Liquidity and Capital Resources
The following discussion of “Liquidity and Capital Resources” should be read in conjunction with “Subsequent Events” below, which describes a series of recent transactions pursuant to which we (i) issued our 7 1/4% senior notes due 2010 and 9 7/8% senior subordinated notes due 2011, (ii) used a portion of the proceeds from the sale of these notes to repay in full and terminate our $400.0 million senior credit facility described below and repay in full our 7.74% senior notes described below and (iii) obtained a new senior credit facility.

At December 31, 1999 and 2000, total debt consisted of the following (in thousands):

We obtained the leverage ratio amendments and waiver described above in order to avoid the occurrence of an event of default under our senior credit agreement and our 7.74% senior note agreement, resulting from a violation of the leverage ratio covenants contained in these agreements. We would have needed to obtain additional amendments and waivers by March 31, 2001 to avoid further violations. Because we expected to repay and terminate our senior credit facility and our 7.74% senior notes with a portion of the net proceeds from the offerings of the 7 1/4% senior and 9 7/8% senior subordinated notes, as described below under “Subsequent Events,” we did not pursue any further amendments or waivers beyond March 31, 2001.

We have severally and unconditionally guaranteed 50% of the obligations of our Premier Boxboard and Standard Gypsum joint ventures under their respective credit facilities. In addition, Premier Boxboard has issued $50.0 million in senior notes, which are guaranteed by our joint venture partner, Temple-Inland, and are secured by a substantial portion of the assets of Premier Boxboard. As of December 31, 2000, we were in default under the leverage ratio covenant in these guarantees and, as a result, a cross-default occurred under our senior credit facility and the Premier Boxboard senior notes. We entered into agreements with the Premier Boxboard and Standard Gypsum lenders that waived the underlying defaults and amended the financial maintenance covenants on a going-forward basis. We also obtained waivers of the cross-defaults. As of February 28, 2001 approximately $86.4 million of indebtedness under the joint venture credit agreements was outstanding, of which we have gauranteed one-half (approximately $43.2 million).

In 1998, we registered with the SEC a total of $300.0 million in public debt securities for issuance in one or more series and with such specific terms as determined from time to time. On June 1, 1999, we issued $200.0 million in aggregate principal amount of our 7 3/8% senior notes due June 1, 2009. Our 7 3/8% senior notes were issued at a discount to yield an effective interest rate of 7.473%, are unsecured obligations of our company and pay interest semiannually. Proceeds, net of the issuance discount and after deducting underwriting and other costs, were $196.7 million and were largely used to repay revolving credit loans. The difference between the issue price and principal amount at maturity of the 7 3/8% senior notes will be accreted each year as interest expense in our financial statements. In connection with the offering of the 7 1/4% senior and 9 7/8% senior subordinated notes as described below under “Subsequent Events,” our subsidiary guarantors will also be required to guarantee our 7 3/8% senior notes.

Cash generated from operations was $82.5 million for the year ended December 31, 2000, compared with $91.8 million in 1999. The decrease in 2000 compared to the same period in 1999 was due primarily to lower net income and unfavorable changes in working capital, partially offset by higher distributions from our Standard Gypsum joint venture.

Our $400.0 million, five-year senior credit facility matures
in July 2002. We can use the facility to fund ongoing working capital needs and for general corporate purposes, including acquisitions.

Interest under the facility is computed using our choice of: (a) the adjusted Eurodollar rate (as defined under the facility) plus a margin; or (b) the higher of (i) the federal funds rate plus one-half of 1% or (ii) the prime lending rate most recently announced by the administrative agent under the facility. At December 31, 2000, the interest margin above the adjusted Eurodollar rate was computed on the basis of our leverage ratio. On December 31, 2000, we had loans of $194.0 million outstanding under our senior credit facility compared to $140.0 million on December 31, 1999. For the years ended December 31, 2000 and 1999, the weighted average borrowings outstanding under the senior credit facility during such periods bore interest at 7.18% and 5.44%, respectively. The credit agreement relating to the facility contains certain restrictive covenants regarding, among other matters, the incurrence of additional indebtedness and the maintenance of a leverage ratio and an interest coverage ratio (as defined under the facility).

In September 2000 and February 2001, we completed amendments to the senior credit facility that, among other things, increased the maximum permitted leverage ratio for the third and fourth quarters of 2000 and first quarter of 2001.

On October 1, 1992, we issued to an insurance company $82.75 million in aggregate principal amount of senior notes, which bear interest at a rate of 7.74% per annum, payable semiannually in April and October of each year. Our 7.74% senior notes mature October 8, 2004. On December 31, 2000, the aggregate outstanding principal balance under our 7.74% senior notes was $66.2 million. We are required to make a mandatory principal payment of $16.55 million under the 7.74% senior notes in October in each of the years 2000 to 2003, inclusive, with the remaining balance due at maturity. The agreement governing our 7.74% senior notes contains a leverage ratio covenant which we were in default of at December 31, 2000. We have obtained from the holder of our 7.74% senior notes a temporary waiver, effective until March 31, 2001, of the leverage ratio covenant for the fourth quarter of 2000.

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