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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-20704
ACX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1208699
(State of incorporation) (IRS Employer Identification No.)
4455 Table Mountain Drive, Golden, Colorado 80403
(Address of principal executive offices) (Zip Code)
(303) 215-4600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 22, 2000, there were 28,777,284 shares of common
stock outstanding. The aggregate market value of such shares,
other than shares held by persons who may be deemed affiliates of
the Registrant, was $67,594,023.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement filed in connection with the 2000
Annual Meeting of Shareholders is incorporated by reference into
Part III.
ACX TECHNOLOGIES, INC.
Annual Report on Form 10-K
December 31, 1999
TABLE OF CONTENTS
Page
No.
PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security
Holders 11
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 27
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 60
PART III
Item 10. Directors and Executive Officers of the
Registrant 60
Item 11. Executive Compensation 60
Item 12. Security Ownership of Certain Beneficial
Owners and Management 60
Item 13. Certain Relationships and Related
Transactions 60
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 61
ACX TECHNOLOGIES, INC.
Unless the context indicates otherwise, references herein to
the Company include ACX Technologies, Inc. (ACX Technologies) and
its subsidiaries, including Graphic Packaging Corporation and its
subsidiaries (collectively referred to as Graphic Packaging),
Golden Technologies Company, Inc. and its subsidiaries
(collectively referred to as Golden Technologies) and Golden
Aluminum Company and its subsidiaries (collectively referred to
as Golden Aluminum) included prior to March 1997, and from August
23 through November 5, 1999. On December 31, 1999, the Company
spun-off Coors Porcelain Company and its subsidiaries
(collectively referred to as CoorsTek). Unless otherwise noted,
references to the Company exclude CoorsTek.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
The Company's principal executive offices are located at
4455 Table Mountain Drive, Golden, Colorado 80403. The Company's
telephone number is (303) 215-4600.
The Company, through its primary subsidiary Graphic
Packaging, is a manufacturer of packaging products used by
consumer product companies as primary packaging for their end-use
products. The Company's strategy is to maximize its competitive
position and growth opportunities in its core business, folding
cartons. Toward this end, over the past several years the
Company has acquired two significant folding carton businesses
and has disposed of several noncore businesses and under-
performing assets.
The Company was incorporated in Colorado in August 1992 as a
holding company for the packaging, ceramics, aluminum and
developmental businesses formerly owned by Adolph Coors Company
(ACCo). Effective December 27, 1992, ACCo distributed to its
shareholders all outstanding shares of the Company's stock. The
Company's initial years of operation included packaging,
ceramics, aluminum and various developmental businesses. Through
various acquisitions, divestitures, a spin-off and other
transactions, the Company is now strategically focused on the
folding carton segment of the packaging industry.
To better reflect the nature of the Company's new business
focus, the Company changed its ticker symbol on the New York
Stock Exchange to "GPK" and is asking shareholders to formally
change the Company's name to Graphic Packaging International
Corporation at its May 2000 annual shareholders' meeting.
CoorsTek Spin-Off
Effective December 31, 1999, ACX Technologies distributed to
its shareholders all the outstanding common stock of CoorsTek in
a tax-free spin-off transaction. One share of CoorsTek common
stock was distributed for every four shares of ACX Technologies
common stock owned. The tax basis allocation of costs for ACX
Technologies shares acquired pre-spin off is: ACX 55.56% and
CoorsTek 44.44%.
Recent Acquisitions
On August 2, 1999, the Company purchased the Fort James
packaging business, which included 12 folding carton converting
operations located throughout North America and a recycled
paperboard mill located in Kalamazoo, Michigan (the Kalamazoo
Mill) for approximately $849 million, including working capital
adjustments and acquisition costs. This business is a major
supplier of folding cartons to leading consumer product companies
for packaging food. The Kalamazoo Mill is currently being
offered for sale.
On January 14, 1998, the Company acquired Britton Group plc
(Britton) pursuant to a cash tender offer for approximately $420
million. Britton was an international packaging group operating
through two principal divisions: folding cartons and plastics.
The folding cartons division, Universal Packaging, is a
nonintegrated manufacturer of folding cartons in the United
States, with capabilities in design, printing and manufacturing
of multicolor folding cartons. The plastics division of Britton
(the Plastics Division), which was disposed of by the Company on
April 20, 1998, operated in the United Kingdom and included the
extrusion, conversion and printing of polyethylene into films and
bags for industrial customers. The Company realized
consideration of approximately $135 million on the sale of the
Plastics Division.
Recent Dispositions
On September 2, 1999, the Company sold its flexible
packaging plants for approximately $105 million in cash. On
August 3, 1999 the Company sold its interest in a solar energy
distribution business (Golden Genesis Company) for approximately
$21 million in cash, plus a $10 million repayment of intercompany
debt.
In 1996, the Board of Directors adopted a plan to dispose of
the Company's aluminum rigid container sheet business, Golden
Aluminum. On March 1, 1997, the sale of Golden Aluminum was
completed for $70.0 million, $10.0 million of which was received
at closing and $60.0 million of which was due by March 1999. As
part of the sale, the buyer had the right to return Golden
Aluminum to the Company in discharge of payment of the $60.0
million note. In December of 1998, the Company extended the due
date on the $60.0 million payment until September 1, 1999. The
initial payment of $10.0 million was nonrefundable. On August
23, 1999, the purchaser returned Golden Aluminum to the Company,
in accordance with the agreement, and the $60.0 million note was
cancelled. Golden Aluminum was subsequently sold to another
buyer on November 5, 1999 for approximately $41 million.
(b) Financial Information about Industry Segments, Foreign
Operations and Foreign Sales
Certain financial information for the Company's reportable
segments is included in the following summary. Discontinued
operations include the Kalamazoo Mill for the last five months of
1999 and CoorsTek for the years 1999, 1998 and 1997.
Depreciation
Net Operating And Capital
Sales Income Amortization Assets Expenditures
-------- --------- ------------ ---------- ------------
1999
Packaging $786,843 $38,992 $47,834 $1,156,385 $73,707
Other 44,562 2,103 618 19,699 1,568
-------- ------- ------- ---------- -------
Segment total 831,405 41,095 48,452 1,176,084 75,275
Corporate --- (10,479) 260 225,954 17
Discontinued
operations,
net assets --- --- 30,283 225,000 16,163
-------- ------- ------- ---------- -------
Consolidated
total 831,405 $30,616 $78,995 $1,627,038 $91,455
======== ======= ======= ========== =======
1998
Packaging $623,852 $38,232 $35,924 $539,039 $47,498
Other 67,925 (3,047) 1,270 56,905 3,384
-------- ------- ------- --------- -------
Segment total 691,777 35,185 37,194 595,944 50,882
Corporate --- (8,941) 336 101,359 690
Discontinued
operations,
net assets --- --- 19,977 148,719 26,891
-------- ------- ------- --------- -------
Consolidated
total $691,777 $26,244 $57,507 $846,022 $78,463
======== ======= ======= ========= =======
1997
Packaging $365,123 $42,655 $20,211 $210,024 $18,022
Other 61,138 (31,186) 3,451 81,443 9,068
-------- ------- ------- --------- -------
Segment total 426,261 11,469 23,662 291,467 27,090
Corporate --- (10,177) 337 148,258 311
Discontinued
operations,
net assets --- --- 18,664 203,155 28,812
-------- ------- ------- -------- -------
Consolidated
total $426,261 $1,292 $42,663 $642,880 $56,213
======== ======= ======= ========= =======
The results of the Company's Other business segment for
1997, 1998 and 1999 relate primarily to businesses which have
been sold as of December 31, 1999.
Corporate assets for 1999 consist primarily of a $200
million note receivable from CoorsTek as a result of the spin-
off, and debt issuance costs. In 1998 and 1997, corporate
assets include a $60 million note receivable from the sale of
Golden Aluminum, deferred taxes and certain properties.
Certain financial information regarding the Company's
domestic and foreign operations is included in the following
summary, which excludes discontinued operating segments. Long-
lived assets include plant, property and equipment, intangible
assets, and certain other non-current assets.
Net Long-Lived
(In thousands) Sales Assets
-------- ----------
1999
United States $779,527 $964,880
Canada 51,878 3,689
Other --- 2,694
-------- ----------
Total $831,405 $971,263
======== ==========
1998
United States $626,715 $401,579
Canada 57,079 34,807
Other 7,983 3,065
-------- ----------
Total $691,777 $439,451
======== ==========
1997
United States $357,795 $118,998
Canada 59,730 34,535
Other 8,736 3,732
-------- ----------
Total $426,261 $157,265
======== ==========
(c) Narrative Description of Operating Segments
Graphic Packaging
General: Graphic Packaging develops, manufactures and sells
value-added packaging products used by manufacturers as primary
packaging for their end-use products. Value-added packaging has
characteristics such as high-impact graphics; resistance to
abrasion, radiant heat and microwave management; and barriers to
moisture, gas penetration, solvent penetration and leakage.
Graphic Packaging began business with a single plant in 1974
as part of the vertical integration of Adolph Coors Company's
beer business operated through its subsidiary, Coors Brewing
Company. Since that time, Graphic Packaging has expanded its
product capabilities and geographic presence through plant
expansions and acquisitions. Sales to Coors Brewing Company
represented less than 13% of net sales in 1999.
Graphic Packaging acquired Universal Packaging in January
1998 followed by the acquisition of the Fort James packaging
business in August 1999. These two acquisitions added 18
converting facilities and the Kalamazoo Mill and complemented
Graphic Packaging's capabilities with processes such as web-fed
and sheet-fed printing, electron beam curing of inks and coatings
and rotary die cutting. The acquisitions have allowed Graphic
Packaging to expand into several new end-use markets and add to
its blue-chip customer list. Coincident with the acquisitions,
Graphic Packaging sold several noncore flexible packaging plants
in September 1999. As of December 31, 1999, Graphic Packaging
operated 23 converting facilities and the Kalamazoo Mill.
In December 1999, Graphic Packaging announced its intention
to offer the Kalamazoo Mill for sale as part of its plan to focus
on its core folding carton business. The Kalamazoo Mill is
included in discontinued operations. Also in December 1999,
Graphic Packaging announced the planned closure of two folding
carton facilities as part of its plan to reduce overhead without
impacting effective capacity. See related discussion regarding
asset impairment and restructuring charges in Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
Markets and Products: The fiber-based product packaging
industry includes: paperboard packaging which consists of
corrugated products, folding cartons and rigid fiber boxes and
food service containers such as disposable clam-shells, plates
and cups, and flexible packaging such as printed and laminated
bags, overwraps and labels. Graphic Packaging competes in the
folding carton segment of the industry.
The U.S. folding carton industry is currently an estimated
$8 billion market that experienced an average annual growth rate
from 1987 to 1997 of 2%. Shipments from 1997 to 1998 declined 1%
and from 1998 to 1999 were flat. Over the last several years,
the major portion of Graphic Packaging's internal growth has come
from sales to Coors Brewing and customers in the detergent,
cereal, premium bar soap, quick service restaurant markets and
promotional packaging. In addition, the Universal Packaging and
the Fort James folding carton business acquisitions brought
Graphic Packaging significant positions in the dry and frozen
food markets.
In manufacturing value-added folding cartons, Graphic
Packaging uses an internally developed, patented composite
packaging technology, Composipac[TM] (Composipac), which provides
finished products with high quality graphics that have enhanced
abrasion protection and moisture, air or other special barrier
properties. Graphic Packaging's Composipac technology is
designed to meet the continuing specialized needs of its
beverage, powdered detergents, soap and promotional packaging
customers. This technology also provides Graphic Packaging with
the unique ability to cost effectively produce full web
lamination holographic cartons. Demand for holographic cartons
is growing in the toothpaste, promotional and other market
segments.
In addition, Graphic Packaging has been a leader in the
development and marketing of microwave packaging technology. The
Company's QwikWave[R] susceptor packaging provides browning and
crisping qualities for microwave foods. This is made possible
through the use of an ultra thin layer of aluminum that heats
directly when exposed to microwave power. Graphic Packaging has
added to the QwikWave[R] technology with packaging branded under
the MicroRite[R] name, which consists of a series of aluminum
circuits applied to paperboard that determine power distribution
in foods. Interactive foil technology allows controlled heating
that results in conventional oven quality in microwave time.
Strategy: Graphic Packaging's strategy is to maintain its
valued customer relationships and market leadership. It plans to
continue to do so by employing capital and resources to remain
the industry's low-cost producer of folding cartons while
continuing to invest in the future through research and
development. Leveraging its expanded sales force from the
acquisitions of Universal Packaging and the Fort James folding
carton business, Graphic Packaging emphasizes its ability to
provide innovative products with value-added characteristics that
stand out from its customers' competitors on the supermarket
shelves.
Manufacturing and Raw Materials: Graphic Packaging uses a
variety of raw materials such as paperboard, paper, inks,
aluminum foil, plastic films, plastic resins, adhesives and other
materials which are available from domestic and foreign
suppliers. Historically, Graphic Packaging has not experienced
difficulty in obtaining adequate supplies or raw materials and
difficulty is not anticipated in the future. While many sources
of each of these materials are available, Graphic Packaging
prefers to develop strategic long-standing alliances with
vendors, including the use of multi-year supply agreements, in
order to provide a guaranteed source of materials that satisfies
customer requirements while obtaining the best quality, service
and price. Business disruptions or financial difficulties of a
sole source supplier, which Graphic Packaging does not
anticipate, could have an adverse effect by increasing the cost
of these materials and causing delays in manufacturing while
other suppliers are being qualified.
Sales and Distribution: Products are sold primarily to well-
recognized consumer product manufacturers in North America.
Sales are made primarily through direct sales employees of
Graphic Packaging that work from offices located throughout the
United States and, to a lesser degree, through broker
arrangements with third parties. Graphic Packaging selling
activities are supported by its technical and development staff.
Sales to Kraft Foods, Inc. and affiliates under various
contracts accounted for approximately 20%, 15% and 4% of ACX
Technologies' consolidated sales for 1999, 1998 and 1997,
respectively. Approximately 13%, 17% and 27% of sales were to
Coors Brewing for the same years. A diverse customer base made
up of manufacturers of detergents, frozen and dry foods, soap,
tobacco producers and quick serve restaurants account for most of
the balance.
Most of Graphic Packaging's sales are made under sales
contracts at prices that are subject to periodic adjustment for
market price changes of raw materials and other costs. Products
are made in accordance with customer specifications. Graphic
Packaging had approximately $175 million in open orders in March
2000, as compared to approximately $122 million in March 1999.
The Company expects to ship most of the open orders by the end of
the second quarter of 2000. Total open orders and comparisons
vary because of a number of factors and are not necessarily
indicative of past or future operating results.
Competition: Graphic Packaging is subject to strong
competition in most markets it serves. The packaging industry
continues to experience intense pricing pressures. The
installation of state-of-the-art equipment by manufacturers has
intensified the competitive pricing situation. A relatively
small number of large competitors hold a significant portion of
the folding carton segment of the paperboard industry. Major
U.S. competitors include Smurfit-Stone Container Corporation,
Field Container Company L.P, The Mead Corporation, Gulf States
Paper Corporation, Westvaco, Rock-Tenn, Shorewood and
International Paper. Mergers and acquisitions have contributed
to a consolidation of the industry.
Product Development: Graphic Packaging's development staff
works directly with the sales and marketing personnel in meeting
with customers and pursuing new business. Graphic Packaging's
development efforts include, but are not limited to, extending
the shelf life of customers' products, reducing production costs,
enhancing the heat-managing characteristics of food packaging and
refining packaging appearance through new printing techniques and
materials. Potential new product development efforts are
expected to involve sift-proof cartons, linerless cartons, liquid
containment packaging, enhanced microwavable food containers and
other packaging innovations.
Other Businesses
The Company's other businesses have generally been sold or
reduced to investment holdings. The primary areas of focus of
the other businesses has been distribution of solar electric
systems (Golden Genesis); real estate development (Golden
Equities); and corn-wet milling (Golden Technologies). The
Company's interest in Golden Genesis was sold on August 3, 1999,
Golden Equities has disposed of the majority of its real estate
holdings, and the corn-wet milling operation was sold in January
1999. Therefore, Other segment information generally represents
the final operating results of businesses disposed of before the
end of 1999.
Discontinued Operations
Discontinued operations consists of three businesses:
ceramics (CoorsTek); aluminum (Golden Aluminum); and the recycled
paperboard mill (Kalamazoo Mill).
CoorsTek (formerly known as Coors Ceramics Company)
develops, manufactures and sells advanced technical products
across a wide range of product lines for a variety of
applications. It has been in business since 1911 and is the
largest U.S. owned, independent manufacturer of advanced
technical ceramics. CoorsTek was spun off as a separate public
company effective December 31, 1999.
Golden Aluminum produces rigid container sheet used in
making can lids, tabs and bodies for the beverage and food can
industry and other flat-rolled aluminum products used principally
in the building industry. The assets of Golden Aluminum were
sold on November 5, 1999.
The Kalamazoo Mill was acquired on August 2, 1999 as a part
of the Fort James packaging acquisition. The Kalamazoo Mill is a
producer of high quality coated recycled paperboard and is
believed to be the largest scale, lowest cost and most efficient
recycled paperboard facility in North America. In December 1999,
the Board of Directors adopted a plan to offer the Kalamazoo Mill
for sale. The Company is pursuing the sale of the Kalamazoo
Mill, as well as evaluating other strategic alternatives.
Dependence on Major Customers
Sales to Kraft Foods, Inc. and affiliates under various long-
term contracts accounted for approximately 20%, 15% and 4% of the
Company's consolidated sales for 1999, 1998 and 1997,
respectively; however, future sales may vary from historical
levels. In 1999, Graphic Packaging entered into a new five-year
supply agreement with Kraft Foods whereby Graphic Packaging will
supply one hundred percent of their folding carton needs for
specified product lines.
Sales to Coors Brewing accounted for approximately 13%, 17%
and 27% of the Company's consolidated sales for 1999, 1998 and
1997, respectively; however, future sales may vary from
historical levels. In 1998, Graphic Packaging entered into a new
five-year supply agreement with Coors Brewing to supply packaging
products. The new agreement includes stated quantity commitments
and requires annual repricing. In addition, this contract
provides for a three-year extension to be negotiated by December
31, 2000. The Company also sold aluminum products and refined
corn starch to Coors Brewing until the disposition of these
businesses on March 1, 1997 and January 31, 1999, respectively.
The loss of Kraft Foods or Coors Brewing as a customer in
the foreseeable future would have a material effect on the
Company's results of operations.
Research and Development
The Company's ability to compete effectively in the value-
added packaging market depends significantly on its continued and
timely development of innovative technology, materials, products
and processes using advanced and cost-efficient manufacturing
processes. Total research and development expenditures for the
Company were $3.8 million, $3.7 million and $13.1 million for
1999, 1998 and 1997, respectively. The Company's research and
development expenditures from 1997 to 1998 decreased
significantly as a percentage of net sales due to the
dispositions of noncore developmental businesses. The Company
believes the remaining expenditures will be adequate to meet the
strategic objectives of its packaging business.
Patents, Proprietary Rights and Licenses
The Company holds a substantial number of patents and
pending patent applications in the U.S. and in foreign countries.
This portfolio primarily consists of microwave and barrier
protection packaging and manufacturing methods. The patents and
processes are significant to Graphic Packaging's operations and
are supported by trademarks such as QwikWave[R], MicroRite[R]
and Composipac[TM]. In addition, the Company licenses certain
technology from third parties to enhance its technical
capabilities. The Company's policy generally is to pursue patent
protection that it considers necessary or advisable for the
patentable inventions and technological improvements of its
business and to defend its portfolio against third party
infringers. The Company also relies significantly on its trade
secrets, technical expertise and know-how, continuing
technological innovations and other means such as confidentiality
agreements with employees, consultants and customers to protect
and enhance its competitive positions within its industry.
The Company believes that its subsidiaries own or have the
right to use the proprietary technology and other intellectual
property necessary to their operations. Except as noted above,
the Company does not believe that its success is materially
dependent on the existence or duration of any individual patent,
trademark or license or related group thereof.
Environmental Matters
The Company's operations are subject to extensive regulation
by various federal, state, provincial and local agencies
concerning compliance with environmental control statutes and
regulations. These regulations impose limitations, including
effluent and emission limitations, on the discharge of materials
into the environment, as well as require the Company to obtain
and operate in compliance with the conditions of permits and
other governmental authorizations. Future regulations could
materially increase the Company's capital requirements and
certain operating expenses in future years.
In the ordinary course of business the Company is
continually upgrading and replacing its emission control
equipment. The estimated capital expenditure for these types of
projects for 2000 and 2001 is $200,000 per year.
Some of the Company's operations have been notified that
they may be potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 or similar laws with respect to the remediation of
certain sites where hazardous substances have been released into
the environment. The Company cannot predict with certainty the
total costs of remediation, its share of the total costs, the
extent to which contributions will be available from other
parties, the amount of time necessary to complete the remediation
or the availability of insurance. However, based on the
investigations to date, the Company believes that any liability
with respect to these sites would not be material to the
financial condition or results of operations of the Company,
without consideration for insurance recoveries. There can be no
certainty, however, that the Company will not be named as a PRP
at additional sites or be subject to other environmental matters
in the future or that the costs associated with those additional
sites or matters would not be material.
In addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
Employees
As of March 22, 2000, the Company had approximately 5,000
full-time employees. Management considers its employee relations
to be good.
ITEM 2. PROPERTIES
The Company believes that its facilities are well maintained
and suitable for their respective operations. The table below
lists the Company's plants and most other physical properties and
their locations and general character:
Facility Location Character
- --------------------- ----------------------------- ---------------------
ACX Technologies:
Company Headquarters Golden, Colorado(1)
Graphic Packaging:
Company Offices Golden, Colorado(1)
Manufacturing Golden, Colorado(1) Converting/Labels
Manufacturing Boulder, Colorado(2)(3)(5) Converting Operations
Manufacturing Lawrenceburg, Tennessee Converting Operations
Manufacturing Garden Grove, California Converting Operations
Manufacturing Mississauga, Ontario(3) Converting Operations
Manufacturing Portland, Oregon(2)(4) Converting Operations
Manufacturing Wausau, Wisconsin Converting Operations
Manufacturing Charlotte, North Carolina Converting Operations
Manufacturing Kalamazoo, Michigan(5) Paperboard Mill
Manufacturing Malvern, Pennsylvania Converting Operations
Manufacturing Richmond, Virginia Converting Operations
Manufacturing/Offices Bow, New Hampshire Converting Operations
Manufacturing Centralia, Illinois Converting Operations
Manufacturing Ft. Smith, Arkansas Converting Operations
Manufacturing Mitchell, South Dakota Converting Operations
Manufacturing Lumberton, North Carolina Converting Operations
Manufacturing Saratoga Springs, New York(5) Converting Operations
Manufacturing Gordonsville, Tennessee Converting Operations
Manufacturing Kendallville, Indiana Converting Operations
Manufacturing Kalamazoo, Michigan Converting Operations
Manufacturing Menasha, Wisconsin Converting Operations
Manufacturing Newnan, Georgia Converting Operations
Manufacturing Perrysburg, Ohio Converting Operations
Golden Technologies:
Offices Golden, Colorado(2)(3)
(1) The Company headquarters/Graphic Packaging offices and
Golden, Colorado manufacturing facility are
located in the same building.
(2) Two facilities.
(3) Leased facilities.
(4) Two facilities, including one leased facility.
(5) Plants for sale or other disposition in 2000.
The operating facilities of the Company are not constrained
by capacity issues. From time to time the Company also leases
additional warehouse space and sales offices throughout North
America, on an as-needed basis.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company's
subsidiaries are subject to various pending claims, lawsuits and
contingent liabilities, including claims by current or former
employees relating to employment, sexual harassment or
termination. In each of these cases, the Company is defending
against them. The Company does not believe that disposition of
these matters will have a material adverse effect on the
Company's consolidated financial position or results of
operations. For specific information regarding environmental
legal proceedings, see Environmental Matters.
In July 1999, Cinergy Resources, Inc. and the Cincinnati
Gas & Electric company sued Graphic Packaging in Warren County,
Ohio Court of Common Pleas claiming approximately $651,000, plus
interest, fees and costs, for gas supplied to Graphic Packaging's
Franklin, Ohio flexible packaging facility. Cinergy claims that,
due to an improperly installed meter, Graphic Packaging was not
billed for actual gas consumption. Graphic Packaging denies
liability claiming that it has paid for the gas, and any errors
are due to Cinergy's actions. Although this case is in the
discovery stage, the Company does not believe the disposition of
this matter will have a material adverse effect on the Company's
financial position or results of operation.
In February 1998, a subsidiary of Golden Technologies was
sued for breach of a supply agreement to purchase thermal energy
for the Johnstown, Colorado corn-wet mill. The Company sold the
Johnstown, Colorado corn-wet mill in January 1999. Trial has
been set for October 2000, but the Company does not believe the
disposition will have a material adverse effect on the Company's
financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock was quoted on the New York Stock
Exchange under the symbol ACX through February 2000 when its
symbol was changed to GPK. The historical range of the high and
low sales price per share for each quarter of 1999 and 1998 was
as follows:
1999 1998
------------------ -------------------
High Low High Low
--------- ------- -------- ---------
First Quarter $15 1/2 $11 1/4 $25 $22 1/2
Second Quarter $16 1/4 $11 1/2 $25 3/4 $21 1/16
Third Quarter $15 15/16 $ 9 1/2 $22 3/4 $12 7/16
Fourth Quarter $11 1/8 $ 7 5/8 $15 3/16 $ 9 13/16
As a result of the spin-off of CoorsTek on December 31,
1999, the market price of the Company's stock opened on January
3, 2000 at $5.875 per share, versus the closing price of $10.6875
per share on December 31, 1999.
During 1999 and 1998, no cash dividends were paid by the
Company. At this time, the Company anticipates that it will
retain any earnings and that the Company will not pay dividends
to its shareholders in the foreseeable future. Also, the
Company's credit facilities currently prohibit the payment of any
cash dividends, and the Company expects this limitation to remain
in effect through 2001.
On March 22, 2000 there were approximately 2,400
shareholders of record of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights - Five Year Overview
In thousands, except
per share and
ratio data 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Summary of Operations
Net sales $831,405[a] $691,777[a] $426,261 $436,028 $389,976
-------- -------- -------- -------- --------
Gross profit $123,647 $124,244 $93,608 $80,393 $72,658
Selling, general and
administrative
expenses[b] $85,218 $76,609 $70,436 $57,319 $54,770
Asset impairment and
restructuring
charges[c] 7,813 21,391 21,880 34,642 2,297
-------- -------- -------- -------- --------
Operating income (loss) $30,616 $26,244 $1,292 ($11,568) $15,591
-------- -------- -------- -------- --------
Income (loss) from
continuing operations $21,518[f] $5,453 ($2,272)($13,793) $2,284
-------- -------- -------- -------- --------
Income (loss) from
discontinued
operations[d] $6,073 $15,812 $29,988 ($78,231) $21,587
-------- -------- -------- -------- --------
Extraordinary loss on
early extinguishment
of debt, net of tax ($2,332) --- --- --- ---
-------- -------- -------- -------- --------
Net income (loss) $25,259 $21,265 $27,716 ($92,024) $23,871
- -------------------------------------------------------------------------
Per basic share of
common stock:
Continuing
operations $0.76 $0.19 ($0.08) ($0.49) $0.09
Discontinued
operations $0.21 $0.56 $1.07 ($2.81) $0.80
Extraordinary loss ($0.08) --- --- --- ---
-------- -------- -------- -------- --------
Net income (loss) $0.89 $0.75 $0.99 ($3.30) $0.89
-------- -------- -------- -------- --------
Per diluted share of
common stock:
Continuing
operations $0.75 $0.19 ($0.08) ($0.49) $0.08
Discontinued
operations $0.21 $0.54 $1.04 ($2.81) $0.79
Extraordinary loss ($0.08) --- --- --- ---
-------- -------- -------- -------- --------
Net income (loss) $0.88 $0.73 $0.96 ($3.30) $0.87
- -------------------------------------------------------------------------
Financial Position
Working capital,
excluding current
maturities of debt $292,774 $238,844 $158,551 $154,626 $168,801
Total assets $1,627,038[e] $846,022 $642,880 $623,520 $726,676
Current maturities
of debt $400,000[e] $86,300 --- --- ---
Long-term debt $615,500 $183,000 $100,000 $100,000 $100,000
Shareholders' equity $423,310 $447,955 $430,531 $397,903 $488,374
- -------------------------------------------------------------------------
Other Information
Total debt to
capitalization 71% 38% 19% 20% 17%
Net book value per share
of common stock $14.81 $15.76 $15.17 $14.24 $18.14
- -------------------------------------------------------------------------
[a] Includes sales from ongoing Graphic Packaging business (i.e.,
excludes sales from the flexible packaging plants) of $708.2
million and $504.6 million in 1999 and 1998, respectively.
[b] Includes goodwill amortization of $11,533, $7,785, $3,209,
$2,224 and $2,162 for 1999, 1998, 1997, 1996 and 1995,
respectively.
[c] Asset impairment and restructuring charges resulted in a loss
per diluted share impact of $0.16, $0.44, $0.45, $0.73 and
$0.05 in 1999, 1998, 1997, 1996 and 1995, respectively.
[d] Discontinued operations include the spin-off of CoorsTek, the
Kalamazoo Mill and the sale of Golden Aluminum Company. The
income (loss) per diluted share for each business is as
follows:
1999 1998 1997 1996 1995
-------------------------------------
CoorsTek $0.54 $0.54 $1.04 $0.88 $1.06
Golden Aluminum Company ($0.22) --- --- ($3.63) ($0.27)
Kalamazoo Mill ($0.11) --- --- --- ---
[e] Reduced by $200 million on January 4, 2000 with proceeds from
the CoorsTek spin-off.
[f] Includes $30.2 million pre-tax gain (approximately $18 million,
net of tax) from sales of businesses.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Overview
The Company, through its principal subsidiary Graphic
Packaging, is a manufacturer of packaging products used by
consumer product companies as primary packaging for their end-use
products. Over the past several years, and culminating with the
spin-off of CoorsTek on December 31, 1999, the Company has moved
from a diversified group of subsidiaries - each operating in
different markets - to a Company focused on the folding carton
segment of the packaging industry. By strategically disposing of
noncore businesses and underperforming assets; acquiring two
major businesses in the folding carton industry; and executing
rationalization plans, the Company has developed into a prominent
competitor in the folding carton industry.
The Selected Financial Data in Item 6 summarizes the
financial impact that the Company's acquisitions and dispositions
have had on consolidated operating results over the past five
years, and is primarily indicative of Graphic Packaging's results
after the recent dispositions and spin-off of CoorsTek and the
announcement of the intent to offer the Kalamazoo Mill for sale.
Detailed analysis of Graphic Packaging's contribution to the
Company's consolidated results over the past three years is
provided in the Results from Continuing Operations section below.
Net sales have more than doubled from 1995 to 1999 - with
the most pronounced increases occurring in 1998 (the year of the
Universal Packaging acquisition) and 1999 (the year of the Fort
James packaging business acquisition).
Gross profit margins, although reaching 22% in 1997,
averaged 18% in other years. Gross profit fluctuations from year-
to-year are generally due to integration issues when adding new
plant locations and customers; changes in product mix; changing
raw material costs; and pricing pressure due to increased
competition in the folding carton industry.
Selling, general and administrative expenses, excluding
goodwill amortization, have declined from 13% of sales in 1995 to
9% of sales in 1999. This is a reflection of the Company's
higher revenue base and restructuring efforts, particularly the
reduction of staff levels and administrative facilities. See
further discussion of the Company's restructuring activities for
the past three years below.
The Company has achieved operating income before asset
impairment and restructuring charges of approximately 5% of net
sales for the last five years despite the significant structural
changes taking place in the packaging industry and a change in
the Company's strategic focus. Income from continuing
operations, again after adding back asset impairment and
restructuring charges, has also remained consistent from year-to-
year at approximately 4-5% of net sales. A long-term goal of the
Company is to achieve operating income of 10% of net sales.
The Company's financial position and liquidity are discussed
in detail below. Generally, the Company's cash flow from
operations have sustained restructuring costs, capital
expenditures and debt service from year-to-year. Interest and
principal from additional borrowings used to finance the
acquisitions of Universal Packaging in 1998 and the Fort James
packaging business in 1999 will be reduced by cash generated from
operations and from future asset sales, including the sale or
other disposition of the Kalamazoo Mill.
This financial review presents the Company's operating
results for each of the three years in the period ended December
31, 1999, and its financial condition at December 31, 1999 and
1998. This review should be read in connection with the
information presented in the Consolidated Financial Statements
and the related notes thereto.
Results from Continuing Operations
Consolidated
Net Sales
Net sales for 1999 totaled $831.4 million, an increase of
$139.6 million or 20%, over 1998 sales of $691.8 million. Sales
from Graphic Packaging's ongoing businesses increased $203.6
million to $708.2 million in 1999. The August 2, 1999
acquisition of the Fort James packaging business provided the
increase in sales, which was partially offset by the sale of the
flexible packaging plants on September 2, 1999. Net sales for
1998 totaled $691.8 million, an increase of $265.5 million or
62%, over 1997 sales of $426.3 million. The January 14, 1998
acquisition of Universal Packaging accounted for the increase in
1998 net sales.
Net sales to Coors Brewing totaled $107.6 million in 1999, a
decrease of $12.3 million or 10%, over net sales of $119.9
million in 1998. The decrease is due to the disposition of the
Company's corn starch business in early 1999 and the five-year
packaging supply agreement that was renegotiated in 1998. Net
sales to Coors Brewing totaled $119.9 million in 1998, an
increase of $6.6 million or 6%, over net sales of $113.3 million
in 1997, due primarily to volume increases.
The Company had sales to customers outside the United
States, primarily in Canada, which accounted for 6%, 9% and 16%
of total sales during 1999, 1998 and 1997, respectively. The
decrease in foreign sales as a percentage of total sales in 1999
is attributable to the sale of several flexible packaging plants
in Canada during 1999. The decrease in foreign sales as a
percentage of total sales during 1998 is due to the acquisition
of Universal Packaging, which sells principally in the United
States.
Net sales of the Company's Other segment totaled $44.6
million, $67.9 million and $61.1 million in 1999, 1998 and 1997,
respectively. These sales accounted for approximately 5%, 10%
and 14% of the Company's consolidated sales for the same years.
The decreasing sales of the Other segment are due to the
Company's divestiture of the majority of these businesses. Sales
of the Other businesses are not expected to be material in 2000
and beyond.
Gross Profit
Consolidated gross profit was 15%, 18% and 22% of net sales
in 1999, 1998 and 1997, respectively. The decreases in 1999 and
1998 reflect recent trends in the packaging industry in terms of
changing raw material costs, coupled with pricing pressures due
to increased competition. The decrease in 1999 also reflects the
integration costs associated with the Fort James packaging
business acquisition. As discussed below, future improvements in
gross profit will depend upon management's ability to improve
cost efficiencies and to maintain profitable, long-term customer
relationships.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, excluding
goodwill amortization, for 1999, 1998 and 1997 were $73.7
million, $68.8 million and $67.2 million, which represented 9%,
10% and 16% of net sales, respectively. The percentage decrease
in 1999 mainly reflects cost savings realized as a result of the
Company's restructuring efforts over the past three years and the
increased revenue base resulting from the Fort James packaging
business and Universal Packaging acquisitions. The decrease in
1998 is due to operating efficiencies gained with the Universal
Packaging acquisition and lower research and development costs
associated with the dispositions of the developmental businesses
held by ACX Technologies.
Operating Income
Consolidated operating income for 1999, excluding asset
impairment and restructuring charges, decreased to $38.4 million,
a decrease of 19% over 1998 operating income of $47.6 million
before asset impairment and restructuring charges. The principal
reasons for the decrease are the increased goodwill amortization
and integration costs associated with the Fort James packaging
business acquisition and declining gross profit margins.
Consolidated operating income, on the same basis, increased to
$47.6 million in 1998, a 105% increase from $23.2 million in
1997. This increase is due primarily to the January 1998
acquisition of Universal Packaging.
Operating Income from Continuing Operations by Segment
(In millions)
1999 1998 1997
----- ----- -----
Before asset impairment and
restructuring charges:
Graphic Packaging $46.8 $59.5 $44.8
Other businesses 2.1 (2.9) (11.4)
Corporate (10.5) (8.9) (10.2)
----- ----- -----
Operating income before asset
impairment and restructuring charges 38.4 47.7 23.2
Asset impairment and restructuring
charges:
Graphic Packaging (7.8) (21.3) (2.1)
Other businesses --- (0.1) (19.8)
----- ----- -----
Operating income after asset
impairment and restructuring
charges $30.6 $26.3 $1.3
===== ===== =====
Asset Impairment Charges
The Company recorded a total of $5.9 million, $19.4 million
and $16.6 million in asset impairment charges in 1999, 1998 and
1997, respectively. Goodwill impairment of $5.5 million was
included in the 1998 charge. The remainder of the 1998 charge
consisted of fixed asset impairments. The 1999 and 1997 charges
consisted entirely of fixed asset impairments as described below.
1999: Graphic Packaging recorded $5.9 million of asset
impairment charges in 1999 due to decisions to close its Boulder,
Colorado and Saratoga Springs, New York plants in 2000. The
Boulder, Colorado plant has been replaced by a new manufacturing
facility in Golden, Colorado which will use advanced equipment to
improve the production process. The Company expects to close the
Boulder plant in the third quarter of 2000. The Saratoga Springs
plant operates at higher overhead levels than other plants and
uses gravure press technology. Therefore, the decision was made
to sell the Saratoga Springs building; move the business to other
folding carton plants; and dispose of the gravure technology
presses at Saratoga Springs. Boulder writedowns totaled $2.9
million and Saratoga Springs writedowns totaled $3.0 million.
1998: Graphic Packaging recorded $18.5 million in asset
impairment charges in 1998. Deterioration of the performance at
certain flexible packaging facilities and increased competitive
conditions led management to review the carrying amounts of long-
lived assets and goodwill in conjunction with an overall
restructuring plan. Specifically, forecasted operating cash
flows did not support the carrying amount of certain long-lived
assets and goodwill at Graphic Packaging's Franklin, Ohio
operation. In addition, management decided to offer for sale
Graphic Packaging's Vancouver, British Columbia operation and
close a divisional office in North Carolina. Therefore, the long-
lived assets and related goodwill were written down to their
estimated market values.
The Company recorded net asset impairment charges of $0.9
million in its Other businesses during 1998. These charges
included a $1.0 million asset impairment charge to write down
long-lived assets of Solartec, S.A., a solar electric subsidiary
in Argentina. Since acquiring Solartec in November 1996,
operating cash flows were below original expectations. As a
result, the Company recorded this impairment to reduce the
carrying value of its investment in Solartec to its estimated
fair market value. In addition, the Company recorded a $0.4
million asset impairment charge related to the consolidation and
outsourcing of certain manufacturing activities at Golden
Genesis. As a result, certain long-lived assets became impaired
and were written down to their estimated market value. Also
during 1998, the Company sold certain equipment formerly used in
a biodegradable polymer project for approximately $0.5 million.
These assets had been previously written off as an asset
impairment, so the resulting gain on sale of these assets was
netted against the 1998 asset impairment charge.
1997: During 1997, the Company recorded a $16.6 million
asset impairment charge in its Other businesses when it adopted a
plan to limit future funding for a biodegradable polymer project.
This decision reduced expected future cash flows for this
activity to a level below the carrying value of the manufacturing
and intangible assets of this project.
Restructuring Charges
The Company recorded restructuring charges totaling $1.9
million, $2.0 million and $5.3 million in 1999, 1998 and 1997,
respectively. The following table summarizes accruals related to
these restructuring charges:
Corn
Biodegradable Syrup Graphic Graphic
Polymer Exit Exit Packaging Packaging
(In millions) Plan Plan Corporate Operations Other Total
------------- ----- --------- ---------- ----- -----
Balance,
December 31, 1996 $--- $--- $--- $--- $1.8 $1.8
1997 restructuring
charges 0.9 2.3 2.1 --- --- 5.3
Cash paid (0.5) (1.4) (0.2) --- (1.8) (3.9)
Non-cash expenses --- --- (0.2) --- --- (0.2)
----- ----- ---- ----- ---- -----
Balance,
December 31, 1997 0.4 0.9 1.7 --- --- 3.0
1998 restructuring
charges --- (0.8) --- 2.8 --- 2.0
Cash paid (0.4) (0.1) (1.7) (1.0) --- (3.2)
----- ----- ---- ----- ---- -----
Balance,
December 31, 1998 --- --- --- 1.8 --- 1.8
1999 restructuring
charges --- --- --- 1.9 --- 1.9
Cash paid --- --- --- (1.8) --- (1.8)
----- ----- ---- ----- ---- -----
Balance,
December 31, 1999 $--- $--- $--- $1.9 $--- $1.9
===== ===== ===== ====== ===== =====
1999: Graphic Packaging recorded a $1.9 million
restructuring charge pursuant to a plant rationalization plan
approved by the Company's Board of Directors in the fourth
quarter. The Company has instituted this plan to further its
goal of refining its focus on folding carton packaging and to
reduce headcount. All of the 1999 charge relates to severance,
primarily at the Lawrenceburg, Tennessee manufacturing plant. In
total, 14 administrative and 59 plant positions will be
eliminated at the Lawrenceburg, Tennessee plant at an estimated
cost of $1.9 million. Severance packages have been offered
commensurate with employees' positions and tenure with the
Company. The Company paid $0.2 million in the fourth quarter of
1999 and expects to make the remaining cash outlays and complete
this restructuring plan in 2000. The Company expects to record
additional restructuring charges of approximately $3.4 million,
primarily in the first quarter of 2000, when severance packages
are communicated to employees at the Saratoga Springs plant.
1998: During 1998, the Company instituted a restructuring
plan related to certain Graphic Packaging operations and recorded
$2.8 million in restructuring charges. This plan included the
consolidation and realignment of certain administrative functions
within the flexible operations and the downsizing of its
Franklin, Ohio operation. This plan resulted in the elimination
of approximately 20 administrative and 65 manufacturing positions
with related severance costs of approximately $2.5 million. This
plan also included approximately $0.3 million in other exit costs
related to the closure of the flexible divisional office in North
Carolina. The Company paid $1.0 million of the costs in the
fourth quarter of 1998 and $1.6 million during 1999.
1997: In December 1997, the Company recorded a $2.1
million charge related to the closure of the Graphic Packaging
corporate offices in Wayne, Pennsylvania. This closure resulted
in severance and outplacement costs of $1.1 million for
approximately 22 administrative employees. The Company made
cash payments of $1.7 million and $0.2 million related to this
plan in 1998 and 1997, respectively.
The Company eliminated 40 research and administrative
positions and recorded approximately $0.9 million in severance
and outplacement costs related to the biodegradable polymer
project in 1997. The Company made cash outlays of approximately
$0.4 million and $0.5 million related to this plan in 1998 and
1997, respectively.
The Company adopted a plan to exit the high-fructose corn
syrup business in 1997. As a result, the Company eliminated
approximately 70 manufacturing and administrative positions and
recorded $2.3 million in severance and other exit costs. The
Company made approximately $0.1 million and $1.4 million in cash
outlays related to this plan in 1998 and 1997, respectively. In
the fourth quarter of 1998, the Company determined that the
liability remaining for this exit plan was not required.
Accordingly, the remaining liability was reversed and netted
against the 1998 restructuring charges.
In connection with the Fort James packaging business
acquisition, the Company is continuing to evaluate
rationalization opportunities within the folding carton
converting operations to reduce overall operating costs while
maintaining capacity. This includes evaluation of the capacity
of the Company's web press facilities and evaluation of the
opportunity to transfer business among the various web press
facilities. The Company expects additional costs of
approximately $2 million may be incurred in connection with
further plant rationalizations, related primarily to severance
and other plant shutdown costs. The Company expects to finalize
its rationalization plan by June 30, 2000. Costs related to
shutting down a facility acquired in the Fort James packaging
business acquisition will be accounted for as a cost of the
acquisition, with a resultant adjustment to goodwill.
Gain from Sale of Businesses
The Company disposed of two businesses during 1999, for
which the following gains were recognized:
Flexible Golden
(In thousands) Plants Genesis Total
-------- -------- --------
Cash proceeds $105,000 $20,800 $125,800
Net book value, less costs (82,300) (13,264) (95,564)
-------- -------- --------
Gain recognized $22,700 $7,536 $30,236
======== ======== ========
Interest Expense and Interest Income
Interest expense for 1999, 1998 and 1997 was $28.6 million,
$22.0 million and $8.6 million, respectively. The increase in
1999 is due to additional financing to acquire the Fort James
packaging business. The increase in 1998 is due to additional
financing to acquire Universal Packaging, along with interest on
debt assumed in the acquisition.
Interest expense of approximately $8 million was allocated
to the discontinued operations of the Kalamazoo Mill in 1999,
based upon an estimated fair value of $225 million. Interest
expense of $16.0 million, $3.6 million and $0.1 million was
allocated to the discontinued operations of CoorsTek in 1999,
1998 and 1997, respectively, based upon CoorsTek's $200 million
allocation of total consolidated debt at the time of the spin-off
for 1999 and $50 million of outstanding intercompany debt for
1998.
The Company capitalized interest of $2.0 million, $0.3
million and $0.4 million in 1999, 1998 and 1997, respectively.
The increase in capitalized interest during 1999 is attributable
to the construction of Graphic Packaging's new Golden, Colorado
facility.
Interest income for 1999, 1998 and 1997 was $2.6 million,
$5.4 million and $5.6 million, respectively. The decreases in
1999 and 1998 relate directly to the use of funds to acquire the
Fort James packaging business and Universal Packaging.
See related discussions about Financial Condition and
Liquidity below.
Income Taxes
The consolidated effective tax rate for the Company in 1999
was 40% compared to 47% in 1998 and (10%) in 1997. The higher
tax rate in 1998 resulted from a lower earnings base, which
increased the impact of non-deductible items. The negative rate
in 1997 was a result of no tax benefit taken for built-in losses
on a subsidiary experiencing tax losses and for capital losses
that may not be deductible due to a lack of offsetting capital
gains. The Company expects to maintain its effective tax rate
for future years at the historical rate of approximately 40%.
Graphic Packaging
1999 was a transitional year for Graphic Packaging as the
Company took steps to better position itself in the folding
carton industry. At the beginning of 1999, Graphic Packaging
was producing both folding carton and flexible packaging
products. A strategic decision was made to focus entirely on
folding cartons and dispose of the flexible packaging plants
during 1999. The steps taken were necessary to establish
Graphic Packaging as a leader in the folding carton industry.
On August 2, 1999, Graphic Packaging purchased the Fort
James packaging business, which included the Kalamazoo Mill and
12 folding carton plants throughout the United States and Canada.
At the same time, a sale of the Company's flexible packaging
plants was effected and closed on September 2, 1999. After these
two transactions, Graphic Packaging had 23 plants, primarily
producing folding cartons; the paperboard mill in Michigan; and a
focus toward the future in the folding carton industry.
Management has announced its plan to sell the Kalamazoo Mill and
the Saratoga Springs, New York plant building in the year 2000.
Management also expects to close another folding carton plant at
a location to be determined in 2000.
Graphic Packaging has recently completed the construction of
a new production and office facility in Golden, Colorado that
will soon take over all of the current Boulder, Colorado
operations and a significant portion of the Lawrenceburg,
Tennessee operations. These operations primarily serve Coors
Brewing. Graphic Packaging has capitalized interest of $1.2
million related to the construction of this new facility and
recognized a restructuring expense of $1.9 million in 1999 for
staffing reductions primarily in Lawrenceburg, Tennessee.
Folding Carton Industry
The U.S. packaging industry is a mature industry that has
experienced approximately 2% growth per year. Recent trends
include rising paperboard costs; consolidation of competitors;
and pricing pressures. Management mitigates rising paperboard
costs through long-term contracting with suppliers and, as
available, cost pass-throughs to customers. Acquisitions of
Universal Packaging in 1998 and the Fort James packaging business
in 1999 have kept Graphic Packaging in a competitive position in
a consolidating industry; however, management's challenge will be
to control costs of production against overall resistance to
price increases in the folding carton market.
Net Sales
Graphic Packaging's net sales increased 26% in 1999 to
$786.8 million as compared to $623.9 in 1998. The significant
increase was due to the Fort James packaging business
acquisition. Sales of ongoing business (excluding flexible
plants sold in 1999) were $708.2 million, a 40% increase over
sales on the same basis of $504.6 million in 1998.
Graphic Packaging's net sales for 1998 were $623.9 million,
an increase of $258.8 million, or 71%, over 1997 sales of $365.1
million. The increase is attributable to the January 1998
acquisition of Universal Packaging. These gains were partially
offset by significant pricing pressures for flexible packaging
and volume declines in the tobacco market.
Graphic Packaging acquired long-standing customer
relationships with the acquisition of the Fort James packaging
business in 1999 and Universal Packaging in 1998. Maintaining
these relationships at a profitable level is key to Graphic
Packaging's future growth.
Gross Profit
Graphic Packaging's major task during 1999 was to integrate
the Fort James plants into current operations with the primary
focus on customer service and retention. In 2000, the Company
will focus on rationally allocating production to maximize
capacity in a cost-effective manner. The 3.5% decline in Graphic
Packaging's gross profit percentage from 1998 to 1999 is due
primarily to integration inefficiencies and increased costs
associated with the Fort James acquisition in 1999 and pricing
pressures in the fourth quarter of 1999. Inherent in the
rationalization process are one-time transitional costs that
management expects to eliminate in the latter half of 2000. The
decrease in gross profit in 1998, as compared to 1997, is a
reflection of the industry trends toward higher costs and lower
pricing due to competition and the acquisition of Universal
Packaging, which had lower comparative margins.
Selling, General and Administrative Expenses
Graphic Packaging's selling, general and administrative
expenses for 1999, 1998 and 1997 were $55.8 million, $50.5
million and $38.8 million, which represented 7%, 8% and 11% of
net sales, respectively. The decreased percentage of selling,
general and administrative expenses to net sales in 1999 and 1998
reflect the addition of Universal Packaging, which operates with
lower overhead expenses, and the effects of rationalization
programs carried out by the end of 1999.
Other Segment
Net sales for the Other business segment in 1999 totaled
$44.6 million, a decrease of $23.3 million, or 34%, from 1998 net
sales of $67.9 million. The decrease in net sales is directly
due to the disposition of virtually all the assets and related
businesses of the Other group of ACX Technologies during 1999.
Net sales for the Other business in 1998 totaled $67.9 million,
an increase of $6.8 million, or 11%, over 1997 net sales of $61.1
million. The 1998 increase reflected higher sales volumes due to
the acquisitions of certain solar electric distributors by Golden
Genesis.
The Other businesses reported operating income of $2.1
million in 1999, a favorable increase over the operating losses
of $3.0 million and $31.2 million in 1998 and 1997, respectively.
The improvements were directly due to the Company's decisions to
dispose of the noncore, underperforming businesses operating in
this segment.
As of December 31, 1999, the Company had disposed of
substantially all operating businesses in the Other segment.
Discontinued Operations
Coincident with the Company's strategic folding carton
acquisitions, several noncore businesses and underperforming
assets were selected for sale or other disposition by ACX
Technologies during 1999.
CoorsTek Spin-off
On December 31, 1999, the Company distributed 100% of
CoorsTek's shares of common stock to the ACX Technologies
shareholders in a tax-free transaction. Shareholders received
one share of CoorsTek stock for every four shares of ACX
Technologies stock held. CoorsTek issued a promissory note to
ACX Technologies on December 31, 1999 totaling $200.0 million in
satisfaction of outstanding intercompany obligations at the time
of the spin-off and as a special one-time dividend. The note was
paid in full in January 2000. No gain or loss was recognized by
ACX Technologies as a result of the spin-off transaction. The
tax basis allocation of costs for ACX Technologies' shares
acquired pre-spin off is: ACX 55.56% and CoorsTek 44.44%.
Golden Aluminum
In 1996, the Board of Directors adopted a plan to dispose of
the Company's aluminum rigid container sheet business operated by
Golden Aluminum. In conjunction with this decision, the Company
recorded pre-tax charges of $155.0 million for anticipated losses
upon the disposition and estimated operating losses of the
business through the disposition date. In March of 1997, Golden
Aluminum was sold for $70.0 million, of which $10.0 million was
paid at closing and $60.0 million was due within two years. In
December of 1998, the Company extended the due date on the $60.0
million payment until September 1, 1999. In accordance with the
purchase agreement, the purchaser exercised its right to return
Golden Aluminum to the Company on August 23, 1999 in discharge of
the $60.0 million obligation. The initial payment of $10.0
million was nonrefundable. The Company subsequently sold the
assets of Golden Aluminum to another buyer for approximately $41
million on November 5, 1999. An additional pre-tax charge of
$10.0 million was recorded in 1999 related to the ultimate
disposition of Golden Aluminum.
Kalamazoo Mill
The Company purchased the Kalamazoo Mill on August 2, 1999
as part of the acquisition of the Fort James packaging business.
The Kalamazoo Mill produces recycled paperboard. In December
1999, the Board of Directors approved a plan to offer the
Kalamazoo Mill for sale. An estimated fair value of $225 million
has been ascribed to the net assets of the Kalamazoo Mill at
December 31, 1999, which includes approximately $106 million of
goodwill. The goodwill allocation between the Kalamazoo Mill and
the continuing operations of the Fort James packaging business
acquisition is subject to change upon disposition of the
Kalamazoo Mill. As a result, no gain or loss will be recorded
upon sale or other disposition of the Kalamazoo Mill. The
Company allocated approximately $8 million of interest expense to
the Kalamazoo Mill for the period August 2, 1999 through December
31, 1999. The Company expects to finalize the sale or other
disposition of the Kalamazoo Mill in the second or third quarter
of 2000.
Financial Data - Discontinued Operations
Financial data for CoorsTek, Golden Aluminum and the
Kalamazoo Mill for the years ended December 31, in thousands,
except for per share information, are summarized as follows:
Golden Kalamazoo
CoorsTek Aluminum Mill[a] Total
-------- -------- --------- --------
1999
Net Sales $365,061 $--- $18,750 $383,811
======== ======== ======== ========
Income (loss) from
operations before
income taxes $25,117 $--- ($5,208) $19,909
Income tax expense
(benefit) 9,480 --- (2,100) 7,380
-------- -------- -------- --------
Income (loss) from
operations 15,637 --- (3,108) 12,529
Income (loss) from
disposal, before
taxes --- (10,000) --- (10,000)
Income tax benefit
(expense) --- 3,544 --- 3,544
-------- -------- -------- --------
Net income (loss) $15,637 ($6,456) ($3,108) $6,073
======== ======== ======== ========
Per basic share of
common stock:
Income (loss) from
operations $0.55 $--- ($0.11) $0.44
Income (loss) on
disposal --- (0.23) --- (0.23)
-------- -------- -------- --------
Net income (loss) per
basic share $0.55 ($0.23) ($0.11) $0.21
======== ======== ======== ========
Per diluted share of
common stock:
Income (loss) from
operations $0.54 $--- ($0.11) $0.43
Income (loss) on
disposal --- (0.22) --- (0.22)
-------- -------- -------- --------
Net income (loss) per
diluted share $0.54 ($0.22) ($0.11) $0.21
======== ======== ======== ========
Current assets --- --- $18,449 $18,449
Current liabilities --- --- (13,948) (13,948)
-------- -------- -------- --------
Net current assets --- --- $4,501 $4,501
Noncurrent assets --- --- $224,619 $224,619
Noncurrent liabilities --- --- (4,120) (4,120)
-------- -------- -------- --------
Net noncurrent assets --- --- $220,499 $220,499
======== ======== ======== ========
[a] Represents five months operating results.
Golden Kalamazoo
CoorsTek Aluminum Mill[a] Total
-------- -------- --------- --------
1998
Net Sales $296,614 $--- $--- $296,614
======== ======== ======== ========
Income from operations
before income taxes $25,361 $--- $--- $25,361
Income tax expense 9,549 --- --- 9,549
-------- -------- -------- --------
Income from operations 15,812 --- --- 15,812
Net income $15,812 $--- $--- $15,812
======== ======== ======== ========
Net income per basic share $0.56 $--- $--- $0.56
======== ======== ======== ========
Net income per diluted share $0.54 $--- $--- $0.54
======== ======== ======== ========
Current assets $105,508 --- --- $105,508
Current liabilities (33,600) --- --- (33,600)
-------- -------- -------- --------
Net current assets $71,908 --- --- $71,908
======== ======== ======== ========
Noncurrent assets $158,394 --- --- $158,394
Noncurrent liabilities (81,583) --- --- (81,583)
-------- -------- -------- --------
Net noncurrent assets $76,811 --- --- $76,811
======== ======== ======== ========
Golden Kalamazoo
CoorsTek Aluminum Mill[a] Total
-------- -------- --------- --------
1997
Net Sales $304,824 $38,995 $--- $343,819
======== ======== ======== ========
Income from operations
before income taxes $48,180 $--- $--- $48,180
Income tax expense 18,192 --- --- 18,192
-------- -------- -------- --------
Income from operations 29,988 --- --- 29,988
Net income $29,988 $--- $--- $29,988
======== ======== ======== ========
Net income per basic share $1.07 $--- $--- $1.07
======== ======== ======== ========
Net income per diluted share $1.04 $--- $--- $1.04
======== ======== ======== ========
Financial Resources and Liquidity
The Company's liquidity is generated from both internal and
external sources and is used to fund short-term working capital
needs, capital expenditures and acquisitions. During 1999,
internally generated liquidity is measured by net cash from
operations, as discussed below, and the sale of non-strategic
assets.
On August 2, 1999, the Company entered into a $1.3 billion
revolving credit and term loan agreement (the Credit Agreement)
with a group of lenders, with Bank of America, N.A. as agent.
Subsequent to December 31, 1999, the Company reduced the amount
available under the Credit Agreement by $50.0 million. The
Credit Agreement is comprised of four senior credit facilities
including a $125 million 180-day term facility, a $400 million
one-year facility, a $325 million five-year term loan facility
and a $400 million five-year revolving credit facility
(collectively, the Senior Credit Facilities). Proceeds from the
Senior Credit Facilities were used to finance the $849 million
acquisition of the Fort James packaging business and to prepay
the Company's other outstanding borrowings. The additional cost
of prepaying the Company's other outstanding borrowings was $3.6
million before tax and $2.3 million after tax and is shown in the
Consolidated Income Statement as an extraordinary loss from the
early extinguishment of debt.
After approximately $200 million of repayments made from the
Company's cash flow from operations, the sale of Golden Aluminum,
the sale of the Company's flexible packaging plants and the sale
of the solar electric businesses, total borrowings under the
Senior Credit Facilities were $1,015.5 million as of December 31,
1999. On January 4, 2000, the Company repaid an additional $200
million of debt with the proceeds of a note receivable from
CoorsTek as a result of the spin-off. Borrowings under the
revolving credit facility on March 22, 2000 were approximately
$339 million, leaving $61 million available for future borrowing
needs.
Amounts borrowed under the Senior Credit Facilities bear
interest under various pricing alternatives plus a spread
depending on the Company's leverage ratio. The various pricing
alternatives include (i) LIBOR, or (ii) the higher of the Federal
Funds Rate plus .5% or the prime rate. In addition, the Company
pays a commitment fee that varies based upon the Company's
leverage ratio and the unused portion of the revolving credit
facility. Mandatory prepayments under the Senior Credit
Facilities are required from the proceeds of any significant
asset sale or from the issuance of any debt or equity securities.
In addition, the five-year term loan is due in quarterly
installments beginning with the first quarter of 2000. Total
installments for 2000 through 2004, respectively, are $25
million, $50 million, $70 million, $80 million and $100 million.
The Senior Credit Facilities are secured with first priority
liens on all material assets of the Company and all of its
domestic subsidiaries. The Credit Agreement currently limits the
Company's ability to pay dividends and imposes limitations on the
incurrence of additional debt, acquisitions and the sale of
assets.
In February, the Company determined that certain covenants
in its Senior Credit Facilities relating to leverage and interest
coverage should be changed to reflect anticipated operating
results for the Company in 2000. In March 2000, the Company and
its lenders amended the Senior Credit Facilities to reset certain
financial covenants including maximum debt to EBITDA, the ratio
between EBITDA and interest, and debt to capitalization and to
impose additional restrictions on capital expenditures and
acquisitions. The interest rate spread from certain base indices
was increased by .25 to .50 percent depending upon the Company's
leverage. The Company anticipates paying an aggregate of
approximately $2 million in fees in connection with the
amendment.
At December 31, 1999, the Company was in compliance with the
financial covenants. As revised in March 2000, quarterly
financial covenant levels in 2000 and beyond are stringent.
Although there can be no assurance that all of these covenants
will be met, management believes that the Company will remain in
compliance with the revised covenants based upon the Company's
expected performance and debt repayment forecasts. In the event
of a default under the Credit Agreement, the lenders would have
the right to call the Senior Credit Facilities immediately due
and refrain from making further advances to the Company. If the
Company is unable to pay the accelerated payments, the lenders
could elect to proceed against the collateral in order to satisfy
the Company's obligations.
The Company has entered into contracts to hedge the
underlying interest rate on $175 million of anticipated long-term
borrowings. These contracts lock an average risk-free rate of
approximately 6% and expire on May 1, 2000. The anticipated
borrowings will be used to extend the maturity of the Company's
current capital structure, thereby reducing exposure to short-
term interest rates. As of December 31, 1999, the unrecognized
gain associated with these hedge contracts was approximately $6
million. In addition, the Company has entered into interest rate
swap arrangements to hedge $100 million of its borrowings under
the Senior Credit Facilities. Under these agreements, the
Company pays interest at an average fixed rate of 5.94%. During
2000, the Company expects to enter into additional interest rate
swap transactions in accordance with the requirements of the
Credit Agreement.
The Consolidated Statement of Cash Flows includes the cash
generated or used by the operations shown in the income statement
as discontinued operations, namely Golden Aluminum Company,
CoorsTek and the Kalamazoo Mill. On this basis, net cash
provided by operations was $135.1 million, $97.3 million and
$117.4 million for 1999, 1998 and 1997, respectively.
During 1999, 1998 and 1997, net cash from operations was
used to fund capital requirements and acquisitions. Over this
three-year period, total capital expenditures for the Company
were $226.2 million, as follows:
(In millions) 1999 1998 1997
----- ----- -----
Graphic Packaging $73.7 $47.5 $18.0
Other businesses and Corporate 1.6 4.1 9.4
Discontinued Operations 16.2 26.9 28.8
----- ----- -----
$91.5 $78.5 $56.2
===== ===== =====
Capital spending at Graphic Packaging during 1999 was
primarily for an expansion of the Golden, Colorado manufacturing
facility, the initial payment to begin the installation of an
enterprise resource planning system (ERP) and equipment that
improves productivity, increases capacity and reduces costs. The
Company expects its capital expenditures for 2000 to be
approximately $60 million, primarily related to the ERP system
and manufacturing productivity improvements. There are no
significant capital expenditures expected for the Other
businesses in 2000.
Acquisitions during 1999 included the acquisition of Fort
James packaging business for approximately $849 million as well
as acquisitions by CoorsTek for approximately $56 million in cash
primarily in the semiconductor industry. Acquisitions in 1998
utilized $300.8 million in cash, primarily for the acquisition of
Britton. The Company currently has no plans in 2000 to pursue
acquisitions as a growth vehicle. Instead, the Company is
focused on further integrating its recent acquisitions and
utilizing cash flow to reduce its debt.
Asset sales during 1999 generated $170.5 million in
proceeds. These sales included the final disposition of Golden
Aluminum Company, the sale of the Company's flexible packaging
plants and the sale of the solar electric business. During the
second or third quarter of 2000, the Company expects to sell or
otherwise dispose of the Kalamazoo Mill, generating proceeds
required to repay the remaining balance of the one-year facility.
The Company currently expects that cash flows from
operations, the sale of certain assets, and borrowings under its
current credit facilities will be adequate to meet the Company's
needs for working capital, temporary financing for capital
expenditures and debt repayments. The Company's working capital
position as of December 31, 1999 was a negative $107.2 million.
Proceeds from the sale or other disposition of the Kalamazoo Mill
will be applied to current maturities of debt.
The impact of inflation on the Company's financial position
and results of operations has been minimal and is not expected to
adversely affect future results.
Environmental
Some of the Company's operations have been notified that
they may be potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 or similar laws with respect to the remediation of
certain sites where hazardous substances have been released into
the environment. The Company cannot predict with certainty the
total costs of remediation, its share of the total costs, the
extent to which contributions will be available from other
parties, the amount of time necessary to complete the remediation
or the availability of insurance. However, based on the
investigations to date, the Company believes that any liability
with respect to these sites would not be material to the
financial condition or results of operations of the Company,
without consideration for insurance recoveries. There can be no
certainty, however, that the Company will not be named as a PRP
at additional sites or be subject to other environmental matters
in the future or that the costs associated with those additional
sites or matters would not be material.
In addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
Year 2000 Disclosure
The Company has experienced no material additional expense
or business interruption related to the Year 2000 issue.
The Year 2000 issue arose because many existing computer
programs use only the last two digits to refer to a year.
Therefore, these computer programs did not properly recognize a
year that begins with "20" instead of the familiar "19". If not
corrected, many computer applications could fail or create
erroneous results disrupting normal business operations.
The Company's management implemented an enterprise-wide
program to prepare the Company's financial, manufacturing and
other critical systems and applications for the year 2000. The
program included a task force established in March 1998 that had
the support and participation of upper management and included
individuals with expertise in risk management, legal and
information technologies. The Board of Directors monitored the
progress of the program on a quarterly basis. The task force met
its objective to ensure an uninterrupted transition to the year
2000 by assessing, testing and modifying all information
technology (IT) and non-IT systems, interdependent systems and
third parties such as suppliers and customers.
Through December 31, 1999, the Company spent approximately
$1.2 million related to the Year 2000 issue. These costs
included the costs incurred for external consultants and
professional advisors and the costs for software and hardware.
The Company has not separately tracked internal costs such as
payroll related costs for its information technologies group and
other employees working on the Year 2000 project. The Company
expensed all costs related to the Year 2000 issue as incurred.
These costs were funded through operating cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest Rate Risk
As of March 22, 2000, the Company's capital structure
includes approximately $832 million of debt that bears interest
with an underlying rate based upon short-term interest rates.
The Company has entered into interest rate swap agreements that
lock in a risk free interest rate of 5.94% on $100 million of the
borrowings. The Company has also entered into contracts to hedge
the underlying interest rate on $175 million of anticipated long-
term borrowings. These contracts lock an average risk-free rate
of approximately 6% and expire on May 1, 2000. As a result,
interest on approximately $732 million of debt is subject to the
volatility in short term interest rates. At these levels, a 1%
change in interest rates could impact annual pre-tax results by
approximately $7.3 million. During 2000, the Company expects to
enter into additional interest rate swap transactions in order to
reduce its susceptibility to potential interest rate
fluctuations.
Factors That May Affect Future Results
Certain statements in this document constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of
the Company to be materially different from any future results,
performance or achievements expressed or implied by the forward-
looking statements. Specifically, 1) the ability of the Company
to remain in compliance with its debt convenants is dependent
upon, among other things, the sale or other disposition of the
Kalamazoo Mill at a satisfactory price and the Company meeting
its financial plan; 2) future years' revenue growth is dependent
on numerous factors, including the continued strength of the U.S.
economy, the actions of competitors and customers, possible
future governmental regulations, the Company's ability to execute
its marketing plans and the ability of the Company to maintain or
increase sales to existing customers and capture new business; 3)
future improvements in margins will depend upon management's
ability to improve cost efficiencies and maintain profitable long-
term customer relationships; 4) the benefits of the integration
to be realized in 2000 and 2001 are uncertain because of possible
increases in costs and delays; 5) expected savings in selling,
general and administrative expenses might not be realized due to
the need for additional people, further support services or
increased labor costs; 6) the sale or other disposition of the
Kalamazoo Mill and related timing and amount of proceeds is
dependent on finding a buyer or other arrangement on satisfactory
terms; 7) revenues may be affected by plant closures if
customers find alternative suppliers or if the Company is not
able to efficiently move business or to qualify at other
facilities; 8) operating margins might decrease in 2000 and 2001
due to competitive pricing of products sold and increases in
costs, including costs for raw materials such as paperboard and
variances and timing of cost increases, and the ability of the
Company to pass through such increases; and 9) the Company's
ability to maintain its effective tax rate at 40% depends on the
current and future tax laws, the Company's ability to identify
and use its tax credits and other factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Consolidated Financial Statements: Page(s)
Report of Independent Accountants 29
Consolidated Income Statement for the years
ended December 31, 1999, 1998 and 1997 30-31
Consolidated Statement of Comprehensive Income
for the years ended December 31, 1999,
1998 and 1997 31
Consolidated Balance Sheet at December 31,
1999 and 1998 32
Consolidated Statement of Cash Flows for the
years ended December 31, 1999, 1998
and 1997 33
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1999, 1998
and 1997 34
Notes to Consolidated Financial Statements 35-58
Schedule II - Valuation and Qualifying Accounts
for the years ended December 31, 1999,
1998 and 1997 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of ACX Technologies,
Inc.
In our opinion, the consolidated financial statements listed
in the accompanying index present fairly, in all material
respects, the financial position of ACX Technologies, Inc. and
its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule
are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
March 1, 2000
MANAGEMENT'S REPORT TO SHAREHOLDERS
The preparation, integrity and objectivity of the financial
statements and all other financial information included in this
annual report are the responsibility of the management of ACX
Technologies, Inc. The financial statements have been prepared
in accordance with generally accepted accounting principles,
applying estimates based on management's best judgment where
necessary. Management believes that all material uncertainties
have been appropriately accounted for and disclosed.
The established system of accounting procedures and related
internal controls provide reasonable assurance that the assets
are safeguarded against loss and that the policies and procedures
are implemented by qualified personnel.
PricewaterhouseCoopers LLP, the Company's independent
accountants, provides an objective, independent audit of the
consolidated financial statements. Their accompanying report is
based upon an examination conducted in accordance with generally
accepted auditing standards, including tests of accounting
procedures and records.
The Board of Directors, operating through its Audit
Committee composed of outside directors, monitors the Company's
accounting control systems and reviews the results of the
auditing activities. The Audit Committee meets at least
quarterly, either separately or jointly, with representatives of
management, the Company's independent accountants and internal
auditors. To ensure complete independence, the Company's
independent accountants and internal auditors have full and free
access to the Audit Committee and may meet with or without the
presence of management.
GAIL A. CONSTANCIO JOHN S. NORMAN
Chief Financial Officer Corporate Controller
ACX TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENT
(In thousands, except per share data)
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Sales $723,760 $571,899 $312,938
Sales to Coors Brewing Company 107,645 119,878 113,323
-------- -------- --------
Total sales 831,405 691,777 426,261
Cost of goods sold 707,758 567,533 332,653
-------- -------- --------
Gross profit 123,647 124,244 93,608
Selling, general and
administrative expense 73,685 68,824 67,227
Goodwill amortization 11,533 7,785 3,209
Asset impairment and
restructuring charges 7,813 21,391 21,880
-------- -------- --------
Operating income 30,616 26,244 1,292
Gain from sale of businesses 30,236 --- ---
Other income (expense) - net 618 576 (407)
Interest expense (28,550) (21,978) (8,556)
Interest income 2,643 5,362 5,606
-------- -------- --------
Income (loss) from continuing
operations before income taxes
and extraordinary loss 35,563 10,204 (2,065)
Income tax expense 14,045 4,751 207
-------- -------- --------
Income (loss) from continuing
operations before extraordinary
loss 21,518 5,453 (2,272)
Discontinued operations, net of tax
Income from discontinued
operations of CoorsTek 15,637 15,812 29,988
Loss on disposal of Golden
Aluminum (6,456) --- ---
Loss from discontinued operations
of Kalamazoo Mill (3,108) --- ---
-------- -------- --------
6,073 15,812 29,988
-------- -------- --------
Income before extraordinary item 27,591 21,265 27,716
Extraordinary loss on early
extinguishment of
debt, net of tax of $1,312 (2,332) --- ---
-------- -------- --------
Net income $25,259 $21,265 $27,716
======== ======== ========
ACX TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENT
(In thousands, except per share data)
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Net income per basic share of
common stock:
Continuing operations $0.76 $0.19 ($0.08)
Discontinued operations 0.21 0.56 1.07
Extraordinary loss (0.08) --- ---
-------- -------- --------
Net income per basic share $0.89 $0.75 $0.99
======== ======== ========
Weighted average shares
outstanding - basic 28,475 28,504 28,118
======== ======== ========
Net income per diluted share of
common stock:
Continuing operations $0.75 $0.19 ($0.08)
Discontinued operations 0.21 0.54 1.04
Extraordinary loss (0.08) --- ---
-------- -------- --------
Net income per diluted share $0.88 $0.73 $0.96
======== ======== ========
Weighted average shares
outstanding - diluted 28,767 29,030 28,885
======== ======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Net income $25,259 $21,265 $27,716
-------- -------- --------
Other comprehensive income:
Foreign currency translation
adjustments:
Adjustments arising during the
period 1,686 (3,218) (3,127)
Reclassifications for amounts
already included
in net income 3,362 --- ---
Minimum pension liability
adjustment, net
of tax of $354 in 1999 and
$459 in 1998 531 (688) ---
-------- -------- --------
Other comprehensive income (loss) 5,579 (3,906) (3,127)
-------- -------- --------
Comprehensive income $30,838 $17,359 $24,589
======== ======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
December 31,
1999 1998
---------- --------
ASSETS
Current assets
Cash and cash equivalents $15,869 $26,196
Accounts receivable, less allowance for
doubtful accounts of $2,153 in 1999
and $2,140 in 1998 66,414 51,635
Accounts receivable from Coors Brewing 2,348 2,084
Notes receivable 200,000 60,568
Inventories 119,389 92,329
Deferred income taxes 18,026 12,095
Other assets 7,418 7,740
Net current assets of discontinued
operations 4,501 71,908
---------- --------
Total current assets 433,965 324,555
Properties, net 427,489 242,367
Goodwill, net 490,558 194,733
Other assets 54,527 7,556
Net noncurrent assets of discontinued
operations 220,499 76,811
---------- --------
Total assets $1,627,038 $846,022
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $400,000 $86,300
Accounts payable 56,165 34,403
Accrued salaries and vacation 10,608 5,988
Accrued expenses and other liabilities 74,418 45,320
---------- --------
Total current liabilities 541,191 172,011
Long-term debt 615,500 183,000
Accrued postretirement benefits 17,405 17,177
Other long-term liabilities 24,492 12,500
---------- --------
Total liabilities 1,198,588 384,688
Minority interest 5,140 13,379
Commitments and contingencies (Note 14) --- ---
Shareholders' equity
Preferred stock, nonvoting, $0.01 par
value, 20,000,000 shares authorized
and no shares issued or outstanding --- ---
Common stock, $0.01 par value
100,000,000 shares authorized;
28,576,771 and 28,415,000 issued
and outstanding at December 31,
1999 and 1998 286 284
Paid-in capital 422,885 451,401
Retained earnings --- 1,710
Accumulated other comprehensive income
(loss) 139 (5,440)
---------- --------
Total shareholders' equity 423,310 447,955
---------- --------
Total liabilities and shareholders'
equity $1,627,038 $846,022
========== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31,
1999 1998 1997
------- ------- -------
Cash flows from operating
activities:
Net income $25,259 $21,265 $27,716
Adjustments to reconcile net
income to net cash provided
by operating activities:
Asset impairment and
restructuring charges 7,813 34,488 21,880
Gain on sale of businesses
and other assets (30,236) --- (391)
Loss on disposal of Golden
Aluminum 10,000 --- ---
Depreciation 63,602 48,764 38,597
Amortization 15,393 8,743 4,066
Change in net deferred
income taxes (908) 7,305 12,335
Change in current assets
and current liabilities,
net of effects from
acquisitions
Accounts receivable 3,757 2,865 11,603
Inventories 5,664 (1,232) 17,769
Other assets (6,866) 5,369 7,349
Accounts payable 29,237 (18,151) (1,462)
Accrued expenses and
other liabilities 20,392 (12,300) (22,229)
Change in deferred items
and other (7,969) 178 179
-------- ------- --------
Net cash provided by operating
activities 135,138 97,294 117,412
Cash flows used in investing
activities:
Additions to properties (91,455) (78,463) (56,213)
Acquisitions, net of cash
acquired (905,069) (300,774) (44,718)
Proceeds from sale of assets 170,526 131,899 13,594
Other 13,812 (369) (4,283)
-------- -------- --------
Net cash used in investing
activities (812,186) (247,707) (91,620)
Cash flows from financing
activities:
Proceeds from issuance of
debt 1,613,400 126,800 ---
Repayment of debt (957,200) --- ---
Stock issuance and other 10,521 454 7,892
--------- ------- -------
Net cash provided by financing
activities 666,721 127,254 7,892
Cash and cash equivalents:
Net increase (decrease) in
cash and cash equivalents (10,327) (23,159) 33,684
Balance at beginning of year 26,196 49,355 15,671
--------- ------- -------
Balance at end of year $15,869 $26,196 $49,355
========= ======= =======
Cash flows from discontinued operations have not been excluded
from the Consolidated Statement of Cash Flows.
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Retained Other
Common Paid-in Earnings Comprehensive
Stock Capital (Deficit) Income (Loss) Total
------ -------- --------- ------------- --------
Balance at
December 31, 1996 $279 $443,302 ($47,271) $1,593 $397,903
Exercise of stock
options 4 5,168 --- --- 5,172
Tax benefit of
option exercise --- 1,359 --- --- 1,359
Issuance of common
stock 1 1,507 --- --- 1,508
Net income --- --- 27,716 --- 27,716
Cumulative
translation
adjustment --- --- --- (3,127) (3,127)
---- -------- -------- ------ --------
Balance at
December 31, 1997 284 451,336 (19,555) (1,534) 430,531
Exercise of stock
options 1 875 --- --- 876
Tax benefit of
option exercise --- 480 --- --- 480
Issuance of common
stock 1 1,097 --- --- 1,098
Share repurchase
program (2) (2,387) --- --- (2,389)
Net income --- --- 21,265 --- 21,265
Minimum pension
liability
adjustment --- --- --- (688) (688)
Cumulative
translation
adjustment --- --- --- (3,218) (3,218)
---- ------- -------- ------ --------
Balance at
December 31, 1998 284 451,401 1,710 (5,440) 447,955
Issuance of common
stock 2 3,816 --- --- 3,818
Net income --- --- 25,259 --- 25,259
CoorsTek dividend --- (32,332) (26,969) --- (59,301)
Minimum pension
liability
adjustment --- --- --- 531 531
Cumulative
translation
adjustment --- --- --- 5,048 5,048
---- -------- -------- ------ --------
Balance at
December 31, 1999 $286 $422,885 $--- $139 $423,310
==== ======== ======== ====== ========
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Operations: ACX Technologies, Inc. (the Company),
through its principal subsidiary Graphic Packaging, is a
manufacturer of packaging products used by consumer product
companies as primary packaging for their end-use products. The
Company's strategy is to maximize its competitive position and
growth opportunities in its core business, folding cartons.
Toward this end, over the past several years the Company has
acquired two significant folding carton businesses and has
disposed of several noncore businesses and under-performing
assets.
CoorsTek (formerly known as Coors Ceramics Company)
develops, manufactures and sells advanced technical products
across a wide range of product lines for a variety of
applications. On December 31, 1999, the Company distributed 100%
of CoorsTek's shares of common stock to the ACX Technologies
shareholders in a tax-free transaction. Shareholders received
one share of CoorsTek stock for every four shares of ACX
Technologies stock held. CoorsTek issued a promissory note to
ACX Technologies on December 31, 1999 totaling $200.0 million in
satisfaction of outstanding intercompany obligations at the time
of the spin-off and as a one-time, special dividend. The note
was paid in full on January 4, 2000. No gain or loss was
recognized by ACX Technologies as a result of the spin-off
transaction.
Amounts included in the notes to the consolidated financial
statements pertain to continuing operations only, except where
otherwise noted.
Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned and
majority owned subsidiaries. All material intercompany
transactions have been eliminated.
Use of Estimates: The consolidated financial statements
have been prepared in conformity with generally accepted
accounting principles, using management's best estimates and
judgments where appropriate. Management has made significant
estimates with respect to asset impairment charges,
restructuring charges and the estimated sales price and related
preliminary goodwill allocation for the Kalamazoo Mill. Actual
results could differ from these estimates making it reasonably
possible that a change in these estimates could occur in the
near term.
Reclassifications: Certain 1998 and 1997 amounts have been
reclassified to conform to the 1999 presentation.
Concentration of Credit Risk: Approximately 33% of the
Company's 1999 net sales consist of sales to two customers.
Revenue Recognition: Revenue is generally recognized when
goods are shipped.
Inventories: Inventories are stated at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO)
method.
The classification of inventories, in thousands, at Decem-
ber 31, was as follows:
1999 1998
-------- -------
Finished $ 55,451 $40,594
In process 20,466 15,409
Raw materials 43,472 36,326
-------- -------
Total inventories $119,389 $92,329
======== =======
Properties: Land, buildings, equipment and purchased
software are stated at cost. Real estate properties are non-
operating properties held for sale. For financial reporting
purposes, depreciation is recorded principally on the straight-
line method over the estimated useful lives of the assets as
follows:
Buildings 30 years
Machinery and equipment 3 to 15 years
Building and leasehold improvements The shorter of the
useful life, lease
term or 15 years
The cost of properties and related accumulated deprecia-
tion, in thousands, at December 31, consisted of the following:
1999 1998
-------- --------
Land and improvements $11,926 $13,577
Buildings and improvements 102,405 71,508
Machinery and equipment 373,085 265,516
Real estate properties 5,944 10,251
Construction in progress 78,785 17,212
-------- --------
572,145 378,064
Less accumulated depreciation 144,656 135,697
-------- --------
Net properties $427,489 $242,367
======== ========
Accelerated depreciation methods are generally used for
income tax purposes. Expenditures for new facilities and
improvements that substantially extend the capacity or useful
life of an asset are capitalized. Ordinary repairs and
maintenance are expensed as incurred.
Impairment of Long-Lived Assets and Identifiable
Intangibles: The Company periodically reviews long-lived assets,
identifiable intangibles and goodwill for impairment whenever
events or changes in business circumstances indicate the carrying
amount of the assets may not be fully recoverable. Measurement
of the impairment loss is based on fair value of the asset, which
is generally determined by the discounting of future estimated
cash flows.
Start-Up Costs: Start-up costs that are unrelated to
construction and associated with manufacturing facilities are
expensed as incurred.
Goodwill: Goodwill is amortized on a straight-line basis
over the estimated future periods to be benefited (30 years).
Goodwill was $514.0 million at December 31, 1999 and $210.7
million at December 31, 1998, less accumulated amortization of
$23.4 million and $16.0 million, respectively. Additional
goodwill of approximately $106 million, less accumulated
amortization of approximately $2 million, has been preliminarily
allocated to the Kalamazoo Mill discontinued operations.
Share Repurchase Program: On September 3, 1998, the Board
of Directors authorized the repurchase of up to 5% of the
Company's outstanding common shares on the open market. During
1998, the Company repurchased 181,200 shares for approximately $2
million under this share repurchase program. No shares were
repurchased in 1999. The Credit Agreement entered into in 1999
currently prohibits additional share repurchases.
Hedging Transactions: The Company periodically enters into
forward exchange contracts to hedge transactions and firm
commitments denominated in foreign currencies. Gains and losses
on foreign exchange contracts are deferred and recognized in the
basis of the transaction when completed. Through January 1999,
the Company also periodically entered into forward, future and
option contracts for commodities to hedge its exposure to price
fluctuations. The gains and losses on qualified hedge contracts
are deferred and recognized in cost of goods sold as part of the
product cost. In addition, the Company has entered into
contracts to hedge the underlying interest rate on $175.0 million
of anticipated long-term borrowings. Gains and losses on the
contracts are deferred and will be recognized in the effective
interest rate of the transaction when completed. The Company has
also entered into interest rate swap agreements for $100.0
million of its short-term borrowings. (See Note 7.)
Earnings per Share: Following is a reconciliation between
basic and diluted earnings per common share for each of the three
years ended December 31, (in thousands, except per share
information):
Per
Share
Income Shares Amount
1999 ------- ------ ------
Income (loss) from continuing
operations -- basic EPS $21,518 28,475 $0.76
Other dilutive equity
instruments 292
------- ------ -----
Income (loss) from continuing
operations -- diluted EPS $21,518 28,767 $0.75
======= ====== =====
1998
Income (loss) from continuing
operations -- basic EPS $5,453 28,504 $0.19
Other dilutive equity
instruments 526
------- ------ -----
Income (loss) from continuing
operations -- diluted EPS $5,453 29,030 $0.19
======= ====== =====
1997
Income (loss) from continuing
operations -- basic EPS $2,272 28,118 ($0.08)
Other dilutive equity
instruments 767
------- ------ -----
Income (loss) from continuing
operations -- diluted EPS $2,272 28,885 ($0.08)
======= ====== =====
Statement of Cash Flows: The Company defines cash
equivalents as highly liquid investments with original maturities
of 90 days or less. Income taxes paid were $2.8 million, $8.7
million and $5.2 million in 1999, 1998 and 1997, respectively.
Interest incurred, capitalized, expensed and paid, in
thousands, for the years ended December 31, were as follows:
1999 1998 1997
------- ------- ------
Total interest costs $30,523 $22,308 $9,016
Interest capitalized 1,973 330 460
Interest expense 28,550 21,978 8,556
Interest paid 25,320 19,454 8,536
Non-cash investing and financing activities in 1999 include
the receipt of a $200 million short-term note in connection with
the CoorsTek spin-off, cancellation of a $60.0 million note
receivable when Golden Aluminum was returned to the Company, and
the issuance of shares of common stock valued at $3.2 million in
exchange for compensation and other services.
Environmental Expenditures and Remediation Liabilities:
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do
not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs
can be reasonably estimated.
New Accounting Standard: Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities," was issued in June 1998. This statement
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires the
recognition of all derivatives as either assets or liabilities in
the statement of financial position at fair value. This
statement is effective for the Company's financial statements for
the year ending December 31, 2001 and the adoption of this
standard is not expected to have a material effect on the
Company's financial statements.
Note 2. Discontinued Operations
The historical operating results and losses on the sale of
the following business segments have been segregated as
discontinued operations on the accompanying Consolidated Income
Statement for the years ended December 31, 1999, 1998 and 1997.
Net assets from these discontinued operations are similarly
segregated on the face of the accompanying Consolidated Balance
Sheet as of December 31, 1999 and 1998. Discontinued operations
have not been segregated on the Consolidated Statement of Cash
Flows. Asset and business dispositions which do not constitute
the discontinuation of a business segment are discussed in Note 4.
CoorsTek Spin-off
On December 31, 1999, the Company distributed 100% of
CoorsTek's shares of common stock to the ACX Technologies
shareholders in a tax-free transaction. Shareholders received
one share of CoorsTek stock for every four shares of ACX
Technologies stock held. CoorsTek issued a promissory note to
ACX Technologies on December 31, 1999 totaling $200.0 million in
satisfaction of outstanding intercompany obligations at the time
of the spin-off and as a one-time, special dividend. The note
was paid in full on January 4, 2000. No gain or loss was
recognized by ACX Technologies as a result of the spin-off
transaction. Interest expense of $16.0 million, $3.6 million and
$0.1 million was allocated to the discontinued operations of
CoorsTek in 1999, 1998 and 1997, respectively, based upon
intercompany debt, plus CoorsTek's allocation of total
consolidated debt at the time of the spin-off in 1999.
Golden Aluminum
In 1996, the Board of Directors adopted a plan to dispose of
the Company's aluminum rigid container sheet business operated by
Golden Aluminum. In conjunction with this decision, the Company
recorded pre-tax charges of $155.0 million for anticipated losses
upon the disposition and estimated operating losses of the
business through the disposition date. In March of 1997, Golden
Aluminum was sold for $70.0 million, of which $10.0 million was
paid at closing and $60.0 million was due within two years. In
December of 1998, the Company extended the due date on the $60.0
million payment until September 1, 1999. In accordance with the
purchase agreement, the purchaser exercised its right to return
Golden Aluminum to the Company on August 23, 1999 in discharge of
the $60.0 million obligation. The initial payment of $10.0
million was nonrefundable. The Company subsequently sold the
assets of Golden Aluminum to another buyer for approximately $41
million on November 5, 1999. An additional pre-tax charge of
$10.0 million was recorded in 1999 related to the ultimate
disposition of Golden Aluminum.
Kalamazoo Mill
The Company purchased the Kalamazoo Mill on August 2, 1999
as part of the acquisition of the Fort James packaging business.
See related discussion of this acquisition in Note 3. The
Kalamazoo Mill produces recycled paperboard. In December 1999,
the Board of Directors approved a plan to offer the Kalamazoo
Mill for sale. The Company is pursuing the sale of the Kalamazoo
Mill, as well as evaluating other strategic alternatives. An
estimated fair value of $225 million has been ascribed to the net
assets of the Kalamazoo Mill at December 31, 1999, which includes
approximately $106 million of goodwill allocated from the
continuing operations of the Fort James packaging business
acquisition. The amount of preliminary goodwill allocated to the
Kalamazoo Mill is subject to change upon sale or other
disposition of the Kalamazoo Mill. As a result, no gain or loss
will be recorded upon the sale. The Company allocated
approximately $8 million of interest expense to the Kalamazoo
Mill for the period August 2, 1999 through December 31, 1999
based upon the estimated fair value of $225 million. The Company
expects to finalize the sale or other disposition of the
Kalamazoo Mill in the second or third quarter of 2000.
Financial Data - Discontinued Operations
Financial data for CoorsTek, Golden Aluminum and the
Kalamazoo Mill for the years ended December 31, in thousands, are
summarized as follows:
Golden Kalamazoo
CoorsTek Aluminum Mill[a] Total
-------- -------- --------- --------
1999
Net Sales $365,061 $--- $18,750 $383,811
======== ======== ======== ========
Income (loss) from
operations before
income taxes $25,117 $--- ($5,208) $19,909
Income tax expense
(benefit) 9,480 --- (2,100) 7,380
-------- -------- -------- --------
Income (loss) from
operations 15,637 --- (3,108) 12,529
Income (loss) from
disposal, before
taxes --- (10,000) --- (10,000)
Income tax benefit
(expense) --- 3,544 --- 3,544
-------- -------- -------- --------
Net income (loss) $15,637 ($6,456) ($3,108) $6,073
======== ======== ======== ========
Per basic share of
common stock:
Income (loss) from
operations $0.55 $--- ($0.11) $0.44
Income (loss) on
disposal --- (0.23) --- (0.23)
-------- -------- -------- --------
Net income (loss) per
basic share $0.55 ($0.23) ($0.11) $0.21
======== ======== ======== ========
Per diluted share of
common stock:
Income (loss) from
operations $0.54 $--- ($0.11) $0.43
Income (loss) on
disposal --- (0.22) --- (0.22)
-------- -------- -------- --------
Net income (loss) per
diluted share $0.54 ($0.22) ($0.11) $0.21
======== ======== ======== ========
Current assets --- --- $18,449 $18,449
Current liabilities --- --- (13,948) (13,948)
-------- -------- -------- --------
Net current assets --- --- $4,501 $4,501
Noncurrent assets --- --- $224,619 $224,619
Noncurrent liabilities --- --- (4,120) (4,120)
-------- -------- -------- --------
Net noncurrent assets --- --- $220,499 $220,499
======== ======== ======== ========
[a] Represents five months operating results.
Golden Kalamazoo
CoorsTek Aluminum Mill[a] Total
-------- -------- --------- --------
1998
Net Sales $296,614 $--- $--- $296,614
======== ======== ======== ========
Income from operations
before income taxes $25,361 $--- $--- $25,361
Income tax expense 9,549 --- --- 9,549
-------- -------- -------- --------
Income from operations 15,812 --- --- 15,812
Net income $15,812 $--- $--- $15,812
======== ======== ======== ========
Net income per basic share $0.56 $--- $--- $0.56
======== ======== ======== ========
Net income per diluted share $0.54 $--- $--- $0.54
======== ======== ======== ========
Current assets $105,508 --- --- $105,508
Current liabilities (33,600) --- --- (33,600)
-------- -------- -------- --------
Net current assets $71,908 --- --- $71,908
======== ======== ======== ========
Noncurrent assets $158,394 --- --- $158,394
Noncurrent liabilities (81,583) --- --- (81,583)
-------- -------- -------- --------
Net noncurrent assets $76,811 --- --- $76,811
======== ======== ======== ========
Golden Kalamazoo
CoorsTek Aluminum Mill[a] Total
-------- -------- --------- --------
1997
Net Sales $304,824 $38,995 $--- $343,819
======== ======== ======== ========
Income from operations
before income taxes $48,180 $--- $--- $48,180
Income tax expense 18,192 --- --- 18,192
-------- -------- -------- --------
Income from operations 29,988 --- --- 29,988
Net income $29,988 $--- $--- $29,988
======== ======== ======== ========
Net income per basic share $1.07 $--- $--- $1.07
======== ======== ======== ========
Net income per diluted share $1.04 $--- $--- $1.04
======== ======== ======== ========
Note 3. Acquisitions
1999 Acquisitions
On August 2, 1999, the Company acquired the assets and
liabilities of the packaging manufacturing business of Fort James
Corporation for cash consideration of approximately $849 million,
including a working capital price adjustment and transaction
costs. The Fort James acquisition, which included 12 converting
operations located throughout North America and a recycled
paperboard mill located in Kalamazoo, Michigan (the Kalamazoo
Mill) has been accounted for under the purchase method.
Accordingly, the excess of the purchase price over the fair value
of the assets and liabilities acquired of approximately $448
million is being amortized using the straight-line method over 30
years. Approximately $342 million of goodwill has been
preliminarily allocated to the folding carton converting
operations and approximately $106 million has been preliminarily
allocated to the Kalamazoo Mill discontinued operations. The
folding carton business of Fort James was a major supplier of
folding cartons to leading consumer product companies for
packaging food. The folding carton business of Fort James has
been included in the Company's results since August 2, 1999.
In December 1999, the Board of Directors adopted a plan to
offer the Kalamazoo Mill for sale in order to focus on the
Company's core folding carton business. The Kalamazoo Mill was
included in the August 2, 1999 Fort James packaging business
acquisition. The operating results and net assets of the
Kalamazoo Mill have been segregated as discontinued operations in
the Consolidated Income Statement and Balance Sheet.
Discontinued operations have not been segregated on the
Consolidated Statement of Cash Flows. Accordingly, the
Consolidated Statement of Cash Flows includes sources and uses of
cash for the Kalamazoo Mill for the year ended December 31, 1999.
In connection with the Fort James packaging business
acquisition, the Company is continuing to evaluate
rationalization opportunities within the folding carton
converting operations to reduce overall operating costs while
maintaining capacity. This includes evaluation of the capacity
of the Company's web press facilities and evaluation of the
opportunity to transfer business among the various web press
facilities. The Company expects additional costs of
approximately $2 million may be incurred in connection with
further plant rationalizations, related primarily to severance
and other plant shutdown costs. The Company expects to finalize
its rationalization plan by June 30, 2000. Costs related to
shutting down a facility acquired in the Fort James packaging
business acquisition will be accounted for as a cost of the
acquisition, with a resultant adjustment to goodwill.
The following unaudited pro forma information for ACX
Technologies has been prepared assuming that the Fort James
packaging business acquisition had occurred on January 1, 1998.
The pro forma information includes adjustments for (1)
amortization of goodwill, (2) increased interest expense related
to new borrowings at applicable rates for the purchase, and (3)
the net tax effect of pro forma adjustments at the statutory
rate. The Kalamazoo Mill, CoorsTek and Golden Aluminum are
reflected as discontinued operations in the unaudited pro forma
financial information. The unaudited pro forma financial
information is presented for informational purposes only and may
not be indicative of the results of operations as they would have
been had the transaction actually occurred on January 1, 1998 nor
is it necessarily indicative of the results of operations which
may occur in the future.
Pro Forma Pro Forma
Year Ended Year Ended
December 31, December 31,
1999 1998
(Unaudited) (Unaudited)
(In thousands, except per ------------ ------------
share data)
Net sales $1,144,855 $1,239,547
========== ==========
Income (loss) from continuing
operations, before
extraordinary loss $3,933 ($25,795)
========== ==========
Net income (loss) $3,982 ($15,107)
========== ==========
Income (loss) from continuing
operations, before
extraordinary loss per basic
share of common stock $0.14 ($0.90)
========== ==========
Income (loss) from continuing
operations, before
extraordinary loss per diluted
share of common stock $0.14 ($0.90)
========== ==========
Net income (loss) per basic share
of common stock $0.14 ($0.53)
========== ==========
Net income (loss) per diluted
share of common stock $0.14 ($0.53)
========== ==========
On March 12, 1999, the Company acquired the net assets of
Precision Technologies for approximately $22 million in cash and
300,000 warrants to receive shares of the Company's common stock
at an exercise price equal to the fair market value at the date
of closing. These warrants were converted into warrants to
purchase shares of CoorsTek stock following the spin-off. The
warrants were recorded as an increase in the purchase price at
their estimated fair value on the date of acquisition using the
Black-Sholes pricing model. The acquisition has been accounted
for under the purchase method of accounting. Accordingly, the
excess of the purchase price over the fair value of net assets
acquired of $20.2 million is being amortized using the straight-
line method over 20 years. Precision Technologies, located in
Livermore, California, manufactures precision-machined parts for
the semiconductor, medical and aircraft industries. The results
of Precision Technologies since March 12, 1999 are included in
the discontinued operations of CoorsTek.
On March 1, 1999, the Company acquired all of the
outstanding shares of Edwards Enterprises for approximately $18
million. The acquisition has been accounted for under the
purchase method. Accordingly, the excess of the purchase price
over the fair value of net assets acquired of $4.2 million is
being amortized using the straight-line method over 20 years.
Edwards Enterprises, located in Newark, California, manufactures
precision-machined parts for the semiconductor industry. The
results of Edwards Enterprises since March 1, 1999 are included
in the discontinued operations of CoorsTek.
In December 1999, CoorsTek acquired all of the outstanding
shares of Doo Young Semitek Co., Ltd. for $3.6 million. The name
of Doo Young Semitek Co., Ltd. was subsequently changed to
CoorsTek-Korea. The acquisition has been accounted for under the
purchase method of accounting and goodwill of $2.5 million is
being amortized over 15 years. CoorsTek-Korea, located in
Kyungbook, South Korea, manufactures technical ceramic parts for
the semiconductor industry. The results of CoorsTek-Korea since
December 1999 are included in the discontinued operations of
CoorsTek.
1998 Acquisitions
On January 14, 1998, the Company acquired Britton Group plc
pursuant to a cash tender offer for approximately $420 million.
The Britton acquisition has been accounted for under the purchase
method. Accordingly, the estimated excess of purchase price over
the fair value of net assets acquired of approximately $164
million is being amortized using the straight-line method over 30
years. Britton was an international packaging group operating
through two principal divisions: folding cartons and plastics.
The folding cartons division, Universal Packaging, is a
nonintegrated manufacturer of folding cartons in the United
States, with capabilities in design, printing and manufacturing
of multicolor folding cartons. The plastics division of Britton
(Plastics Division), which was disposed of by the Company on
April 20, 1998, operated in the United Kingdom and included the
extrusion, conversion and printing of polyethylene into films and
bags for industrial customers. The results of Universal
Packaging are reflected in the accounts of the Company beginning
January 14, 1998. The Plastics Division was reflected as a
discontinued operation through the April 20, 1998 disposal date.
On August 17, 1998, the Company acquired the assets and
business of Filpac, Inc. a flexible packaging company located in
Montreal, Canada for $4.8 million in cash. The acquisition has
been accounted for under the purchase method of accounting and
has been included in the accounts of the Company since the
acquisition date. No goodwill resulted from this acquisition.
Filpac was included in the Company's September 2, 1999 sale of
certain flexible packaging plants.
1997 Acquisition
In order to broaden its material base, CoorsTek acquired
Tetrafluor, Inc. for $15.8 million in August 1997. Tetrafluor
manufactures Teflon[R] fluoropolymer sealing systems and compo-
nents for use in the aerospace, industrial and transportation
industries. The acquisition was accounted for under the purchase
method of accounting and, accordingly, the discontinued
operations of CoorsTek include the results of Tetrafluor since
the acquisition date. The excess of the purchase price over the
estimated fair market values of the net assets acquired was $10.7
million, which is being amortized over 15 years on a straight-
line basis.
Note 4. Dispositions
1999 Dispositions
Flexible Packaging Plants
On September 2, 1999, the Company sold its flexible
packaging plants to Sonoco Products Company for approximately
$105 million in cash. The Company used the proceeds from the
sale, less transaction costs, to reduce debt associated with its
recent acquisition of the packaging business of Fort James. The
Company recorded a pre-tax gain of $22.7 million and after-tax
gain of $13.6 million or $0.48 per share on a basic basis and
$0.47 per share on a diluted basis.
Solar Electric Business
On August 3, 1999, the Company sold its majority interest in
a group of solar electric distribution companies to Kyocera
International, Inc., a wholly owned subsidiary of Kyocera
Corporation. The Company realized $30.8 million in cash of which
$20.8 million was consideration for the Company's equity position
and $10.0 million was for the repayment of certain debt owed to
the Company. The Company used the proceeds from the sale, less
transaction costs, to reduce debt associated with its recent
acquisition of the packaging business of Fort James. The pre-tax
gain recorded in conjunction with this transaction totaled $7.5
million while the post-tax gain was $4.5 million. Resultant
earnings per share on a basic and diluted basis for the gain on
this sale were $0.16.
1998 Dispositions
Britton Group Plastics Division
On April 20, 1998, the Company sold the Plastics Division
for approximately pounds 82 million, or $135.0 million, including
pounds 80 million in cash and a pounds 2 million, 5% note
receivable due in 2007 or upon change in control. The majority
of the sale price, less transaction costs, was used to pay down
debt incurred by the Company for the Britton acquisition.
Subsequent to the acquisition date of Britton, the Company
accounted for the Plastics Division as a discontinued operation
held for sale. Therefore, the disposition of the Plastics
Division did not have an impact on the Company's results of
operations. The Plastics Division had net sales for the period
January 14, 1998 through April 20, 1998 of $40.9 million, with
breakeven operating results. The Company allocated $1.8 million
of interest expense related to the acquisition of Britton to the
Plastics Division during the period January 14, 1998 through
April 20, 1998.
Note 5. Asset Impairment and Restructuring Charges
Asset Impairment Charges
The Company recorded a total of $5.9 million, $19.4 million
and $16.6 million in asset impairment charges in 1999, 1998 and
1997, respectively. Goodwill impairment of $5.5 million was
included in the 1998 charge. The remainder of the 1998 charge
consisted of fixed asset impairments. The 1999 and 1997 charges
consisted entirely of fixed asset impairments as described below.
1999: Graphic Packaging recorded $5.9 million of asset
impairment charges in 1999 due to decisions to close its Boulder,
Colorado and Saratoga Springs, New York plants in 2000. The
Boulder, Colorado plant has been replaced by a new manufacturing
facility in Golden, Colorado, which will use advanced equipment
to improve the production process. The Company expects to close
the Boulder plant in the third quarter of 2000. The Saratoga
Springs plant operates at higher overhead levels than other
plants and uses gravure press technology. Therefore, the
decision was made to sell the Saratoga Springs building; move the
business to other folding carton plants; and dispose of the
gravure technology presses at Saratoga Springs. Boulder
writedowns totaled $2.9 million and Saratoga Springs writedowns
totaled $3.0 million.
1998: Graphic Packaging recorded $18.5 million in asset
impairment charges in 1998. Deterioration of the performance at
certain flexible packaging facilities and increased competitive
conditions led management to review the carrying amounts of long-
lived assets and goodwill in conjunction with an overall
restructuring plan. Specifically, forecasted operating cash
flows did not support the carrying amount of certain long-lived
assets and goodwill at Graphic Packaging's Franklin, Ohio
operation. In addition, management decided to offer for sale the
Vancouver, British Columbia operation and close a flexible
divisional office in North Carolina. Therefore, the long-lived
assets and related goodwill were written down to their estimated
market values.
The Company recorded net asset impairment charges of $0.9
million in its Other businesses during 1998. These charges
included a $1.0 million asset impairment charge to write down
long-lived assets of Solartec, S.A., a solar electric subsidiary
in Argentina. Since acquiring Solartec in November 1996,
operating cash flows were below original expectations. As a
result, the Company recorded this impairment to reduce the
carrying value of its investment in Solartec to its estimated
fair market value. In addition, the Company recorded a $0.4
million asset impairment charge related to the consolidation and
outsourcing of certain manufacturing activities at Golden
Genesis. As a result, certain long-lived assets became impaired
and were written down to their estimated market value. Also
during 1998, the Company sold certain equipment formerly used in
a biodegradable polymer project for approximately $0.5 million.
These assets had been previously written off as an asset
impairment, so the resulting gain on sale of these assets was
netted against the 1998 asset impairment charge.
1997: During 1997, the Company recorded a $16.6 million
asset impairment charge when it adopted a plan to limit future
funding for a biodegradable polymer project. This decision
reduced expected future cash flows for this activity to a level
below the carrying value of the manufacturing and intangible
assets of this project.
Restructuring Charges
The Company recorded restructuring charges totaling $1.9
million, $2.0 million and $5.3 million in 1999, 1998 and 1997,
respectively. The following table summarizes accruals related to
these restructuring charges:
Corn
Biodegradable Syrup Graphic Graphic
Polymer Exit Exit Packaging Packaging
(In millions) Plan Plan Corporate Operations Other Total
------------- ----- --------- ---------- ----- -----
Balance,
December 31, 1996 $--- $--- $--- $--- $1.8 $1.8
1997 restructuring
charges 0.9 2.3 2.1 --- --- 5.3
Cash paid (0.5) (1.4) (0.2) --- (1.8) (3.9)
Non-cash expenses --- --- (0.2) --- --- (0.2)
----- ----- ---- ----- ---- -----
Balance,
December 31, 1997 0.4 0.9 1.7 --- --- 3.0
1998 restructuring
charges --- (0.8) --- 2.8 --- 2.0
Cash paid (0.4) (0.1) (1.7) (1.0) --- (3.2)
----- ----- ---- ----- ---- -----
Balance,
December 31, 1998 --- --- --- 1.8 --- 1.8
1999 restructuring
charges --- --- --- 1.9 --- 1.9
Cash paid --- --- --- (1.8) --- (1.8)
----- ----- ---- ----- ---- -----
Balance,
December 31, 1999 $--- $--- $--- $1.9 $--- $1.9
===== ===== ===== ====== ===== =====
1999: Graphic Packaging recorded a $1.9 million
restructuring charge pursuant to a plant rationalization plan
approved by the Company's Board of Directors in the fourth
quarter. The Company has instituted this plan to further its
goal of refining its focus on folding carton packaging and to
reduce headcount. All of the 1999 charge relates to severance,
primarily at the Company's Lawrenceburg, Tennessee manufacturing
plant. In total, 14 administrative and 59 plant positions will
be eliminated at an estimated cost of $1.9 million. Severance
packages have been offered commensurate with employees' positions
and tenure with the Company. The Company paid $0.2 million in
the fourth quarter of 1999 and expects to make the remaining cash
outlays and complete this restructuring plan in 2000. The
Company expects to record additional restructuring charges of
approximately $3.4 million, primarily in the first quarter of
2000, when severance packages are communicated to employees at
the Saratoga Springs plant.
1998: During 1998, the Company instituted a restructuring
plan related to certain Graphic Packaging operations and recorded
$2.8 million in restructuring charges. This plan included the
consolidation and realignment of certain administrative functions
and the downsizing of its Franklin, Ohio operation. This plan
resulted in the elimination of approximately 20 administrative
and 65 manufacturing positions with related severance costs of
approximately $2.5 million. This plan also included
approximately $0.3 million in other exit costs related to the
closure of a divisional office in North Carolina. The Company
made cash payments of $1.0 million in the fourth quarter of 1998
and $1.6 million during 1999.
1997: In December 1997, the Company recorded a $2.1 million
charge related to the closure of the Graphic Packaging corporate
offices in Wayne, Pennsylvania. This closure resulted in
severance and outplacement costs of $1.1 million for
approximately 22 administrative employees. The Company made cash
payments of $1.7 million and $0.2 million related to this plan in
1998 and 1997, respectively.
The Company eliminated 40 research and administrative
positions and recorded approximately $0.9 million in severance
and outplacement costs related to the biodegradable polymer
project in 1997. The Company made cash outlays of approximately
$0.4 million and $0.5 million related to this plan in 1998 and
1997, respectively.
The Company adopted a plan to exit the high-fructose corn
syrup business in 1997. As a result, the Company eliminated
approximately 70 manufacturing and administrative positions and
recorded $2.3 million in severance and other exit costs. The
Company made approximately $0.1 million and $1.4 million in cash
outlays related to this plan in 1998 and 1997, respectively. In
the fourth quarter of 1998, the Company determined that the
liability remaining for this exit plan was not required.
Accordingly, the remaining liability was reversed and netted
against the 1998 restructuring charges.
Note 6. Indebtedness
Long-term debt, in thousands, consisted of the following as
of December 31:
1999 1998
-------- --------
One year term loan due August 1, 2000,
interest at Eurodollar rate $375,000 $---
Five year term loan due August 2, 2004,
interest at Eurodollar rate 325,000 ---
$400 million revolving credit
facility due August 2, 2004,
interest at Eurodollar rate 315,500 ---
7.8% unsecured notes due November 1,
1999 --- 70,000
8.1% unsecured notes due November 1,
2001 --- 30,000
7.2% unsecured notes due 2000
through 2006 --- 45,000
7.0% unsecured notes due 1999
through 2003 --- 47,500
Revolving credit facilities due
through 2000 --- 126,800
--------- --------
Total debt 1,015,500 319,300
Less current maturities 400,000 86,300
Less long-term debt allocated to
CoorsTek --- 50,000
--------- --------
Total long-term debt $615,500 $183,000
========= ========
On August 2, 1999, the Company entered into a $1.3 billion
revolving credit and term loan agreement (the Credit Agreement),
which established three term loans and one revolving credit
facility (collectively, the Senior Credit Facilities). A 180-day
term loan was fully repaid on November 5, 1999, leaving a balance
of $1,015.5 million in debt outstanding on December 31, 1999.
Proceeds from the Senior Credit Facilities were used to finance
the $849.0 million acquisition of the Fort James packaging
business and to prepay the Company's outstanding borrowings from
the 1998 facilities described above. The Company and its
subsidiaries have pledged all material assets as collateral for
the Senior Credit Facilities.
The five-year term loan is due in quarterly installments
beginning with the first quarter of 2000. Total installments for
2000 through 2003, respectively, are $25.0 million, $50.0
million, $70.0 million and $80.0 million with $50.0 million due
in the first half of 2004 and a final balance of $50.0 million
due on August 2, 2004. The one-year term loan is due on August
1, 2000 and any remaining borrowings under the revolving credit
facility are due on August 2, 2004. Mandatory prepayments under
the Senior Credit Facilities are required from the proceeds of
any significant asset sale or from the issuance of any debt or
equity securities.
Amounts borrowed under the Senior Credit Facilities bear
interest under various pricing alternatives plus a spread
depending on the Company's leverage ratio. The various pricing
alternatives include (i) LIBOR, or (ii) the higher of the Federal
Funds Rate plus .5% or the prime rate. Based on this formula,
the interest rate on the Senior Credit Facilities at December 31,
1999 was 8.98%. In addition, the Company pays a commitment fee
that varies based upon the Company's leverage ratio and the
unused portion of the revolving credit facility. Debt issuance
costs of approximately $30 million are included in other assets
on the Consolidated Balance Sheet and are being amortized over
the term of the Senior Credit Facilities as a component of
interest expense.
The financial covenants under the Credit Agreement include
maximum leverage, minimum interest coverage, minimum net worth
and maximum debt to capitalization tests. At December 31, 1999,
the Company was in compliance with the financial covenants.
Subsequent to year end, the Company amended the Credit Agreement
primarily to relax the quarterly financial covenants through
March 31, 2001. In addition, the Credit Agreement limits the
Company's ability to pay dividends and imposes limitations on the
incurrence of additional debt, acquisitions and the sale of
assets. In the event of a default under the Credit Agreement,
the lenders would have the right to call the Senior Credit
Facilities immediately due and refrain from making further
advances to the Company. If the Company is unable to pay the
accelerated payments, the lenders could elect to proceed against
the collateral in order to satisfy the Company's obligations.
Interest expense of approximately $8 million was allocated
to the discontinued operations of the Kalamazoo Mill in 1999,
based upon an estimated fair value of $225 million. Interest
expense of $16.0 million, $3.6 million and $0.1 million was
allocated to the discontinued operations of CoorsTek in 1999,
1998 and 1997, respectively, based upon CoorsTek's $200 million
allocation of total consolidated debt at the time of the spin-off
for 1999, $50 million of outstanding intercompany debt for 1998,
and intercompany interest charges or payments for the usage or
generation of cash from operations for 1998 and 1997.
Subsequent to December 31, 1999, the Company repaid $200.0
million of the one-year term loan facility with the proceeds from
the spin off of CoorsTek. In addition, the Company reduced the
revolving credit facility by $50 million to $400 million.
Proceeds from the sale or other disposition of the Kalamazoo Mill
will be applied to current maturities of debt.
The Company incurred debt extinguishment costs in August
1999 of $3.6 million when existing debt instruments were repaid
in connection with the purchase of the Fort James packaging
business through the issuance of new credit facilities.
Note 7. Fair Value of Financial Instruments
The fair value of cash and cash equivalents, notes
receivable and current maturities of long-term debt approximates
carrying value because of the short maturity of these
instruments. For 1999 and 1998, the fair value of the Company's
long-term debt is estimated based on the current rates offered to
the Company for debt of the same remaining maturity and credit
quality. Because the interest rates on the long-term debt as of
December 31, 1999 are reset monthly, the carrying value
approximates the fair value of long-term debt. The carrying
amount and fair value of the Company's long-term debt, in
thousands, at December 31 is as follows:
1999 1998
Carrying value of long-term debt $615,500 $183,000
Estimated fair value of long-term debt $615,500 $187,000
The Company has entered into interest rate swap agreements
to hedge the underlying interest rates on $100.0 million of short-
term borrowings at an average fixed interest rate of 5.94%.
In addition, the Company has entered into contracts to hedge
the underlying interest rate on $175.0 million of anticipated
long-term borrowings at an average risk-free rate of
approximately 5.9%. These contracts expire on May 1, 2000, by
which time the Company expects to complete the anticipated
borrowings or extend the maturity of the hedging contracts. The
Company has accounted for the contracts as hedges of an
anticipatory borrowing and, as such, the contracts are not marked
to market and any gain or loss upon settlement will be netted
with the underlying cost of borrowing. As of December 31, 1999,
the unrecognized gain associated with these contracts was
approximately $6.0 million based upon a valuation performed by
the banks issuing the contracts. The Company is exposed to
credit loss in the event of nonperformance by the commercial
banks that issued the interest rate contracts. However, the
Company does not anticipate nonperformance by these banks.
The Company utilizes foreign exchange contracts to hedge
transactions and firm commitments denominated in foreign
currencies. Gains and losses on foreign exchange contracts are
deferred and recognized in the basis of the transaction when
completed. There were no contracts outstanding as of December
31, 1999 and the unrecognized loss related to foreign currency
contracts at December 31, 1998 was $0.2 million.
Note 8. Operating Leases
The Company leases a variety of facilities, warehouses,
offices, equipment and vehicles under operating lease agreements
that expire in various years. Future minimum lease payments, in
thousands, required as of December 31, 1999, under noncancelable
operating leases with terms exceeding one year, are as follows:
2000 $2,424
2001 1,960
2002 1,102
2003 723
2004 and thereafter 551
------
Total $6,760
======
Operating lease rentals for warehouse, production, office
facilities and equipment amounted to $4.3 million in 1999, $2.6
million in 1998 and $4.2 million in 1997.
Note 9. Income Taxes
The sources of income, in thousands, from continuing
operations before income taxes and extraordinary loss were:
Year Ended December 31,
1999 1998 1997
------- ------- -------
Domestic $30,468 $12,649 ($8,234)
Foreign 5,095 (2,445) 6,169
------- ------- -------
Income from continuing
operations before income
taxes and extraordinary loss $35,563 $10,204 ($2,065)
======= ======= =======
The total provision for income taxes, in thousands, included
the following:
Year Ended December 31,
1999 1998 1997
------- ------- -------
Current provision:
Federal $13,940 $2,781 $---
State 1,741 2,826 2,723
Foreign 4,347 2,671 3,727
------- ------- -------
Total current tax expense $20,028 $8,278 $6,450
======= ======= =======
Deferred provision:
Federal $800 $8,568 $10,965
State 704 (931) 1,278
Foreign (4,963) (1,615) (294)
------- ------- -------
Total deferred tax
expense (benefit) (3,459) 6,022 11,949
------- ------- -------
Total income tax expense $16,569 $14,300 $18,399
======= ======= =======
The total provision for income taxes, in thousands, is
included in the Consolidated Income Statement as follows:
Year Ended December 31,
1999 1998 1997
------- ------- -------
Continuing operations $14,045 $4,751 $207
Discontinued operations 3,836 9,549 18,192
Extraordinary loss (1,312) --- ---
------- ------- -------
Total expense $16,569 $14,300 $18,399
======= ======= =======
Temporary differences that gave rise to a significant
portion of deferred tax assets (liabilities), in thousands, at
December 31 were as follows:
1999 1998
Depreciation and other
property related ($32,823) ($27,869)
Amortization of intangibles (36) 4,732
Pension and employee benefits 9,123 9,201
Tax credits 15,152 7,133
Capitalized book interest (894) 283
Inventory 1,524 1,509
Accruals 12,928 11,258
Net operating loss and
contribution carryovers 1,524 3,989
All other 108 (377)
------- -------
Gross deferred tax asset 6,606 9,859
Less valuation allowance 123 4,284
------- -------
Net deferred tax asset $6,483 $5,575
======= =======
The valuation allowance for deferred tax assets was
decreased by $4.2 million in 1999 and decreased by $1.3 million
in 1998. The decrease in the valuation allowance for 1999
resulted primarily from the transfer of deferred tax assets and
associated valuation allowances on the sale of a subsidiary. The
remaining valuation allowance relates primarily to uncertainty
surrounding the ultimate deductibility of the remaining foreign
net operating loss carryforward.
The principal differences between the effective income tax
rate, attributable to continuing operations, and the U.S.
statutory federal income tax rate, were as follows:
Year Ended
December 31,
1999 1998 1997
----- ----- ------
Expected tax rate 35.0% 35.0% 35.0%
State income taxes (net of
federal benefit) 2.9 5.8 (33.1)
Nondeductible expenses and
losses 2.0 31.2 (32.5)
Effect of foreign investments (2.9) (0.3) (11.6)
Change in deferred tax asset
valuation allowance 0.3 5.8 (26.0)
Benefit of Foreign Sales
Corporation --- (4.4) ---
Research and development and
other tax credits --- (30.8) 95.5
Other - net 2.2 4.3 (37.3)
----- ------ ------
Effective tax rate 39.5% 46.6% (10.0%)
===== ====== ======
The Internal Revenue Service (IRS) has completed its
examination of the Company's federal income tax returns through
1995. The IRS currently is completing its review of the federal
income tax returns for 1996 through 1998. In the opinion of
management, adequate accruals have been provided for all income
tax matters and related interest.
As a result of certain restructuring, the undistributed
earnings of foreign subsidiaries previously considered as being
permanently reinvested have been distributed to the U.S. as a
dividend. Foreign tax credits are expected to be available to
eliminate the resulting U.S. income tax liability on the
dividend.
The Company and CoorsTek have executed a tax sharing
agreement that defines the parties' rights and obligations with
respect to deficiencies and refunds of Federal, state and other
taxes relating to the CoorsTek business for tax years prior to
the spin-off and with respect to certain tax attributes of
CoorsTek after the spin-off. In general, the Company will be
responsible for filing consolidated Federal and combined or
consolidated state tax returns and paying the associated taxes
for periods through December 31, 1999. CoorsTek will reimburse
the Company for the portion of such taxes relating to the
CoorsTek business. CoorsTek is responsible for filing returns
and paying taxes related to the CoorsTek business for periods
after December 31, 1999.
The tax sharing agreement is designed to preserve the status
of the spin-off as a tax-free distribution. CoorsTek has agreed
that it will refrain from engaging in certain transactions during
the two-year period following the spin-off unless it first
provides the Company with a ruling from the IRS or an opinion of
tax counsel acceptable to the Company that the transaction will
not adversely affect the tax-free nature of the spin-off. In
addition, CoorsTek has indemnified the Company against any tax
liability or other expense it may incur if the spin-off is
determined to be taxable as a result of CoorsTek's breach of any
covenant or representation contained in the tax sharing agreement
or CoorsTek's action in effecting such transactions. By its
terms, the tax sharing agreement will terminate when the statutes
of limitations under applicable tax laws expire.
Note 10. Stock Compensation
The Company has an equity incentive plan that provides for
the granting of nonqualified stock options and incentive stock
options to certain key employees. The equity incentive plan also
provides for the granting of restricted stock, bonus shares,
stock units and offers to officers of the Company to purchase
stock. The number of shares made available for award under the
plan was equal to 4.8 million shares and is being increased
annually by 2% of the Company's outstanding shares on each
preceding December 31 beginning with 1997 and ending with 2001.
Generally, options outstanding under the Company's equity
incentive plan are subject to the following terms: (1) grant
price equal to 100% of the fair value of the stock on the date of
grant; (2) ratable vesting over either a three-year or four-year
service period; and (3) maximum term of ten years from the date
of grant. Officers' 1999 options generally provide for vesting
upon attainment of certain stock prices, but vest completely
after five years.
In conjunction with the spin-off of CoorsTek at December 31,
1999, the Company cancelled options held by CoorsTek employees
and adjusted the remaining options outstanding to reflect the new
ratio of exercise price to market price of the Company's stock
immediately prior and subsequent to the spin-off. The changes
consisted of reducing the exercise price relative to the new
market price and increasing the number of shares underlying the
outstanding options, so as to restore the option holder to the
economic position that existed immediately prior to the spin-off.
Stock option activity for the three years ended December 31,
was as follows (shares in thousands):
1999 1998 1997
--------------- --------------- ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Options outstanding
at January 1 2,672 $17.80 2,616 $16.78 2,788 $15.96
Granted 1,912 $13.43 476 $23.19 404 $20.92
Exercised --- --- (148) $15.33 (375) $14.83
Expired or forfeited (177) $17.62 (272) $18.94 (201) $17.31
------ -------- ------ -------- ------- -------
Options outstanding
at December 31,
before CoorsTek
spin-off 4,407 $15.91 2,672 $17.80 2,616 $16.78
Cancellation of
CoorsTek employee
options (2,036) $15.63 --- --- --- ---
ACX employee options
conversion 1,910 --- --- --- --- ---
------ -------- ------ -------- ------- -------
Options outstanding
at December 31,
after CoorsTek
spin-off 4,281 $8.86 --- --- --- ---
====== ======== ====== ======== ======= ======
Exercisable 2,262 $9.41 1,964 $16.37 1,731 $15.75
====== ======== ====== ======== ======= ======
Available for
future grant 664 1,529 1,173
====== ====== =======
The following table summarizes information about stock
options outstanding at December 31, 1999 (shares in thousands):
Options Outstanding Options Exercisable
- -------------------------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------- ----------- ----------- --------- ----------- --------
$5.57 to $7.56 2,388 6.9 years $7.36 643 $7.00
$8.18 to $10.65 1,481 4.6 years $10.03 1,441 $10.01
$11.05 to $13.74 412 7.9 years $13.30 178 $13.25
- ---------------- ----------- ----------- --------- ----------- --------
$5.57 to $13.74 4,281 6.4 years $8.86 2,262 $9.41
================ =========== =========== ========= =========== ========
The Company applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its stock-based
compensation plans. Accordingly, no compensation expense has
been recognized for its equity incentive plan and employee stock
purchase plan. If the Company had elected to recognize
compensation cost based on the fair value of the stock options at
grant date as allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
compensation expense of $3.5 million, $2.0 million and $1.7
million would have been recorded for 1999, 1998 and 1997,
respectively. Net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1999 1998 1997
------- ------- -------
Net income in
thousands:
As reported $25,259 $21,265 $27,716
Pro forma $23,159 $20,065 $26,696
Earnings per share -
basic:
As reported $0.89 $0.75 $0.99
Pro forma $0.81 $0.70 $0.95
Earnings per share -
diluted:
As reported $0.88 $0.73 $0.96
Pro forma $0.81 $0.69 $0.92
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following assumptions: (1) dividend yield of 0%; (2) expected
volatility of 30.8% in 1999, 28.1% in 1998 and 23.2% in 1997; (3)
risk-free interest rate ranging from 5.7% to 6.7% in 1999, 4.7%
to 5.2% in 1998 and 5.3% to 5.7% in 1997; and (4) expected life
of 3 to 6.36 years in 1999 and 1998, and 3 to 6.23 years in 1997.
The weighted average per-share fair value of options granted
during 1999, 1998 and 1997 was $6.82, $7.42 and $6.47,
respectively.
Note 11. Defined Benefit Plans
The Company maintains several defined benefit pension plans
for the majority of the Company's employees. Benefits are based
on years of service and average base compensation levels over a
period of years. Plan assets consist primarily of equity and
interest-bearing investments. The Company's funding policy is to
contribute annually not less than the minimum funding standards
required by the internal revenue code nor more than the maximum
amount that can be deducted for federal income tax purposes.
Retirement health care and life insurance benefits are
provided to certain employees hired prior to 1999 and eligible
dependents. Eligible employees may receive these benefits after
reaching age 55 with 10 years of service. Prior to reaching age
65, eligible retirees may receive certain health care benefits
identical to those available to active employees. The amount the
retiree pays is based on age and service at the time of
retirement. These plans are not funded.
In connection with the acquisition of the Fort James
packaging business, the Company assumed an $18.5 million prepaid
pension asset and an $11.3 million postretirement benefit
liability for the Fort James hourly employees as of August 2,
1999. Approximately $4.2 million of the prepaid pension asset
and $2.6 million of the postretirement benefit liability have
been allocated to the Kalamazoo Mill.
After final reconciliations, pension assets of approximately
$62 million will be transferred into an ACX Technologies defined
benefit pension plan established for the benefit of the former
Fort James hourly employees for the service period up to August
2, 1999.
The following assets (liabilities), in thousands, were
recognized for the combined, defined benefit plans at December
31:
Pension Benefits [c] Other Benefits [c]
1999 1998 1999 1998
-------- -------- -------- --------
Change in benefit
obligation
Benefit obligation at
beginning of year $156,662 $130,853 $20,131 $19,816
Settlements [a] (107,540) --- (13,897) ---
Service cost 3,707 4,668 336 569
Interest cost 5,466 10,105 693 1,301
Amendments 2,088 --- --- (520)
Actuarial loss (gain) (15,845) 5,448 --- (5)
Acquisitions [b] 49,576 10,188 6,603 ---
Change in actuarial
assumptions --- --- (977) ---
Benefits paid (729) (4,600) (639) (1,030)
-------- -------- -------- --------
Benefit obligation at end
of year 93,385 156,662 12,250 20,131
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets
at beginning of year 120,519 112,630 --- ---
Settlements [a] (91,029) --- --- ---
Actual return on plan assets 6,767 2,217 --- ---
Acquisitions [b] 62,945 9,411 --- ---
Company contributions --- 543 --- ---
Benefits paid (729) (4,282) --- ---
-------- -------- -------- --------
Fair value of plan assets
at end of year 98,473 120,519 --- ---
-------- -------- -------- --------
Funded status 5,088 (36,143) (12,250) (20,131)
Unrecognized actuarial loss
(gain) (2,168) 18,172 (3,045) (3,914)
Unrecognized prior service
cost 3,597 5,834 (2,110) (3,607)
Unrecognized transition
(asset) liability (141) --- --- ---
-------- -------- -------- --------
Net prepaid (accrued)
benefit cost $6,376 ($12,137) ($17,405)($27,652)
======== ======== ======== ========
Weighted average
assumptions at year end
Discount rate 7.75% 6.80% 7.75% 6.80%
Expected return on plan
assets 9.75% 9.75% --- ---
Rate of compensation
increase 5.25% 4.30% --- ---
[a] Reflects the spin-off of CoorsTek and the allocation of
obligations and assets to the Kalamazoo Mill.
[b] Reflects the acquisition of the Fort James packaging business
in 1999 and Universal Packaging in 1998.
[c] Includes CoorsTek assets and obligations in 1998.
It is the Company's policy to amortize unrecognized gains
and losses in excess of 10% of the larger of plan assets and the
projected benefit obligation (PBO) over the expected service of
active employees (12-15 years). However, in cases where the
accrued benefit liability exceeds the actual unfunded liability
by more than 20% of the PBO, the amortization period is reduced
to 5 years.
For measurement purposes, a 7.0% and 7.5% annual rate of
increase in the per capita cost of covered health care benefits
was assumed for 1999 and 1998, respectively. The rate was
assumed to decrease by 0.5% per annum to 3.80% and remain at that
level thereafter.
The following, in thousands, excludes the Kalamazoo Mill
from 1999 and CoorsTek from 1999, 1998 and 1997:
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
------ ------ ------ ----- ----- -------
Components of net
periodic
benefit cost
Service cost $3,707 $2,378 $2,267 $336 $231 $475
Interest cost 5,466 3,666 5,150 693 409 737
Expected return
on plan assets (1,805) (1,249) (9,902) --- --- ---
Amortization of
prior service
cost 262 20 352 (703) (704) (248)
Recognized
actuarial loss
(gain) (4,958) (2,382) 5,623 (385) (639) (2,090)
Transition asset (69) --- --- --- --- ---
------ ------ ------ ----- ----- -------
Net periodic
benefit cost
(gain) $2,603 $2,433 $3,490 ($59) ($703) ($1,126)
====== ====== ====== ===== ===== =======
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A one-
percentage-point change in assumed health care cost trend rates
would have the following effects, in thousands:
1% 1%
Point Point
Increase Decrease
-------- --------
Effect on total of service and
interest cost components $135 $113
Effect on postretirement benefit
obligation $1,000 $900
Note 12. Defined Contribution Plan
The Company provides a defined contribution, profit sharing
plan for the benefit of its employees, the ACX Technologies, Inc.
Savings and Investment Plan (the Plan). The Plan and its
associated trust are intended to comply with the provisions of
the Internal Revenue Code and ERISA, to qualify as a profit
sharing plan for all purposes of the Code, and to provide a cash
or deferred arrangement that is qualified under Code Section
401(k). Generally, employees expected to complete at least
1,000 hours of service per year are immediately eligible to
participate in the Plan upon employment. The Plan generally
provided for Company matching of 50% of participant
contributions, up to 2.5% of participant annual compensation
through December 31, 1999. Company expenses related to the
matching provisions of the Plan totaled approximately $2.4
million, $1.7 million and $1.2 million in 1999, 1998 and 1997,
respectively. Effective January 1, 2000, Company matching shall
be denominated in the Company's common stock. Due to various
collective bargaining agreements and certain provisions in the
purchase agreement related to the former Fort James packaging
business, the Company provided matching in common stock to former
Fort James employees during the final five months of 1999
approximating $1.0 million. The Plan also provides for
discretionary matching. The Company did not elect to provide
discretionary matching under this provision in 1999, 1998 or
1997.
Note 13. Related Party Transactions
On December 28, 1992, the Company was spun off from Adolph
Coors Company (ACCo) and since that time ACCo has had no
ownership interest in the Company. However, certain Coors family
trusts have significant interests in both the Company and ACCo.
At the time of spin-off from ACCo, the Company entered into
agreements with Coors Brewing Company, a subsidiary of ACCo, for
the sale of packaging, aluminum, starch products and the resale
of brewery byproducts. The initial agreements had a stated term
of five years and have resulted in substantial revenues to the
Company. The Company continues to sell packaging products to
Coors Brewing. Additionally, the Company sold aluminum products
and refined corn starch to Coors Brewing until the disposition of
these businesses on March 1, 1997 and January 31, 1999,
respectively.
In 1998, the supply agreement between Graphic Packaging and
Coors Brewing was renegotiated. The new five-year agreement
includes stated quantity commitments and requires annual
repricing. In addition, this contract provides for a three-year
extension to be negotiated by December 31, 2000.
Sales of packaging products and refined corn starch to Coors
Brewing accounted for approximately 13%, 17% and 27% of the
Company's consolidated net sales for 1999, 1998 and 1997,
respectively. Included in the 1997 results of discontinued
operations are sales of aluminum products to Coors Brewing of
$3.2 million. Sales were at terms comparable to those that could
have been obtained on an arms-length basis between unaffiliated
parties. The loss of Coors Brewing as a customer in the
foreseeable future could have a material effect on the Company's
results of operations.
In connection with the spin-off of CoorsTek at December 31,
1999, ACX Technologies and CoorsTek entered into contracts
governing certain relationships between them following the spin-
off, including a tax-sharing agreement, a transitional services
agreement and certain other agreements. CoorsTek and ACX
Technologies believe that these agreements are at fair market
value and are on terms comparable to those that would have been
reached in arm's-length negotiations had the parties been
unaffiliated at the time of the negotiations.
Note 14. Commitments and Contingencies
It is the policy of the Company generally to act as a self-
insurer for certain insurable risks consisting primarily of
employee health insurance programs. With respect to workers'
compensation, the Company uses a variety of fully or partially
self-funded insurance vehicles. The Company maintains certain
stop-loss and excess insurance policies that reduce overall risk
of financial loss.
In the ordinary course of business, the Company's
subsidiaries are subject to various pending claims, lawsuits and
contingent liabilities, including claims by current or former
employees relating to employment, sexual harassment or
termination. In each of these cases, the Company is defending
against them. The Company does not believe that disposition of
these matters will have a material adverse effect on the
Company's consolidated financial position or results of
operations.
In February 1998, a subsidiary of the Company was sued for
breach of a supply agreement to purchase thermal energy for the
Johnstown, Colorado corn-wet mill. The Company sold the
Johnstown, Colorado corn-wet mill in January 1999. Trial has
been set for October 2000, but the Company does not believe the
disposition will have a material adverse effect on the Company's
financial position or results of operations.
Some of the Company's operations have been notified that
they may be potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 or similar state laws with respect to the remediation
of certain sites where hazardous substances have been released
into the environment. The Company cannot predict with certainty
the total costs of remediation, its share of the total costs, the
extent to which contributions will be available from other
parties, the amount of time necessary to complete the remediation
or the availability of insurance. However, based on the
investigations to date, the Company believes that any liability
with respect to these sites would not be material to the
financial condition or results of operations of the Company,
without consideration for insurance recoveries. There can be no
certainty, however, that the Company will not be named as a PRP
at additional sites or be subject to other environmental matters
in the future or that the costs associated with those additional
sites or matters would not be material.
In addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
In connection with the sale of various businesses, the
Company has periodically agreed to guarantee the collectibility
of accounts receivable and indemnify purchasers for certain
liabilities for a specified period of time. Such liabilities
include, but are not limited to, environmental matters and the
indemnification periods generally last for 2 to 15 years.
Note 15. Segment Information
The Company's reportable segments are based on its method of
internal reporting, which is based on product category. Thus,
the Company's reportable segments are Packaging and Other. The
packaging segment consists of the operations of Graphic
Packaging. The Company's Other segment includes a real estate
development partnership, a majority interest in a group of solar
electric distribution companies prior to their August 3, 1999
sale and, prior to March 1999, several technology-based
businesses.
The accounting policies of the segments are the same as
those described in Note 1 and there are generally no intersegment
transactions. The Company evaluates the performance of its
segments and allocates resources to them based primarily on
operating income.
The table below summarizes information, in thousands, about
reportable segments as of and for the years ended December 31.
Discontinued operations include the Kalamazoo Mill in 1999 and
CoorsTek in 1999, 1998 and 1997.
Depreciation
Net Operating And Capital
Sales Income Amortization Assets Expenditures
-------- --------- ------------ ---------- ------------
1999
Packaging $786,843 $38,992 $47,834 $1,156,385 $73,707
Other 44,562 2,103 618 19,699 1,568
-------- ------- ------- ---------- -------
Segment total 831,405 41,095 48,452 1,176,084 75,275
Corporate --- (10,479) 260 225,954 17
Discontinued
operations,
net assets --- --- 30,283 225,000 16,163
-------- ------- ------- ---------- -------
Consolidated
total 831,405 $30,616 $78,995 $1,627,038 $91,455
======== ======= ======= ========== =======
1998
Packaging $623,852 $38,232 $35,924 $539,039 $47,498
Other 67,925 (3,047) 1,270 56,905 3,384
-------- ------- ------- --------- -------
Segment total 691,777 35,185 37,194 595,944 50,882
Corporate --- (8,941) 336 101,359 690
Discontinued
operations,
net assets --- --- 19,977 148,719 26,891
-------- ------- ------- --------- -------
Consolidated
total $691,777 $26,244 $57,507 $846,022 $78,463
======== ======= ======= ========= =======
1997
Packaging $365,123 $42,655 $20,211 $210,024 $18,022
Other 61,138 (31,186) 3,451 81,443 9,068
-------- ------- ------- --------- -------
Segment total 426,261 11,469 23,662 291,467 27,090
Corporate --- (10,177) 337 148,258 311
Discontinued
operations,
net assets --- --- 18,664 203,155 28,812
-------- ------- ------- -------- -------
Consolidated
total $426,261 $1,292 $42,663 $642,880 $56,213
======== ======= ======= ========= =======
Corporate assets for 1999 consist primarily of a $200
million note receivable from CoorsTek as a result of the spin-
off, and debt issuance costs. In 1998 and 1997, corporate
assets include a $60 million note receivable from the sale of
Golden Aluminum, deferred taxes and certain properties.
Certain financial information regarding the Company's
domestic and foreign operations is included in the following
summary, which excludes discontinued operating segments. Long-
lived assets include plant, property and equipment, intangible
assets, and certain other non-current assets.
Net Long-Lived
(In thousands) Sales Assets
-------- ----------
1999
United States $779,527 $964,880
Canada 51,878 3,689
Other --- 2,694
-------- ----------
Total $831,405 $971,263
======== ==========
1998
United States $626,715 $401,579
Canada 57,079 34,807
Other 7,983 3,065
-------- ----------
Total $691,777 $439,451
======== ==========
1997
United States $357,795 $118,998
Canada 59,730 34,535
Other 8,736 3,732
-------- ----------
Total $426,261 $157,265
======== ==========
Note 16. Quarterly Financial Information (Unaudited)
The following information summarizes selected quarterly
financial information, in thousands except per share data, for
each of the two years in the period ended December 31, 1999,
which excludes discontinued operations.
1999 First Second Third Fourth Year
-------- -------- -------- -------- --------
Net sales $165,976 $163,595 $236,381 $265,453 $831,405
Cost of goods sold 136,362 132,322 205,970 233,104 707,758
-------- -------- -------- -------- --------
Gross profit 29,614 31,273 30,411 32,349 123,647
Selling, general and
administrative expenses 18,697 19,480 22,353 24,688 85,218
Asset impairment and
restructuring charges --- --- --- 7,813 7,813
-------- -------- -------- -------- --------
Operating income (loss) 10,917 11,793 8,058 (152) 30,616
Other income (expense):
Gain from sale of
businesses --- --- 30,236 --- 30,236
Interest expense (1,776) (1,908) (8,992) (15,874) (28,550)
Interest income 553 487 1,072 531 2,643
Other-net 93 (77) 350 252 618
-------- -------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes and
extraordinary loss 9,787 10,295 30,724 (15,243) 35,563
Income tax expense
(benefit) 4,059 3,846 13,239 (7,099) 14,045
-------- -------- -------- -------- --------
Income (loss) from
continuing operations
before extraordinary
loss 5,728 6,449 17,485 (8,144) 21,518
Income (loss) from
discontinued operations,
net of tax 3,990 4,813 (2,004) (726) 6,073
Extraordinary loss, net of
tax --- --- (2,332) --- (2,332)
-------- -------- -------- -------- --------
Net income (loss) $9,718 $11,262 $13,149 ($8,870) $25,259
======== ======== ======== ======== ========
Net income (loss) per
basic share:
Continuing operations $0.20 $0.23 $0.61 ($0.28) $0.76
Discontinued operations 0.14 0.17 (0.07) (0.03) 0.21
Extraordinary loss --- --- (0.08) --- (0.08)
-------- -------- -------- -------- --------
Net income (loss) per
basic share $0.34 $0.40 $0.46 ($0.31) $0.89
======== ======== ======== ======== ========
Net income (loss) per
diluted share:
Continuing operations $0.20 $0.22 $0.61 ($0.28) $0.75
Discontinued operations 0.14 0.17 (0.07) (0.03) 0.21
Extraordinary loss --- --- (0.08) --- (0.08)
-------- -------- -------- -------- --------
Net income (loss) per
diluted share $0.34 $0.39 $0.46 ($0.31) $0.88
======== ======== ======== ======== ========
1998 First Second Third Fourth Year
-------- -------- -------- -------- --------
Net sales $155,788 $177,904 $177,996 $180,089 $691,777
Cost of goods sold 126,947 144,200 150,597 145,789 567,533
-------- -------- -------- -------- --------
Gross profit 28,841 33,704 27,399 34,300 124,244
Selling, general and
administrative expenses 19,857 19,394 18,345 19,013 76,609
Asset impairment and
restructuring charges 1,001 --- 19,900 490 21,391
-------- -------- -------- -------- --------
Operating income (loss) 7,983 14,310 (10,846) 14,797 26,244
Other income (expense):
Interest expense (4,555) (5,730) (5,917) (5,776) (21,978)
Interest income 1,236 1,456 1,457 1,213 5,362
Other-net (147) 207 508 8 576
-------- -------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes and
extraordinary loss 4,517 10,243 (14,798) 10,242 10,204
Income tax expense
(benefit) 1,514 4,127 (5,291) 4,401 4,751
-------- -------- -------- -------- --------
Income (loss) from
continuing operations
before extraordinary
loss 3,003 6,116 (9,507) 5,841 5,453
Income (loss)from
discontinued operations,
net of tax 2,436 6,439 2,001 4,936 15,812
-------- -------- -------- -------- --------
Net income (loss) $5,439 $12,555 ($7,506) $10,777 $21,265
======== ======== ======== ======== ========
Net income (loss) per basic
share:
Continuing operations $0.10 $0.21 ($0.33) $0.21 $0.19
Discontinued operations 0.09 0.23 0.07 0.17 0.56
Extraordinary loss --- --- --- --- ---
-------- -------- -------- -------- --------
Net income (loss) per basic
share $0.19 $0.44 ($0.26) $0.38 $0.75
======== ======== ======== ======== ========
Net income (loss) per
diluted share:
Continuing operations $0.10 $0.21 ($0.33) $0.21 $0.19
Discontinued operations 0.08 0.22 0.07 0.17 0.54
Extraordinary loss --- --- --- --- ---
-------- -------- -------- -------- --------
Net income (loss) per
diluted share $0.18 $0.43 ($0.26) $0.38 $0.73
======== ======== ======== ======== ========
See Note 5 for detail on asset impairment and restructuring
charges in 1999 and 1998.
SCHEDULE II
ACX TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Allowance for doubtful receivables
(deducted from accounts receivable)
Balance Additions
at charged to Balance
Beginning costs and Other Deductions at end
of Year expenses (1) (2) of year
--------- ---------- ------ ---------- -------
Year Ended
December 31,
1997 $1,753 $351 $--- ($996) $1,108
1998 $1,108 $1,111 $1,232 ($1,311) $2,140
1999 $2,140 $503 $1,143 ($1,633) $2,153
(1) The effect of translating foreign subsidiaries' financial
statements into U.S. dollars, the 1998 acquisition of
Universal Packaging and the 1999 acquisition of the Fort
James packaging business.
(2) Write off of uncollectible accounts.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Within the last two years there have been no changes in the
Company's independent accountants or disagreements on accounting
and financial statement disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Registrant's Directors is
incorporated by reference to the Proxy Statement in connection
with the 2000 Annual Meeting of Shareholders.
The following executive officers of the Company serve at the
pleasure of the Board:
Jed J. Burnham, 55, Executive Vice President--Finance of the
Company since January 2000; Chief Financial Officer of the
Company from March 1995 to December 1999; Treasurer of the
Company from August 1992 to December 1999; Chief Credit Officer
for non-metro Denver banks at Norwest Bank from 1990 to 1992.
Gail A. Constancio, 39, Chief Financial Officer of the
Company since January 2000; Chief Financial Officer of Graphic
Packaging since November 1997; Controller and Principal
Accounting Officer of the Company from May 1994 to November 1997.
Jeffrey H. Coors, 55, President of the Company since its
formation in August 1992. President of Graphic Packaging since
June 1997 and Chairman of Graphic Packaging since 1985; Executive
Vice President of ACCo from 1991 to 1992; President of Coors
Technology Companies from 1989 to 1992; President of ACCo from
1985 to 1989.
David W. Scheible, 43, Chief Operating Officer of the
Company since January 2000 and of Graphic Packaging since June
1999. Vice President and General Manager of the Specialty Tape
Division from 1995 to 1999, and Vice President and General
Manager of the Automotive Division from 1993 to 1995, of Avery
Dennison Corporation.
Jill B. W. Sisson, 52, General Counsel and Secretary of the
Company since September 1992; Of Counsel to the Denver law firm
of Bearman Talesnick & Clowdus Professional Corporation from 1984
to 1992.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This information is incorporated by reference to the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)
Exhibit
Number Document Description
2.1 Recommended Cash Offers by Baring Brothers International
Limited on behalf of ACX (UK) Limited, a wholly-owned
subsidiary of ACX Technologies, Inc. for Britton Group
plc. (Incorporated by reference to Form 8-K filed on
January 29, 1998)
2.2 Asset Purchase Agreement between ACX Technologies and
Fort James Corporation. (Incorporated by reference to
Form 8-K filed August 17, 1999)
2.3 Asset Purchase Agreement between Golden Aluminum Company
and Alcoa Inc, dated November 5, 1999.
2.4 Distribution Agreement between ACX Technologies, Inc.
and CoorsTek, Inc.
3.1 Articles of Incorporation of Registrant. (Incorporated
by reference to Form 10 filed on October 6, 1992, file
No. 0-20704)
3.1A Articles of Amendment to Articles of Incorporation of
Registrant. (Incorporated by reference to Form 8 filed
on December 3, 1992, file No. 0-20704)
3.2 Bylaws of Registrant, as amended and restated March 2,
2000.
4 Form of Stock Certificate of Common Stock. (Incorporated
by reference to Form 10-K filed March 7, 1996, file
No. 0-20704)
10.0 Credit Agreement among ACX Technologies, Inc., Bank of
America, as agent, and other financial institutions
party thereto. (Incorporated by reference to Form 8-K
filed on August 17, 1999)
10.1 Supply Agreement between Graphic Packaging Corporation
and Coors Brewing Company, dated January 1, 1997.
(Incorporated by reference to Form 10-K filed on
March 24, 1997) (Confidential treatment has been
granted for portions of the Exhibit)
10.2 Credit Agreement among ACX Technologies, Inc., Wachovia
Bank, N.A., as agent, and other financial institutions
party thereto. (Incorporated by reference to Form 8-K
filed on December 23, 1998.)
10.3 Asset Purchase Agreement between ACX Technologies and
Sonoco Products Company. (Incorporated by reference
to Form 8-K filed on September 17, 1999.)
10.4 Tax Sharing Agreement between ACX Technologies, Inc.
and CoorsTek, Inc.
10.5 Environmental Responsibility Agreement between ACX
Technologies, Inc. and CoorsTek, Inc.
10.6 Master Transition Materials and Services Agreement
between ACX Technologies, Inc. and CoorsTek, Inc.
10.7* Description of Officers' Life Insurance Program.
(Incorporated by reference to Form 10-K filed on
March 24, 1997.)
10.8* Form of Officers' Salary Continuation Agreement, as
amended. (Incorporated by reference to Form 10-K
filed on March 20, 1995, file No. 0-20704)
10.9* ACX Technologies, Inc. Equity Incentive Plan, as
amended. (Incorporated by reference to Form 10-K
filed on March 7, 1996, file No. 0-20704)
10.10* ACX Technologies, Inc. Equity Compensation Plan for
Non-Employee Directors, as amended. (Incorporated
by reference to the Proxy Statement filed in
connection with the May 17, 1994, Annual Meeting
of Shareholders)
10.11* ACX Technologies, Inc. Phantom Equity Plan.
(Incorporated by reference to Form 8 filed on
November 19, 1992, file No. 0-20704)
10.15* ACX Technologies, Inc. Deferred Compensation Plan, as
amended. (Incorporated by reference to Form 10-K
filed on March 7, 1996, file No. 0-20704)
10.16* ACX Technologies, Inc. Executive Incentive Plan.
(Incorporated by reference to Form 10-K filed on
March 7, 1996, file No. 0-20704)
21 Subsidiaries of Registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
* Management contracts or compensatory plans,
contracts or arrangements required to be filed as an
Exhibit pursuant to Item 14(c).
The Registrant will furnish to a requesting security holder
any Exhibit requested upon payment of the Registrant's reasonable
copying charges and expenses in furnishing the Exhibit.
(b) Reports on Form 8-K.
On October 18, 1999, the Company filed a Current Report on
Form 8-K including the required pro forma financial information
of the Fort James packaging business acquired August 2, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ACX TECHNOLOGIES, INC.
Date: March 27, 2000 By /s/ Jeffrey H. Coors
--------------------------
Jeffrey H. Coors
President and Chief
Executive Officer
Date: March 27, 2000 By /s/ Gail A. Constancio
--------------------------
Gail A. Constancio
Chief Financial Officer
Date: March 27, 2000 By /s/ John S. Norman
--------------------------
John S. Norman
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
Date: March 27, 2000 By /s/ William K. Coors
--------------------------
William K. Coors
Chairman of the Board of
Directors and Director
Date: March 27, 2000 By /s/ John D. Beckett
--------------------------
John D. Beckett
Director
Date: March 27, 2000 By /s/ Jeffrey H. Coors
--------------------------
Jeffrey H. Coors
President, Chief Executive
Officer and Director
Date: March 27, 2000 By /s/ John H. Mullin, III
--------------------------
John H. Mullin, III
Director
Date: By
--------------------------
James K. Peterson
Director
Date: March 27, 2000 By /s/ John Hoyt Stookey
--------------------------
John Hoyt Stookey
Director