same interest rate options are available under the Revolving Credit Facility as
the Term Loan Facility discussed above. The Revolving Credit Facility also
permits issuance of up to $30 million of letters of credit and a $25 million
swingline facility, both of which reduce the available balance under the
Revolving Credit Facility by an equal amount.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
The Company pays a commitment fee of 0.50 percent per annum on the unused
portion of the Revolving Credit Facility. At September 30, 2000, $20 million was
outstanding under the Revolving Credit Facility, $8.3 million of undrawn standby
letters of credit were outstanding and $147 million of credit was available. The
Company's highest outstanding principal balance under the Revolving Credit
Facility during fiscal 2000 was $84 million. The weighted average interest rate
was 9.6 percent in fiscal 2000 and 8.3 percent in fiscal 1999.
(c) In fiscal 1998, the Company issued $200 million principal amount of 9
3/8% Senior Notes due June 15, 2007 (the 9 3/8% Notes and together with the 9
3/4% Notes (defined below), the Senior Notes). The 9 3/8% Notes are subject to
redemption on or after June 15, 2002, at the option of the Company, in whole or
in part, at declining redemption prices commencing at 104.688 percent of the
principal amount and declining to 100 percent of the principal amount at June
15, 2005, and thereafter, plus accrued interest to the date of redemption.
In fiscal 1997, the Company issued $225 million principal amount of 9 3/4%
Senior Notes due on June 15, 2007 (the 9 3/4% Notes). The 9 3/4% Notes are
subject to redemption on or after June 15, 2002, at the option of the Company,
in whole or in part, at declining redemption prices commencing at 104.875
percent of the principal amount and declining to 100 percent of the principal
amount at June 15, 2005, and thereafter, plus accrued and unpaid interest to the
date of redemption.
The Senior Notes are general unsecured obligations of the Company and rank
pari passu in right of payment to all senior indebtedness of the Company,
including indebtedness under the Credit Facility. The Senior Notes rank senior
in right of payment to the Senior Subordinated Notes (defined below). Interest
on the Senior Notes is payable semi-annually on June 15 and December 15. In
addition, upon the occurrence of a change of control (as defined) each holder of
the Senior Notes has the right to require the Company to repurchase such
holder's notes at a price equal to 101 percent of the principal amount, plus
accrued and unpaid interest to the date of the repurchase. Finally, the Company
would be required to make an offer to repurchase the Senior Notes at 100 percent
of the principal amount, plus accrued and unpaid interest to the date of
repurchase, in the event of certain asset sales.
(d) The pollution control and industrial revenue bonds were assumed by the
Company at its formation. The Company simultaneously acquired notes receivable
from the previous holder of those bonds for an amount and with terms identical
to those of the bonds. At September 30, 2000 and 1999, such remaining unpaid
notes receivable were approximately $9.4 million and $11.2 million, respectively
and were classified as "Other assets."
(e) The capital leases have initial terms ranging from five to 14 years.
The capital leases contain covenants, which are standard for these types of
obligations, but do not contain any operating or financial covenants.
(f) The other senior debt instruments were incurred to acquire certain
assets and are secured by those assets. They have terms ranging from four to 15
years. The other senior debt instruments contain covenants, which are standard
for these types of obligations, but do not contain any operating or financial
covenants.
(g) In fiscal 1998, the Company issued $250 million principal amount of 9
7/8% Senior Subordinated Notes due February 15, 2008 (the Senior Subordinated
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
Notes). The Senior Subordinated Notes are general unsecured obligations of the
Company and are subordinated in right of payment to all Senior Debt (as defined)
of the Company, including indebtedness under the Credit Facility and the Senior
Notes. The Senior Subordinated Notes would rank pari passu in right of payment
to any future senior subordinated indebtedness of the Company. The Senior
Subordinated Notes rank senior in right of payment to all subordinated
indebtedness. Interest on the Senior Subordinated Notes is payable semi-annually
on February 15 and August 15. The Senior Subordinated Notes are subject to
redemption on or after February 15, 2003, at the option of the Company, in whole
or in part, at declining redemption prices commencing at 105.063 percent of the
principal amount and declining to 100 percent of the principal amount at
February 15, 2006 and thereafter, plus accrued and unpaid interest to the date
of redemption.
The Senior Subordinated Notes provide that prior to February 15, 2001, the
Company, at its option, may redeem up to 33 percent of the original aggregate
principal amount of the Senior Subordinated Notes with the net cash proceeds of
equity offerings (as defined) at the redemption price equal to 109.875 percent
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of the redemption; provided that at least $125 million aggregate
principal amount of the Senior Subordinated Notes remain outstanding after any
such redemption. In addition, upon a change of control (as defined), each holder
of the Senior Subordinated Notes has the right to require the Company to
repurchase such holder's Senior Subordinated Notes at a price equal to 101
percent of the principal amount thereof, plus accrued and unpaid interest to the
date of repurchase. Finally, the Company would be required to make an offer to
repurchase the Senior Subordinated Notes at 100 percent of the principal amount,
plus accrued and unpaid interest to the date of repurchase, in the event of
certain asset sales.
The Company has various restrictions under (b), (c) and (g), which limit,
among other things, its ability to (i) incur additional indebtedness, (ii)
create certain liens on the Company's assets, (iii) create guarantees, (iv)
acquire the assets or capital stock of other businesses, (v) dispose of any
material assets, (vi) make any voluntary prepayments of any indebtedness for
money borrowed, (vii) pay, declare, or distribute dividends on or repurchase its
capital stock or warrants and (viii) enter into certain transactions with
affiliates.
10. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following:
[Download Table]
September 30,
-------------------------
In millions 2000 1999
------------------------------------------------------------------------------
CURRENT
Accrued salaries, wages and benefits $ 35.4 $ 25.0
Sales, property and other taxes 8.1 4.8
Other 25.3 31.3
------------------------------------------------------------------------------
Total current $ 68.8 $ 61.1
------------------------------------------------------------------------------
LONG-TERM
Accrued pension and post-retirement expense $ 43.6 $ 36.7
Other 3.9 2.9
------------------------------------------------------------------------------
Total long-term 47.5 39.6
------------------------------------------------------------------------------
Total $116.3 $100.7
------------------------------------------------------------------------------
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
11. PREFERRED STOCK
The Company is authorized to issue up to 25,000,000 shares of preferred stock.
The right of the holders of Class A Common Stock (see Note 12) voting as a class
are not to be limited by the grant of voting rights to any series of preferred
stock. The Company's Certificate of Incorporation prohibits the issuance of
non-voting preferred stock.
12. COMMON STOCK
At September 30, 2000 and 1999, the Company had authorized capital stock of
125,000,000 shares of Class A Common Stock, par value $0.0001 per share (Class A
Common Stock), of which 55,223,694 shares and 54,991,409 shares were issued,
respectively, and 53,829,101 shares and 53,523,443 shares were outstanding,
respectively.
At September 30, 2000 and 1999, the Company had authorized capital stock
of 15,000,000 shares of Class B Common Stock, par value $0.0001 per share (Class
B Common Stock), of which no shares were issued and outstanding.
The Company has outstanding Warrants to obtain one share of Class A
Common Stock per Warrant. At the time the Company issued the Warrants, it also
issued an equal number of shares of Class A Common Stock to the Warrant Trustee
for issuance upon exercise of the Warrants (the Trust Stock). The Warrants are
exercisable only for the shares of Trust Stock held by the Warrant Trustee and
the Company has no obligation to issue or deliver shares of stock pursuant to
the Warrants. The Warrant Trustee has agreed to hold the Trust Stock in trust
and to deliver shares of Trust Stock upon exercise of the Warrants by the
holders thereof or exchange of the Warrants on behalf of the Company. The
Warrant Trustee will vote all shares of Trust Stock in proportion to all other
votes by holders of the Common Stock, except upon the occurrence of certain
votes (as defined).
At September 30, 2000 and 1999, the Company had 843,035 and 1,054,379
Warrants outstanding, respectively. All of the Company's outstanding Warrants
became exercisable on July 31, 1996, and expire on November 2, 2002. Each
Warrant is exercisable into one share of Class A Common Stock at an exercise
price of $0.0001 per Warrant, which amount was paid at the time of issuance and
is non-refundable. The Company has the option to redeem at any time, all of the
unexercised Warrants in exchange for Class A Common Stock for an amount based on
$16.65 per share divided by the then-current market price of the Class A Common
Stock.
In June 1995, the Company's Board of Directors adopted a stockholder
Rights Agreement that provides for the distribution of one Preferred Share
Purchase Right for each share of Class A Common Stock. In general, the rights
become exercisable after a person or group announces a tender offer for, or
acquires, 15 percent or more of the outstanding Class A Common Stock. In the
event a right becomes exercisable, the holder of the right may purchase for $50,
one one-hundredth of a share of junior participating preferred stock. If 15
percent of the outstanding Class A Common Stock is acquired, the rights (other
than the rights held by the acquiring person) can be exercised at a price of $50
to purchase shares of Class A Common Stock with a market value of $100. The
rights will expire on June 30, 2005 and may be redeemed by the Company at any
time for $0.0001 per right.
In fiscal 1996, the Company's Board of Directors authorized the
repurchase of up to 6 million shares of Class A Common Stock and canceled a
February 1989 authorization for the repurchase of up to 500,000 shares of Class
A Common Stock. No shares were repurchased on the open market in fiscal 2000,
fiscal 1999 or fiscal 1998. At September 30, 2000 and 1999, 1,394,593 shares and
1,467,966 shares, respectively, of Class A Common Stock were held as treasury
stock.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
In July 1994, the Company established a stock purchase plan (the Plan)
for all full-time employees. The Plan permits employees to invest up to 10
percent of their after-tax compensation (as defined) in shares of Class A Common
Stock. All brokerage fees for the purchase of such shares are paid by the
Company. During fiscal 2000, fiscal 1999 and fiscal 1998 the Company issued
73,373 shares, 44,598 shares and 33,639 shares, respectively, of Class A Common
Stock held as treasury stock to satisfy employee purchases pursuant to the Plan.
The Company neither declared nor paid dividends on its Common Stock
during fiscal 2000, fiscal 1999 or fiscal 1998. The Company does not currently
intend to pay cash dividends on its Common Stock, but intends instead to retain
future earnings for reinvestment in the business and for repayment of debt. At
September 30, 2000, the Company was prohibited from declaring or paying cash
dividends or repurchasing or redeeming shares of its Common Stock by some of its
debt agreements (see Note 9).
13. STOCK OPTION PLANS
The Company maintains one stock-based plan, the 1997 Long-Term Equity Incentive
Plan (the 1997 Plan), pursuant to which stock options may be granted.
1997 Plan - The 1997 Plan authorizes the Company to grant stock options
(including both incentive stock options within the meaning of section 422 of the
Internal Revenue Code of 1986, as amended (the Code), and non-qualified stock
options), stock appreciation rights in tandem with options, restricted stock,
performance awards and any combination of the foregoing to certain directors,
officers and key employees of the Company and its subsidiaries. The Company has
granted only non-qualified stock options and restricted stock under the 1997
Plan.
The Company has reserved 3,500,000 shares of Class A Common Stock for
issuance pursuant to the 1997 Plan. At September 30, 2000, the Company had
outstanding non-qualified stock options under the 1997 Plan covering 1,849,567
shares at exercise prices ranging from $2.63 to $9.06 per share. During fiscal
2000, the Company granted non-qualified stock options under the 1997 Plan
covering 143,500 shares of Class A Common Stock (15,000 of which were forfeited)
at exercise prices ranging from $2.63 to $8.19 per share. The options have 10
year terms and generally vest at the rate of 33 1/3 percent per year commencing
one year after the date of grant providing that the optionee remains
continuously in the employ of the Company or one of its subsidiaries. The
options vest 100 percent immediately upon a change in control of the Company (as
defined) or the optionee's death or disability.
At September 30, 2000, options to purchase 1,304,648 shares of Class A
Common Stock at exercise prices ranging from $3.69 to $9.06 per share were
exercisable, 9,501 shares had been exercised and 1,428,632 shares were available
for future grants.
During fiscal 2000, the Company granted 200,500 restricted shares of
Class A Common Stock under the 1997 Plan (2,000 of which were forfeited). Such
shares are restricted in that unvested shares will be forfeited in the event
that the optionee's employment terminates other than due to death, disability or
retirement. The restricted shares will vest 100 percent in the event of a change
in control of the Company (as defined) or upon the recipient's retirement, death
or disability. The restricted stock granted in 2000 will become 100 percent
vested as follows: 10,000 shares in fiscal 2001, 178,500 shares in fiscal 2002
and 10,000 shares in fiscal 2003. Prior to fiscal 2000, 14,800 restricted shares
were granted (1,000 of which were forfeited) that will vest as follows: 7,800 in
fiscal 2001, 3,000 shares in fiscal 2002 and 3,000 shares in fiscal 2003. The
pretax compensation expense
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
recognized in the Consolidated Statement of Operations was $0.6 million in
fiscal 2000 and de minimus in fiscal 1999 and fiscal 1998.
1989 Plan - The 1989 Plan was terminated according to its terms in fiscal
1999 and no additional options may be granted. At September 30, 2000, the
Company had outstanding non-qualified stock under the 1989 Plan covering
1,005,005 shares of Class A Common Stock at exercise prices ranging from $2.56
to $11.63 per share.
At September 30, 2000, options to purchase 955,338 shares of Class A
Common Stock at exercise prices ranging from $2.56 per share to $11.63 per share
were exercisable.
In general, the outstanding options have 10-year terms and vest at the
rate of 33 1/3 percent per year commencing one year after the date of grant
providing that the optionee remains continuously in the employ of the Company or
one of its subsidiaries. The options vest 100 percent immediately upon a change
in control of the Company (as defined) or the optionee's death or disability.
At September 30, 2000, the Company had granted 698,600 restricted shares
of Class A Common Stock (127,275 of which have been forfeited under the 1989
plan). Such shares are restricted in that unvested shares will be forfeited in
the event that the optionee's employment terminates other than due to death,
disability or retirement. The restricted shares will vest 100 percent in the
event of a change in control of the Company (as defined) or upon the recipient's
retirement, death or disability. As to the 571,325 restricted shares granted
prior to fiscal 2000, 514,325 were 100 percent vested at September 30, 2000 and
30,000 shares and 27,000 shares will become 100 percent vested in fiscal 2001
and fiscal 2002, respectively. The pretax compensation expense relating to
restricted stock, which was recognized in the Consolidated Statements of
Operations, was $0.1 million, $0.2 million and $0.3 million in fiscal 2000,
fiscal 1999 and fiscal 1998, respectively.
1987 Plan - The 1987 Plan was terminated according to its terms in fiscal
1997 and no additional options may be granted. At September 30, 2000, the
Company had outstanding non-qualified stock options under the 1987 Plan covering
221,500 shares of Class A Common Stock at exercise prices ranging from $3.63 to
$8.94 per share that were exercisable. In general the options have 10-year terms
and vest at the rate of 33 1/3 percent per year commencing one year after the
date of grant, providing that the optionee remains continuously in the employ of
the Company or one of its subsidiaries. The options vest 100 percent immediately
upon a change in control of the Company (as defined) or the optionee's death or
disability.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
The following table details stock option activity (excluding restricted stock)
for fiscal 2000, fiscal 1999 and fiscal 1998:
[Download Table]
Stock Options Exercise Price
-----------------------------------------------------------------------------
Balance at September 30, 1997 1,729,965 $2.56 - $12.50
Grants 1,640,500 $3.00 - $ 9.06
Exercises (199,478) $2.56 - $ 6.81
Forfeitures (115,896) $2.56 - $10.88
------------------------------------------------------
Balance at September 30, 1998 3,055,091 $2.56 - $12.50
Grants 349,900 $2.50 - $ 9.63
Exercises (168,151) $2.56 - $ 7.00
Forfeitures (143,033) $2.50 - $12.50
------------------------------------------------------
Balance at September 30, 1999 3,093,807 $2.56 - $11.63
Grants 143,500 $2.63 - $ 8.19
Exercises (29,235) $2.56 - $ 3.87
Forfeitures (132,000) $2.56 - $10.88
------------------------------------------------------
Balance at September 30, 2000 3,076,072 $2.56 - $11.63
-----------------------------------------------------------------------------
Additional information regarding options outstanding as of September 30, 2000 is
as follows:
[Enlarge/Download Table]
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (years) Price Exercisable Price
------------------------------------------------------------------------------------------------------
$2.56 - $ 3.88 927,072 3.74 $3.48 706,315 $3.41
$4.00 - $ 5.63 41,000 5.32 $4.79 29,666 $4.66
$6.13 - $ 8.25 926,667 6.95 $7.01 724,830 $6.99
$8.50 - $11.63 1,181,333 6.94 $9.15 1,020,675 $9.20
------------------------------------------------------------------------------------------------------
$2.56 - $11.63 3,076,072 5.96 $6.74 2,481,486 $6.86
------------------------------------------------------------------------------------------------------
The following table details restricted stock activity for fiscal 2000, fiscal
1999 and fiscal 1998:
Restricted Stock
-------------------------------------------------------------------
Balance at September 30, 1997 569,025
Grants 43,800
Forfeitures (29,950)
------------------------------------------------------------------
Balance at September 30, 1998 582,875
Grants 42,400
Forfeitures (37,750)
------------------------------------------------------------------
Balance at September 30, 1999 587,525
Grants 200,500
Forfeitures (4,400)
------------------------------------------------------------------
Balance at September 30, 2000 783,625
------------------------------------------------------------------
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-based Compensation" SFAS No. 123 requires pro forma
recognition of compensation expense for stock options awarded based on the fair
value of the options at the date of grant.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants in fiscal 2000: expected volatility of 69
percent; risk-free interest rate of 5.9 percent; and expected lives of 5 years.
The weighted-average assumptions used for grants in fiscal 1999 and fiscal 1998
were: expected volatility of 55 percent in both years; risk-free interest rate
of 5.0 percent in fiscal 1999 and 6.0 percent in fiscal 1998; and expected lives
of 5.0 years in both years. The weighted-average fair value per share of options
granted was $2.73, $2.92 and $4.19 per share in fiscal 2000, fiscal 1999 and
fiscal 1998, respectively. The weighted-average fair value per share of awards
of restricted stock issued in fiscal 2000, fiscal 1999 and fiscal 1998 was
$6.20, $4.38 and $6.51 per share, respectively.
The pro forma impact on net loss and basic and diluted loss per share of
computing compensation cost for the Company's stock options based on the fair
value on the date of grant follows:
[Download Table]
September 30,
----------------------------------
In millions, except per share data 2000 1999 1998
----------------------------------------------------------------------------------
Net income (loss):
As reported $ 2.4 $(46.4) $(82.5)
Pro forma 1.1 (48.3) (84.2)
Basic and diluted income (loss) per share:
As reported $ 0.05 $(0.87) $(1.55)
Pro forma 0.02 (0.91) (1.58)
----------------------------------------------------------------------------------
The pro forma effects on net income (loss) and basic and diluted income
(loss) per share may not be representative of the effects on reported net income
or loss in future years.
14. LEASES
The Company has capital leases for certain equipment and leasehold improvements
included in "Property - net." The present value of future minimum lease payments
relating to these assets are capitalized based on the lease contract provisions.
Capitalized amounts are amortized over either the term of the lease or the
normal depreciable lives of the assets. All other leases are defined as
operating leases. Lease payments related to operating leases are charged to
expense as incurred. Future minimum lease payments at September 30, 2000 are as
follows (in millions):
[Download Table]
Operating Capital
Fiscal Year Leases Leases
----------------------------------------------------------------------------
2001 $ 16.1 $ 2.8
2002 12.7 1.1
2003 10.5 1.1
2004 7.2 1.1
2005 4.1 1.1
2006 and thereafter 22.0 7.0
----------------------------------------------------------------------------
Total future minimum lease payments $ 72.6 $ 14.2
----------------------------------------------------------------------------
Less interest 4.6
----------------------------------------------------------------------------
Present value of future minimum lease payments $ 9.6
----------------------------------------------------------------------------
Rent expense for fiscal 2000, fiscal 1999 and fiscal 1998 was $16.9
million, $14.2 million and $14.3 million, respectively.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
15. EMPLOYEE BENEFIT PLANS
Pension Plan - The Company has a qualified noncontributory defined benefit
pension plan covering substantially all employees who are age 21 or older with
one or more years of service. Pension benefits provided for certain union hourly
employees are established pursuant to the collective bargaining agreements in
effect with their respective unions. For hourly employees the normal retirement
benefit is determined by multiplying years of benefit service by a dollar-amount
benefit factor separately determined for each bargaining unit. For salaried
employees, the plan generally provides a normal retirement benefit equal to the
greater of the benefit accrued at June 30, 1987 or 1.0 percent of final average
earnings (as defined) multiplied by years of credited service before January 1,
1994, plus 1.25 percent of final average earnings multiplied by years of
credited service after December 31, 1993, less 1.0 percent of primary Social
Security benefits for each year of credited service. The Company has a
non-qualified excess benefit plan covering certain designated employees of the
Company whose earned pension benefits would otherwise be restricted by maximum
benefit limitations imposed by Internal Revenue Service regulations.
The components of net periodic pension cost for the defined benefit plan follow:
Year Ended September 30,
------------------------------------
In millions 2000 1999 1998
-------------------------------------------------------------------------------
Service cost $ 5.4 $ 4.8 $ 4.4
Interest cost 12.4 11.0 11.0
Expected return on plan assets (14.1) (12.3) (11.3)
Net amortization and deferral 0.2 0.1 --
------------------------------------------------------------------------------
Net periodic pension cost $ 3.9 $ 3.6 $ 4.1
------------------------------------------------------------------------------
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
Assumptions used to develop the net periodic pension cost were:
Year Ended September 30,
-------------------------------
2000 1999 1998
-------------------------------------------------------------------------------
Discount rate 8.00% 7.00% 6.75%
Expected rate of return on plan assets 9.00% 9.00% 9.00%
Expected rate of salary increases 5.00% 5.00% 5.00%
The reconciliation of the projected benefit obligation and the plan assets
from the beginning of the fiscal year to the end of the fiscal year
follows:
September 30,
-------------------
In millions 2000 1999
------------------------------------------------------------------------
Projected benefit obligation at beginning of year 166.4 163.2
Service cost 5.4 4.8
Interest cost 12.4 11.0
Plan amendments 0.6 0.6
Actuarial gain (10.7) (2.9)
S&G acquisition 11.1 --
Benefits paid (10.5) (10.3)
----------------------------------------------------------------------
Projected benefit obligation at end of year $ 174.7 $ 166.4
----------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 165.9 $ 173.4
Actual return 3.9 2.8
Company contributions 0.2 --
S&G acquisition 7.2 --
Benefits paid (10.5) (10.3)
----------------------------------------------------------------------
Fair value of plan assets at end of year $ 166.7 $ 165.9
----------------------------------------------------------------------
The funded status of the plan and the amount reported in the Consolidated
Balance Sheets as part of other long-term liabilities for the defined
benefit plan follows:
September 30,
----------------------
In millions 2000 1999
----------------------------------------------------------------
Funded status $8.0 $0.5
Unrecognized net gain 29.7 29.4
Unrecognized prior service cost (5.8) (5.0)
---------------------------------------------------------------
Accrued pension liability $ 31.9 $ 24.9
---------------------------------------------------------------
The Company's funding policy is to contribute annually amounts necessary
to satisfy the statutory requirements of ERISA. Assets for the defined benefit
plan are held in a retirement trust fund with investments primarily in common
stock, corporate bonds and government securities.
Supplemental Executive Retirement Plans - Under the terms of their
employment agreements, Marvin A. Pomerantz (Chairman, Chief Executive Officer
and a director of the Company) and Warren J. Hayford (Former Vice Chairman and a
director of the Company) will receive supplemental annual retirement income
payments at age 65 equal to approximately 50 percent of their average base
salary and bonus for their four most highly compensated years of service with
the Company, less primary Social Security benefits and any amounts received
under the Company's pension plan. The agreements also provide for
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
the reduction of benefits for early retirement. Mr. Hayford elected early
retirement on December 31, 1992, and is currently receiving benefits under the
supplemental retirement plan. An additional supplemental retirement plan
covering eight current or retired officers provides annual retirement payments
at age 65 equal to 60 percent of their average base salary and bonus for the
four highest of the last ten years prior to retirement, less primary Social
Security benefits and any amounts received under the Company's pension plan.
Benefits are reduced for early retirement.
The components of net periodic pension cost for the supplemental executive
retirement plans follow:
Year Ended September 30,
-------------------------------------
In millions 2000 1999 1998
--------------------------------------------------------------------------------
Service cost $0.1 $0.1 $0.1
Interest cost 0.8 0.9 0.9
Net amortization and deferral 0.2 0.2 0.2
--------------------------------------------------------------------------------
Net periodic pension cost $1.1 $1.2 $1.2
--------------------------------------------------------------------------------
Assumptions used to develop the net periodic pension cost were:
Year Ended September 30,
------------------------------------
2000 1999 1998
----------------------- ------------
Discount rate 8.00% 7.00% 6.75%
Expected rate of salary increases 5.00% 5.00% 5.00%
The reconciliation of the projected benefit obligation and the plan assets
from the beginning of the fiscal year to the end of the fiscal year
follows:
September 30,
--------------------
In millions 2000 1999
------------------------------------------------------------------------
Projected benefit obligation at beginning of year $ 11.7 $ 12.4
Service cost 0.1 0.1
Interest cost 0.8 0.9
Actuarial gain (0.2) (1.3)
Benefits paid (0.4) (0.4)
----------------------------------------------------------------------
Projected benefit obligation at end of year $ 12.0 $ 11.7
----------------------------------------------------------------------
---------------------------------------------------------------------
Fair value of plan assets at beginning of year $ -- $ --
Company contributions 0.4 0.4
Benefits paid (0.4) (0.4)
----------------------------------------------------------------------
Fair value of plan assets at end of year $ -- $ --
----------------------------------------------------------------------
The funded status of the plan and the amount reported in the Consolidated
Balance Sheets for the supplemental executive retirement plans follows:
September 30,
----------------------
In millions 2000 1999
-------------------------------------------------------------
Funded status $ 12.0 $ 11.7
Unrecognized net loss (1.5) (1.8)
Unrecognized prior service cost (1.2) (1.3)
------------------------------------------------------------
Accrued pension liability $ 9.3 $ 8.6
------------------------------------------------------------
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
The Company recorded, as part of Accumulated other comprehensive income, a
minimum pension liability adjustment to stockholders' equity (deficit) for $0.4
million, $2.0 million and $(1.6) million in fiscal 2000, fiscal 1999 and fiscal
1998, respectively. Funding for the supplemental executive retirement plan is
not subject to the statutory requirements of ERISA and no assets have been set
aside to satisfy the liability. All retirement payments for supplemental plans
will be made from general corporate assets.
Post-retirement Benefits Plan - The Company has an obligation to provide
post-retirement medical benefits to age 65 pursuant to collective bargaining
agreements at five of its facilities.
The net periodic post-retirement benefit cost was $0.3 million in fiscal
2000 and fiscal 1999, respectively, and $0.4 million fiscal 1998.
The reconciliation of the projected benefit obligation and the plan assets from
the beginning of the fiscal year to the end of the fiscal year follows:
September 30,
---------------------
In millions 2000 1999
-------------------------------------------------------------------------
Projected benefit obligation at beginning of year $ 2.9 $ 3.9
Interest cost 0.2 0.2
Actuarial gain -- (0.5)
S&G acquisition 0.1 --
Benefits paid (0.7) (0.7)
----------------------------------------------------------------------
Projected benefit obligation at end of year $ 2.5 $ 2.9
----------------------------------------------------------------------
----------------------------------------------------------------------
Fair value of plan assets at beginning of year $ -- $ --
Company contributions 0.7 0.7
Benefits paid (0.7) (0.7)
----------------------------------------------------------------------
Fair value of plan assets at end of year $ -- $ --
----------------------------------------------------------------------
The funded status of the plans and the amounts reported on the Consolidated
Balance Sheets for the post-retirement benefit plans follows:
September 30,
------------------------
In millions 2000 1999
-----------------------------------------------------------------------------
Funded status $ 2.5 $ 2.9
Unrecognized net loss (0.4) (0.4)
---------------------------------------------------------------------------
Accrued post-retirement benefit obligations $ 2.1 $ 2.5
---------------------------------------------------------------------------
The assumed health care cost trend rate used in measuring the
accumulated post-retirement benefit obligations both at September 30, 2000 and
September 30, 1999 were 6.0 percent. The discount rate used to calculate the
accumulated post-retirement benefit obligations at September 30, 2000 and 1999,
was 8.00 percent and 7.00 percent, respectively. At September 30, 2000, a change
of 1.0 percent per year would impact the accumulated post-retirement benefit
obligation by $0.1 million and the aggregate of the service and interest cost
components of net periodic post-retirement benefit cost by a de minimus amount.
Savings Plan - The Company sponsors a defined contribution retirement
savings plan (401k Plan) covering substantially all salaried employees of the
Company subject to certain service requirements. The 401k Plan provides for
employees to make contributions on a pre-tax basis up to a maximum of 15
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
percent of their compensation (as defined) each year, with their maximum annual
contribution determined pursuant to Internal Revenue Service regulations. The
Company contributes to each participant's plan account an amount equal to 100
percent of the participant's contribution up to a maximum of 5 percent of the
participant's compensation. The Company's cost relating to the 401k Plan was
$3.4 million in fiscal 2000, $2.6 million in fiscal 1999 and $1.6 million in
fiscal 1998. The Company's cost increased beginning in fiscal 1999 primarily due
to a plan amendment which increased the Company matching contributions to the
plan.
16. COMMITMENTS AND CONTINGENCIES
The Company has various agreements, which provide for the purchase of wood
chips, hog fuel (bark and other residual fiber from trees) and stumpage at
market prices.
The Company has a contract to sell a specified amount of electricity
representing its cogeneration facility's anticipated excess capacity at the
contract date to Pacific Gas & Electric Company through 2013, subject to certain
adjustments. The Company does not intend to terminate this contract, however, if
terminated, penalties of approximately $6.7 million could be imposed against the
Company.
On October 28, 1999, the Company acquired the remaining 65 percent share
of S&G Packaging from Smurfit-Stone. In connection with the acquisition of S&G
Packaging the Company agreed to purchase at market prices 60,000 tons and 48,000
tons of kraft paper in fiscal 2000 and fiscal 2001, respectively, and 36,000
tons in each of fiscal 2002, fiscal 2003 and fiscal 2004 from Smurfit-Stone.
The Company also has an agreement with one supplier to purchase at market
prices 24,000 tons of corrugating medium annually through March of 2004.
The Company is not a party to any legal proceedings other than litigation
incidental to normal business activities, except as described below:
On October 23, 1995, a rail tank car exploded on the premises of the
Bogalusa, Louisiana plant of Gaylord Chemical Corporation, a wholly owned,
independently operated subsidiary of the Company. The accident resulted in the
venting of certain chemicals, including by-products of nitrogen tetroxide, a raw
material used by the plant to produce dimethyl sulfoxide, a solvent used in the
manufacture of pharmaceutical and agricultural chemicals. More than 160 lawsuits
have been filed in both federal and state courts naming as defendants Gaylord
Chemical Corporation and/or the Company, certain of their respective officers
and other unrelated corporations and individuals. The lawsuits, which seek
unspecified damages, allege personal injury, property damage, economic loss,
related injuries and fear of injuries as a result of the accident. On April 1,
1996, the federal judge dismissed all but one of the federal actions for failing
to state claims under federal law and remanded the remaining state law claims to
the district court in Washington Parish, Louisiana, where they have been
consolidated. Discovery in the remaining federal action, a suit to recover
alleged clean-up costs, was ordered coordinated with the Louisiana State action.
Under an agreed Case Management Order, all actions in Louisiana arising
out of the October 23, 1995, accident have been consolidated in the Twenty-Third
Judicial district in Washington Parish, Louisiana, where plaintiffs have filed a
single Consolidated Master Petition (CMP) against Gaylord Chemical Corporation,
the Company and twenty-one other defendants.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
The CMP, as amended, asserts substantially all of the claims and theories made
in prior lawsuits, including negligence, strict liability and other statutory
liability. Compensatory and punitive damages are sought. No officers or
directors of Gaylord Chemical Corporation or the Company are named defendants in
the CMP, as amended. The status of all lawsuits pending before the filing of the
CMP, some of which name officers of Gaylord Chemical Corporation and the
Company, will be determined by the trial court after class certification issues
are finally resolved.
In November 1997, the Louisiana trial court certified these consolidated
cases as a class action. The trial court certified, and the Court of Appeal and
State Supreme Court upheld, a class consisting of allegedly injured parties in
the City of Bogalusa and portions of Washington Parish, Louisiana, and parts of
Marion, Walthall and Pike counties in Mississippi. The trial court did not
certify a single, mandatory class for punitive damages.
The trial court required all persons who claim exposure within the class
boundaries to complete and file proofs by June 21, 2000. By that deadline 16,592
persons filed proof of claim forms. In addition 3,978 persons have "opted out"
of the Louisiana class proceeding. All but 92 of the opt out claimants are also
plaintiffs in the Mississippi action described below. On July 21, 2000, 18
initial trial plaintiffs were selected at random from the class claimants based
on their claimed locations of exposure. The claims of these 18 will be tried to
a jury in an initial compensatory damage trial set to begin on June 12, 2001.
The liability results of this first phase will bind all class members and
defendants. If any of the initial 18 plaintiffs are successful in securing an
award of compensatory damages, then a second phase punitive damage trial will
begin one week later. In this second phase, the jury will be asked to award
punitive damages, if any, for the entire Louisiana class. The Company and
Gaylord Chemical are vigorously contesting all claims arising out of the October
23, 1995, explosion.
The Company, Gaylord Chemical Corporation and numerous other third-party
companies have been named as defendants in 13 actions brought by plaintiffs in
Mississippi State Court, who claim injury as a result of the October 23, 1995
accident at the Bogalusa facility. These cases, which purport to be on behalf of
over 11,000 individuals, were not filed as a class action but rather have all
been consolidated before a single judge in Hinds County, Mississippi. All of
these cases allege claims and damages similar to those in Louisiana State Court.
Discovery in the consolidated cases has been coordinated with the on-going
discovery in the Louisiana class action. Following several rulings by the
Mississippi trial court, over 7,000 individuals' claims in these consolidated
actions have been either dismissed or voluntarily withdrawn. As with the
Louisiana class action, the Company and Gaylord Chemical Corporation are
vigorously contesting all claims in Mississippi arising out of the October 23,
1995, accident. In addition, the Company and Gaylord Chemical Corporation have
filed cross-claims for indemnity and contribution against co-defendants in both
of the Mississippi and Louisiana actions.
The Mississippi trial court selected the first 20 plaintiffs whose claims
were tried to a jury on all issues of liability and damages beginning on March
29, 1999, and ending on June 23, 1999. During trial, the court dismissed with
prejudice the claims of three plaintiffs. The jury found Gaylord Chemical
Corporation and a co-defendant, Vicksburg Chemical Company, equally at fault for
the accident. The jury also found that none of the 17 remaining plaintiffs whose
claims went to the jury had suffered any damages, awarded no damages to any of
them, and returned a verdict in favor of all defendants. The jury also
determined that the Company was not responsible
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
for the conduct of its subsidiary, Gaylord Chemical Corporation. Plaintiffs'
motions for a new trial or, alternatively, judgment notwithstanding the verdict
were all denied. Plaintiffs did not timely appeal the verdict or the trial
court's rulings. The trial court has ordered that the results of the first trial
will not be binding, either as to liability or compensatory or punitive damages,
on any of the other plaintiffs in the Mississippi consolidated actions. Rather,
the trial court ordered that each of the approximately 4,000 Mississippi
plaintiffs will be required to prove their own individual claims of liability or
compensatory or punitive damages. The trial court has set a trial date of
January 2002 for the next group of 20 Mississippi plaintiffs.
The Company and Gaylord Chemical Corporation maintain $127 million of
general liability insurance and filed separate suits seeking a declaratory
judgment of coverage for the October 23, 1995, accident against their general
liability and directors and officers liability insurance carriers. The carrier
with the first layer of coverage under the general liability policies has agreed
to pay the Company's and Gaylord Chemical Corporation's defense costs under a
reservation of rights.
The coverage action against the liability insurers was tried to a judge
in December 1998. During trial, one of the excess carriers settled by agreeing
to pay $5 million, its full policy limits. Trial concluded against the remaining
defendants on December 10, 1998, and on February 25, 1999, the trial court
issued an opinion holding that the Company and Gaylord Chemical Corporation have
insurance coverage for the October 23, 1995, accident under eight of the nine
remaining policies. The judge held that language in one policy excluded
coverage. The trial court denied all the insurers' motions for a new trial. The
eight insurers issuing policies where coverage was found have filed an appeal of
the judgment with the Louisiana Court of Appeal. The Company and Gaylord
Chemical Corporation have appealed that part of the judgment excluding coverage
under one policy. The Louisiana Court of Appeal heard oral arguments on November
18, 2000, but has not issued a decision. Including coverage afforded by the
settlement and by the trial court's decision, the Company and Gaylord Chemical
Corporation have in excess of $110 million in insurance coverage for the October
23, 1995 accident.
On May 18 and May 24, 1999, the Company was named in lawsuits
consolidated in the Federal District Court for the Eastern District of
Pennsylvania alleging civil violations of Section 1 of the Sherman Act. The
complaints, both putative class actions, allege that during the period October
1, 1993, through November 30, 1995, the Company agreed with nine other
manufacturers of linerboard to raise or maintain prices. According to the
complaints, the purpose and effect of the alleged conspiracy was to artificially
increase prices of corrugated sheets and corrugated boxes sold to customers.
Treble damages and attorney fees are sought. Motions to dismiss the complaints
were denied, and discovery is proceeding. After investigation of the facts, the
Company believes the allegations are without merit and is vigorously defending
itself.
The Company believes the outcome of such litigation should not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
Considerable judgment is required, however, in interpreting market data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or methodologies could have a material effect on the estimated fair value
amounts. The estimated fair value of financial instruments at September 30, is
as follows:
[Enlarge/Download Table]
2000 1999
----------------------------------------------------------
Estimated Estimated
Carrying fair Carrying fair
In millions amount value amount value
----------------------------------------------------------------------------------------------------
Assets
Cash and equivalents $ 0.7 $ 0.7 $ 10.4 $ 10.4
Trade receivables 149.6 149.6 149.8 149.8
Long-term notes receivable 9.4 9.8 11.2 11.9
Liabilities
Trade payables 59.9 59.9 56.2 56.2
Senior and subordinated notes 675.0 407.7 675.0 619.1
Capital lease obligations 9.6 9.6 13.1 13.1
Other senior debt 243.5 242.4 247.6 248.1
Cash and equivalents, trade receivables, trade payables and capital lease
obligations - The carrying amount of these items are a reasonable estimate of
their fair value.
Senior and subordinated notes - Estimated fair value is based on
estimates obtained from dealers/brokers. Long-term notes receivable and other
senior debt - Interest rates that are currently available to the Company for
similar terms and remaining maturities are used to estimate fair value.
The fair value estimates presented herein were based on pertinent
information available to the Company at September 30, 2000 and 1999. Although
the Company is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
The Company is not a party to any lending or borrowing arrangements that
are considered to be derivative financial instruments.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
18. SUPPLEMENTAL CASH FLOW DISCLOSURES
The balance sheet effects of non-cash transactions which are not reflected in
the consolidated statements of cash flows and other supplemental cash flow
disclosures are as follows:
Year Ended September 30,
----------------------------
2000 1999 1998
------ ------ ------
Cash paid for interest expense $89.5 $82.1 $91.2
Cash paid (refund) for income taxes 0.4 -- (5.2)
Supplemental schedule of non-cash
investing and financing activities:
Property additions -- 14.7 10.2
Increase in total debt -- 14.7 10.5
Decrease in accrued
and other liabilities -- -- (0.3)
Write-off of deferred financing fees -- -- 8.0
Acquisition of S&G Packaging:
Inventories 28.7 -- --
Property additions 32.4 -- --
Other assets 15.0 -- --
Trade payables, accrued and other -- --
liabilities 44.9 -- --
Total debt assumed before repayment 32.6 -- --
19. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
[Enlarge/Download Table]
Year Ended September 30,
-----------------------------------
In millions, except per share data 2000 1999 1998
-----------------------------------------------------------------------------------------
Numerator:
Income (loss) before extraordinary items $ 2.4 $ (46.4) $ (57.4)
Extraordinary loss -- -- (25.1)
-----------------------------------------------------------------------------------------
Net income (loss) $ 2.4 $ (46.4) $ (82.5)
-----------------------------------------------------------------------------------------
Denominator:
Basic:
Weight average common shares outstanding 53.8 53.4 53.2
Diluted:
Effect of dilutive securities:
Employee and director stock options 0.2 0.4 0.7
-----------------------------------------------------------------------------------------
Weighted average common and common share equivalents 54.0 53.8 53.9
-----------------------------------------------------------------------------------------
Net income (loss) per common share:
Basic and diluted (A):
Income (loss) before extraordinary items $ 0.05 $ (0.87) $ (1.08)
Extraordinary loss -- -- (0.47)
-----------------------------------------------------------------------------------------
Net income (loss) $ 0.05 $ (0.87) $ (1.55)
-----------------------------------------------------------------------------------------
(A) Basic and diluted loss per common share are equal in 1999 and 1998 due to
the antidilutive effect of the common share equivalents.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Gaylord Container Corporation and Subsidiaries
20. BUSINESS SEGMENT
The Company produces and sells primarily brown paper packaging products, which
include corrugated containers, corrugated sheets, containerboard, unbleached
kraft paper, retail and multiwall bags. Total revenues for the brown paper
packaging segment (the Segment) were $1,152.2 million, $853.5 million and $823.7
million in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. The Segment's
net income (loss) was $2.8 million, $(48.2) million and $(85.6) million in
fiscal 2000, fiscal 1999 and fiscal 1998, respectively. The Segment's total
assets were $999.3 million and $981.1 million at September 30, 2000 and
September 30, 1999, respectively. The Segment represents substantially all of
the Company's consolidated results of operations and financial position.
The Company sells its products to thousands of customers with its largest
customer, excluding sales to affiliates, accounting for approximately 2 percent
of net sales in fiscal 2000 and fiscal 1999 and 3 percent in fiscal 1998,
respectively. The Company exports linerboard and unbleached kraft paper, certain
converted products and specialty chemicals. Such sales totaled $69.6 million,
$59.5 million and $64.5 million in fiscal 2000, fiscal 1999 and fiscal 1998,
respectively.
21. QUARTERLY DATA (UNAUDITED)
[Enlarge/Download Table]
Quarter
----------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA 1st 2nd 3rd 4th Year
-------------------------------------------------------------------------------------------------------------------
FISCAL 2000
Net sales $279.6 $291.2 $299.2 $ 297.6 $1,167.6
Gross margin 49.4 46.1 53.6 45.7 194.8
Net income (loss) 0.9 (3.4) 0.4 4.5 2.4
Net income (loss) per common share:
Basic net income (loss) 0.02 (0.06) 0.01 0.08 0.05
Diluted net income (A) 0.02 N/A 0.01 0.08 0.05
Weighted average common shares
Outstanding - Basic 53.7 53.8 53.8 53.8 53.8
- Diluted 54.0 54.1 54.0 53.8 54.0
Common stock price (AMEX) - High 7 1/2 7 3/4 6 3/8 3 3/4 7 3/4
- Low 5 5/8 4 7/8 2 11/16 1 5/8 1 5/8
Warrant price (AMEX) - High 6 3/8 7 3/8 3 2 15/16 7 3/8
- Low 6 7 3/8 3 2 7/16 2 7/16
[Enlarge/Download Table]
Quarter
--------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE DATA 1st 2nd 3rd 4th Year
-----------------------------------------------------------------------------------------------------------
FISCAL 1999
Net sales $198.8 $201.0 $229.0 $ 241.8 $870.6
Gross margin 20.4 15.3 35.9 41.5 113.1
Net loss (15.1) (19.3) (8.0) (4.0) (46.4)
Net loss per common share:
Basic net income (loss) (0.28) (0.36) (0.15) (0.08) (0.87)
Diluted net income (A) N/A N/A N/A N/A N/A
Weighted average common shares
Outstanding 53.3 53.3 53.4 53.5 53.4
Common stock price (AMEX) - High 6 1/4 7 15/16 8 3/4 8 11/16 8 3/4
- Low 2 1/4 5 3/4 6 1/16 6 9/16 2 1/4
Warrant price (AMEX) - High 4 1/2 7 11/16 8 7 3/4 8
- Low 3 1/8 6 1/16 7 5/8 7 5/8 3 1/8
(A) Diluted loss per common share is not presented when the effects of common
share equivalents are antidilutive.
47
Number and Description of Exhibit
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
--------------------------------------------------------------------------------
Not applicable.
PART 3
--------------------------------------------------------------------------------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the section captioned Executive Officers of the Registrant under Part 1 of
this Report for information concerning the Company's executive officers.
There is incorporated by reference herein from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held February
7, 2001 the sections therein captioned Director Nominees for Election at the
2001 Annual Meeting.
Item 11. EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
There is incorporated by reference herein from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held February
7, 2001 the sections therein captioned Executive Compensation and Employment
Agreements.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------------------------
There is incorporated by reference herein from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held February
7, 2001 the section therein captioned Information With Respect to Certain
Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------
There is incorporated by reference herein from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held February
7, 2001 the section therein captioned Certain Transactions.
PART 4
--------------------------------------------------------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------------
a. Financial Statement Schedule. The following Financial Statement
Schedule is filed with this Annual Report on Form 10-K on the pages
indicated:
Description Page
---------------------------------------------------------------------------
II. Valuation and Qualifying Accounts and Reserves 56
All other schedules have been omitted because the information is either not
required or is included in the Consolidated Financial Statements or Notes to
Consolidated Financial Statements listed under Item 8.
b. No reports have been filed on Form 8-K during the current reporting
period.
48
Number and Description of Exhibit
c. Exhibits. Each Exhibit is listed according to the number assigned to
it in the Exhibit Table of Item 601 of Regulation S-K.
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on Form S-8 No. 33-25675
(filed November 28, 1988), No. 33-32221 (filed November 27, 1989), No. 33-33977
(filed March 21, 1990), No. 33-33871 (filed March 21, 1990), No. 33-54367 (filed
June 29, 1994) and No. 333-39809 (filed November 7, 1997):
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expense incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by final
adjudication of such issue.
EXHIBIT INDEX
--------------------------------------------------------------------------------
Number and Description of Exhibit
3.1(a) Amended and Restated Certificate of Incorporation of the
Registrant, as of July 21, 1995, incorporated by reference to
Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q (No.
1-9915) for the quarter ended June 30, 1995 filed under the
Securities Exchange Act of 1934, as amended (the June 30, 1995
Form 10-Q)
3.2(a) Amended and Restated Bylaws of the Registrant, as amended,
incorporated by reference to Exhibit 3.1 of the Registrant's
Current Report on Form 8-K filed on July 5, 1995 under the
Securities Act of 1934, as amended (the July 5, 1995 Form 8-K)
4.1(a) Amendment No. 1 to the Credit Agreement dated as of February 16,
1999 by and between the Registrant and Bankers Trust Company as
agent, and various lending institutions, incorporated by reference
to Exhibit 4.1 of the December 31, 1998 Form 10-Q
4.2(a) Amendment No. 2 to the Credit Agreement dated as of August 4,
2000. By and between the Registrant and Bankers Trust Company as
agent, and various lending institutions.
----------------
(a) Incorporated by reference
(b) Filed with this Form 10-K Report.
49
Number and Description of Exhibit
4.3(b) Amended and Restated Revolving Credit Agreement dated as of August
16, 2000 among Gaylord Receivable Corporation as the Borrower,
various Financial Institutions as the lenders, Bankers Trust
Company as Facility Agent, and LaSalle Bank National Association
as the collateral Agent
4.4(a) Securities Purchase Agreement, dated as of February 13, 1998,
among the Company and BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Bear Stearns & Co. Inc.,
Salomon Brothers Inc, and NationsBanc Montgomery Securities LLC,
as Initial Purchasers, incorporated by reference to Exhibit 4.27
of the Company's Registration Statement on Form S-4 (No.
333-48495) filed under the Securities Act of 1933 as amended (the
1998 Debt Registration Statement)
4.5(a) Indenture dated February 23, 1998, among the Company and State
Street Bank and Trust Company, as Trustee (including the forms of
Series A and Series B 9 3/8% Senior Notes), incorporated by
reference to Exhibit 4.28 of the 1998 Debt Registration Statement
4.6(a) Registration Rights Agreement dated as of February 23, 1998 among
the Company, and BT Alex. Brown Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Bear Stearns & Co. Inc., Salomon
Brothers Inc, and NationsBanc Montgomery Securities LLC with
respect to the 9 3/8% Senior Notes due 2007, incorporated by
reference to Exhibit 4.29 of the 1998 Debt Registration Statement
4.7(a) Indenture, dated as of February 23, 1998, among the Company and
Chase Bank of Texas National Association with respect to the 9
7/8% Senior Subordinated Notes due 2008 (including the forms of
Series A and Series B 9 7/8% Senior Subordinated Notes due 2008),
incorporated by reference to Exhibit 4.30 of the 1998 Debt
Registration Statement
4.8(a) Registration Rights Agreement, dated as of February 23, 1998,
among the Company and BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Bear Stearns & Co. Inc.,
Salomon Brothers Inc, and NationsBanc Montgomery Securities LLC,
with respect to the 9 7/8% Senior Subordinated Notes due 2008,
incorporated by reference to Exhibit 4.31 of the 1998 Debt
Registration Statement
4.9(a) Credit Agreement dated as of June 19, 1998 by and between the
Registrant and Bankers Trust Company as agent, and various lending
institutions, incorporated by reference to Exhibit 4.1 of the
Registrant's Quarterly Report on Form 10-Q (No. 1-9915) for the
quarter ended June 30, 1998 filed under the Securities Exchange
Act of 1934, as amended
4.10(a) Indenture dated as of June 12, 1997, among the Company and State
Street Bank and Trust Company, as successor to Fleet National
Bank, as Trustee, (including the forms of Series A and Series B 9
3/4% Senior Notes), incorporated by reference to Exhibit 4.1 of
the Company's Registration Statement on Form S-4 (No. 333-30423)
filed under the Securities Act of 1933, as amended (the 1997 Debt
Registration Statement)
----------------
(a) Incorporated by reference
(b) Filed with this Form 10-K Report.
50
Number and Description of Exhibit
4.11(a) Registration Rights Agreement dated as of June 5, 1997 among the
Company, BT Securities Corporation, Bear Stearns & Co. Inc. and
Salomon Brothers Inc, incorporated by reference to Exhibit 4.7 of
the 1997 Debt Registration Statement
4.12(b) Series 2000-1 A-RI Supplemental Issuance Agreement dated as of
August 16, 2000 by and between the Registrant, Gaylord
Receivables Corporation and Manufacturers and Traders Trust
Company, as Trustee
4.13(a) Amendment No. 1 to Receivables Purchase Agreement dated as of
November 7, 1996 between the Company and Gaylord Receivables
Corporation, incorporated by reference to Exhibit 3.16 of the
Company's Annual Report on Form 10-K (No. 1-9915) for the year
ended September 30, 1996, filed under the Securities Exchange Act
of 1934, as amended (the 1996 Form 10-K)
4.14(b) Amended and Restated Security Agreement dated as of August 16,
2000 between Gaylord Receivables Corporation, the financial
institutions signatory thereto and LaSalle Bank National
Association as Collateral Agent
4.15(a) Rights Agreement, dated June 12, 1995, between the Registrant and
Harris Trust and Savings Bank as Rights Agent, including the form
of Certificate of Designation, Preferences and Rights of Junior
Participating Preferred Stock, Series A, attached thereto, as
Exhibit A, the form of Rights Certificate attached thereto as
Exhibit B and the Summary of Rights attached thereto as Exhibit C,
incorporated by reference to Exhibit 4.1 of the July 5, 1995 Form
8-K
4.16(a) Subscription and Stockholder Agreement dated as of September 24,
1993 between the Registrant and Gaylord Receivables Corporation,
incorporated by reference to Exhibit 4.13 of the Registrant's
Annual Report on Form 10-K (No. 1-9915) for the year ended
September 30, 1993, filed under the Securities Exchange Act of
1934, as amended (the 1993 Form 10-K)
4.17(a) Receivables Purchase Agreement dated as of September 24, 1993
between the Registrant and Gaylord Receivables Corporation,
incorporated by reference to Exhibit 4.14 of the 1993 Form 10-K
4.18(a) Gaylord Receivables Master Pooling and Servicing Agreement dated
as of September 24, 1993 between the Registrant and Gaylord
Receivables Corporation, incorporated by reference to Exhibit 4.15
of the 1993 Form 10-K
4.19(b) Amendment No. 4 to the Pooling and Servicing Agreement dated as of
August 16, 2000 between the Registrant, Gaylord Receivables
Corporation and Manufacturers and Traders Trust Company as the
Trustee
----------------
(a) Incorporated by reference
(b) Filed with this Form 10-K Report.
51
Number and Description of Exhibit
4.20(b) Amendment No. 4 to the Receivables Purchase Agreement dated as of
August 16, 2000 between the Registrant and Gaylord Receivables
Corporation
4.21(a) Specimen Certificate for the Class A Common Stock, par value
$0.0001 per share, of the Registrant, incorporated by reference to
Exhibit 4.5 of the Registrant's Current Report on Form 8-K filed
on October 30, 1992 under the Securities Exchange Act of 1934, as
amended (October 30, 1992 Form 8-K)
4.22(a) Warrant Agreement between the Registrant and Harris Trust and
Savings Bank, as Warrant Agent, relating to the Registrant's
Redeemable Exchangeable Warrants, incorporated by reference to
Exhibit 4.3 of the October 30, 1992 Form 8-K
4.23(a) Specimen Certificate for the Redeemable Exchangeable Warrants of
the Registrant, incorporated by reference to Exhibit 4.6 of the
October 30, 1992 Form 8-K
4.24(a) Trust Agreement between the Registrant and Harris Trust and
Savings Bank, as Warrant Agent, relating to the Class A Common
Stock obtainable upon exercise of the Redeemable Exchangeable
Warrants, incorporated by reference to Exhibit 4.4 of the October
30, 1992 Form 8-K
10.1(b) Amendment No. 2 to Employment Agreement between the Registrant and
Warren J. Hayford dated March 1, 2000, incorporated by reference
to Exhibit 10.26 of the 1989 Debt Registration Statement
10.2(b) Amendment No. 1 to Employment Agreement between the Registrant and
Marvin A. Pomerantz dated March 1, 2000, incorporated by reference
to Exhibit 10.18 of the 1997 Debt Registration Statement
10.3(b) Amended and Restated Supplemental Executive Retirement Plan, dated
as of March 1, 2000
10.4(a) Gaylord Container Corporation Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit 10.36 of the Company's
Annual Report on Form 10-K (No. 1-9915) for the year ended
September 30, 1995, filed under the Securities Exchange Act of
1934, as amended
10.5(b) Amendment No. 1 to the Gaylord Container Corporation 1991
Severance Compensation Agreement and the Gaylord Container
Corporation 1991 Severance Compensation Agreement between the
Registrant and certain Executives dated April 15, 1991
10.6(a) Amendment No. 1 to the Gaylord Container Corporation 1997
Long-Term Equity Incentive Plan, incorporated by reference to
Exhibit 4.5 of the Registrant's Form S-8 Registration Statement
under the Securities Act of 1933, filed with the Securities and
Exchange Commission on April 6, 2000
----------------
(a) Incorporated by reference
(b) Filed with this Form 10-K Report.
52
Number and Description of Exhibit
10.7(a) Securities Purchase Agreement dated as of October 28, 1999 by and
between the Registrant and Stone Container Corporation as
incorporated by reference to Exhibit 10.1 of the 1999 Form 10-K
10.8(a) Amended and Restated Supply Agreement as of October 28, 1999 by
and among Stone Container Corporation, S&G Packaging Company,
L.L.C. and the Registrant by reference to Exhibit 10.2 of the 1999
Form 10-K
10.9(a) Patent, Trademark and Trade Secret Assignment as of October 28,
1999 by and between Stone Container Corporation and S&G Packaging
Company, L.L.C. by reference to Exhibit 10.3 of the 1999 Form 10-K
10.10(a) Letters dated March 1, 1991 and March 19, 1991 between the
Registrant and Cavenham Forest Industries, Inc., amending the
Bogalusa Roundwood Supply and Cutting Rights Agreement dated as of
March 28, 1986, incorporated by reference to Exhibit 10(e) of the
Registrant's Proxy Statement - Prospectus on Form S-4 (No.
33-41799) as amended, filed under the Securities Act of 1933, as
amended (the 1991 Proxy Statement - Prospectus)
10.11(a) Letters dated March 1, 1991 and March 19, 1991 between the
Registrant and Cavenham Forest Industries, Inc. amending the
Bogalusa Wood Chip Supply Agreement dated as of March 28, 1986,
incorporated by reference to Exhibit 10(i) of the 1991 Proxy
Statement - Prospectus
10.12(a) Stockholder Agreement by and among the Registrant and the Persons
listed on the signature pages thereto dated as of June 1, 1988,
incorporated by reference to Exhibit 10.22 of the Registrant's
Registration Statement on Form S-1 (No. 33-21227), as amended,
filed under the Securities Act of 1933, as amended (the 1988 Debt
Registration Statement)
10.13(a) Agreement among the Registrant and the Persons listed on the
signature pages thereto dated as of June 1, 1988, incorporated by
reference to Exhibit 10.23 of the 1988 Debt Registration Statement
10.14(a) Bogalusa Hog Fuel Supply Agreement by and between the Registrant
and Cavenham Forest Industries, Inc. dated as of March 28, 1986,
incorporated by reference to Exhibit 10.8 of the Registrant's
Registration Statement on Form S-1 (No. 33-13455), as amended,
filed under the Securities Act of 1933, as amended (the 1986 Debt
Registration Statement)
10.15(a) Bogalusa Hog Fuel Supply Agreement (St. Francisville) by and
between the Registrant and Crown Zellerbach Corporation dated as
of March 31, 1986, incorporated by reference to Exhibit 10.9 of
the 1986 Debt Registration Statement
10.16(a) Bogalusa Sawmill Agreement by and between the Registrant and
Cavenham Forest Industries, Inc. dated as of March 28, 1986,
incorporated by reference to Exhibit 10.11 of the 1986 Debt
Registration Statement
10.17(a) Bogalusa Timberland Agreement by and between the Registrant and
Cavenham Forest Industries, Inc. dated as of March 28, 1986,
incorporated by reference to Exhibit 10.12 of the 1986 Debt
Registration Statement
----------------
(a) Incorporated by reference
(b) Filed with this Form 10-K Report.
53
Number and Description of Exhibit
10.18(a) Transfer and Assumption Agreement by and between the Registrant
and Gaylord Container Limited dated as of November 17, 1986,
incorporated by reference to Exhibit 10.16 of the 1986 Debt
Registration Statement
10.19(a) Undertaking by and between the Registrant and Crown Zellerbach
Corporation dated as of May 2, 1986, incorporated by reference to
Exhibit 10.17 of the 1986 Debt Registration Statement
10.20(a) Bogalusa Roundwood Supply and Cutting Rights Agreement by and
between the Registrant and Cavenham Forest Industries, Inc. dated
as of March 28, 1986, incorporated by reference to Exhibit 10.10
of the 1986 Debt Registration Statement
10.21(a) Bogalusa Wood Chip Supply Agreement by and between the Registrant
and Cavenham Forest Industries, Inc., dated as of March 28, 1986,
incorporated by reference to Exhibit 10.13 of the 1986 Debt
Registration Statement
10.22(a) Indemnification Agreement by and between the Registrant, Crown
Zellerbach Corporation and Cavenham Forest Industries, Inc. dated
as of November 17, 1986 regarding Power Purchase Agreement by and
between Pacific Gas & Electric Company and Crown Zellerbach
Corporation dated as of December 29, 1982, incorporated by
reference to Exhibit 10.15 of the 1986 Debt Registration Statement
10.23(a) Transaction Agreement by and between James River Corporation of
Virginia and Crown Zellerbach Corporation dated as of December 14,
1985, incorporated by reference to Exhibit 10.18 of the 1986 Debt
Registration Statement
10.24(a) Power Purchase Agreement by and between Pacific Gas & Electric
Company and Crown Zellerbach Corporation dated as of December 29,
1982, incorporated by reference to Exhibit 10.14 of the 1986 Debt
Registration Statement
10.25(a) Gaylord Container Corporation Supplemental Executive Retirement
Plan as amended dated November 4, 1998, incorporated by reference
to Exhibit 10.18 of the 1998 Form 10-K
10.26(a) Employment Letter Agreement by and between the Registrant and
Daniel P. Casey, dated November 18, 1998, incorporated by
reference to Exhibit 10.19 of the 1998 Form 10-K
10.27(a) Employment Letter Agreement by and between the Registrant and Dale
E. Stahl, dated November 18, 1998, incorporated by reference to
Exhibit 10.20 of the 1998 Form 10-K
10.28(a) Employment Letter Agreement by and between the Registrant and
Lawrence G. Rogna, dated November 18, 1998, incorporated by
reference to Exhibit 10.21 of the 1998 Form 10-K
10.29(a) Gaylord Container Corporation 1997 Long-Term Incentive Equity
Plan, incorporated by reference to Exhibit 28.1 of the Registrant
Registration Statement on Form S-8 (No. 333-39809) filed under the
Securities Act of 1933, as amended
----------------
(a) Incorporated by reference
(b) Filed with this Form 10-K Report.
54
Number and Description of Exhibit
10.30(a) Description of Gaylord Container Corporation Management Incentive
Plan, incorporated by reference to Exhibit 10.31 of Amendment No.
3 to the Company's Registration Statement on Form S-4 (No.
333-30423) filed under the Securities Act of 1933, as amended
(Amendment No. 3 to the 1997 Debt Registration Statement)
10.31(a) Gaylord Container Corporation Supplemental Retirement Plan,
incorporated by reference to Exhibit 10.33 of Amendment No. 3 to
the 1997 Debt Registration Statement
10.32(a) Employment Agreement by and between the Company and Marvin A.
Pomerantz dated June 1, 1997, incorporated by reference to Exhibit
10.18 of the 1997 Debt Registration Statement
10.33(a) Gaylord Container Corporation Shareholder Value Plan, incorporated
by reference to Exhibit A of the Company's Proxy Statement for its
1994 Annual meeting held December 10, 1993
10.34(a) Stock Retention Agreement dated June 25, 1992 between the
Registrant and Mid-America Group, Ltd., incorporated by reference
to Exhibit 10(nn) of the 1991 Proxy Statement - Prospectus
10.35(a) Amendment No. 1 to Employment Agreement between the Registrant and
Warren J. Hayford dated February 8, 1989, incorporated by
reference to Exhibit 10.26 of the 1989 Debt Registration Statement
10.36(a) Gaylord Container Corporation 1989 Long-Term Incentive Plan,
incorporated by reference to Exhibit 28.1 of the Registrant's
Registration Statement on Form S-8 (No. 33-33977) filed under the
Securities Act of 1933, as amended
10.37(a) Employment Agreement by and between the Registrant and Warren J.
Hayford dated as of May 18, 1988, incorporated by reference to
Exhibit 10.2 of the 1988 Debt Registration Statement
10.38(a) Gaylord Container Corporation 1987 Key Employee Stock Option Plan,
incorporated by reference to Exhibit 28 of the Registrant's
Registration Statement on Form S-8 (No. 33-25675) filed under the
Securities Act of 1933, as amended
10.39(a) Gaylord Container Corporation Outside Director Stock Option Plan,
incorporated by reference to Exhibit 28 of the Registrant's
Registration Statement on Form S-8 (No. 33-33871) filed under the
Securities Act of 1933, as amended
21.1(a) Subsidiaries of the Registrant, incorporated by reference to
Exhibit 21.1 of the Amendment No. 1 to the Company's Registration
Statement on Form S-4 (No. 333-30423) filed under the Securities
Act of 1933, as amended
23.1(b) Consent of Deloitte & Touche LLP
24.1(b) Power of Attorney
27.1(b) Financial Data Schedule
----------------
(a) Incorporated by reference
(b) Filed with this Form 10-K Report.
55
GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
-------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
[Enlarge/Download Table]
Additions Additions
Balance at charged to charged to Balance
beginning costs and other at end of
IN MILLIONS of year expenses accounts Deductions Year
----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998:
Allowance for accounts receivable $ 5.5 $ 8.9 $ -- $ (8.0) $ 6.4
----------------------------------------------------------------------------------------------------------------------------
Reserves - asset write-down $ 11.5 $ -- $ -- $ (4.7) $ 6.8
----------------------------------------------------------------------------------------------------------------------------
Reserves - allowance for abandonments $ 0.6 $ -- $ 0.3 $ (0.2) $ 0.7
----------------------------------------------------------------------------------------------------------------------------
Reserves - purchase adjustments-accrued
restructuring costs $ 1.2 $ -- $ -- $ (0.5) $ 0.7
----------------------------------------------------------------------------------------------------------------------------
Reserves long-term - purchase
adjustments - accrued restructuring
costs $ 0.9 $ -- $ -- $ -- $ 0.9
----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1999:
Allowance for accounts receivable $ 6.4 $ 9.0 $ -- $ (8.7) $ 6.7
----------------------------------------------------------------------------------------------------------------------------
Reserves - asset write-down $ 6.8 $ -- $(0.8) $ (3.8) $ 2.2
----------------------------------------------------------------------------------------------------------------------------
Reserves - allowance for abandonments $ 0.7 $ -- $ -- $ (0.1) $ 0.6
----------------------------------------------------------------------------------------------------------------------------
Reserves - purchase adjustments-accrued
restructuring costs $ 0.7 $ -- $ -- $ (0.5) $ 0.2
----------------------------------------------------------------------------------------------------------------------------
Reserves long-term - purchase
adjustments - accrued restructuring
costs $ 0.9 $ 0.1 $ -- $ -- $ 1.0
----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 2000:
Allowance for accounts receivable $ 6.7 $10.3 $(0.2) $ (9.0) $ 7.8
----------------------------------------------------------------------------------------------------------------------------
Reserves - asset write-down $ 2.2 $ -- $(0.2) $ (1.9) $ 0.1
----------------------------------------------------------------------------------------------------------------------------
Reserves - allowance for abandonments $ 0.6 $ -- $ -- $ (0.4) $ 0.2
----------------------------------------------------------------------------------------------------------------------------
Reserves - purchase adjustments-accrued
restructuring costs $ 0.2 $ 1.0 $ 1.7 $ (2.7) $ 0.2
----------------------------------------------------------------------------------------------------------------------------
Reserves long-term - purchase
adjustments - accrued restructuring
costs $ 1.0 $ 0.2 $ -- $ (0.8) $ 0.4
----------------------------------------------------------------------------------------------------------------------------
56
SIGNATURES
--------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) 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, on the 7th day of
December, 2000.
Gaylord Container Corporation
/s/ Marvin A. Pomerantz
-----------------------------------
Marvin A. Pomerantz
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on the 7th day of December, 2000, by the following persons on
behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE
/s/Marvin A. Pomerantz Chairman, Chief Executive Officer and Director
----------------------- (Principal Executive Officer)
Marvin A. Pomerantz
/s/Daniel P. Casey Vice Chairman and Director
----------------------- (Principal Financial Officer)
Daniel P. Casey
/s/Jeffrey B. Park Vice President, Finance
----------------------- (Principal Accounting Officer)
Jeffrey B. Park
*
----------------------- Director
Mary Sue Coleman
*
----------------------- Director
Harve A. Ferrill
*
----------------------- Director
John E. Goodenow
*
----------------------- Director
David B. Hawkins
*
----------------------- Director
Warren J. Hayford
*
----------------------- Director
Charles S. Johnson
*
----------------------- Director
Jerry W. Kolb
*
----------------------- Director
Ralph L. MacDonald Jr.
*
----------------------- Director
Thomas H. Stoner
* By Daniel P. Casey, Attorney-in-fact
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000950137-00-005181 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Tue., Apr. 23, 5:35:56.1pm ET 
