1
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b) (2)
Registration No. 333-62338
(TO PROSPECTUS DATED JUNE 28, 2001)
$250,000,000
(ROCK-TENN COMPANY LOGO)
8.20% SENIOR NOTES DUE AUGUST 15, 2011
------------------------------------
The notes will mature on August 15, 2011. We may redeem the notes at our
option at any time, either in whole or in part, at the redemption prices
described in this prospectus supplement under "Description of Notes -- Optional
Redemption." The notes have no sinking fund provisions.
Interest on the notes is payable semi-annually on February 15 and August 15
of each year, commencing February 15, 2002.
------------------------------------
PER NOTE TOTAL
-------- ------------
Initial public offering price(1)............................ 99.727% $249,317,500
Underwriting discount....................................... 0.650% $ 1,625,000
Proceeds, before expenses, to Rock-Tenn(1).................. 99.077% $247,692,500
---------------
(1) Plus accrued interest, if any, from August 7, 2001.
Neither the U.S. Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the notes or determined
that this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The notes will not be listed on any securities exchange. Currently, there
is no public market for the notes.
We expect that delivery of the notes will be made in book-entry form only
through The Depository Trust Company against payment in New York, New York on or
about August 7, 2001.
Joint-Lead Managers and Bookrunners:
BANC OF AMERICA SECURITIES LLC JPMORGAN
Co-Managers:
SUNTRUST ROBINSON HUMPHREY WACHOVIA SECURITIES, INC.
AUGUST 2, 2001
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
About This Prospectus Supplement............................ S-2
Summary..................................................... S-3
Use of Proceeds............................................. S-7
Ratio of Earnings to Fixed Charges.......................... S-7
Capitalization.............................................. S-8
Selected Financial Data..................................... S-9
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ S-11
Description of Notes........................................ S-31
Underwriting................................................ S-33
Legal Opinions.............................................. S-34
Experts..................................................... S-34
PROSPECTUS
About This Prospectus....................................... 2
Where You Can Find More Information......................... 2
Forward-Looking Statements.................................. 3
Rock-Tenn Company........................................... 3
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 4
Description of Debt Securities.............................. 5
Plan of Distribution........................................ 14
Validity of Debt Securities................................. 15
Experts..................................................... 16
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement and the accompanying prospectus.
Both documents contain information you should consider when making your
investment decision. You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
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SUMMARY
Unless the context otherwise requires, "we", "us", "our" or "Rock-Tenn"
refers to the business of Rock-Tenn Company and its subsidiaries, including RTS
Packaging, LLC, which we refer to as RTS. We own 65% of RTS and conduct our
partition products business through RTS.
THE OFFERING
Issuer..................... Rock-Tenn Company.
Securities offered......... $250,000,000 aggregate principal amount of 8.20%
senior notes due August 15, 2011.
Maturity................... August 15, 2011.
Interest rate.............. 8.20% per year (calculated using a 360-day year
consisting of twelve 30-day months).
Interest payment dates..... February 15 and August 15, beginning on February
15, 2002. Interest will accrue from the issue date
of the notes.
Ranking.................... The notes will be our direct unsecured obligations
and will rank equally with all of our other
unsecured and unsubordinated debt.
Optional redemption........ We may redeem the notes at our option at any time,
either in whole or in part, at the redemption
prices described in this prospectus supplement
under "Description of Notes -- Optional
Redemption."
Certain covenants.......... The indenture governing the notes contains
covenants limiting our ability to:
- create liens on our assets; and
- enter into sale and leaseback transactions.
These covenants are subject to a number of
important limitations and exceptions. See
"Description of Debt Securities" in the
accompanying prospectus.
Use of proceeds............ We intend to use all of the net proceeds from the
sale of the notes to repay borrowings under our
revolving credit facility. See "Use of Proceeds."
Trustee.................... SunTrust Bank
Governing law.............. New York.
DTC eligibility............ The notes will be issued in book-entry form and
will be represented by one or more global
certificates deposited with, or on behalf of, and
registered in the name of a nominee of, The
Depository Trust Company in New York, New York.
Beneficial interests in the notes will be shown on,
and transfers will be effected only through,
records maintained by DTC and its direct and
indirect participants and any such interest may not
be exchanged for certificated notes, except in
limited circumstances. See "Description of
Notes -- General" in this prospectus supplement and
"Description of Debt Securities -- Book-Entry Debt
Securities" in the accompanying prospectus.
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OUR COMPANY
GENERAL
We are a leading manufacturer of packaging, 100% recycled clay-coated and
specialty paperboard and laminated paperboard products. Our packaging operations
manufacture folding cartons, solid fiber partitions, corrugated packaging and
corrugated sheet stock and plastic packaging and other products. We also produce
temporary and permanent promotional displays and corrugating medium, as well as
collect and sell recycled fiber. We currently operate 66 converting operations,
12 paperboard mills and one distribution facility. These facilities are located
in 24 states, Canada, Mexico and Chile.
BUSINESS STRATEGY
The principal components of our business strategy include the following:
Leverage our Market Leadership. We seek to leverage our leading market
positions to profitably grow our existing businesses in niche markets where we
can gain a competitive advantage from our core competencies.
Expand Further into High Quality, Value-Added Packaging Products and
Services. We intend to continue to expand the scope of our products and
services into high quality, value-added markets.
Continue Emphasis on Low-Cost Production. We strive to be a low-cost
producer and we invest in capital projects that increase the efficiency and
productivity of our manufacturing operations and lower our costs.
Provide High Level of Customer Service. We are committed to providing a
high level of customer service through the manufacture of quality products,
innovative product development and just-in-time delivery, and continuously
upgrading our manufacturing processes and quality assurance programs to deliver
products with high levels of quality and consistency.
Operate as Integrated Manufacturer of Recycled Paperboard Products. We are
a vertically integrated manufacturer, which we believe enhances our operational
efficiencies, competitiveness, profitability and responsiveness to customers.
PRODUCTS
We report our results of operations in three industry segments:
- packaging products,
- paperboard, and
- specialty corrugated packaging and display.
For financial information relating to our segments, you should refer to
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included in this prospectus supplement and our audited consolidated
financial statements which are incorporated by reference into this prospectus
supplement and the accompanying prospectus.
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PACKAGING PRODUCTS
In our packaging segment, we manufacture three lines of packaging products:
- folding cartons,
- solid fiber partitions, and
- plastic packaging.
Folding Cartons. We believe that we are the fourth largest producer of
folding cartons in North America. Customers use our folding cartons to package
frozen, dry and perishable food items, paper goods, hardware products, textile,
automotive, apparel and other products. We manufacture folding cartons from
recycled or virgin paperboard, which we print, coat, die-cut and glue in
accordance with customer specifications. We then ship finished cartons to
customers' plants for packing and sealing. We operate 17 folding carton plants
and one distribution facility. Sales of folding cartons to unaffiliated
customers accounted for 40.5%, 42.9% and 45.3% of our net sales in fiscal 2000,
1999 and 1998, respectively, and 41.4% of our net sales for the nine months
ended June 30, 2001.
Partition Products. We believe that we are the largest manufacturer of
solid fiber partitions in North America, which we market principally to glass
container manufacturers and producers of food, beer, wine and electrical
components. We manufacture fiber partitions from 100% recycled specialty
paperboard. Our solid fiber partitions come in varying thicknesses to meet
different structural requirements for high speed casing, uncasing and filling
lines due to their precision die-cut construction. We focus on developing high
quality, value-added partition products for specific applications to meet
customers' packaging needs. We operate 12 solid fiber partition plants. Sales of
fiber partition products to unaffiliated customers accounted for 9.3%, 10.3% and
10.8% of our net sales in fiscal 2000, 1999 and 1998, respectively, and 8.9% of
our net sales for the nine months ended June 30, 2001.
Plastic Packaging Products. We manufacture custom thermoformed plastic
converted products and extruded plastic roll stock for sale to the food service,
industrial products, consumer products, healthcare and food processor markets.
We use contact heat and radiant heat thermoforming equipment to manufacture
thermoformed products from plastic roll stock in a wide range of thicknesses,
expanding the range of product applications. We also operate extruders to
manufacture plastic roll stock in a wide range of resins and colors. We use
virgin and recycled plastic resin purchased from third parties in the extrusion
process, including high impact polystyrene, high density polyethylene,
polypropylene, polyethylene terephthalate (PET) and K resin blends. We operate
two plastic packaging plants. Sales of plastic packaging products to
unaffiliated customers accounted for 4.3%, 3.6% and 3.5% of our net sales in
fiscal 2000, 1999 and 1998, respectively, and 5.6% of our net sales for the nine
months ended June 30, 2001.
PAPERBOARD
In our paperboard segment, we collect recovered paper and produce four
paperboard products:
- 100% recycled clay-coated paperboard,
- 100% recycled specialty paperboard,
- 100% recycled corrugating medium, and
- laminated paperboard products.
Clay-Coated and Specialty Paperboard and Corrugating Medium. We believe we
are the second largest U.S. manufacturer of 100% recycled paperboard (excluding
linerboard, corrugating medium and paperboard used in the manufacture of gypsum
wallboard). We market our recycled clay-coated and specialty paperboard to
manufacturers of folding cartons, solid fiber partitions, laminated paperboard
products, tube and core products, set-up boxes and other paperboard products. We
also manufacture recycled corrugating medium, which we market to corrugated
sheet manufacturers. We operate 12 paperboard mills. Sales of recycled
paperboard (including corrugating medium) to unaffiliated
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customers accounted for 17.3%, 16.4% and 15.5% of our net sales in fiscal 2000,
1999 and 1998, respectively, and 16.3% of our net sales for the nine months
ended June 30, 2001.
Laminated Paperboard Products. We believe we are the largest U.S.
manufacturer of laminated paperboard products for the furniture market, and the
second largest U.S. manufacturer of laminated paperboard products in the book
cover market. We convert specialty paperboard into laminated paperboard products
for use in book covers and binders, furniture, automotive components, fiber
drums and other industrial products. We operate six laminated paperboard
products plants. Sales of laminated paperboard products to unaffiliated
customers accounted for 9.3%, 11.2% and 12.6% of our net sales in fiscal 2000,
1999 and 1998, respectively, and 8.1% of our net sales for the nine months ended
June 30, 2001.
Recycled Fiber. We operate 14 paper recovery facilities that collect paper
from a number of sources including factories, commercial printers, office
buildings, retail stores and paper converters as well as from other waste paper
collectors. After sorting and baling, we transfer collected paper to our
paperboard mills for processing or sell it principally to other U.S.
manufacturers of recycled paperboard. Several of our paper recovery facilities
are located near our paperboard mills. This helps minimize freight costs and
provides an additional source of supply of recovered paper for our operations,
which is the principal raw material used to produce recycled paperboard. We also
operate a marketing and brokerage group that services large national accounts.
Sales of recovered paper to unaffiliated customers accounted for 3.3%, 2.1% and
2.0% of our net sales in fiscal 2000, 1999 and 1998, respectively, and 2.4% of
our net sales for the nine months ended June 30, 2001.
SPECIALTY CORRUGATED PACKAGING AND DISPLAY
In our specialty corrugated packaging and display segment, we manufacture
three lines of products:
- corrugated packaging,
- corrugated sheet stock, and
- temporary and permanent promotional displays.
We manufacture corrugated packaging and corrugated sheet stock in a range
of flute configurations and structural designs. We market corrugated packaging
and corrugated sheet stock products primarily in the Southeastern U.S. To make
corrugated sheet stock, we simultaneously feed linerboard and corrugating medium
into a corrugator that flutes the medium to specified sizes, glues the
linerboard and fluted medium together and slits and cuts the resulting
corrugated paperboard into sheets in accordance with customer specifications. We
market corrugated sheets to corrugated box manufacturers. We also convert
corrugated sheets into corrugated products ranging from one-color protective
cartons to graphically brilliant point-of-purchase containers and displays. We
operate one corrugator and five corrugated packaging plants.
We believe we are the second largest manufacturer of temporary promotional
displays in North America. We manufacture promotional displays for sale to many
of the largest national consumer products companies and to smaller national and
regional consumer products companies. We also provide contract packing services
for completed displays, which may include customer products. We operate one
facility that manufactures displays and lithographic laminated packaging and one
facility that manufactures lithographic laminated packaging. We also operate six
contract packing facilities and nine display sales and design centers. Sales of
our corrugated packaging and display products to unaffiliated customers
accounted for 16.0%, 13.5% and 10.3% of our net sales in fiscal 2000, 1999 and
1998, respectively, and 17.3% of our net sales for the nine months ended June
30, 2001.
We are incorporated under the laws of the State of Georgia. Our principal
executive offices are located at 504 Thrasher Street, Norcross, Georgia 30071,
and our telephone number is (770) 448-2193.
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USE OF PROCEEDS
We expect the net proceeds from the sale of the notes offered hereby to
aggregate approximately $247.5 million after deducting the underwriters'
discount and offering expenses. We intend to use all of the net proceeds from
this offering to repay borrowings outstanding under our revolving credit
facility. As of June 30, 2001, we had borrowings aggregating $289.0 million
outstanding under our revolving credit facility which bore interest at a
weighted average interest rate equal to 5.84%. Of this amount, $20.0 million
constituted current liabilities. We entered into our revolving credit facility
in June 2000 and used the borrowings under our revolving credit facility to
repay borrowings under our then existing credit facility. The revolving credit
facility terminates in June 2005. Certain affiliates of the underwriters for the
offering are lenders under our revolving credit facility. See "Underwriting."
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our ratio of earnings to fixed charges, which
includes our subsidiaries, on a consolidated basis. We have computed the ratio
of earnings to fixed charges by dividing our earnings by our fixed charges. For
purposes of calculating this ratio,
- "earnings" include pretax income from continuing operations plus fixed
charges adjusted for capitalized interest, and
- "fixed charges" include interest on debt, whether expensed or
capitalized, amortization of debt expense and the interest portion of
rental expense on operating leases.
For purposes of calculating the ratio of earnings to fixed charges,
excluding plant closing costs, "earnings" include:
- pretax income from operations plus
- fixed charges adjusted for capitalized interest plus
- plant closing costs, which consist primarily of severance, machinery
relocation, asset write-downs and other one-time costs.
NINE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------------- -----------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges............ 7.20 2.20 2.90 2.98 0.88 0.44 2.18
Ratio of earnings to fixed charges, excluding
plant closing costs......................... 7.47 2.73 2.95 3.17 2.51 2.53 2.42
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CAPITALIZATION
The following table sets forth our historical capitalization at June 30,
2001, and as adjusted to give effect to this offering and the application of the
net proceeds from the sale of the notes. See "Use of Proceeds." You should read
the following table in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this prospectus
supplement and our financial statements and the related notes which are
incorporated by reference into this prospectus supplement and the accompanying
prospectus.
JUNE 30, 2001
---------------------------
AS
ACTUAL ADJUSTED
------------ ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
Cash and cash equivalents................................... $ 2,964 $ 2,964
========== ==========
Current liabilities (including current maturities of
long-term debt)........................................... 237,841 237,841
---------- ----------
Long-term debt:
Revolving credit facility................................. 269,000 21,508
7.25% senior notes due August 2005........................ 99,944 99,944
8.20% senior notes due August 2011........................ -- 250,000
Industrial revenue bonds.................................. 37,500 37,500
Other notes............................................... 1,299 1,299
---------- ----------
Total long-term debt.............................. 407,743 410,251
Deferred income taxes....................................... 86,657 86,657
Other long-term items....................................... 18,724 18,724
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares
authorized, no shares outstanding...................... -- --
Class A Common Stock, $.01 par value, 175,000,000 shares
authorized, 22,855,811 outstanding; Class B Common
Stock, $.01 par value, 60,000,000 shares authorized,
10,647,057 outstanding................................. 334 334
Capital in excess of par value............................ 129,942 129,942
Deferred compensation..................................... (1,524) (1,524)
Retained earnings......................................... 275,341 275,341
Accumulated other comprehensive loss...................... (7,157) (7,157)
---------- ----------
Total shareholders' equity........................ 396,936 396,936
---------- ----------
Total capitalization......................... $1,147,901 $1,150,409
========== ==========
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SELECTED FINANCIAL DATA
The following selected consolidated financial data for and as of the years
ended September 30, 1996, 1997, 1998, 1999 and 2000 is derived from our
consolidated financial statements for those years, which have been audited by
Ernst & Young LLP, independent auditors. The following selected consolidated
financial data for and as of the nine months ended June 30, 2000 and 2001 has
been derived in part from our unaudited consolidated financial statements and,
in our opinion, reflects all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the data for those periods. Results of
operations for the nine months ended June 30, 2001 are not necessarily
indicative of results expected for the full year. You should read the following
information in conjunction with our consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included or incorporated by reference into this
prospectus supplement and the accompanying prospectus.
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------------------------ -----------------------
1996 1997(4)(5) 1998 1999 2000 2000 2001
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $879,571 $1,113,883 $1,297,360 $1,313,371 $1,463,288 $1,087,306 $1,069,644
Plant closing and other costs.......... 3,580 16,251 1,997 6,932 65,630 60,075 7,563
Income from operations................. 92,157 64,176 113,936 107,036 35,791 13,163 67,579
Income (loss) before income taxes...... 82,469 37,756 74,613 70,253 (4,346) (15,718) 38,163
Net income (loss)...................... 51,125 16,101 42,020 39,698 (15,916) (22,041) 21,229
PER SHARE DATA:
Diluted earnings (loss) per common
share(1)............................. 1.50 0.47 1.20 1.13 (0.46) (0.63) 0.64
Diluted earnings per common share
before plant closing and other
costs(1)............................. 1.57 0.90 1.23 1.25 1.02 0.75 0.78
Dividends paid per common share(1)..... 0.27 0.30 0.30 0.30 0.30 0.225 0.225
Book value per common share(1)......... 10.54 10.80 11.49 12.36 11.57 11.48 11.85
BALANCE SHEET DATA:
Total assets........................... 581,688 1,113,686 1,111,481 1,161,470 1,158,963 1,156,088 1,147,901
Long-term debt, including current
maturities........................... 146,604 533,622 508,338 498,845 534,820 533,215 510,886
Shareholders' equity................... 349,155 371,212 397,415 432,164 386,303 389,518 396,936
OTHER FINANCIAL DATA:
Cash provided by operating
activities........................... 123,530 106,377 125,688 112,416 102,444 62,459 91,986
Goodwill amortization(2)............... 2,723 7,070 9,429 9,410 9,069 6,892 6,428
Capital expenditures................... 72,151 87,016 81,666 92,333 94,640 67,587 51,799
Cash paid for purchases of
businesses........................... -- 301,287 -- -- -- -- 8,656(6)
Depreciation and amortization.......... 48,564 62,117 70,827 72,475 77,061 57,964 57,926
EBITDA(3).............................. 144,301 142,544 186,760 186,443 178,482 131,202 133,068
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(1) Gives effect to a 10% stock dividend paid on November 15, 1996.
(2) Amount not deductible for income tax purposes was $6,550,000, $6,900,000,
$6,928,000, $4,760,000 and $0 in fiscal 2000, 1999, 1998, 1997 and 1996,
respectively and $5,104,000 and $4,652,000 for the nine months ended June
30, 2000 and 2001.
(3) EBITDA represents income from operations plus (i) depreciation and
amortization and (ii) plant closing costs. EBITDA is presented because we
believe it provides useful information regarding our ability to service
debt. EBITDA should not be considered as an alternative measure of operating
results or cash flow from operations (as determined in accordance with
generally accepted accounting principles).
(4) Effective October 1, 1996, we changed our method of depreciation for assets
placed in service after September 30, 1996 to the straight-line method. This
change was applied on a prospective basis to such assets acquired after that
date. The effect of this change was to increase net income by $3,011,000 in
fiscal 1997.
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(5) Reflects:
- the results of operations of Waldorf Corporation, Rite Paper Products, Inc.
and The Davey Company beginning from the respective dates of acquisition
and
- the results of operations of RTS Packaging, LLC from the date of formation.
(6) Represents cash contributed to Seven Hills Paperboard, LLC, a joint venture
of which we own 49%. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Joint Venture."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
You should read the following discussion of our financial condition and
results of operations in conjunction with our consolidated financial statements
and related notes thereto incorporated by reference into this prospectus
supplement and the accompanying prospectus. The following discussion may contain
forward-looking statements which are subject to certain risks, uncertainties and
assumptions. You should read the section entitled "Forward-Looking Statements"
in the accompanying prospectus for further information regarding these risks,
uncertainties and assumptions.
SEGMENT AND MARKET INFORMATION
We report our results in three industry segments:
- packaging products,
- paperboard, and
- specialty corrugated packaging and display.
These segments reflect the results of an evaluation of our businesses
undertaken at the end of fiscal year 2000. As a result of this review, we
restated our previously reported segment information for fiscal years 1995
through 2000 to reflect the new composition of each segment. The new paperboard
segment includes the results of the recycled fiber, coated and specialty
paperboard, and laminated paperboard products divisions. The packaging products
segment now includes the results of the folding carton group, the plastic
packaging division and RTS Packaging, LLC. The new specialty corrugated
packaging and display segment includes the results of the corrugated packaging
and the Alliance divisions. We believe this new reporting structure better
reflects how we manage our businesses and provides investors with an improved
understanding of our financial performance.
During fiscal 2000 and the nine months ended June 30, 2001, no customer
accounted for more than 5% of our consolidated net sales.
The packaging products segment consists of facilities that produce folding
cartons, solid fiber partitions and thermoformed plastic products. We compete
with a significant number of national, regional and local packaging suppliers.
During fiscal 2000, we sold packaging products to approximately 3,200 customers.
We sell packaging products to several large national customers; however, the
majority of our packaging products sales are to smaller national and regional
customers. Net sales to the top ten customers of our folding carton division
represented 33% of total folding carton sales, and net sales to the top
twenty-five customers represented 53% of total folding carton sales for the nine
months ended June 30, 2001. The packaging business is highly competitive. As a
result, we regularly bid for sales opportunities to customers for new business
or for renewal of existing business. The loss of business or the award of new
business from our larger customers may have a significant impact on our results
of operations.
The paperboard segment consists of facilities that collect recovered paper
and that manufacture 100% recycled clay-coated and specialty paperboard;
corrugating medium, which we refer to as medium; and laminated paperboard
products. In our clay-coated and specialty paperboard divisions, we compete with
integrated and non-integrated national, regional and local companies
manufacturing various grades of paperboard. Our clay-coated paperboard division,
excluding our corrugating medium mill, sold 265 thousand tons to internal
customers and 270 thousand tons to external customers for the twelve months
ended June 30, 2001. Our corrugating medium mill sold 166 thousand tons for the
twelve months ended June 30, 2001, primarily to external customers. Our
specialty paperboard division sold 112 thousand tons to our laminated products
division, 68 thousand tons to our RTS packaging business, and 150 thousand tons
to external customers during the twelve months ended June 30, 2001. In our
laminated paperboard products division, we compete with a small number of
national, regional and local companies offering highly specialized products. We
also compete with foreign companies in the book cover market. Our recycled fiber
division competes with national, regional and local companies. During fiscal
2000, we sold paperboard, corrugating medium,
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laminated paperboard products and recovered paper to approximately 1,800
customers. A significant percentage of our sales of paperboard is made to our
packaging products and specialty corrugated packaging and display segments and
to our laminated paperboard products division. Our paperboard segment's sales
volumes may therefore be directly impacted by changes in demand for our
packaging and laminated paperboard products.
The specialty corrugated packaging and display segment consists of
facilities that produce corrugated containers and displays. We compete with a
number of national, regional and local suppliers of those goods in this segment.
During fiscal 2000, we sold corrugated containers and display products to
approximately 1,100 customers. Due to the highly competitive nature of the
specialty packaging and display business, we regularly bid for sales
opportunities to customers for new business or for renewal of existing business.
The loss of business or the award of new business from our larger customers may
have a significant impact on our results of operations.
The following table shows certain operating data for our three industry
segments. Certain of our income and expenses are not allocated to our segments
and thus are not reflected in the information used by management to make
operating decisions and assess performance at the plant level. These items are
reported as non-allocated expenses. These include adjustments to record
inventory on the last-in, first-out, or "LIFO," method, elimination of
intersegment profit and certain corporate expenses.
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------- -------------------
1998 1999 2000 2000 2001
--------- --------- --------- -------- --------
(IN MILLIONS)
Net sales (aggregate):
Packaging Products........................... $ 774.4 $ 749.9 $ 797.4 $ 590.8 $ 601.1
Paperboard................................... 555.4 529.0 588.5 447.9 395.1
Specialty Corrugated Packaging and Display... 138.0 180.9 238.8 170.6 189.4
-------- -------- -------- -------- --------
Total................................ $1,467.8 $1,459.8 $1,624.7 $1,209.3 $1,185.6
======== ======== ======== ======== ========
Net sales (intersegment):
Packaging Products........................... $ 1.2 $ 3.5 $ 5.3 $ 4.1 $ 2.6
Paperboard................................... 164.4 138.6 150.8 113.8 109.1
Specialty Corrugated Packaging and Display... 4.8 4.3 5.3 4.1 4.3
-------- -------- -------- -------- --------
Total................................ $ 170.4 $ 146.4 $ 161.4 $ 122.0 $ 116.0
======== ======== ======== ======== ========
Net sales (unaffiliated customers):
Packaging Products........................... $ 773.2 $ 746.4 $ 792.1 $ 586.7 $ 598.5
Paperboard................................... 391.0 390.4 437.7 334.1 286.0
Specialty Corrugated Packaging and Display... 133.2 176.6 233.5 166.5 185.1
-------- -------- -------- -------- --------
Total................................ $1,297.4 $1,313.4 $1,463.3 $1,087.3 $1,069.6
======== ======== ======== ======== ========
Segment income:
Packaging Products........................... $ 32.5 $ 40.5 $ 34.8 $ 24.7 $ 30.4
Paperboard................................... 72.4 55.6 47.6 38.6 26.9
Specialty Corrugated Packaging and Display... 15.6 23.8 28.4 21.3 17.5
-------- -------- -------- -------- --------
Total................................ 120.5 119.9 110.8 84.6 74.8
Plant closing and other costs.................. (2.0) (6.9) (65.6) (60.1) (7.5)
Non-allocated expenses......................... (4.6) (5.9) (9.4) (11.3) 0.3
-------- -------- -------- -------- --------
Income from operations......................... 113.9 107.1 35.8 13.2 67.6
Interest expense............................... (35.0) (31.2) (35.5) (25.4) (27.5)
Interest and other income...................... 1.0 0.4 0.4 0.3 0.4
Minority interest in income of
consolidated subsidiary...................... (5.3) (6.0) (5.0) (3.8) (2.4)
-------- -------- -------- -------- --------
Income (loss) before income taxes.............. $ 74.6 $ 70.3 $ (4.3) $ (15.7) $ 38.1
======== ======== ======== ======== ========
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13
RESULTS OF OPERATIONS
We provide quarterly information in the following tables to assist in
evaluating trends in our results of operations. For additional discussion of
quarterly information you should review our quarterly reports on Form 10-Q
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
NINE MONTHS ENDED JUNE 30, 2001 COMPARED WITH NINE MONTHS ENDED JUNE 30, 2000
Net Sales (Unaffiliated Customers)
Net sales for the nine months ended June 30, 2001 decreased 1.6% to
$1,069.6 million from $1,087.3 million for the nine months ended June 30, 2000.
Net sales decreased primarily as a result of weak market conditions in our
paperboard businesses, including a significant decline in recycled fiber prices
in the nine months ended June 30, 2001 compared to the nine months ended June
30, 2000.
Net Sales (Aggregate) -- Packaging Products Segment
NINE MONTHS
FIRST SECOND THIRD ENDED FOURTH FISCAL
QUARTER QUARTER QUARTER JUNE 30 QUARTER YEAR
------- ------- ------- ----------- ------- ------
(IN MILLIONS)
2000............................... $192.9 $195.1 $202.8 $590.8 $206.6 $797.4
2001............................... 195.6 206.9 198.6 601.1 -- --
Net sales of packaging products before intersegment eliminations for the
nine months ended June 30, 2001 increased 1.7% to $601.1 million from $590.8
million for the nine months ended June 30, 2000. The increase was mainly a
result of increases in sales volume in our plastic packaging division, offset by
a decline in sales volume at our partition joint venture, RTS packaging.
Net Sales (Aggregate) -- Paperboard Segment
NINE MONTHS
FIRST SECOND THIRD ENDED FOURTH FISCAL
QUARTER QUARTER QUARTER JUNE 30 QUARTER YEAR
------- ------- ------- ----------- ------- ------
(IN MILLIONS)
2000............................... $144.3 $154.7 $148.9 $447.9 $140.6 $588.5
2001............................... 131.5 133.1 130.5 395.1 -- --
Net sales of paperboard before intersegment eliminations for the nine
months ended June 30, 2001 decreased 11.8% to $395.1 million from $447.9 million
for the nine months ended June 30, 2000. The decrease was primarily due to a
decrease in demand for our products by customers in the book and ready to
assemble furniture industries, adversely affecting volumes in our laminated
paperboard products and specialty paperboard divisions. Reduced sales volumes at
our RTS packaging business also contributed to the decline in sales in our
specialty paperboard division. The recycled fiber division experienced lower
sales due to significantly lower recovered fiber prices during the nine months
ended June 30, 2001 compared to the nine months ended June 30, 2000.
Net Sales (Aggregate) -- Specialty Corrugated Packaging and Display Segment
NINE MONTHS
FIRST SECOND THIRD ENDED FOURTH FISCAL
QUARTER QUARTER QUARTER JUNE 30 QUARTER YEAR
------- ------- ------- ----------- ------- ------
(IN MILLIONS)
2000............................... $52.3 $59.2 $59.1 $170.6 $68.2 $238.8
2001............................... 57.8 65.8 65.8 189.4 -- --
Net sales within this segment before intersegment eliminations for the nine
months ended June 30, 2001 increased 11.0% to $189.4 million from $170.6 million
for the nine months ended June 30, 2000. The increase primarily resulted from
continued growth in our Alliance division. Sales in our Alliance division
S-13
14
increased 18% for the nine months ended June 30, 2001 compared to the nine
months ended June 30, 2000. This increase was offset by lower volumes in our
corrugated packaging business due to generally weaker market conditions.
Cost of Goods Sold
Cost of goods sold for the nine months ended June 30, 2001 decreased 2.0%
to $854.5 million from $871.8 million for the nine months ended June 30, 2000.
Cost of goods sold as a percentage of net sales for the nine months ended June
30, 2001 decreased to 79.9% from 80.2% for the nine months ended June 30, 2000.
Cost of goods sold as a percentage of net sales was lower during the nine months
ended June 30, 2001 compared to the nine months ended June 30, 2000 primarily
due to the decrease in recycled fiber prices, partially offset by increases in
natural gas prices.
Substantially all of our U.S. inventories are valued at the lower of cost
or market with cost determined on the last-in, first-out (LIFO) inventory
valuation method, which we believe generally results in a better matching of
current costs and revenues than under the first-in, first-out (FIFO) inventory
valuation method. In periods of decreasing costs, the LIFO method generally
results in lower cost of goods sold than under the FIFO method. In periods of
increasing costs, the results are generally the opposite. Our quarterly results
of operations reflect LIFO estimates based on management's projection of
expected year-end inventory levels and costs. Because these estimates are
subject to many factors beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
The following table illustrates the comparative effect of LIFO and FIFO
accounting on our results of operations. These supplemental FIFO earnings
reflect the after-tax effect of eliminating the LIFO adjustment each year.
NINE MONTHS ENDED JUNE 30,
---------------------------------
2000 2001
--------------- ---------------
LIFO FIFO LIFO FIFO
------ ------ ------ ------
(IN MILLIONS)
Cost of goods sold.......................................... $871.8 $865.7 $854.5 $856.0
Net (loss) income........................................... (22.0) (18.3) 21.2 20.3
Gross Profit
NINE MONTHS
FIRST SECOND THIRD ENDED FOURTH FISCAL
QUARTER QUARTER QUARTER JUNE 30 QUARTER YEAR
------- ------- ------- ----------- ------- ------
(% OF NET SALES)
2000........................................ 20.8% 19.9% 18.8% 19.8% 19.4% 19.7%
2001........................................ 19.1 20.1 21.1 20.1 -- --
Gross profit for the nine months ended June 30, 2001 decreased 0.2% to
$215.1 million from $215.5 million for the nine months ended June 30, 2000.
Gross profit as a percentage of net sales was 20.1% and 19.8% for the nine
months ended June 30, 2001 and 2000, respectively. See "-- Cost of Goods Sold."
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended June
30, 2001 decreased 1.3% to $133.5 million from $135.3 million for the nine
months ended June 30, 2000. Selling, general and administrative expenses as a
percentage of net sales was 12.5% and 12.4% for the nine months ended June 30,
2001 and June 30, 2000, respectively.
Plant Closing and Other Costs
During the second quarter of fiscal 2001, we decided to consolidate the
folding carton operations of our Augusta, Georgia folding carton plant into two
other plants over a period of four to six months. This closing resulted in the
termination of approximately 125 employees. As a result of this decision, we
incurred pre-tax
S-14
15
charges of approximately $2.4 million, and made severance payments of
approximately $0.6 million during the nine-month period ended June 30, 2001.
During fiscal 2000, we closed a laminated paperboard products plant in
Lynchburg, Virginia, and folding carton plants in Chicago, Illinois, Norcross,
Georgia and Madison, Wisconsin. The closures resulted in the termination of
approximately 550 employees. In connection with these closings, we made
severance and other payments of $2.0 million for the nine months ended June 30,
2001 and made an adjustment to reduce the liability by $0.1 million during the
first quarter of fiscal 2001. We had a remaining liability of approximately $0.4
million at June 30, 2001. We have consolidated the operations of these closed
plants into other existing facilities.
During the remainder of fiscal 2001 and fiscal 2002, we expect to incur an
additional $5.0 million of pre-tax expense related to the Augusta, Chicago and
Madison plant closings.
Segment Operating Income
Operating Income -- Packaging Products Segment
NET SALES OPERATING RETURN
(AGGREGATE) INCOME ON SALES
----------- --------- --------
(IN MILLIONS, EXCEPT PERCENTAGES)
First Quarter............................................ $192.9 $ 6.3 3.3%
Second Quarter........................................... 195.1 7.7 3.9
Third Quarter............................................ 202.8 10.7 5.3
------ -----
Nine Months Ended June 30, 2000.......................... 590.8 24.7 4.2
Fourth Quarter........................................... 206.6 10.1 4.9
------ -----
FISCAL 2000.............................................. $797.4 $34.8 4.4%
====== =====
First Quarter............................................ $195.6 $ 9.3 4.8%
Second Quarter........................................... 206.9 10.0 4.8
Third Quarter............................................ 198.6 11.1 5.6
------ -----
Nine Months Ended June 30, 2001.......................... 601.1 30.4 5.1
Fourth Quarter........................................... -- -- --
------ -----
FISCAL 2001.............................................. -- -- --
====== =====
Operating income attributable to the packaging products segment for the
nine months ended June 30, 2001 increased 23.1% to $30.4 million from $24.7
million for the nine months ended June 30, 2000. Operating margin for the nine
months ended June 30, 2001 was 5.1% compared to 4.2% for the nine months ended
June 30, 2000. The increase in operating margin was primarily the result of
operating efficiencies in our folding carton division gained through plant
consolidations in fiscal 2000. Operating income for our folding carton division
increased 74.2% to $16.2 million for the nine months ended June 30, 2001 from
$9.3 million for the nine months ended June 30, 2000. Also contributing to the
increase in operating margin for the packaging products segment was a net sales
increase in our plastic packaging business, which resulted in a corresponding
increase in operating income during the nine months ended June 30, 2001 compared
to the nine months ended June 30, 2000. These increases were offset by a
decrease in operating margin in our RTS packaging business due to lower sales
volumes during the nine months ended June 30, 2001 compared to the nine months
ended June 30, 2000.
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16
Operating Income -- Paperboard Segment
NET SALES OPERATING RETURN
(AGGREGATE) INCOME ON SALES
----------- --------- --------
(IN MILLIONS, EXCEPT PERCENTAGES)
First Quarter............................................... $144.3 $15.5 10.7%
Second Quarter.............................................. 154.7 14.7 9.5
Third Quarter............................................... 148.9 8.4 5.6
------ -----
Nine Months Ended June 30, 2000............................. 447.9 38.6 8.6
Fourth Quarter.............................................. 140.6 9.0 6.4
------ -----
FISCAL 2000................................................. $588.5 $47.6 8.1%
====== =====
First Quarter............................................... $131.5 $ 9.1 6.9%
Second Quarter.............................................. 133.1 8.9 6.7
Third Quarter............................................... 130.5 8.9 6.8
------ -----
Nine Months Ended June 30, 2001............................. 395.1 26.9 6.8
Fourth Quarter.............................................. -- -- --
------ -----
FISCAL 2001................................................. -- -- --
====== =====
Operating income attributable to the paperboard segment for the nine months
ended June 30, 2001 decreased 30.3% to $26.9 million from $38.6 million for the
nine months ended June 30, 2000. Operating margin for the nine months ended June
30, 2001 was 6.8% compared to 8.6% for the nine months ended June 30, 2000. The
decrease in operating margin resulted from higher energy costs and softer
markets during the nine months ended June 30, 2001 compared to the nine months
ended June 30, 2000. Sales of our laminated paperboard products declined due to
a decrease in demand by customers in the book and ready to assemble furniture
industries. In turn, the reduced sales volumes at our laminated paperboard
products division, combined with a decline in sales to our RTS packaging
business, reduced operating income in our specialty paperboard division. The
decreases in operating margin of our mills were partially offset by lower
recovered fiber prices. However, this decline in recovered fiber prices reduced
operating margin of our recycled fiber division, further contributing to the
decrease in operating margin of our paperboard segment.
UNCOATED COATED AVERAGE MEDIUM AVERAGE TOTAL
TONS TONS PAPERBOARD TONS MEDIUM TONS
SHIPPED SHIPPED PRICE SHIPPED PRICE SHIPPED
-------------- -------------- ---------- -------------- --------- --------------
(IN THOUSANDS) (IN THOUSANDS) (PER TON) (IN THOUSANDS) (PER TON) (IN THOUSANDS)
First Quarter.................. 127.3 123.1 $420 42.4 $386 292.8
Second Quarter................. 129.5 127.6 426 44.7 403 301.8
Third Quarter.................. 123.4 118.6 445 40.9 419 282.9
----- ----- ----- -------
Nine Months Ended June 30,
2000......................... 380.2 369.3 430 128.0 403 877.5
Fourth Quarter................. 110.6 118.1 449 42.2 407 270.9
----- ----- ----- -------
FISCAL 2000.................... 490.8 487.4 $435 170.2 $403 1,148.4
===== ===== ===== =======
First Quarter.................. 97.9 118.8 $451 41.5 $393 258.2
Second Quarter................. 102.8 119.6 445 39.8 385 262.2
Third Quarter.................. 105.8 117.6 437 42.0 369 265.4
----- ----- ----- -------
Nine Months Ended June 30,
2001......................... 306.5 356.0 444 123.3 382 785.8
Fourth Quarter................. -- -- -- -- -- --
----- ----- ----- -------
FISCAL 2001.................... -- -- -- -- -- --
===== ===== ===== =======
WEIGHTED
AVERAGE AVERAGE
PRICE RECOVERED
ALL TONS PAPER COST
--------- ----------
(PER TON) (PER TON)
First Quarter.................. $415 $83
Second Quarter................. 423 91
Third Quarter.................. 441 108
Nine Months Ended June 30,
2000......................... 426 94
Fourth Quarter................. 443 88
FISCAL 2000.................... $430 $92
First Quarter.................. $442 $65
Second Quarter................. 435 58
Third Quarter.................. 426 53
Nine Months Ended June 30,
2001......................... 434 59
Fourth Quarter................. -- --
FISCAL 2001.................... -- --
Total operating capacity in our paperboard segment for the nine months
ended June 30, 2001 declined 4.8% to 923.1 thousand tons from 969.8 thousand
tons for the nine months ended June 30, 2000. The decrease in operating capacity
is due to the contribution of one of our two paperboard machines at our
S-16
17
Lynchburg, Virginia paperboard mill to Seven Hills Paperboard, LLC, an entity in
which we own 49%. The machine is being converted to manufacture gypsum wallboard
facing paper.
Our St. Paul, Minnesota, Battle Creek, Michigan, Sheldon Springs, Vermont,
Dallas, Texas, and Stroudsburg, Pennsylvania mills produce coated grades of
paperboard. Total annual capacity of coated paperboard is 545.0 thousand tons.
Our Chattanooga, Tennessee, Otsego, Michigan, Dallas, Texas, Lynchburg,
Virginia, Eaton, Indiana, Cincinnati, Ohio, and Aurora, Illinois mills produce
uncoated grades of specialty paperboard. Total annual capacity of uncoated
specialty paperboard is 504.0 thousand tons. Our St. Paul, Minnesota facility
produces recycled corrugating medium and has an annual capacity of 185.0
thousand tons.
Operating Income -- Specialty Corrugated Packaging and Display Segment
NET SALES OPERATING RETURN
(AGGREGATE) INCOME ON SALES
----------- --------- --------
(IN MILLIONS, EXCEPT PERCENTAGES)
First Quarter............................................... $ 52.3 $ 6.2 11.9%
Second Quarter.............................................. 59.2 7.8 13.2
Third Quarter............................................... 59.1 7.2 12.2
------ -----
Nine Months Ended June 30, 2000............................. 170.6 21.2 12.4
Fourth Quarter.............................................. 68.2 7.2 10.6
------ -----
FISCAL 2000................................................. $238.8 $28.4 11.9%
====== =====
First Quarter............................................... $ 57.8 $ 2.3 4.0%
Second Quarter.............................................. 65.8 7.8 11.9
Third Quarter............................................... 65.8 7.4 11.2
------ -----
Nine Months Ended June 30, 2001............................. 189.4 17.5 9.2
Fourth Quarter.............................................. -- -- --
------ -----
FISCAL 2001................................................. -- -- --
====== =====
Operating income attributable to this segment for the nine months ended
June 30, 2001 was $17.5 million as compared to $21.2 million, a decrease of
17.5%, for the nine months ended June 30, 2000. Operating margin for the nine
months ended June 30, 2001 decreased to 9.2% from 12.4% for the nine months
ended June 30, 2000. The decrease in operating margin primarily resulted from
lower sales volumes in our corrugating packaging division due to generally
weaker market conditions as well as fixed costs associated with positioning the
Alliance division for fiscal 2001 growth. Additionally, operating margin was
higher for the nine months ended June 30, 2000 due to unusually strong sales and
earnings in the display division during the first quarter of fiscal 2000 which
adversely affects the comparison to the nine months ended June 30, 2001.
Interest Expense
Interest expense for the nine months ended June 30, 2001 increased to $27.5
million from $25.4 million for the nine months ended June 30, 2000. The increase
in interest expense for the nine months ended June 30, 2001 was primarily due to
an increase in our average outstanding borrowings and higher interest rates
during the first quarter of fiscal 2001.
Provision for Income Taxes
Provision for income taxes increased to $17.2 million for the nine months
ended June 30, 2001 from $6.3 million for the nine months ended June 30, 2000.
Our effective tax rate increased to 45.1% for the nine months ended June 30,
2001 compared to an effective tax rate of 40.2% for the nine months ended June
30, 2000. Differences between our effective tax rate and statutory rates relate
primarily to the amortization and write-off of goodwill, which is not deductible
for income tax purposes.
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18
Net Income (Loss) and Earnings (Loss) Per Common and Common Equivalent Share
Net income for the nine months ended June 30, 2001 was $21.2 million. Net
loss for the nine months ended June 30, 2000 was $22.0 million. Net income as a
percentage of net sales was 2.0% for the nine months ended June 30, 2001. Net
loss as a percentage of net sales was 2.0% for the nine months ended June 30,
2000. Earnings per common and common equivalent share for the nine months ended
June 30, 2001 was $0.64. Loss per common and common equivalent share for the
nine months ended June 30, 2000 was $0.63.
FISCAL 2000 COMPARED WITH FISCAL 1999 AND 1998
Net Sales (Unaffiliated Customers)
Net sales for fiscal 2000 increased 11.4% to $1,463.3 million from $1,313.4
million for fiscal 1999. Net sales increased primarily as a result of increased
volumes and price increases in promotional displays, specialty corrugated
packaging and plastic packaging.
Net sales for fiscal 1999 increased 1.2% to $1,313.4 million from $1,297.4
million for fiscal 1998. Net sales increased primarily as a result of increased
volumes of promotional displays and price increases implemented during the
fourth quarter of fiscal 1999.
Net Sales (Aggregate) -- Packaging Products Segment
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
(IN MILLIONS)
1998.......................................... $194.0 $194.6 $192.6 $193.2 $774.4
1999.......................................... 185.7 180.7 186.9 196.6 749.9
2000.......................................... 192.9 195.1 202.8 206.6 797.4
Net sales of the packaging products segment before intersegment
eliminations for fiscal 2000 increased 6.3% to $797.4 million from $749.9
million for fiscal 1999.
Net sales of the packaging products segment before intersegment
eliminations for fiscal 1999 decreased 3.2% to $749.9 million from $774.4
million for fiscal 1998.
Net Sales (Aggregate) by Division -- Packaging Products Segment
FOLDING RTS PLASTIC
CARTON PACKAGING PACKAGING
------- --------- ---------
(IN MILLIONS)
1998...................................................... $588.6 $140.1 $45.7
1999...................................................... 565.3 136.0 48.6
2000...................................................... 597.4 136.4 63.6
The increase in net sales of the packaging products segment before
intersegment eliminations for fiscal 2000 as compared to fiscal 1999 was
primarily the result of increased volumes in our plastic packaging division and
increased prices and volumes in our folding carton group.
The decrease in net sales of the packaging products segment before
intersegment eliminations for fiscal 1999 as compared to fiscal 1998 primarily
resulted from volume decreases in folding cartons. In order to better utilize
capacity, we aggressively pursued additional long-term folding carton volume
during fiscal 1999, which resulted in lower average selling prices for the
folding carton division. The volume decreases were partially attributable to
lower sales to two national customers.
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19
Net Sales (Aggregate) -- Paperboard Segment
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
(IN MILLIONS)
1998.......................................... $142.2 $144.9 $135.2 $133.1 $555.4
1999.......................................... 122.5 127.0 134.5 145.0 529.0
2000.......................................... 144.3 154.7 148.9 140.6 588.5
Net sales of the paperboard segment before intersegment eliminations for
fiscal 2000 increased 11.2% to $588.5 million from $529.0 million for fiscal
1999.
Net sales of the paperboard segment before intersegment eliminations for
fiscal 1999 decreased 4.8% to $529.0 million from $555.4 million for fiscal
1998.
Net Sales (Aggregate) by Division -- Paperboard Segment
LAMINATED
COATED SPECIALTY RECYCLED PAPERBOARD
PAPERBOARD PAPERBOARD FIBER PRODUCTS
---------- ---------- -------- ----------
(IN MILLIONS)
1998......................................... $289.0 $ 76.6 $26.6 $163.2
1999......................................... 268.5 85.6 28.0 146.9
2000......................................... 304.0 100.3 48.4 135.8
The increase in net sales of the paperboard segment before intersegment
eliminations for fiscal 2000 as compared to fiscal 1999 was the result of
increased volumes and prices in the recycled fiber and coated and specialty
paperboard divisions.
The decrease in net sales of the paperboard segment before intersegment
eliminations for fiscal 1999 as compared to fiscal 1998 was the result of price
decreases reflecting weakness in the markets for paperboard. In order to better
utilize our capacity, we aggressively pursued additional long-term paperboard
volume during fiscal 1999, which resulted in lower average selling prices for
the paperboard segment.
Net Sales (Aggregate) -- Specialty Corrugated Packaging and Display Segment
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
(IN MILLIONS)
1998.......................................... $29.4 $32.9 $34.4 $41.3 $138.0
1999.......................................... 37.8 41.4 45.0 56.7 180.9
2000.......................................... 52.3 59.2 59.1 68.2 238.8
Net sales within this segment before intersegment eliminations for fiscal
2000 increased 32.0% to $238.8 million from $180.9 million for fiscal 1999.
Net sales within this segment before intersegment eliminations for fiscal
1999 increased 31.1% to $180.9 million from $138.0 million for fiscal 1998.
Net Sales (Aggregate) by Division -- Specialty Corrugated Packaging and
Display Segment
CORRUGATED
PACKAGING ALLIANCE
---------- --------
(IN MILLIONS)
1998........................................................ 65.9 72.1
1999........................................................ 68.9 112.0
2000........................................................ 86.1 152.7
S-19
20
The increase in net sales of the specialty corrugated packaging and display
segment before intersegment eliminations for fiscal 2000 as compared to fiscal
1999 was the result of increased volumes and increases in pricing of promotional
displays and specialty corrugated packaging.
The increase in net sales of the specialty corrugated packaging and display
segment before intersegment eliminations for fiscal 1999 as compared to fiscal
1998 was the result of increased volumes of promotional displays.
Cost of Goods Sold
Cost of goods sold for fiscal 2000 increased 15.3% to $1,174.8 million from
$1,019.2 million for fiscal 1999. Cost of goods sold as a percentage of net
sales for fiscal 2000 increased to 80.3% from 77.6% for fiscal 1999. The
increase in cost of goods sold as a percentage of net sales resulted from higher
average recovered paper costs and higher operating costs at several plants, some
of which were related to the start-up of certain new equipment and higher energy
and freight costs.
Cost of goods sold for fiscal 1999 increased 1.1% to $1,019.2 million from
$1,008.6 million for fiscal 1998. Cost of goods sold as a percentage of net
sales for fiscal 1999 decreased to 77.6% from 77.7% for fiscal 1998. The
decrease in cost of goods sold as a percentage of net sales resulted from lower
average recovered paper costs, energy and workers' compensation expenses and
increased manufacturing efficiencies, which were offset somewhat by increases in
health insurance costs.
Substantially all of our U.S. inventories are valued at the lower of cost
or market with cost determined on the last-in, first-out, or "LIFO," inventory
valuation method, which we believe generally results in a better matching of
current costs and revenues than under the first-in, first-out, or "FIFO,"
inventory valuation method. In periods of increasing costs, the LIFO method
generally results in higher cost of goods sold than under the FIFO method. In
periods of decreasing costs, the results are generally the opposite.
The following table illustrates the comparative effect of LIFO and FIFO
accounting on our results of operations. These supplemental FIFO earnings
reflect the after-tax effect of eliminating the LIFO adjustment each year.
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1998 1999 2000
------------------- ------------------- -------------------
LIFO FIFO LIFO FIFO LIFO FIFO
-------- -------- -------- -------- -------- --------
(IN MILLIONS)
Cost of goods sold............ $1,008.6 $1,007.4 $1,019.2 $1,019.0 $1,174.8 $1,169.5
Net income (loss)............. 42.0 42.7 39.7 39.8 (15.9) (12.6)
Gross Profit
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
(% OF NET SALES)
1998........................................... 21.2% 21.4% 23.5% 23.0% 22.3%
1999........................................... 23.0 22.1 22.3 22.3 22.4
2000........................................... 20.8 19.9 18.8 19.4 19.7
Gross profit for fiscal 2000 decreased 1.9% to $288.5 million from $294.2
million for fiscal 1999. Gross profit as a percentage of net sales decreased to
19.7% for fiscal 2000 from 22.4% for fiscal 1999. See "-- Cost of Goods Sold."
Gross profit for fiscal 1999 increased 1.9% to $294.2 million from $288.8
million for fiscal 1998. Gross profit as a percentage of net sales increased to
22.4% for fiscal 1999 from 22.3% for fiscal 1998. See "-- Cost of Goods Sold."
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21
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2000 increased 4.2%
to $178.0 million from $170.8 million for fiscal 1999. Selling, general and
administrative expenses as a percentage of net sales for fiscal 2000 decreased
to 12.2% from 13.0% for fiscal 1999. The decrease in selling, general and
administrative expenses as a percentage of net sales for fiscal 2000 resulted
primarily from decreased compensation expenses in relation to net sales.
Selling, general and administrative expenses for fiscal 1999 increased 4.5%
to $170.8 million from $163.4 million for fiscal 1998. Selling, general and
administrative expenses as a percentage of net sales for fiscal 1999 increased
to 13.0% from 12.6% for fiscal 1998. The increase in selling, general and
administrative expenses as a percentage of net sales for fiscal 1999 resulted
primarily from increased compensation expenses.
Plant Closings and Other Costs
During fiscal 2000, we incurred plant closing and other costs related to
announced facility closings. We generally accrue the cost of employee
terminations at the time of notification to the employees. Certain other costs,
such as moving and relocation costs, are expensed as incurred. These plant
closing costs include the closing of a laminated paperboard products plant in
Lynchburg, Virginia and folding carton plants in Chicago, Illinois, Norcross,
Georgia and Madison, Wisconsin. The closures resulted in the termination of
approximately 550 employees. In connection with these and certain other plant
closings, we incurred charges of $61.1 million during fiscal 2000, which
consisted mainly of asset impairment, severance, equipment relocation, lease
write-downs and other related expenses, including business interruption and
other inefficiencies. Of the $61.1 million, $46.0 million was asset impairment
charges related to the determination that material diminution in the value of
assets had occurred at our two folding carton plants that use web offset
technology and at the other closed facilities. This includes $25.4 million of
goodwill which is not deductible for tax purposes. As a result of the asset
impairment and goodwill charges, depreciation and amortization expense in fiscal
year 2001 will be lower by $3.9 million and $0.6 million, respectively. Payments
of $12.6 million were made in fiscal 2000, leaving a remaining liability of $2.5
million at September 30, 2000. Plant closing and other costs are not allocated
to the respective segments for financial reporting purposes. Had these costs
been allocated, $50.2 million would have been charged to the packaging products
segment, $9.3 million would have been charged to the paperboard segment and $1.6
million would have been non-allocated. We have consolidated the operations of
these closed plants into other existing facilities.
During fiscal 2000, we decided to remove certain equipment from service
primarily in our laminated paperboard products division. As a result of this
decision, we incurred asset impairment charges of $4.6 million related to this
equipment.
During fiscal 1999, we closed a folding carton plant in Taylorsville, North
Carolina, a laminated paperboard products operation in Otsego, Michigan and an
uncoated papermill serving our coverboard converting operations in Jersey City,
New Jersey. The closures resulted in the termination of approximately 280
employees. In connection with these closings, we incurred charges of $6.3
million during fiscal 1999, which consisted mainly of severance, equipment
relocation, expected losses on the disposition of the facility and related
expenses. We made payments of $0.3 million and $4.1 million in fiscal 2000 and
1999, respectively, incurred losses of $0.2 million and $0.8 million in
connection with the disposal of inventory and other assets during fiscal 2000
and 1999, respectively, made an adjustment of $0.1 million to reduce the
liability during fiscal 2000 and reduced the carrying value of the Jersey City
facility by $1.0 million during fiscal 1999, leaving a nominal remaining
liability at September 30, 2000. Plant closing and other costs are not allocated
to the respective segments for financial reporting purposes. Had these costs
been allocated, $3.9 million would have been charged to the paperboard segment
in fiscal 1999 and $2.4 million of expense would have been charged to the
packaging products segment in fiscal 1999. We have consolidated the operations
of these closed plants into other existing facilities.
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During fiscal 1998, we began implementing certain cost reduction
initiatives designed to reduce overhead and production costs and improve
operating efficiency. In connection with these cost reduction initiatives, we
terminated approximately 40 employees and recorded $0.6 million and $2.0 million
of costs related to these terminations during fiscal 1999 and 1998,
respectively. We made payments of approximately $0.5 million, $1.2 million and a
nominal amount during fiscal 2000, 1999 and 1998, respectively, related to these
terminations and made an adjustment to reduce the liability by $0.3 million
during fiscal 2000. The remaining liability at September 30, 2000 was
approximately $0.5 million, which is expected to be paid during fiscal 2001.
Segment Operating Income
Operating Income -- Packaging Products Segment
NET SALES OPERATING RETURN
(AGGREGATE) INCOME ON SALES
----------- --------- --------
(IN MILLIONS, EXCEPT PERCENTAGES)
First Quarter............................................... $194.0 $ 6.6 3.4%
Second Quarter.............................................. 194.6 6.5 3.3
Third Quarter............................................... 192.6 8.4 4.4
Fourth Quarter.............................................. 193.2 11.0 5.7
------ -----
FISCAL 1998................................................. $774.4 $32.5 4.2%
====== =====
First Quarter............................................... $185.7 $10.8 5.8%
Second Quarter.............................................. 180.7 9.0 5.0
Third Quarter............................................... 186.9 9.4 5.0
Fourth Quarter.............................................. 196.6 11.3 5.7
------ -----
FISCAL 1999................................................. $749.9 $40.5 5.4%
====== =====
First Quarter............................................... $192.9 $ 6.3 3.3%
Second Quarter.............................................. 195.1 7.7 3.9
Third Quarter............................................... 202.8 10.7 5.3
Fourth Quarter.............................................. 206.6 10.1 4.9
------ -----
FISCAL 2000................................................. $797.4 $34.8 4.4%
====== =====
Operating income attributable to the packaging products segment for fiscal
2000 decreased 14.1% to $34.8 million from $40.5 million for fiscal 1999.
Operating margin for fiscal 2000 was 4.4% compared to 5.4% for fiscal 1999. The
decrease in operating margin resulted from higher raw material costs,
significant losses in our web offset folding carton operations and operational
inefficiencies attributable in part to the start-up of new equipment.
Operating income attributable to the packaging products segment for fiscal
1999 increased 24.6% to $40.5 million from $32.5 million for fiscal 1998.
Operating margin for fiscal 1999 was 5.4% compared to 4.2% for fiscal 1998. The
increase in operating margin was the result of increased manufacturing
efficiencies from improved operating rates and higher sales in the second half
of fiscal 1999. This increase was offset somewhat by lower average selling
prices for certain business in the folding carton division.
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Operating Income -- Paperboard Segment
PAPERBOARD AVERAGE MEDIUM AVERAGE
NET SALES OPERATING RETURN TONS PAPERBOARD TONS MEDIUM
(AGGREGATE) INCOME ON SALES SHIPPED PRICE SHIPPED PRICE
------------- ------------- -------- -------------- ---------- -------------- ---------
(IN MILLIONS) (IN MILLIONS) (IN THOUSANDS) (PER TON) (IN THOUSANDS) (PER TON)
First Quarter.............. $142.2 $17.0 12.0% 252.6 $420 45.0 $330
Second Quarter............. 144.9 19.9 13.7 246.8 420 45.6 347
Third Quarter.............. 135.2 19.7 14.6 235.1 417 40.8 338
Fourth Quarter............. 133.1 15.8 11.9 231.0 414 43.9 318
------ ----- ----- -----
FISCAL 1998................ $555.4 $72.4 13.0% 965.5 $418 175.3 $332
====== ===== ===== =====
First Quarter.............. $122.5 $13.0 10.6% 230.7 $403 45.2 $288
Second Quarter............. 127.0 11.5 9.1 229.0 399 43.5 328
Third Quarter.............. 134.5 16.2 12.0 249.4 398 45.3 340
Fourth Quarter............. 145.0 14.9 10.3 249.8 406 44.7 380
------ ----- ----- -----
FISCAL 1999................ $529.0 $55.6 10.5% 958.9 $401 178.7 $336
====== ===== ===== =====
First Quarter.............. $144.3 $15.5 10.7% 250.4 $420 42.4 $386
Second Quarter............. 154.7 14.7 9.5 257.1 426 44.7 403
Third Quarter.............. 148.9 8.4 5.6 242.0 445 40.9 419
Fourth Quarter............. 140.6 9.0 6.4 228.7 449 42.2 407
------ ----- ----- -----
FISCAL 2000................ $588.5 $47.6 8.1% 978.2 $435 170.2 $403
====== ===== ===== =====
WEIGHTED
AVERAGE
RECOVERED
PAPER COST
----------
(PER TON)
First Quarter.............. $ 70
Second Quarter............. 68
Third Quarter.............. 59
Fourth Quarter............. 58
FISCAL 1998................ $ 64
First Quarter.............. $ 53
Second Quarter............. 52
Third Quarter.............. 58
Fourth Quarter............. 76
FISCAL 1999................ $ 60
First Quarter.............. $ 83
Second Quarter............. 91
Third Quarter.............. 108
Fourth Quarter............. 88
FISCAL 2000................ $ 92
Operating income attributable to the paperboard segment for fiscal 2000
decreased 14.4% to $47.6 million from $55.6 million for fiscal 1999. Operating
margin for fiscal 2000 decreased to 8.1% from 10.5% in fiscal 1999. The decrease
in operating margin was primarily the result of raw material, energy and freight
cost increases that were not fully passed on to customers, costs associated with
the start-up of new equipment and operational inefficiencies at certain
papermills.
Operating income attributable to the paperboard segment for fiscal 1999
decreased 23.2% to $55.6 million from $72.4 million for fiscal 1998. Operating
margin for fiscal 1999 decreased to 10.5% from 13.0% in fiscal 1998. The
decrease in operating margin primarily resulted from lower average selling
prices and volumes of paperboard, which were partially offset by lower average
recovered paper costs. Beginning in the latter part of fiscal 1999, recovered
paper costs increased and we began implementing price increases to recover these
costs.
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Operating Income -- Specialty Corrugated Packaging and Display Segment
NET SALES OPERATING RETURN
(AGGREGATE) INCOME ON SALES
----------- --------- --------
(IN MILLIONS, EXCEPT PERCENTAGES)
First Quarter............................................... $ 29.4 $ 2.8 9.5%
Second Quarter.............................................. 32.9 3.3 10.0
Third Quarter............................................... 34.4 3.4 9.9
Fourth Quarter.............................................. 41.3 6.1 14.8
------ -----
FISCAL 1998................................................. $138.0 $15.6 11.3%
====== =====
First Quarter............................................... $ 37.8 $ 3.9 10.3%
Second Quarter.............................................. 41.4 5.7 13.8
Third Quarter............................................... 45.0 5.1 11.3
Fourth Quarter.............................................. 56.7 9.1 16.0
------ -----
FISCAL 1999................................................. $180.9 $23.8 13.2%
====== =====
First Quarter............................................... $ 52.3 $ 6.2 11.9%
Second Quarter.............................................. 59.2 7.8 13.2
Third Quarter............................................... 59.1 7.2 12.2
Fourth Quarter.............................................. 68.2 7.2 10.6
------ -----
FISCAL 2000................................................. $238.8 $28.4 11.9%
====== =====
Operating income attributable to this segment for fiscal 2000 increased
19.3% to $28.4 million from $23.8 million for fiscal 1999. Operating margin for
fiscal 2000 decreased to 11.9% from 13.2% in fiscal 1999. The decrease in
operating margin was primarily the result of higher raw material costs.
Operating income attributable to this segment for fiscal 1999 increased
52.6% to $23.8 million from $15.6 million for fiscal 1998. Operating margin for
fiscal 1999 increased to 13.2% from 11.3% in fiscal 1998. The increase in
operating margin was primarily the result of lower raw material costs.
Interest Expense
Interest expense for fiscal 2000 increased to $35.5 million from $31.2
million for fiscal 1999 and decreased to $31.2 million for fiscal 1999 from
$35.0 million for fiscal 1998. The increase for fiscal 2000 primarily resulted
from an increase in the average outstanding borrowings and higher interest
rates. The decrease in fiscal 1999 primarily resulted from a decrease in average
outstanding borrowings and lower interest rates.
Provision for Income Taxes
Provision for income taxes for fiscal 2000 decreased to $11.6 million from
$30.6 million for fiscal 1999. Provision for income taxes for fiscal 1999
decreased to $30.6 million from $32.6 million for fiscal 1998. Excluding the
effect of the $25.4 million non-cash write-off during fiscal 2000 of the
goodwill associated with the impairment of assets at two facilities acquired in
the Waldorf acquisition, which is non-deductible for tax purposes, our effective
tax rate increased to 54.9% for fiscal 2000 compared to 43.5% for fiscal 1999
and decreased to 43.5% for fiscal 1999 compared to 43.7% for fiscal 1998. The
increase in the effective tax rate in fiscal 2000 was primarily due to higher
non-tax deductible goodwill amortization as a percentage of pre-tax net income.
The decrease in the effective tax rate in fiscal 1999 primarily resulted from a
decrease in our effective state tax rate.
Net (Loss) Income and Diluted (Loss) Earnings Per Common Share
Net loss for fiscal 2000 was $15.9 million compared to net income of $39.7
million for fiscal 1999. Net loss as a percentage of net sales was 1.1% for
fiscal 2000 compared to net income as a percentage of
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net sales of 3.0% for fiscal 1999. Diluted loss per share for fiscal 2000 was
$0.46 compared to diluted earnings per share of $1.13 for fiscal 1999.
Net income for fiscal 1999 decreased 5.5% to $39.7 million from $42.0
million for fiscal 1998. Net income as a percentage of net sales decreased to
3.0% for fiscal 1999 from 3.2% for fiscal 1998. Diluted earnings per share for
fiscal 1999 decreased to $1.13 from $1.20 for fiscal 1998.
MARKET RISK-SENSITIVE INSTRUMENTS AND POSITIONS
We are exposed to market risk from changes in interest rates, foreign
exchange rates and commodity prices. To mitigate these risks, we enter into
various hedging transactions. The sensitivity analyses presented below do not
consider the effect of possible adverse changes in the economy generally, nor do
they consider additional actions management may take to mitigate its exposure to
such changes.
Derivative Instruments
We enter into a variety of derivative transactions. Generally, we designate
at inception derivatives hedge risks associated with specific assets,
liabilities or future commitments and monitor each derivative to determine if it
remains an effective hedge. The effectiveness of the derivative as a hedge is
based on a high correlation between changes in its value and changes in value of
the underlying hedged item. We include in operations amounts received or paid
when the underlying transaction settles. We do not enter into or hold
derivatives for trading or speculative purposes.
From time to time, we use interest rate cap agreements and interest rate
swap agreements to manage synthetically the interest rate characteristics of a
portion of our outstanding debt and to limit our exposure to rising interest
rates. Amounts to be received or paid as a result of interest rate cap
agreements and interest rate swap agreements are accrued and recognized as an
adjustment to interest expense related to the designated debt. The cost of
purchasing interest rate caps is amortized to interest expense ratably during
the life of the agreement. Gains or losses on terminations of interest rate swap
agreements are deferred and amortized as an adjustment to interest expense of
the related debt instrument over the remaining term of the original contract
life of terminated swap agreements. In the event of the early extinguishment of
a designated debt obligation, any realized or unrealized gain or loss from the
swap would be recognized in income at the time of the extinguishment.
We use forward contracts to limit our exposure to fluctuations in Canadian
foreign currency rates with respect to our receivables denominated in Canadian
dollars. The forward contracts are settled monthly and resulting gains or losses
are recognized at the time of settlement.
From time to time, we use commodity swap agreements to limit our exposure
to falling selling prices and rising raw material costs for a portion of our
recycled corrugating medium business. Amounts to be received or paid as a result
of these swap agreements are recognized in the period in which the related sale
is made.
Interest Rate
We are exposed to changes in interest rates, primarily as a result of our
short-term and long-term debt with both fixed and floating interest rates. We
use interest rate agreements to effectively cap the LIBOR rate on portions of
the amount outstanding under our revolving credit facility. If market interest
rates averaged 1.0% more than actual rates in fiscal 2000, our interest expense
after considering the effects of interest rate swap and cap agreements would
have increased, and income before taxes would have decreased, by approximately
$4.7 million for fiscal 2000. Comparatively, if market interest rates averaged
1.0% more than actual rates in fiscal 1999, our interest expense, after
considering the effects of interest rate swap and cap agreements, would have
increased, and income before taxes would have decreased by approximately $3.0
million for fiscal 1999. These amounts are determined by considering the impact
of the hypothetical interest rates on our borrowing costs and interest rate swap
and cap agreements. These
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analyses do not consider the effects of the reduced level of overall economic
activity that could exist in such an environment.
As of September 30, 2000, we had one interest rate cap agreement expiring
October 7, 2000, and no swap agreements in place. As of June 30, 2001, we had no
interest rate cap agreements or swap agreements in place.
Foreign Currency
We are exposed to changes in foreign currency rates with respect to our
foreign currency-denominated operating revenues and expenses. We use forward
contracts to limit exposure to fluctuations in Canadian foreign currency rates,
our largest exposure to foreign currency rates. For fiscal 2000, a uniform 10.0%
strengthening in the value of the dollar relative to the currency in which our
sales are denominated would have resulted in an increase in gross profit of $0.6
million for fiscal 2000. Comparatively, for fiscal 1999, a uniform 10.0%
strengthening in the value of the dollar relative to the currency in which our
sales are denominated would have resulted in an increase in gross profit of $0.4
million for fiscal 1999. This calculation assumes that each exchange rate would
change in the same direction relative to the U.S. dollar.
In addition to the direct effect of changes in exchange rates on the dollar
value of the resulting sales, changes in exchange rates also affect the volume
of sales or the foreign currency sales price as competitors' products become
more or less attractive. Our sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in sales
levels or local currency prices.
Commodities
We sell recycled medium to various customers. The principal raw material
used in the production of medium is old corrugated containers, or "OCC". Medium
prices and OCC costs fluctuate widely due to changing market forces. As a
result, we use swap agreements to limit our exposure to falling selling prices
and rising raw material costs of a portion of our recycled medium and recycled
fiber businesses. We estimate market risk as a hypothetical 10.0% decrease in
selling prices or a 10.0% increase in raw material costs. Based on 2000 medium
sales prices, such a decrease would have resulted in lower sales of $2.9 million
during fiscal 2000 including the effect of our swaps on medium prices. Based on
2000 OCC costs, such an increase would have resulted in higher costs of
purchases of $0.9 million during fiscal 2000.
In 1999, we estimated market risk as a hypothetical 10.0% increase in
selling prices or a 10.0% decrease in raw material costs. Based on 1999 medium
sales prices, such an increase would have resulted in lower sales of $1.7
million during fiscal 1999 because of our swaps on medium prices. Based on 1999
OCC costs, such a decrease would have resulted in higher costs of purchases of
$0.7 million during fiscal 1999 because of our swaps on OCC costs.
We purchase and sell a variety of commodities that are not subject to
derivative commodity instruments, including OCC, paperboard and recovered paper.
Fluctuations in market prices of these commodities could have a material effect
on our results of operations. Such fluctuations are not reflected in the results
above.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Capital Expenditures
We have funded our working capital requirements and capital expenditures
from net cash provided by operating activities, borrowings under term notes and
bank credit facilities and proceeds received in connection with the issuance of
industrial revenue bonds and debt and equity securities.
On November 14, 2000, we entered into a $125 million receivables-backed
financing transaction, the proceeds of which were used to repay borrowings
outstanding under our revolving credit agreement. The receivables financing
facility was provided by Blue Ridge Asset Funding Corporation, a commercial
paper
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issuer administered by Wachovia Bank, N.A., with a back-up liquidity facility
provided by Wachovia Bank, N.A. Both the receivables financing facility and the
back-up liquidity facility are 364-day vehicles.
During the second quarter of fiscal 2001, we amended the terms of our
revolving credit facility. The amendment revised the financial covenants to
exclude from earnings the cash costs of certain plant closings and reduced our
aggregate borrowing availability from $450 million to $400 million. This
amendment did not change the interest rate for borrowings under the revolving
credit facility. During July 2001, the participating banks agreed to amend the
terms of our revolving credit facility to eliminate scheduled adjustments to two
of our financial covenants in the event we reduce the size of the facility to
$300 million or less and permit us to enter into agreements restricting our
ability to grant liens upon our assets and properties in connection with our
existing notes and this offering. At June 30, 2001, we had $289.0 million
outstanding under our revolving credit facility. The revolving credit facility
terminates in June 2005. Cash and cash equivalents, $3.0 million at June 30,
2001, decreased from $5.4 million at September 30, 2000.
Net cash provided by operating activities increased for the nine months
ended June 30, 2001 to $92.0 million from $62.5 million for the nine months
ended June 30, 2000. The increase was primarily a result of decreases in
accounts receivable and inventory balances. Net cash used for financing
activities aggregated $36.3 million for the nine months ended June 30, 2001 and
consisted primarily of repayments of borrowings and dividend payments. Net cash
provided by financing activities aggregated $9.4 million for the nine months
ended June 30, 2000 and consisted primarily of additional borrowings under the
revolving credit facility, partially offset by purchases of common stock and
dividend payments. Net cash used for investing activities was $58.4 million for
the nine months ended June 30, 2001 compared to $69.0 million for the nine
months ended June 30, 2000 and consisted primarily of capital expenditures for
the nine months ended June 30, 2001 and June 30, 2000.
Net cash provided by operating activities for fiscal 2000 was $102.4
million compared to $112.4 million for fiscal 1999. This decrease was primarily
the result of decreased earnings before depreciation and amortization and a
larger change in operating assets and liabilities during fiscal 2000 than fiscal
1999. Net cash used for financing activities aggregated $0.1 million for fiscal
2000 and consisted primarily of purchases of common stock and quarterly dividend
payments, offset by additional borrowings under our revolving credit facility.
Net cash used for financing activities aggregated $22.8 million for fiscal 1999
and consisted primarily of repayments of debt and quarterly dividend payments.
Net cash used for investing activities was $101.3 million for fiscal 2000
compared to $91.2 million for fiscal 1999 and consisted primarily of capital
expenditures in both years.
Net cash provided by operating activities for fiscal 1999 was $112.4
million compared to $125.7 million for fiscal 1998. This decrease primarily
resulted from a larger change in operating assets and liabilities during fiscal
1999 than fiscal 1998. Net cash used for financing activities aggregated $22.8
million for fiscal 1999 and consisted primarily of repayments of debt and
quarterly dividend payments. Net cash used for financing activities aggregated
$44.7 million for fiscal 1998 and consisted primarily of repayments of debt and
quarterly dividend payments. Net cash used for investing activities was $91.2
million for fiscal 1999 compared to $78.4 million for fiscal 1998 and consisted
primarily of capital expenditures in both years.
Capital expenditures during the nine months ended June 30, 2001 aggregated
$51.8 million, excluding our capital contributions to Seven Hills Paperboard,
LLC, a joint venture that will produce gypsum facing paper, and were used
primarily to purchase and upgrade machinery and equipment. We own 49% of Seven
Hills Paperboard, LLC. See "-- Joint Venture."
Our capital expenditures aggregated $94.6 million for fiscal 2000,
excluding our capital contributions to Seven Hills Paperboard, LLC. We expanded
our operations through an ongoing capital improvements program and management's
efforts to optimize the productive output of our manufacturing facilities. In
addition, we also redeployed capital by closing certain manufacturing facilities
and, in some cases, moving manufacturing equipment to other locations. Our
capital improvements program during fiscal 2000 included investments in the
following: rebuilding and adding a new wet end to an uncoated paper machine
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in Lynchburg, Virginia which we contributed to Seven Hills Paperboard LLC;
rebuilding of a large uncoated machine by adding a new wet end to the mill in
Otsego, Michigan; adding converting capacity at our Knoxville and Sequatchie
Valley, Tennessee folding carton operations; adding additional manufacturing
capacity and opening a new contract packing facility in our Alliance division;
and adding extrusion and thermoforming capacity to our plastic packaging
division.
We estimate that our capital expenditures will aggregate approximately
$80.0 million in fiscal 2001, including our investment in Seven Hills
Paperboard, LLC. These expenditures will be used to purchase and upgrade various
machinery and equipment in all of our divisions and for building expansions and
improvements in one of our divisions. We anticipate that we will be able to fund
our capital expenditures, acquisitions, interest payments, stock repurchases,
dividends and working capital needs for the foreseeable future from cash
generated from operations, borrowings under our revolving credit facility,
proceeds from the issuance of debt or equity securities or other additional
long-term debt financing.
JOINT VENTURE
On February 18, 2000, we formed a joint venture with Lafarge Corporation to
produce gypsum paperboard liner for Lafarge's U.S. wallboard manufacturing
plants. The joint venture, Seven Hills Paperboard, LLC, owns and will operate a
paperboard machine located at our Lynchburg, Virginia manufacturing site. We
have contributed a portion of our existing Lynchburg assets, valued at $4.0
million, to the joint venture, which will manufacture gypsum paperboard liner.
As of June 30, 2001, we have also contributed cash of $14.6 million for purposes
of rebuilding the paperboard machine. Lafarge owns 51% and we own 49% of the
joint venture.
STOCK REPURCHASE PROGRAM
In November 2000, the executive committee of our board of directors amended
our stock repurchase plan to allow us to repurchase from time to time prior to
July 31, 2003 up to 2,143,332 shares of common stock, including shares of Class
A common stock, in open market transactions on the New York Stock Exchange or in
private transactions, and shares of Class B common stock in private
transactions, including repurchases pursuant to certain first-offer rights
contained in our restated and amended articles of incorporation. Since the
amendment, we have repurchased 4,300 shares of Class A common stock. During the
first nine months of fiscal 2001, we repurchased 0.3 million shares of Class A
common stock. We repurchased 2.1 million, zero and 0.3 million shares of Class A
common stock during fiscal 2000, 1999 and 1998, respectively.
EXPENDITURES FOR ENVIRONMENTAL COMPLIANCE
We are subject to various federal, state, local and foreign environmental
laws and regulations, including those regulating the discharge, storage,
handling and disposal of a variety of substances. These laws and regulations
include, among others, the Comprehensive Environmental Response, Compensation
and Liability Act, which we refer to as CERCLA, the Clean Air Act (as amended in
1990), the Clean Water Act, the Resource Conservation and Recovery Act
(including amendments relating to underground tanks) and the Toxic Substances
Control Act. These environmental regulatory programs are primarily administered
by the U.S. Environmental Protection Agency. In addition, some states in which
we operate have adopted equivalent or more stringent environmental laws and
regulations or have enacted their own parallel environmental programs, which are
enforced through various state administrative agencies.
We do not believe that future compliance with these environmental laws and
regulations will have a material adverse effect on our results of operations,
financial condition or cash flows. However, environmental laws and regulations
are becoming increasingly stringent. Consequently, our compliance and
remediation costs could increase materially. In addition, we cannot currently
assess with certainty the impact that the future emissions standards and
enforcement practices under the 1990 amendments to the Clean Air Act will have
on our operations or capital expenditure requirements. However, we believe that
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any such impact or capital expenditures will not have a material adverse effect
on our results of operations, financial condition or cash flows.
We estimate that we will spend $1.0 to $2.0 million for capital
expenditures during fiscal year 2001 in connection with matters relating to
environmental compliance. Over the next twelve months, we will also need to
upgrade or replace a boiler at one of our facilities in Texas to comply with new
state air pollution control requirements. We estimate the cost for upgrading or
replacing that boiler to be in the range of $1.0 million to $3.5 million. In the
event we are not able to upgrade or replace the boiler prior to the new air
pollution control requirements going into effect, we may have to temporarily
suspend a portion of our operations at our Dallas, Texas facility. We do not
believe that such a disruption, if it were to occur, would have a material
adverse effect on our results of operations.
In addition, we may need to modify or replace the coal-fired boilers at two
of our facilities in order to operate cost effectively while complying with
emissions regulations under the Clean Air Act. We estimate these improvements
could cost as much as $9.0 million. If required, we anticipate those costs to be
incurred beginning in 2002.
On February 9, 1999, we received a letter from the Michigan Department of
Environmental Quality, which we refer to as MDEQ, in which the MDEQ alleged that
we were in violation of the Michigan Natural Resources and Environmental
Protection Act, as well as the facility's wastewater discharge permit at one of
our Michigan facilities. The letter alleged that we exceeded several numerical
limitations for chemical parameters outlined in the wastewater permit and
violated other wastewater discharge criteria. The MDEQ further alleged that we
were liable for contamination contained on the facility property as well as for
contributing contamination to the Kalamazoo River Site. The letter requested
that we commit, in the form of a binding agreement, to undertake the necessary
and appropriate response activities and response actions to address
contamination in both areas. We have entered into an administrative consent
order pursuant to which improvements are being made to the facility's wastewater
treatment system and we have paid a $75,000 settlement amount. We have also
agreed to pay an additional $30,000 for past and future oversight costs incurred
by the State of Michigan. This payment will be made in three equal installments
over two years, the first of which has already been made. The cost of making
upgrades to the wastewater treatment systems is estimated to be approximately
$1.4 million. Nothing contained in the order constitutes an admission of
liability or any factual finding, allegation or legal conclusion on our part.
The order was completed during the first quarter of fiscal 2001. To date, MDEQ
has not made any other demand regarding our alleged liability for contamination
at the Kalamazoo River Site.
We have been identified as a potentially responsible party, which we refer
to as a PRP, at eight "superfund" sites pursuant to CERCLA or comparable state
statutes. In all of these matters, we have either resolved our alleged liability
for amounts that are not material to us, or we believe that, based on currently
available information, although there can be no assurance, any liability that we
might have at these other sites, individually or in the aggregate, will not have
a material adverse effect on our results of operations, financial condition or
cash flows.
NEW ACCOUNTING STANDARDS
On June 29, 2001, the Financial Accounting Standards Board (FASB) approved
statement No. 142 "Goodwill and Other Intangible Assets." This statement changes
the accounting for goodwill from an amortization method to an impairment only
approach. As of June 30, 2001, we have $262.0 million of recorded net goodwill
which will be subject to this new standard. During fiscal 2001, we expect
approximately $7.8 million of goodwill amortization expense, net of taxes. We
expect to adopt this standard in the first quarter of fiscal 2002. We are
currently evaluating this new pronouncement and have not yet determined the
impact on our consolidated financial statements.
On October 1, 2000, we adopted Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," as amended. This statement requires that the fair value of
derivatives be recorded as assets or liabilities. Gains or losses resulting from
changes in the fair values of derivatives would be accounted for currently in
earnings or
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comprehensive income depending on the purpose of the derivatives and whether
they qualify for hedge accounting treatment.
The adoption of SFAS 133 impacts the accounting for the Company's OCC and
medium hedges.
Our results of operations can be significantly impacted by fluctuations in
the price of our raw materials, especially OCC and corrugating medium. To manage
the risks associated with changes in prices, we use hedge contracts, which have
maturities of up to 36 months.
Upon the adoption of SFAS 133, we recorded the fair market value of our OCC
and medium hedges on our consolidated balance sheet. On an ongoing basis, we
will adjust the balance sheet to reflect the current fair market value of our
hedge contracts. The related gains or losses on these contracts are deferred in
shareholders' equity as a component of comprehensive income. These deferred
gains and losses are recognized in income in the period in which the related
OCC/medium purchases are consumed and recognized in expense. However, to the
extent that the change in the value of the OCC/medium hedge contract does not
perfectly offset the change in the value of the purchase being hedged, that
ineffective portion of the hedge is immediately recognized in income.
On October 1, 2000, we adopted Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition." This bulletin provides guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
adoption of SAB 101 did not have a material impact on our consolidated financial
statements.
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DESCRIPTION OF NOTES
The following discussion of the terms of the notes supplements the
description of the general terms and provisions of the debt securities contained
in the accompanying prospectus and identifies any general terms and provisions
described in the accompanying prospectus that will not apply to the notes.
GENERAL
The notes will be our general unsecured and senior obligations issued in an
initial aggregate principal amount of $250,000,000. We will issue the notes
under an indenture, dated as of July 31, 1995, as amended or supplemented from
time to time, between us and SunTrust Bank. You should read the accompanying
prospectus for a general discussion of the terms and provisions of the
indenture.
We may, without the consent of the holders of the notes, issue additional
notes from the series of notes offered by this prospectus supplement. Any
additional notes will have the same ranking, interest rate, maturity date and
other terms as the notes. Any additional notes, together with the notes offered
by this prospectus supplement, will constitute a single series of debt
securities under the indenture.
The notes will mature on August 15, 2011 and will not be entitled to any
sinking fund. We may redeem the notes at our option at any time, either in whole
or in part. See "-- Optional Redemption" below.
The notes will bear interest at a rate of 8.20% per annum from August 7,
2001 or from the most recent interest payment date on which we paid or provided
for interest on the notes. We will pay interest on the notes on each February 15
and August 15, commencing February 15, 2002 to the person listed as the holder
of the note (or any predecessor note) in the security register at the close of
business on the preceding February 1 or August 1, as the case may be.
The notes will be issued only in denominations of $1,000 each or integral
multiples of $1,000.
The notes will be issued in the form of one or more global notes deposited
with, or on behalf of, The Depository Trust Company, or DTC, and registered in
the name of Cede & Co., DTC's nominee. See "Description of Debt Securities" in
the accompanying prospectus for more information regarding DTC and the global
notes.
The notes are subject to defeasance in the manner described under the
heading "Description of Debt Securities -- Defeasance and Covenant Defeasance"
in the accompanying prospectus.
SAME-DAY SETTLEMENT
Settlement for the notes will be made by the underwriters in immediately
available funds. The notes will trade in the depositary's settlement system
until maturity. As a result, the depositary will require secondary trading
activity in the notes to be settled in immediately available funds.
OPTIONAL REDEMPTION
Meaning of Terms
We may redeem the notes at our option as described below. See "-- Our
Redemption Rights." The following terms are relevant to the determination of the
redemption price.
When we use the term "Treasury Rate," we mean with respect to any
redemption date, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue. In determining this rate, we assume a
price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for such redemption
date.
When we use the term "Comparable Treasury Issue," we mean the United States
Treasury security selected by an Independent Investment Banker as having a
maturity comparable to the remaining term of
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the notes to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining term of such notes.
"Independent Investment Banker" means each of Banc of America Securities LLC,
J.P. Morgan Securities Inc. or their respective successors as may be appointed
from time to time by the trustee after consultation with us; provided, however,
that if any of the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "primary treasury dealer"), we shall
substitute therefor another primary treasury dealer.
When we use the term "Comparable Treasury Price", we mean (1) the
arithmetic average of the Reference Treasury Dealer Quotations for such
redemption date after excluding the highest and lowest Reference Treasury Dealer
Quotations, or (2) if the trustee obtains fewer than three Reference Treasury
Dealer Quotations, the arithmetic average of all Reference Treasury Dealer
Quotations for such redemption date. "Reference Treasury Dealer Quotations"
means, with respect to each Reference Treasury Dealer and any redemption date,
the arithmetic average, as determined by the trustee, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to the trustee by such Reference
Treasury Dealer by 5:00 p.m. on the third business day preceding such redemption
date. When we use the term "Reference Treasury Dealer," we mean each of Banc of
America Securities LLC, J.P. Morgan Securities Inc. and their respective
successors and any other primary U.S. Government securities dealer in New York
City selected by the trustee after consultation with us.
When we use the term "Remaining Scheduled Payments," we mean with respect
to any note, the remaining scheduled payments of the principal and interest
thereon that would be due after the related redemption date but for such
redemption; provided, however, that, if such redemption date is not an interest
payment date with respect to such note, the amount of the next scheduled
interest payment thereon will be reduced by the amount of interest accrued
thereon to such redemption date.
Our Redemption Rights
We may redeem the notes at our option at any time, either in whole or in
part. If we elect to redeem the notes, we will pay a redemption price equal to
the greater of the following amounts, plus, in each case, accrued and unpaid
interest thereon to the redemption date:
- 100% of the principal amount of the notes to be redeemed, and
- the sum of the present values of the Remaining Scheduled Payments.
In determining the present values of the Remaining Scheduled Payments, we will
discount such payments to the redemption date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) using a discount rate equal to
the Treasury Rate plus 35 basis points. A partial redemption of the notes may be
effected by such method as the trustee shall deem fair and appropriate and may
provide for the selection for redemption of portions (equal to the minimum
authorized denomination for the notes or any integral multiple thereof) of the
principal amount of notes of a denomination larger than the minimum authorized
denomination for the notes.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
redemption date interest will cease to accrue on the notes or portions thereof
called for redemption.
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UNDERWRITING
We and the underwriters for the offering named below have entered into an
underwriting agreement with respect to the notes. Subject to certain conditions,
each underwriter has severally agreed to purchase the total principal amount of
notes shown in the following table.
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
------------ ------------
Banc of America Securities LLC.............................. 87,500,000
J.P. Morgan Securities Inc. ................................ 87,500,000
SunTrust Robinson Humphrey Capital Markets,
a division of SunTrust Capital Markets, Inc. ............. 37,500,000
Wachovia Securities, Inc. .................................. 37,500,000
------------
Total............................................. $250,000,000
============
Notes sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to .40% of the
principal amount of notes. Any such securities dealers may resell any notes
purchased from the underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to .25% of the principal
amount of notes. If all the notes are not sold at the initial offering price,
the underwriters may change the offering price and the other selling terms.
The notes are a new issue of securities with no established trading market.
The underwriters have advised us that the underwriters intend to make a market
in the notes but are not obligated to do so and may discontinue market making at
any time without notice. Neither we nor the underwriters can assure you as to
the liquidity of the trading market for the notes.
In connection with the offering, the underwriters may purchase and sell the
notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of greater total
principal amount of notes than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the notes
while the offering is in progress. The underwriters may also impose a penalty
bid. This occurs when a particular underwriter repays to the other underwriters
a portion of the underwriting discount received by it because an underwriter has
repurchased notes sold by or for the account of that particular underwriter in
stabilizing or short covering transactions. These activities by the underwriters
may stabilize, maintain or otherwise affect the market price of the notes, which
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected in the over-the-counter market or
otherwise.
In addition to the underwriting discount discussed above, we estimate that
we will spend approximately $200,000 for expenses in connection with this
offering.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
The underwriters and some of their affiliates have provided, and may
continue to provide, investment banking, financial advisory, commercial banking
and other services to us and have received, and may continue to receive,
customary fees in connection with those services. In particular, Bank of
America, N.A., an affiliate of Banc of America Securities LLC, an underwriter in
this offering, is the syndication agent and a lender under our revolving credit
facility. The Chase Manhattan Bank, an affiliate of J.P. Morgan Securities Inc.,
an underwriter in this offering, is a lender under our revolving credit
facility. SunTrust Bank, an affiliate of SunTrust Robinson Humphrey Capital
Markets, a division of SunTrust Capital Markets, Inc., an underwriter in this
offering, is agent and a lender under our revolving credit facility and is the
trustee under
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the indenture under which the notes will be issued. Wachovia Bank, N.A., an
affiliate of Wachovia Securities, Inc., an underwriter in this offering, is
documentation agent and a lender under our revolving credit facility. In
addition, Blue Ridge Asset Funding Corporation, a commercial paper issuer
administered by Wachovia Bank, N.A., an affiliate of Wachovia Securities, Inc.,
an underwriter in this offering, provided our $125 million receivables-backed
financing facility, with a back-up liquidity facility provided by Wachovia Bank,
N.A. Affiliates of the underwriters that are lenders under our revolving credit
facility will receive a portion of the net proceeds of the offering that are
used to repay amounts borrowed under the revolving credit facility. Because more
than 10% of the net proceeds from this offering may be paid to affiliates of the
underwriters, the offering is being conducted in accordance with Rule 2710(c)(8)
of the Conduct Rules of the National Association of Securities Dealers, Inc.
Banc of America Securities LLC and J.P. Morgan Securities Inc. ("JPMorgan")
will make the securities available for distribution on the Internet through a
proprietary Web site and/or a third-party system operated by Market Axess Inc.,
an Internet-based communications technology provider. Market Axess Inc. is
providing the system as a conduit for communications between Banc of America
Securities LLC and JPMorgan and their customers and is not a party to any
transactions. Market Axess Inc., a registered broker-dealer, will receive
compensation from Banc of America Securities LLC and JPMorgan based on
transactions Banc of America Securities LLC and JPMorgan conduct through the
system. Banc of America Securities LLC and JPMorgan will make the securities
available to their customers through the Internet distributions, whether made
through a proprietary or third-party system, on the same terms as distributions
made through other channels.
LEGAL OPINIONS
The validity of the notes will be passed upon for us by King & Spalding,
and for the underwriters by Davis Polk & Wardwell.
EXPERTS
Our consolidated financial statements incorporated by reference into our
annual report on Form 10-K for the fiscal year ended September 30, 2000 which
are incorporated by reference in this prospectus supplement and the accompanying
prospectus have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon which is incorporated by reference in this
prospectus supplement and the accompanying prospectus. Such consolidated
financial statements are incorporated by reference in this prospectus supplement
and the accompanying prospectus in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
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$400,000,000
ROCK-TENN COMPANY
DEBT SECURITIES
---------------------
We may offer from time to time up to $400,000,000 of debt securities. We
will provide the specific terms of these debt securities in supplements to this
prospectus. You should read this prospectus and the accompanying prospectus
supplement carefully before you invest.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these debt securities or determined
that this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
---------------------
THE DATE OF THIS PROSPECTUS IS JUNE 28, 2001
36
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf process, we may sell
debt securities in one or more offerings up to a total dollar amount of
$400,000,000. This prospectus provides you with a general description of the
debt securities. Each time we sell debt securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read this prospectus and the applicable
prospectus supplement together with the additional information described under
the heading "Where you Can Find More Information." We may only use this
prospectus to sell debt securities if it is accompanied by a prospectus
supplement.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60611-2511. You can also obtain copies of these
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. For further
information on obtaining copies of our filings from the New York Stock Exchange,
you should call 212-656-5080.
The SEC allows us to "incorporate by reference" into this prospectus the
information that we file with them, which means that we disclose important
information to you by referring to such documents. The information incorporated
by reference is an important part of this prospectus and the accompanying
prospectus supplement and any information that we subsequently file with the SEC
will automatically update and supercede information in this prospectus and in
our other filings with the SEC. We incorporate by reference the documents listed
below, which we have already filed with the SEC, and any further filings that we
make with the SEC under sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until we sell all the debt securities offered by this
prospectus:
- Annual Report on Form 10-K for the year ended September 30, 2000,
- Quarterly Report on Form 10-Q for the quarter ended December 31, 2000,
and
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
You may request a copy of these filings, other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing,
at no cost, by writing to or calling us at the following address:
Rock-Tenn Company
504 Thrasher Street
Norcross, Georgia 30071
(770) 448-2193
Attention: Gwen Pinkerton
Investor Relations
We have also filed a registration statement with the SEC relating to the
debt securities. This prospectus is part of the registration statement. You may
obtain from the SEC a copy of the registration statement and exhibits that we
filed with the SEC when we registered the debt securities. The registration
statement may contain additional information that may be important to you.
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You should rely only on the information contained or incorporated by
reference in this prospectus or the accompanying prospectus supplement. We have
not authorized anyone else to provide you with additional or different
information. We are only offering these debt securities in states where the
offer is permitted. You should not assume that the information in this
prospectus or the accompanying prospectus supplement is accurate as of any date
other than the dates on the front of those documents.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We may also make
forward-looking statements in reports filed with the SEC that we incorporate by
reference in this prospectus as well as the accompanying prospectus supplement.
Statements that are not historical facts, including statements about our beliefs
and expectations, are forward-looking statements. Forward-looking statements
include statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "plans," "estimates" or similar
expressions. These statements are based on beliefs and assumptions of our
management, and on information currently available to our management.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. We caution you that a number of important
factors could cause actual results to differ materially from those contained in
any forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, the following:
- increases in the cost, or reduction in the availability, of raw
materials, such as recovered paper, virgin paperboard, containerboard and
natural gas;
- fluctuations in our selling prices;
- the level of competition in our markets;
- the introduction of new products by our competitors or the obsolescence
of our products;
- possible plant closures and consolidations;
- our ability to identify, complete or integrate acquisitions;
- the need for capital expenditures;
- the potential loss of customers;
- changes in generally accepted accounting principles;
- adverse changes in, and the cost of complying with, governmental
regulations, particularly environmental regulations; and
- adverse changes in the packaging products and paperboard industries or
the U.S. economy generally.
We believe that our forward-looking statements are reasonable; however,
undue reliance should not be placed on any forward-looking statements, which are
based on current expectations. Further, forward-looking statements speak only as
of the date they are made, and we undertake no obligation to update publicly any
of them in light of new information or future events.
ROCK-TENN COMPANY
We are a leading converter of recycled and virgin paperboard and a leading
manufacturer of recycled clay-coated and specialty paperboard. Our paperboard
converting businesses manufacture folding cartons, laminated paperboard
products, solid fiber partitions, corrugated packaging and corrugated sheet
stock. We also produce corrugating medium and plastic packaging and other
products, as well as collect and sell recycled fiber. We currently operate 66
converting operations, 12 paperboard mills and one distribution facility. These
facilities are located in 24 states, Canada, Mexico and Chile.
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We are incorporated under the laws of the State of Georgia. Our principal
executive offices are located at 504 Thrasher Street, Norcross, Georgia 30071,
and our telephone number is 770-448-2193. Unless the context otherwise requires,
all references to "us", "we", "our" or our "company" mean Rock-Tenn Company and
its consolidated subsidiaries.
USE OF PROCEEDS
Unless the accompanying prospectus supplement states otherwise, we will use
the net proceeds from the sale of any debt securities for general corporate
purposes. These purposes may include the following:
- satisfaction of working capital requirements;
- repayment of long-term debt or short-term debt;
- redemption or repurchase of shares of our outstanding class A or class B
common stock;
- investments in, or extensions of credit to, our subsidiaries; and
- possible acquisitions.
Until we use the net proceeds we may temporarily invest the net proceeds in
short-term marketable securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our ratio of earnings to fixed charges, which
includes our subsidiaries, on a consolidated basis. We have computed the ratio
of earnings to fixed charges by dividing our earnings by our fixed charges. For
purposes of calculating this ratio,
- "earnings" include pretax income from continuing operations plus fixed
charges adjusted for capitalized interest, and
- "fixed charges" include interest on debt, whether expensed or
capitalized, amortization of debt expense and the interest portion of
rental expense on operating leases.
For purposes of calculating the ratio of earnings to fixed charges,
excluding plant closing costs, "earnings" include
- pretax income from operations plus
- fixed charges adjusted for capitalized interest plus
- plant closing costs, which consist primarily of severance, machinery
relocation, asset write-downs and other one time costs.
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------- -------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ----- ----- ----
Ratio of earnings to fixed charges.... 7.20 2.20 2.90 2.98 0.88 (0.15) 1.96
Ratio of earnings to fixed charges,
excluding plant closing costs....... 7.47 2.73 2.95 3.17 2.51 2.80 2.18
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DESCRIPTION OF DEBT SECURITIES
The debt securities, which include debentures, notes, bonds and other
evidences of indebtedness that we may issue from time to time, will be issued
under an indenture, dated as of July 31, 1995, between us and SunTrust Bank, as
trustee.
We have summarized the material provisions of the indenture below. The
summary is not complete. We have filed the indenture as an exhibit to the
registration statement and you should read the indenture for provisions that may
be important to you. In the summary below, we have included references to
section numbers of the indenture so that you can easily locate these provisions.
Capitalized terms used in the summary have the meaning specified in the
indenture. You can obtain a copy of the indenture by following the directions
under the caption "Where You Can Find More Information."
GENERAL
The indenture does not limit the aggregate principal amount of debt
securities which we may issue and provides that we may issue debt securities
from time to time in one or more series, in each case with the same or various
maturities, at par or at a discount. We may issue additional debt securities of
a particular series without the consent of the holders of debt securities
outstanding at the time of issuance. Any such additional debt securities,
together with all other outstanding debt securities of that series, will
constitute a single series of debt securities under the indenture. The indenture
also does not limit our ability to incur other unsecured debt and does not
contain financial or similar restrictive covenants.
A prospectus supplement relating to a series of debt securities will
include specific terms relating to the offering. These terms will include some
or all of the following:
- the title of the debt securities;
- any limit on the aggregate principal amount of the debt securities;
- the maturity date or dates of the debt securities;
- the price or prices, expressed as a percentage of the aggregate principal
amount, at which the debt securities will be issued;
- the rate or rates at which the debt securities will bear interest, if
any, or the method for determining such rate or rates, if any;
- the date or dates from which interest will accrue;
- the date or dates on which interest will be payable and the related
record dates;
- the person to whom any interest on the debt securities shall be payable,
if other than the person in whose name such debt security is registered
at the close of business on the record date for such interest payment;
- the place or places where the principal of, premium, if any, and interest
on the debt securities will be payable if other than as stated in this
prospectus;
- any redemption dates, prices, rights, obligations and restrictions on the
debt securities;
- any mandatory or optional sinking fund, purchase fund or analogous
provisions;
- the denominations in which the debt securities will be issuable if other
than denominations of $1,000 and integral multiples thereof;
- the currency or currency unit in which principal, premiums, if any, and
interest will be paid if other than U.S. dollars;
- any index used to determine the amount of payments of principal,
premiums, if any, and interest;
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- if payments of principal, premium, if any, and interest on any debt
securities is payable, at our election or the election of any holder, in
currency or currency units other than those in which the debt securities
are stated to be payable, the terms and conditions upon which such
election may be made;
- the portion of the principal amount of the debt securities payable upon
acceleration of maturity if other than the principal amount;
- whether the defeasance provisions summarized below will apply to the debt
securities;
- whether we will issue the debt securities in permanent global form and
the circumstances under which such permanent global debt securities may
be exchanged;
- any special tax implications of the debt securities;
- any deletions from, changes in, or additions to the events of default or
covenants specified in the indenture; and
- any other terms of the debt securities not specified in this prospectus
which are not inconsistent with the indenture. (Section 301).
We may issue debt securities at a substantial discount from their stated
principal amount. We refer to these securities as original issue discount
securities, which means any debt security which provides for an amount less than
the principal amount thereof to be due and payable upon acceleration of maturity
following the occurrence and continuation of an event of default. We will
describe the federal income tax consequences and other special considerations
applicable to any original issue discount securities in the applicable
prospectus supplement.
PAYMENT; TRANSFER
Unless the applicable prospectus supplement states otherwise, the principal
of, premium, if any, and interest on the debt securities will be payable, and
the transfer of debt securities will be registrable, at the corporate trust
office of the trustee and at any other office or agency maintained by us for
such purpose. (Sections 301, 305 and 1002). The debt securities will be issued
only in fully registered form without coupons. (Section 302). No service charge
will be made for any registration of transfer or exchange of the debt
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection with such registration or
transfer. (Section 305).
RANKING
The debt securities will be our direct unsecured obligations and will rank
equally with all of our other unsecured and unsubordinated debt.
CERTAIN COVENANTS
Restrictions on Liens
Under the indenture we have agreed that we will not, and we will not permit
any of our subsidiaries to, incur, issue, assume or guarantee any Debt secured
by a Mortgage on any of our or our subsidiaries' Principal Property or any
shares of Capital Stock or Debt of any subsidiary, without securing, equally and
ratably with or prior to such secured Debt, the debt securities of each series
then outstanding for so long as such secured Debt is so secured. This
restriction will not, however, apply to:
(1) Mortgages existing at the date of the indenture;
(2) Mortgages on Principal Property, shares of Capital Stock or Debt
of any corporation at the time the corporation becomes our subsidiary;
(3) Mortgages on Principal Property or shares of Capital Stock
existing at the time of the acquisition of such Principal Property or
Capital Stock by us or our subsidiary;
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(4) Mortgages to secure the payment of all or any part of the price of
acquisition, construction or improvement of Principal Property or Capital
Stock by us or our subsidiary, or to secure any Debt or obligation incurred
by us or our subsidiary, prior to, at the time of, or within 180 days
after, the later of the acquisition or completion of construction,
including any improvements on an existing property, which Debt or
obligation is incurred for the purpose of financing all or any part of the
purchase, construction or improvement of such Principal Property;
(5) Mortgages securing any Debt or obligation of any of our
subsidiaries owing to us or to another subsidiary;
(6) Mortgages on property or assets of a corporation existing at the
time the corporation is merged into or consolidated with us or our
subsidiary or at the time of a sale, lease or other disposition of the
properties of a corporation as an entirety or substantially as an entirety
to us or our subsidiary;
(7) Mortgages on property or assets of a person existing at the time
we merge into or consolidate with this person or at the time of a sale,
lease or other disposition of our properties as an entirety or
substantially as an entirety to this person;
(8) Mortgages on our or our subsidiaries' property or assets in favor
of the United States or any State thereof or any department, agency or
instrumentality or political subdivision thereof, or in favor of any other
country or any political subdivision thereof, to secure partial progress,
advance or other payments pursuant to any contract, statute, rule or
regulation;
(9) Mortgages on our or our subsidiaries' property or assets securing
Debt or other obligations issued by the United States or any State thereof
or any department, agency or instrumentality or political subdivision
thereof, or by any other country or any political subdivision thereof, for
the purpose of financing all or any part of the purchase price of or, in
the case of real property, the cost of construction on or improvement of,
any property or assets subject to such Mortgages;
(10) Mortgages under worker's compensation laws or similar legislation
and Mortgages or judgments thereunder which are not currently
dischargeable, or in connection with bids, tenders, contracts, other than
for the payment of money, or leases to which we or any of our subsidiaries
is a party, or to secure our or our subsidiaries' public or statutory
obligations, or in connection with obtaining or maintaining self-insurance
or to obtain the benefits of any law, regulation or arrangement pertaining
to unemployment insurance, old age pensions, social security or similar
matters, or to secure surety, performance, appeal or customs bonds to which
we or our subsidiaries are a party;
(11) Mortgages created by or resulting from any litigation or other
proceeding that is being contested in good faith by appropriate
proceedings, including Mortgages arising out of judgments or awards against
us or our subsidiaries with respect to which we or our subsidiaries are in
good faith prosecuting an appeal or proceedings for review or for which the
time to make an appeal has not yet expired; Mortgages relating to final
unappealable judgment liens which are satisfied within 15 days of the date
of judgment or Mortgages incurred by us or any of our subsidiaries for the
purpose of obtaining a stay or discharge in the course of any litigation or
proceeding to which we or our subsidiaries is a party;
(12) Mortgages for taxes or assessments or governmental charges or
levies not yet delinquent, or which can thereafter be paid without penalty,
or which are being contested in good faith by appropriate proceedings;
Mortgages comprising landlord's liens or liens of carriers, warehouseman,
mechanics and materialman incurred in the ordinary course of business for
sums not yet due and payable or which are being contested in good faith by
appropriate proceedings; and any other Mortgages incidental to the conduct
of our or our subsidiaries' business or the ownership of our respective
property or assets not incurred in connection with the borrowing of money
or the obtaining of advances or credit and which do not, in the opinion of
our board of directors, materially impair the use or value of such property
or assets;
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(13) any extension, renewal or replacement, or successive extensions,
renewals or replacements, as a whole or in part, of any Mortgages referred
to in the foregoing paragraphs (1) to (12) inclusive; provided that the
principal amount of the Debt being extended, renewed or replaced is not
increased and such extension, renewal or replacement, in the case of Debt
secured by a Mortgage, shall be limited to all or a part of the same
property, shares of Capital Stock or Debt that secured the Mortgage
extended, renewed or replaced plus improvements on such property; and
(14) Mortgages not permitted by paragraphs (1) through (13) above if
at the time of and after giving effect to the creation or assumption of any
such Mortgage, the aggregate amount of all of our and our subsidiaries'
Debt secured by such Mortgages not so permitted by paragraphs (1) through
(13) above together with the Attributable Debt in respect of sale and
lease-back transactions permitted by the indenture does not exceed 10% of
Consolidated Net Tangible Assets. (Section 1005).
Restrictions on Sale and Lease-Back Transactions
Under the indenture, so long as any debt securities are outstanding, we
have agreed that we will not, and will not permit any of our subsidiaries to,
enter into any sale and lease-back transaction unless:
(1) we or such subsidiary would, at the time of entering into such
sale and lease-back transaction, be entitled to incur Debt secured by a
Mortgage on the Principal Property to be leased in an amount at least equal
to the Attributable Debt in respect of such sale and lease-back transaction
without equally and ratably securing the debt securities of each series
then outstanding;
(2) the direct or indirect proceeds of the sale of the Principal
Property to be leased are at least equal to their fair value, as determined
by our board of directors, and an amount equal to the net proceeds from the
sale of the Principal Property is applied, within 180 days of the sale and
lease-back transaction:
- to the purchase or acquisition of, or, in the case of real
property, the commencement of construction on or improvement of,
property or assets, or
- to the retirement or repayment, other than at maturity or pursuant
to a mandatory sinking fund or mandatory redemption provision of:
(A) securities or Funded Debt ranking equally with or senior
to the debt securities or Funded Debt of our consolidated
subsidiaries, or
(B) Debt incurred by us or our subsidiaries within 180 days
prior to the effective date of any such sale and lease-back
transaction that:
- was used solely to finance the acquisition of the
Principal Property that is the subject of such sale and
leaseback transaction and
- is secured by a mortgage on the Principal Property that
is the subject of such sale and lease-back transaction;
or
(3) the lease in the sale and lease-back transaction secures or
relates to Debt or other obligations issued by the United States or any
State thereof or any department, agency or instrumentality or political
subdivision thereof, or by any other country or any political subdivision
thereof, for the purpose of financing all or any part of the purchase price
of or, in the case of real property, the cost of construction on or
improvement of any property or assets subject to such leases. (Section
1006).
Certain Definitions
"Attributable Debt" means, as to any particular lease under which any
person is at the time liable, at the date of determination, the total net amount
of rent required to be paid by such person under the lease during the remaining
term (excluding any subsequent renewal or other extension options held by the
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lessee), discounted from the respective due dates thereof to the date of
determination at the rate of interest per annum implicit in the terms of the
lease, as determined in good faith by us, compounded annually. The net amount of
rent required to be paid under the lease for any such period will be the amount
of the rent payable by the lessee with respect to such period, after excluding
amounts required to be paid on account of maintenance and repairs,
reconstruction insurance, taxes, assessments, water rates and similar charges
and contingent rents. In the case of any lease terminable by the lessee upon the
payment of a penalty, the net amount shall also include the amount of such
penalty, but no rent will be considered as required to be paid under the lease
subsequent to the first date upon which it may be so terminated.
"Capital Stock" as applied to the stock of any corporation, means the
capital stock of every class whether now or hereafter authorized, regardless of
whether such capital stock is limited to a fixed sum or percentage with respect
to the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of such corporation.
"Consolidated Net Tangible Assets" means, on the date of determination, the
aggregate amount of assets, less applicable reserves and other properly
deductible items, after deducting:
(1) all current liabilities, and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles,
all as set forth on our and our consolidated subsidiaries' most recent quarterly
balance sheet and computed in accordance with generally accepted accounting
principles.
"Debt" means loans, notes, bonds, indentures or other similar evidences of
indebtedness for money borrowed. (Section 1005).
"Funded Debt" means, on the date of determination, any indebtedness for
money borrowed maturing by its terms more than 12 months from such date,
including any indebtedness renewable or extendible at the option of the borrower
to a date later than 12 months from such date of determination.
"Mortgage" means any mortgage, pledge, lien, security interest, conditional
sale or other title retention agreement or other similar encumbrance.
"Principal Property" means any manufacturing plant or manufacturing
facility:
(1) owned by us or any of our subsidiaries,
(2) located in the continental United States, and
(3) the gross book value of which, on the date of determination,
exceeds 2% of Consolidated Net Tangible Assets,
except any plant or facility which, in the opinion of our board of directors as
evidenced by a board resolution, is not of material importance to our and our
subsidiaries' business taken as a whole. (Section 101, except as noted above).
EVENTS OF DEFAULT
Definition. The indenture defines an event of default with respect to debt
securities of any series as any one of the following events:
(1) failure to pay any interest on any debt security of that series
when due and payable, continued for 30 days;
(2) failure to pay principal of, or premium, if any, on any debt
security of that series when due and payable;
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(3) failure to deposit any sinking fund payment when due in respect of
any debt security of that series;
(4) failure to perform any other covenant in the indenture, other than
a covenant included in the indenture solely for the benefit of a series of
debt securities other than that series, continued for 90 days after written
notice as provided in the indenture;
(5) failure to pay indebtedness in a principal amount in excess of $15
million at final maturity, after the expiration of any applicable grace
period, or upon acceleration without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled, within
a period of 15 days after notice to us specifying such default and
requiring us to cause the indebtedness to be discharged or such
acceleration to be rescinded or annulled;
(6) certain events of bankruptcy, insolvency or reorganization
involving us or one of our subsidiaries; or
(7) any other event of default provided with respect to debt
securities of that series. (Section 501).
Remedies. If any event of default with respect to the debt securities of
any series at any time outstanding occurs and is continuing, either the trustee
or the holders of not less than 25% in principal amount of the outstanding debt
securities of that series may declare the principal amount (or, if the debt
securities of that series are original issue discount securities, such portion
of the principal amount as may be specified in the terms of that series) of all
the debt securities of that series to be due and payable immediately. At any
time after a declaration of acceleration with respect to debt securities of any
series has been made, but before a judgment or decree based on acceleration has
been obtained, the holders of a majority in principal amount of outstanding debt
securities of that series may, under certain circumstances, rescind and annul
such acceleration. (Section 502).
Under the indenture, the trustee must, within 90 days after the occurrence
of a default with respect to a particular series of debt securities, give the
holders of the debt securities of such series notice of the default known to it
(the term "default" to mean the events specified above without notice or grace
periods). Except in the case of a default in the payment of principal, premium,
if any, or interest on any of the debt securities of such series, the trustee
will be protected in withholding notice if it in good faith determines the
withholding of notice is in the interests of the holders of the debt securities
of such series. (Section 602).
Obligation of the Trustee. The indenture provides that, subject to the
duty of the trustee during a default to act with the required standard of care,
the trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders, unless
such holders shall have offered to the trustee indemnity reasonably satisfactory
to it. (Sections 601, 603). Subject to such provisions for the indemnification
of the trustee and to certain other conditions, the holders of at least a
majority in principal amount of the outstanding debt securities of any series
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or exercising any trust or
power conferred on the trustee, with respect to the debt securities of that
series. (Section 512).
No holder of any series of debt securities will have any right to institute
any proceeding with respect to the indenture or for any remedy thereunder
unless:
- such holder shall have previously given to the trustee a written notice
of a continuing event of default;
- the holders of not less than 25% in principal amount of the outstanding
debt securities of that series have made a written request, and offered
reasonable indemnity, to the trustee to institute such proceeding as
trustee;
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- the trustee has not received inconsistent direction from the holders of a
majority in principal amount of outstanding debt securities of that
series; and
- the trustee has failed to institute the requested proceeding within 60
days. (Section 507).
However, such limitations do not apply to a suit instituted by a holder of a
debt security for enforcement of payment of the principal of, premium, if any,
or interest on such debt security on or after the respective due dates expressed
in such debt security. (Section 508).
Under the indenture, we must furnish to the trustee each year a statement
regarding our performance of certain of our obligations under the indenture and
as to any default in such performance. (Section 1004).
MODIFICATION AND WAIVER
We and the trustee may modify and amend the indenture with the consent of
the holders of a majority in principal amount of the outstanding debt securities
of each series affected by such modification or amendment. However, we may not,
without the consent of the holder of each debt security affected:
- change the maturity date of the principal of, or interest on, any debt
security;
- reduce the principal amount of, or premium, if any, or rate of interest
on any debt security;
- reduce the amount payable upon acceleration of maturity of an original
issue discount security;
- adversely affect the right of repayment at the option of a holder of any
debt security;
- change the place or currency of payment of principal of, premium, if any,
or interest on, any debt security;
- impair the right to institute suit for the enforcement of any payment on
any debt security;
- reduce the percentage of the principal amount of outstanding debt
securities of any series required to modify or amend the indenture or to
waive compliance with certain provisions of the indenture or to waive
defaults; or
- modify any of the provisions described in the foregoing bullets or set
forth in certain other sections of the indenture, except to increase any
such percentage or to limit the ability of holders to modify or waive
certain other provisions of the indenture. (Section 902).
We and the trustee may also modify and amend the indenture without the
consent of the holders in specified circumstances. (Section 901).
The holders of at least a majority in principal amount of the outstanding
debt securities of each series may, on behalf of all holders of that series,
waive, insofar as that series is concerned, our compliance with certain
restrictive provisions of the indenture. (Section 1007). The holders of at least
a majority in principal amount of the outstanding debt securities of any series
may, on behalf of all holders of that series, waive any past default under the
indenture, except:
- a default in the payment of principal of, premium, if any, or interest on
any debt security of such series; and
- a default in respect of a covenant or provision of the indenture that
cannot be modified or amended without the consent of the holder of each
outstanding debt security of such series affected by the modification or
amendment. (Section 513).
The indenture provides that in determining whether the holders of the
requisite principal amount of the outstanding debt securities have given any
request, demand, authorization, direction, notice, consent or waiver thereunder,
the principal amount of an original issue discount security that shall be deemed
to be outstanding shall be the amount of the principal thereof that would be due
and payable as of the date of such determination upon acceleration of the
maturity thereof. (Section 101).
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CONSOLIDATION, MERGER AND SALE OF ASSETS
We may not consolidate with or merge into any other person or convey,
transfer or lease our properties and assets substantially as an entirety to any
person and may not permit any person to consolidate with or merge into us or
convey, transfer or lease its properties and assets substantially as an entirety
to us unless:
- the successor or purchaser is a corporation, partnership or trust
organized under the laws of the United States or any State thereof or the
District of Columbia;
- the successor or purchaser expressly assumes our obligations on the debt
securities under a supplemental indenture and the performance or
observance of every covenant of the indenture to be performed by us;
- immediately after giving effect to the transaction and treating any
indebtedness which becomes our or any of our subsidiaries' obligation as
a result of such transaction as having been incurred by us or our
subsidiaries at the time of such transaction, no event of default, and no
event which, after notice or lapse of time or both, would become an event
of default, shall have occurred and be continuing;
- if as a result of such transaction our properties or assets could become
subject to a mortgage not permitted by the indenture, we or such
successor person, as the case may be, take such steps as shall be
necessary to secure the debt securities equally and ratably with (or
prior to) all indebtedness secured thereby; and
- we have delivered to the trustee an officer's certificate and an opinion
of counsel stating compliance with these provisions. (Section 801).
DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement, at our
option, we:
(1) will be discharged from any and all obligations in respect of the
debt securities of any series (except for certain obligations to register
the transfer or exchange of debt securities of such series, replace stolen,
lost or mutilated debt securities of such series, maintain paying agencies
and hold moneys for payment in trust); or
(2) will need not comply with certain restrictive covenants of the
indenture, including those described under "Certain Covenants" and
"Consolidation, Merger and Sale of Assets" and the occurrence of an event
described in paragraph (4) under "Events of Default" shall no longer be an
event of default,
in each case, if we deposit, in trust, with the trustee money and/or U.S.
government obligations, which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an amount
sufficient, without reinvestment, to pay all the principal of, premium, if any,
and interest on the outstanding debt securities of such series and any mandatory
sinking fund payments or analogous payments on the dates such payments are due
in accordance with the terms of the outstanding debt securities of such series
and the indenture.
Such a trust may only be established if, among other things,
- no event of default or event which with the giving of notice or lapse of
time or both would become an event of default under the indenture shall
have occurred and be continuing on the date of such deposit; and
- we deliver an opinion of counsel to the effect that the holders will not
recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax in
the same manner as if such defeasance had not occurred.
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In the event we fail to comply with our remaining obligations under the
indenture after a defeasance of the indenture with respect to the debt
securities of any series as described under paragraph (2) above and the debt
securities of such series are declared due and payable because of the occurrence
of any event of default, the amount of money and U.S. government obligations on
deposit with the trustee may not be sufficient to pay amounts due on the debt
securities of such series at the time of the acceleration resulting from such
event of default. However, we will remain liable with respect to such payments.
(Article 13).
GOVERNING LAW
The indenture is and the debt securities will be governed by and construed
in accordance with the laws of the State of New York. (Section 112).
CONCERNING THE TRUSTEE
SunTrust Bank is the trustee under the indenture.
BOOK-ENTRY DEBT SECURITIES
The debt securities may be issued in the form of one or more global
book-entry debt securities that will be deposited with, or on behalf of, a
depositary or its nominees. Unless and until it is exchanged in whole or in part
for debt securities in definitive registered form, a book-entry security may not
be registered for transfer or exchange except as a whole by the depositary for
such book entry security to a nominee of such depositary and except in any other
circumstances described in the applicable prospectus supplement. (Sections 204
and 305).
Upon the issuance of a book-entry security, the depositary or its nominee
will credit, on its book-entry registration and transfer system, the respective
principal amounts of the debt securities represented by such book-entry security
to the accounts of persons that have accounts with such depositary, which we
refer to as participants. Such accounts shall be designated by the agents,
underwriters or dealers with respect to such debt securities or by us if such
debt securities are offered and sold directly by us. Participants include
securities brokers and dealers, banks and trust companies, clearing corporations
and certain other organizations. Access to the depositary's system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly, which we refer to as indirect participants. Persons who
are not participants may beneficially own interests in book-entry securities
held by the depositary only through participants or indirect participants.
Ownership of beneficial interests in any book-entry security will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by the depositary or its nominee, with respect to interests of
participants, and on the records of participants, with respect to interests of
indirect participants. The laws of some states require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
laws, as well as the limits on participation in the depositary's book-entry
system, may impair the ability to transfer beneficial interests in a book-entry
security.
So long as the depositary or its nominee is the registered owner of a
book-entry security, such depositary or such nominee will be considered the sole
owner or holder of the debt securities represented by such book-entry security
for all purposes under the indenture. Except as provided below, owners of
beneficial interests in a book-entry security will not be entitled to have debt
securities of the series represented by such book-entry security registered in
their names, will not receive or be entitled to receive physical delivery of
such debt securities in definitive form, and will not be considered the owners
or holders thereof under the indenture.
Payments of principal of, premium, if any, and interest on debt securities
registered in the name of the depositary or its nominee will be made to the
depositary or its nominee, as the case may be, as the registered owner of the
book-entry securities representing such debt securities. We expect that the
depositary for a series of debt securities or its nominee, upon receipt of any
payment of principal, premium
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or interest, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the book-entry security for such debt securities, as shown on the
records of the depositary or its nominee. We also expect that payments by
participants and indirect participants to owners of beneficial interests in such
book-entry security held through such persons will be governed by standing
instructions and customary practices, as is now the case with securities
registered in "street name," and will be the responsibility of such participants
and indirect participants. Neither we, the trustee, any authenticating agent,
any paying agent nor the securities registrar for such debt securities will have
any responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the book-entry
security for such debt securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. (Section 308).
If the depositary is at any time unwilling, unable or ineligible to
continue as depositary, we have agreed to appoint a successor depositary. If
such a successor is not appointed by us within 90 days, we will issue debt
securities of such series in definitive form in exchange for the book-entry
security representing such series of debt securities. In addition, we may at any
time and in our sole discretion determine not to have the debt securities of a
series represented by a book-entry security and, in such event, will issue debt
securities of such series in definitive form in exchange for the book-entry
security representing such series of debt securities. Further, if we so specify
with respect to the debt securities of a series, an owner of a beneficial
interest in a book-entry security representing debt securities of such series
may, on terms acceptable to us, the trustee and the depositary for such
book-entry security, receive debt securities of such series in definitive form.
In any such instance, an owner of a beneficial interest in a book-entry security
will be entitled to physical delivery in definitive form of debt securities of
the series represented by such book-entry security equal in principal amount to
such beneficial interest and to have such debt securities registered in its
name. (Section 305).
The depositary has advised us that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York banking law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17(A) of the Securities Exchange Act of 1934. The depositary was
created to hold securities of its participants and indirect participants and to
facilitate the clearance and settlement of securities transactions among these
participants through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates.
PLAN OF DISTRIBUTION
We may sell debt securities:
- through underwriters or dealers;
- through agents; or
- directly to one or more purchasers.
The distribution of the debt securities may be effected from time to time
in one or more transactions:
- at a fixed price or prices, which may be changed from time to time;
- at market prices prevailing at the time of sale; or
- at prices related to such prevailing market prices, or at negotiated
prices.
For each series of debt securities, the applicable prospectus supplement
will set forth the terms of the offering including:
- the initial public offering price;
- the names of any underwriters, dealers or agents;
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- the purchase price of the debt securities;
- our proceeds from the sale of the debt securities and the intended use of
these proceeds;
- any underwriting discounts, agency fees, or other compensation payable to
underwriters or agents;
- any discounts or concessions allowed or reallowed or repaid to dealers;
and
- the securities exchanges on which the debt securities will be listed, if
any.
If we use underwriters in the sale, they will buy the debt securities for
their own account. The underwriters may then resell the debt securities in one
or more transactions at a fixed public offering price or at varying prices
determined at the time of sale or thereafter. The obligations of the
underwriters to purchase the debt securities will be subject to certain
conditions. The underwriters will be obligated to purchase all the debt
securities offered if they purchase any debt securities. Any initial public
offering price and any discounts or concessions allowed or re-allowed or paid to
dealers may be changed from time to time. In connection with an offering,
underwriters and selling group members and their affiliates may engage in
transactions to stabilize, maintain or otherwise affect the market price of the
debt securities in accordance with applicable law.
If we use dealers in the sale, we will sell debt securities to such dealers
as principals. The dealers may then resell the debt securities to the public at
varying prices to be determined by such dealers at the time of sale. If we use
agents in the sale, they will use their reasonable best efforts to solicit
purchases for the period of their appointment. If we sell directly, no
underwriters or agents will be involved. We are not making an offer of debt
securities in any state that does not permit such an offer.
Underwriters, dealers and agents that participate in the distribution of
debt securities may be deemed to be underwriters as defined in the Securities
Act of 1933. Any discounts, commissions, or profit they receive when they resell
the debt securities may be treated as underwriting discounts and commissions
under the Securities Act of 1933. We may have agreements with underwriters,
dealers and agents to indemnify them against certain civil liabilities,
including certain liabilities under the Securities Act of 1933, or to contribute
with respect to payments that they may be required to make.
We may authorize underwriters, dealers or agents to solicit offers from
certain institutions whereby the institution contractually agrees to purchase
the debt securities from us on a future date at a specific price. This type of
contract may be made only with institutions that we specifically approve. These
institutions could include banks, insurance companies, pension funds, investment
companies and educational and charitable institutions. The underwriters, dealers
or agents will not be responsible for the validity or performance of these
contracts.
The debt securities will be new issues of securities with no established
trading market and unless otherwise specified in the applicable prospectus
supplement, we will not list any series of the debt securities on any exchange.
It has not presently been established whether the underwriters, if any, of the
debt securities will make a market in the debt securities. If the underwriters
make a market in the debt securities, such market making may be discontinued at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the debt securities.
Underwriters, dealers or agents may be customers of, engage in transactions
with, or perform services for, us and our subsidiaries in the ordinary course of
business.
VALIDITY OF DEBT SECURITIES
Certain legal matters with respect to the debt securities will be passed
upon for us by Robert B. McIntosh, General Counsel, and by King & Spalding, and
for any agents, underwriters or dealers by Davis Polk & Wardwell. As of June 5,
2001, Mr. McIntosh owns or has options to purchase 76,400 shares of our class A
common stock.
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EXPERTS
The consolidated financial statements of Rock-Tenn Company incorporated by
reference in Rock-Tenn Company's Annual Report (Form 10-K) for the year ended
September 30, 2000, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
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$250,000,000
(ROCK-TENN COMPANY LOGO)
8.20% SENIOR NOTES DUE AUGUST 15, 2011
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
BANC OF AMERICA SECURITIES LLC
JPMORGAN
SUNTRUST ROBINSON HUMPHREY
WACHOVIA SECURITIES, INC.
August 2, 2001
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