3. Acquisitions
|
| Each of the following acquisitions is being accounted for under the purchase method of accounting, applying the provisions of Accounting Principles Board ("APB") Opinion No. 16. As a result, the Company recorded the assets and liabilities of the acquired companies at their estimated fair value with the excess of the purchase price over these amounts being recorded as goodwill. Actual allocations of goodwill and other identifiable assets will be based on further studies and may change during the allocation period, generally one year following the date of acquisition. The financial statements for the years ended December 31, 2001, 2000 and 1999 reflect the operations of the acquired businesses for the periods after their respective dates of acquisition.
In February 2000, the Company acquired all of the outstanding stock of MilPak, Inc. in exchange for cash of $4,700,000 and 248,132 shares of the Company's common stock valued at $4,700,000. MilPak operates a facility located in Pine Brook, New Jersey, that provides blister packaging, cartoning and labeling and other contract packaging services. Goodwill of approximately $6,100,000 was recorded in connection with the acquisition.
In September 2000, the Company acquired all of the outstanding stock of Arrow Paper Products Company in exchange for 342,743 shares of the Company's common stock valued at $5,100,000. Arrow is located in Saginaw, Michigan and operates two tube and core converting facilities that serve customers in the automotive, film, housewares and other specialty tube and core markets. Goodwill of approximately $4,100,000 was recorded in connection with the acquisition.
In October 2000, the Company acquired 100 percent of the membership interests in Crane Carton Company, LLC in exchange for 1,659,790 shares of the Company's common stock valued at $19,000,000 plus $5,800,000 of assumed debt. The Company issued 16,595 of the shares in 2000 and the balance in 2001. Crane operates a single folding carton manufacturing facility located in suburban Chicago, Illinois. Goodwill of approximately $4,700,000 was recorded in connection with the acquisition.
The following unaudited pro forma financial information assumes that the above acquisitions occurred on January 1, 2000. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have resulted had the acquisitions occurred on January 1, 2000 or the results that may occur in the future (in thousands, except per share data):
|
|
2001 |
2000 |
|
| Sales |
$913,686 |
$1,049,927 |
| Net (loss) income |
(14,602) |
8,911 |
Diluted (loss) income
per common share |
(0.52) |
0.33 |
4. Equity Interest in Unconsolidated Affiliates
|
| On April 1, 1996, the Company transferred substantially all of the operating assets and liabilities of its wholly-owned subsidiary, Standard Gypsum Corporation, a producer of gypsum wallboard, to a newly formed limited liability company, Standard Gypsum, L.P. ("Standard"). Simultaneous with the formation of Standard, the Company sold a 50 percent interest in Standard to Temple-Inland Forest Products Corporation ("Temple"), an unrelated third party, for $10,800,000 in cash. Standard is operated as a joint venture managed by Temple. The Company accounts for its interest in Standard under the equity method of accounting. The Company's equity interest in the (loss)/earnings of Standard for the years ended December 31, 2001, 2000 and 1999 was ($946,000), $7,358,000 and $9,064,000, respectively. The Company received distributions based on its equity interest in Standard of $1,000,000, $13,500,000 and $1,000,000 in 2001, 2000 and 1999, respectively. |
|
| During April 1998, Standard entered into a loan agreement with a financial institution for a credit facility in an amount not to exceed $61,000,000. Proceeds of the new credit facility were used to fund the construction of a green field gypsum wallboard plant in Cumberland City, Tennessee, which began operation in the fourth quarter of 1999. During 1999, Standard received financing from two industrial revenue bond issuances by Stewart County, Tennessee, totaling $56,200,000. The proceeds of the bond issuances were used to repay the borrowings under the credit facility and fund the remaining construction of the plant. In addition, the Company guarantees one-half of Standard's credit facility. At December 31, 2001 and 2000, the Company's portion of this guaranteed debt totaled approximately $28,100,000. The Company's guarantee of the Standard credit facility contains financial maintenance covenants, as amended in the first quarter of 2001, and both the Standard credit facility and the Company's senior credit facility contain a cross-default to these covenants. In January 2002, the Company obtained an amendment under the guarantee to lower the minimum allowable interest coverage ratio for the fourth quarter of 2001 through the second quarter of 2002 in order to avoid an event of default resulting from a violation of the interest coverage ratio covenant. After giving effect to this amendment, the Company was in compliance with all financial maintenance covenants under the guarantee at December 31, 2001 and Standard was in compliance with all covenants under its credit facility.
Summarized financial information for Standard at December 31, 2001 and 2000 and for the years ended December 31, 2001, 2000 and 1999, respectively, is as follows (in thousands):
|
|
|
2001 |
2000 |
|
| Current assets |
|
$13,237 |
$14,753 |
| Noncurrent assets |
|
70,763 |
74,655 |
| Current liabilities |
|
4,623 |
6,148 |
| Noncurrent liabilities |
|
56,217 |
56,208 |
|
2001 |
2000 |
1999 |
|
| Sales |
$71,297 |
$96,338 |
$58,973 |
| Gross profit |
18,665 |
36,630 |
28,405 |
| Operating income |
292 |
18,176 |
19,337 |
| Net (loss) income |
(1,892) |
14,716 |
18,128 |
During 1999, the Company formed a joint venture with Temple to own and operate a containerboard mill located in Newport, Indiana. Upon formation, the joint venture, Premier Boxboard Limited LLC ("PBL"), undertook an $82,000,000 project to modify the mill to enable it to produce a new lightweight gypsum facing paper along with other containerboard grades. PBL is operated as a joint venture managed by the Company. The modified mill began operations on June 27, 2000. The Company and Temple each have a 50 percent interest in the joint venture, which is being accounted for under the equity method of accounting. There were no distributions in 2001 and 2000. Expenses related to the joint venture were not material in 1999. The Company's equity interest in the net loss of PBL for 2001 and 2000 was approximately $1,892,000 and $881,000, respectively.
Under the joint venture agreement, the Company contributed $50,000,000 to the joint venture during the second quarter of 2000 and Temple contributed the net assets of the mill valued at approximately $98,000,000, and received $50,000,000 in notes issued by PBL. In addition, the Company has guaranteed one-half of a revolving line of credit obtained by PBL. At December 31, 2001 and 2000, the Company's portion of this guaranteed debt totaled approximately $10,100,000 and $15,000,000, respectively. The Company's guarantee of PBL's revolving line of credit contains financial maintenance covenants, as amended in the first quarter of 2001, and both PBL's revolving line of credit and the Company's senior credit facility contain a cross-default to these covenants. In January 2002, the Company obtained an amendment under the guarantee to lower the minimum allowable interest coverage ratio for the fourth quarter of 2001 through the second quarter of 2002 in order to avoid an event of default resulting from a violation of the interest coverage ratio covenant. After giving effect to this amendment, the Company was in compliance with all financial maintenance covenants under the guarantee at December 31, 2001 and PBL was in compliance with all covenants under its line of credit.
|
|
