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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, 1996
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) (I.R.S. Employer Identification No.)
16000 Table Mountain Parkway, Golden, Colorado 80403
(Address of principal executive offices) (Zip Code)
(303) 271-7000
(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. [X]
As of March 24, 1997, there were 27,970,554 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 $280,276,879.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement filed in connection with the 1997
Annual Meeting of Shareholders is incorporated by reference into
Part III.
ACX TECHNOLOGIES, INC.
Unless the context otherwise requires, 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),
Coors Porcelain Company and its subsidiaries (collectively
referred to as Coors Ceramics), Golden Aluminum Company and its
subsidiaries (collectively referred to as Golden Aluminum) and
Golden Technologies Company, Inc. and its subsidiaries
(collectively referred to as Golden Technologies).
PART I
ITEM 1. BUSINESS
(a) General Development of Business
The Company, through its wholly-owned subsidiaries,
manufactures advanced technical ceramics products for industrial
markets and high-performance consumer and industrial packaging
products. In addition to these core businesses, the Company owns
technology-based developmental businesses. The Company's
strategy is to maximize the competitive positions and growth
opportunities of its core businesses and develop promising new
technologies with potential for profitable commercial industrial
application. The strategy includes review of business
acquisitions, joint ventures and dispositions of 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. 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
million, $10 million of which was received at closing and $60
million is due within two years. During the two year period, the
purchaser has the right to return Golden Aluminum to the Company
rather than pay the $60 million obligation. The initial payment
of $10 million is non-refundable. The working capital of Golden
Aluminum, which was not part of the sale agreement, will be
liquidated during the first half of 1997 and is expected to
produce between $50 million and $55 million in cash.
The Company's principal executive offices are located at
16000 Table Mountain Parkway, Golden, Colorado 80403. The
Company's telephone number is (303) 271-7000.
(b) Financial Information About Industry Segments
Certain financial information for the Company's business segments
is included in the following summary:
Operating Depreciation Additions
Net Income and to
(In thousands) Sales (Loss) Assets Amortization Properties
1996
Ceramics $276,352 $44,204 $214,635 $16,159 $30,291
Packaging 346,547 41,048 205,705 19,959 13,314
Developmental
businesses 89,481 (48,447) 104,138 5,757 12,558
Discontinued
operations --- --- 116,552 7,307 1,036
Corporate --- (8,169) 35,662 341 327
$712,380 $28,636 $676,692 $49,523 $57,526
1995
Ceramics $270,877 $47,395 $189,191 $14,046 $25,122
Packaging 308,109 34,551 197,587 16,945 20,149
Developmental
businesses 81,867 (13,740) 80,350 5,643 7,426
Discontinued
operations --- --- 268,260 12,618 7,177
Corporate --- (9,500) 50,098 605 153
$660,853 $58,706 $785,486 $49,857 $60,027
1994
Ceramics $231,288 $33,091 $165,804 $11,831 $18,949
Packaging 258,833 27,889 197,330 13,632 8,407
Developmental
businesses 88,584 (13,174) 88,852 8,842 5,920
Discontinued
operations --- --- 297,962 11,573 9,768
Corporate --- (9,355) 10,342 222 53
$578,705 $38,451 $760,290 $46,100 $43,097
Operating income (loss) for reportable segments is exclusive of
certain unallocated corporate expenses. Corporate assets include
cash and cash equivalents and certain properties.
(c) Narrative Description of Business Segments
Ceramics Business
General. Coors Ceramics develops, manufactures and sells
advanced technical ceramic products across a wide range of
product lines for a variety of structural and electronic
applications. Coors Ceramics, which has been in business for
over 75 years, is the largest U.S.-owned, independent
manufacturer of advanced technical ceramics.
Markets and Products. Coors Ceramics participates in two
major markets of the advanced technical ceramics industry:
structural and mechanical applications (structural), and
electronic applications and advanced electronic ceramic packages
(electronics). Ceramic materials are ideal for structural
applications because of their hardness, strength, wear resistance
and ability to withstand extremely high temperatures and be
precisely machined. They are widely used in electronics
applications because of their high electrical resistivity,
superior strength and heat resistance.
The primary uses of structural ceramics are as components in
mechanical devices. Examples include slitting knives and other
processing and sizing devices used in high-speed paper making
machines; seals and other components of pumps installed in
automobiles, home appliances, chemical processing and blood
analysis equipment; fixtures for holding silicon wafers in
semiconductor chip fabrication; valves used in fluid handling;
precipitators used in pollution control equipment; power tubes
used in electrical power generation installations; and linings
for pipe used in the processing of coal and other abrasive
materials. Some principal users of structural ceramics include
the automotive, semiconductor processing equipment, appliance,
chemical, pulp and paper processing, pollution control, power
generation and wire manufacturing industries.
A major application of electronic ceramics is the substrate
or base for various electronic circuits, pressure sensors and
semiconductor chips, which are critical components in computers,
communications systems, automotive controls and military
electronics. Electronic ceramics are also part of electronic
components, such as capacitors and insulators, used in electrical
devices. Advanced electronic ceramic packages are casings that
surround a semiconductor chip, both insulating it and connecting
it to printed circuitry. These packages are used in applications
which require high reliability such as cellular telephones,
pagers and radar detection devices. Primary users of electronic
ceramic components include the computer, telecommunications,
defense, automotive and electronic components industries.
Applications of electronic ceramic components include global
positioning systems, automotive anti-lock brake systems,
electronic ignition systems and substrates in computers and
telephone switching systems.
Coors Ceramics' products are engineered and custom designed
to meet specific customer requirements. Successful product
design requires consultation with customers in their choice of
the correct base material and selection by Coors Ceramics of
appropriate manufacturing processes. Because advanced ceramic
products are sold primarily to industrial manufacturers for
incorporation into their products or processes, the industry is
sensitive to changes in economic conditions that affect the end
users of ceramic products. For example, sales fluctuations in
the domestic automobile industry could directly affect Coors
Ceramics' sales to the automotive market because an American car
currently contains approximately 17 ceramic components. This
sensitivity was demonstrated by the increase in operating income
in 1995 compared to 1994 of 43.2% which was driven in large part
by the expanding semiconductor and telecommunications industries.
In 1996, these industries experienced declines and Coors
Ceramics' operating income decreased 6.7%.
Strategy. Among Coors Ceramics' most valuable assets is its
reputation for expert custom product design, product quality and
customer service. Its strategy emphasizes alliances with key
customers to develop value-added, engineered ceramic products.
Coors Ceramics has cooperative development and sole-supplier
agreements with several major customers. It continuously
evaluates new ceramic materials, often in partnership with
customers, in order to anticipate and satisfy customers' future
needs and to offer a greater range of products with improved
performance characteristics. Coors Ceramics also aggressively
pursues new applications for ceramic to replace metal and other
conventional materials. Coors Ceramics has developed zirconia,
tungsten carbide and silicon carbide based ceramic products and
is developing other materials to complement and enhance its
conventional alumina based product lines. It is a leader in
introducing new commercial uses of ceramic components to replace
metal or plastics in applications such as components in paper
making machines and valves for fluid dispensing. In 1997, Coors
Ceramics will continue to devote resources to new product and
material development and will be challenged to manage the
cyclicality of its business, which fluctuates with certain key
segments of the U.S. and foreign economies.
Coors Ceramics targets proven industrial markets and new
market segments that it expects to provide growth potential,
especially markets which are expected to grow more rapidly than
the overall economy. These markets include power distribution,
both in actual distribution equipment and in high temperature
electrostatic precipitators that remove particulates from power
plant emissions, and fluid handling, primarily in the area of
ceramic components in valves, pumps and flow meters for chemical,
food processing and petro-chemical applications. Management
believes there are significant near-term growth opportunities in
the power tube and pressure sensor markets. In addition, long-
term growth opportunities are expected in the semiconductor and
telecommunications industries which economists generally believe
will begin to recover in late 1997 or early 1998. Growth is also
expected in electronic ceramic packages as the use of pagers and
cellular telephones expands worldwide. Technology license
agreements present additional growth opportunities. In the
fourth quarter of 1995, a licensing agreement with a major U.S.
company was entered into for the production of "Controlled
Collapse Chip Connection" (C4) ceramic packages. These products
are extremely sophisticated and are used in high-end
semiconductor applications. Coors Ceramics is completing
installation of equipment necessary for full scale production.
In addition, customers are currently evaluating the Coors
Ceramics' C-4 pilot-line products. Completion of the scale-up
and product testing and receipt of customer approvals and
customer orders, if any, could take up to a year or more,
depending upon the specifications established by customers and
the testing required.
Manufacturing and Raw Materials. Ceramic manufacturing
involves several successive operations. Initially, a powder such
as zirconia or alumina is mixed with binding and other materials
that will provide the ultimate product with the desired
performance characteristics. The second step involves forming
operations, such as dry or isostatic pressing of powder or
casting of a liquefied form of base material. The ceramic
components may then undergo grinding or cutting operations to
approximate the desired final configuration. The parts are
usually then fired in a high temperature furnace and may require
further grinding, finishing, metal plating or additional firing,
depending upon component specifications. Coors Ceramics'
manufacturing operations involve extensive testing and quality
assurance procedures.
Raw materials used in Coors Ceramics' operations are readily
available from diverse sources. Coors Ceramics purchases alumina
powder, the primary raw material for its manufacturing process,
and other ceramic powders, binders and raw materials from
multiple sources.
Coors Ceramics owns or leases approximately 1.7 million
square feet of manufacturing space in the United States and
abroad. Overall, Coors Ceramics operated at approximately 67% of
its available capacity in 1996 primarily due to lower capacity
utilization at plants servicing the telecommunications and
semiconductor industries. Capacity, which is not currently a
major constraint, ranged between 29% and 90% at Coors Ceramics'
21 manufacturing facilities. These facilities, each of which
specializes to some extent in a particular market, are for the
most part strategically located to optimize customer service
while minimizing manufacturing and transportation costs. Coors
Ceramics continues to invest in computerized, high precision
manufacturing equipment and believes it is well positioned for
growth opportunities in both domestic and foreign markets.
During 1996, Coors Ceramics invested in material preparation and
other capacity expansion at some of its locations and the above
mentioned C4 project.
Sales and Distribution. Products are sold primarily to
manufacturers, including original equipment manufacturers, for
incorporation into industrial applications and products. Sales
are made through direct sales employees located throughout the
United States and Europe and through manufacturers'
representatives. Coors Ceramics' sales personnel, many of whom
are engineers, receive substantial internal technical assistance
and engineering support because of the highly technical nature of
its products.
International sales, primarily in Western European and Far
East markets, constituted approximately 29%, 28% and 27% of
ceramic product sales in 1996, 1995 and 1994, respectively.
Although most of these sales are denominated in U.S. dollars,
Coors Ceramics selectively hedges the U.S. dollar against foreign
currencies used in these markets in order to mitigate the effects
of adverse currency fluctuations.
Structural products represented approximately 71%, 64% and
60% of Coors Ceramics' total net sales for 1996, 1995 and 1994,
respectively, with electronic products representing the remainder
of net sales. No single product line or class accounted for more
than 10% of the Company's consolidated net revenue although sales
of various product lines to the petro-chemical, power generation
and mining, and automotive industries comprised 14.2%, 13.2% and
11.0%, respectively, of Coors Ceramics' 1996 consolidated net
revenue. Sales to the semiconductor/data processing and
telecommunications industries represented 9.5% and 8.4% of Coors
Ceramics' 1996 consolidated net revenue, respectively.
Coors Ceramics' 25 largest customers accounted for
approximately 38% of its net sales for 1996, with no single
customer representing more than 10% of Coors Ceramics' annual
sales. Commitment to consistent high quality and customer
service has earned Coors Ceramics sole supplier status with
several major U.S. manufacturers and a dominant position with
several other major customers.
As of March 1, 1997, Coors Ceramics had backlog orders of
approximately $95.5 million, as compared to $96.2 million as of
March 1, 1996. Most of the 1997 backlog is expected to be
shipped before the end of the second quarter of 1997. Customers
may place annual orders, with shipments scheduled over a twelve
month period. Backlog orders tend to be higher in the structural
products segment because of the longer time between order and
delivery dates under purchase orders. Sales are not seasonal,
although they are sensitive to overall economic conditions that
affect the users of advanced ceramic products. Backlog is not
necessarily indicative of past or future operating results.
Competition. Competition in the advanced ceramics industry
is vigorous and comes chiefly from Kyocera Corporation (Japan),
Morgan Crucible Co. (United Kingdom), NGK Insulators, Ltd.
(Japan), Cerasiv (Germany) and Hoechst Group (Germany).
Principal competitive factors in the worldwide market are price
(including the impact of currency fluctuations), quality and
delivery schedules. In recent years, competitive pressures have
caused former major domestic manufacturers to go out of business
or be acquired by foreign entities. Coors Ceramics is a major
competitor in most structural and electronic markets it serves
and enjoys a prominent position in some product lines. For
worldwide advanced electronic ceramic packages, Kyocera
Corporation is dominant.
Coors Ceramics is the largest U.S.-owned independent
manufacturer of advanced technical ceramics and has long standing
relationships with major corporations based on consistent high
quality and service, which Coors Ceramics believes gives it an
advantage in domestic and certain foreign markets.
Ceramic materials offer advantages over conventional
materials for applications in which certain properties are
important, such as high electrical resistivity, hardness, high-
temperature strength, wear and abrasion resistance and precise
machinability. Ceramic products, however, face competition from
metals and other materials. Plastics, for example, are being
substituted for ceramic in certain computer and
telecommunications applications because of their lower cost and
lighter weight. Coors Ceramics believes that the overall value of
ceramic products will continue to be attractive to customers.
Product Development. New product and process improvement
efforts are continually undertaken within the manufacturing
operations including new or improved materials and processes.
For information about the Company's expenditures for research and
development and other information, see "Research and Development"
below.
Packaging Business
General. Graphic Packaging develops, manufactures and sells
value-added paperboard folding carton and flexible packaging
products. Value-added packaging has special characteristics such
as high-impact graphics, resistance to abrasion, and barriers to
moisture, gas penetration, solvent penetration and leakage.
Graphic Packaging's products are sold to manufacturers that use
them as primary packaging for end products.
Graphic Packaging's folding carton manufacturing business,
which includes four folding carton facilities, began in 1974 as
part of the vertical integration of ACCo's beer business operated
through its subsidiary, Coors Brewing Company (Coors Brewing).
Of the four folding carton operations, two were added in 1996;
one through acquisition (see below) and one through construction.
Sales of beer can wraps, bottle cartons, carriers, wraps and
labels accounted for approximately 31%, 37% and 41% of Graphic
Packaging's total sales for 1996, 1995 and 1994, respectively.
Graphic Packaging has six flexible packaging operations: two were
acquired in 1988; the remaining four were acquired in 1994.
On March 1, 1996, Graphic Packaging acquired Gravure
Packaging, Inc., a leading manufacturer of high-quality,
rotogravure-printed folding cartons for the packaged consumer
goods industry, including tobacco, quick service restaurant, and
personal care product companies. Gravure Packaging, located in
Richmond, Virginia, had fiscal 1996 sales of over $44 million.
Graphic Packaging believes that this acquisition rounds out its
specialty and surface printing capabilities, provides an east
coast folding carton manufacturing operation and provides greater
customer diversity and higher unit volume.
Markets and Products. The product packaging industry
consists of three market segments: paperboard packaging, which
includes corrugated products, folding cartons and food service
containers such as disposable plates and cups; flexible
packaging, such as printed and laminated bags, pouches and roll
stock films and foils used for lids, overwraps and labels; and
rigid packaging, such as cans and bottles. Packaging
manufacturers generally fall into two groups: value-added and
commodity. The manufacture of value-added packaging requires
numerous and complex operations that are not necessary in the
production of commodity packaging. Graphic Packaging classifies
its adhesive and in-mold labels as a part of its folding carton
operations while roll stock film labels are included under the
flexible packaging operations.
The folding carton industry is a $5 billion annual industry
that has grown at an annualized rate of about 2% per year between
1993 and 1996. The industry was flat in 1996 compared to 1995
primarily due to the significant decrease in board prices, which
is typically passed through to customers, and the industry's
continuing efforts to minimize package bulk. From 1993 to 1996,
the majority of Graphic Packaging's internal folding carton
growth came from packaging for Coors Brewing, detergent, cereal,
and premium bar soap markets. In addition, the 1996 acquisition
of Gravure Packaging, with sales primarily to the tobacco and
quick service restaurant markets, provided substantial growth in
1996. The concentrated detergent and premium bar soap markets
are now in their mature life cycle which may result in moderate
continued growth. However, with the purchase of a new label
press in 1996, Graphic Packaging has increased capacity and
believes it has state of the art technology and unique
capabilities with which to enter and expand its presence in the
label market.
In manufacturing 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
and soap customers. Graphic Packaging believes that the
technology also has applications in other significant market
niches.
The flexible packaging industry is a $16 billion annual
industry which has grown approximately 4% on an annualized basis
between 1993 and 1996. The mid-1994 acquisition of four flexible
packaging plants contributed significantly to Graphic Packaging's
flexible sales increases during this period. Flexible packaging
offers advantages over other packaging mediums, such as light
weight, high barrier protection and cost-effectiveness.
Significant product lines for flexible packaging include
packages for pet foods and personal care products, laminated
rollstock for labels, snack foods and candies and bags used to
package photographic development paper, as well as bags that
resist penetration of moisture and leakage of contents for use by
manufacturers of powdered herbicides, fertilizers and other
agricultural chemicals. These bags require complex laminations
and extensive printing and instructional labeling. Other
flexible packaging products made by Graphic Packaging include
gift wrap paper, coffee bag and beverage laminations and medical
health care packaging.
Graphic Packaging believes that recently completed capital
additions and upgrades to printing and bag making equipment puts
it in a position to increase sales in existing flexible packaging
markets.
Strategy. Graphic Packaging's strategy is to establish
market leadership in selected existing market segments by
increasing its customer base and adding significant new high-
margin products. Graphic Packaging intends to emphasize its
ability to provide innovative products with value-added
characteristics to meet exacting customer specifications.
Graphic Packaging continues to focus on commercializing new
products and processes to serve existing and new markets, and to
pursue niche acquisitions that complement its existing business.
Graphic Packaging is in the process of developing a unique
packaging system, known as ComposiGard[TM] (a film-lined carton),
that management believes will provide a cost effective
alternative with numerous advantages over the conventional "bag-
in-box" packaging, such as cracker or cereal cartons. Graphic
Packaging has completed a pilot line to produce limited
quantities of ComposiGard[TM] and is in the process of discussing
applications with potential customers. Graphic Packaging
believes that this product has a strong market potential,
primarily in the food industry, although orders from consumer
products companies and the subsequent construction of a full-
scale production line are necessary before its potential can be
realized.
Manufacturing and Raw Materials. Graphic Packaging's
patented Composipac process involves multiple processing stages,
including extruding plastic film, color printing on the film,
laminating the film layer or layers to paperboard and cutting and
gluing the lamination to the final specifications.
Graphic Packaging's flexible packaging division produces
printed, laminated and coated bags, and pouches; laminated
materials in roll stock form; and other products. Its technical
capability centers around a proprietary line of heat sealed bags,
coating formulations and processes and other package
characteristics, such as reclosure and tamper evident features.
Graphic Packaging uses a variety of raw materials, such as
paper, paperboard, inks, aluminum foil, plastic films, plastic
resins, adhesives and other materials, which are available from
domestic and foreign suppliers. Little or no difficulty has been
experienced in obtaining adequate supplies of raw materials and
difficulty is not anticipated in the future. While multiple
sources of these materials are available, Graphic Packaging
prefers to develop strategic long standing alliances with vendors
in order to provide a guaranteed supply of materials, satisfy
customer specifications and obtain 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
consumer product manufacturers in the United States and Canada.
Sales are made through direct sales employees working from
Graphic Packaging's manufacturing facilities and sales offices
around the United States, and through independent sales
representatives. Graphic Packaging's selling activities are
supported by its technical service and research staff.
Folding carton sales accounted for approximately 56%, 50%
and 57% of Graphic Packaging's total sales for each of the years
ended 1996, 1995 and 1994, respectively, with the remainder
coming from flexible packaging sales. The increase in Graphic
Packaging's 1996 folding carton sales is primarily due to the
1996 acquisition of Gravure Packaging, Inc. Gravure Packaging's
1996 sales were 23% of Graphic Packaging's total 1996 folding
carton sales. Approximately 54%, 73% and 72% of folding carton
sales were to Coors Brewing for the same periods, with detergent,
soap and tobacco manufacturers and quick service restaurants
accounting for most of the balance. Flexible packaging sales
during this period consisted primarily of personal care, snack
foods and beverage label products and cookie, photographic and
pet food bags.
Most of Graphic Packaging's sales are made under sales
contracts at prices that are subject to periodic adjustment for
raw material and other cost increases. Products are made in
accordance with customer specifications. Including the effect of
acquisitions, Graphic Packaging had approximately $57.5 million
in unshipped backlog orders, as compared to approximately $53.5
million as of March 1, 1997 and 1996 respectively. Of the 1997
backlog, most is expected to be shipped before the end of the
second quarter of 1997. Backlog numbers 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 price pressures. The
installation of state of the art equipment by manufacturers
intensifies this competitive pricing situation. A relatively
small number of large suppliers dominate a significant portion of
the folding carton segment of the paperboard packaging market.
Major U.S. competitors in the paperboard packaging segments
include Jefferson Smurfit Corporation, James River Corporation of
Virginia, Field Container Corporation and Riverwood International
Corporation. There are an increasing number of competitors
offering packaging with Composipac-like qualities. The flexible
packaging market has numerous competitors, varying in size.
Graphic Packaging's flexible competitors include Bemis Company,
Inc., James River Corporation of Virginia, Union Camp Corporation
and American National Can Company. Although price is an
important factor in the packaging market, Graphic Packaging
believes that the quality, range and technical innovation of
products and the timeliness and quality of customer service are
significant competitive factors.
Product Development. Graphic Packaging's research and
development staff work directly with the sales and marketing
staff in meeting with customers and pursuing new business.
Graphic Packaging's development efforts include extending shelf
life of evaporative bar soaps, reducing production costs and
enhancing package appearance through quality printing and other
graphics. Potential new product development efforts are expected
to involve sift-proof cartons, linerless cartons and liquid
containment packages and other packaging innovations. In
addition, Graphic Packaging maintains a pilot line at its
Boulder, Colorado folding carton operation and at its Malvern,
Pennsylvania flexible packaging operation for product development
and to perform test runs in limited quantities for customers.
Developmental Businesses
General. The Company's developmental businesses and the
major part of research and development efforts are operated
through Golden Technologies. In 1996, Golden Technologies
operated the following businesses either directly or through one
of its subsidiaries: a solar energy distribution business; a
corn-wet milling business; a real estate partnership; and other
operations focused on the development and commercialization of
new technologies, primarily biodegradable polymers. In 1997, the
Company decided to exit the high-fructose corn syrup portion of
the corn-wet milling business and Golden Technologies is
currently in the process of converting the operation to a starch-
only facility. Golden Technologies focuses on the development
and commercialization of new technologies. Ongoing evaluation of
the growth and profit potential of a project is an inherent
strategy of Golden Technologies and may result in a decision to
exit the activity.
Corn-Wet Milling. In 1996, Golden Technologies' corn wet
milling plant, located in Johnstown, Colorado, produced and
distributed carbohydrate products, including high-fructose corn
syrup and refined corn starch. The Johnstown facility
contributed approximately 11% of the Company's consolidated net
sales for both 1996 and 1995 and 12% for 1994. Nearly all
refined corn starch produced at the Johnstown plant has been sold
to Coors Brewing for use in beer production.
The corn wet milling industry in the United States is highly
competitive. The three largest manufacturers account for
approximately 67% of the total domestic fructose market, with the
Johnstown mill producing approximately 1%. Because of the
oversupply present in the corn fructose marketplace and
significant declines in fructose selling prices, Golden
Technologies decided in February 1997 to exit the high-fructose
corn syrup business. As a result of this decision, the facility
is in the process of being converted to a starch-only operation
in conjunction with Golden Technologies' three year contract to
provide starch to Coors Brewing. Under a marketing agreement
with Coors Brewing, Golden Technologies will continue to market
yeast and other brewery by-products produced by Coors Brewing to
the livestock feed and pet foods industries. The major raw
material for the starch operation is corn, which is purchased
from various sources.
For additional information on the decision to exit the high-
fructose corn syrup business, see the discussion under the
caption "Asset Impairment and Restructuring Charges" in Note 3 of
Notes to Consolidated Financial Statements included in Item 8 of
Part II of this report.
Solar Energy: In 1996, Golden Technologies acquired a
majority interest in Photocomm, Inc., (Photocomm) one of the
world's largest integrators and distributors of solar electric
power systems and products. Photocomm markets complete electric
power systems and system components. More than 60% of
Photocomm's net sales are for industrial applications, targeted
principally toward the growing wireless and cellular
communications markets. Photocomm's markets are primarily in the
United States but also include international customers.
Real Estate Partnership. In connection with the Company's
spin-off from ACCo, a limited partnership was formed between
Coors Brewing, as the limited partner, and a subsidiary of Golden
Technologies, as the general partner. The partnership owns
certain real estate previously owned directly by ACCo or Coors
Brewing. The partnership's purpose is to own, develop or
maintain and dispose of the partnership's properties.
Biodegradable Polymers. Golden Technologies is developing a
proprietary technology for the production and application of
polymers from renewable resources which are biodegradable. The
major goal of the project is to develop a cost-effective
manufacturing process that would make biodegradable materials a
viable choice for a wide variety of uses such as consumer
packaging, disposable hygiene products and food service
packaging. Golden Technologies began construction of a semi-
works lactide monomer facility in 1996 to evaluate the market and
make a determination on the viability of a large scale commercial
operation. This facility is targeted to become operational
around the end of the first quarter of 1997. In addition, a
polylactide facility is expected to be completed by the second
quarter of 1997.
In general, Golden Technologies' projects are high risk
ventures and may take years before any potential is realized.
The Company's philosophy is to manage net spending on research
projects to between $6 million and $12 million annually. During
1996, Golden Technologies received approximately $3.4 million in
funds from federally sponsored best efforts cost sharing programs
related to certain of these research projects.
Discontinued Operations
In 1996, the Board of Directors adopted a plan to dispose of
the Company's aluminum rigid container sheet business operated by
Golden Aluminum. The sale of Golden Aluminum was completed on
March 1, 1997 for $70 million, of which $10 million was paid at
closing and $60 million is due within two years. In accordance
with the purchase agreement, the purchaser has the right to
return Golden Aluminum to the Company at any time during the two
year period rather than pay the $60 million obligation. The
initial payment of $10 million is non-refundable. The working
capital of Golden Aluminum, which was not part of the sale
agreement, will be liquidated during the first half of 1997 and
is expected to produce between $50 million and $55 million in
cash. See "Discontinued Aluminum Operations" in Note 2 of Notes
to Consolidated Financial Statements included in Item 8 of Part
II of this report.
Dependence on Major Customer
At the time of the spin-off from ACCo, Graphic Packaging,
Golden Aluminum and Golden Technologies entered into five year
supply agreements with Coors Brewing, and have relied on these
agreements for a significant portion of their revenues. During
1995, Golden Aluminum canceled its supply agreement with Coors
Brewing for 1996 and 1997 and entered into one year agreements
for each of these years. Sales to Coors Brewing of packaging
products and refined corn starch accounted for approximately 17%,
19% and 21% of the Company's consolidated sales for 1996, 1995
and 1994, respectively; however, future sales may vary from
historical levels. In early 1997, Graphic Packaging entered into
a new supply agreement with Coors Brewing to supply packaging
products under a three year, rolling term contract commencing
January 1, 1997 that provides stated quantity commitments and
annual repricing. In addition, the corn starch and brewery
byproducts agreements with Golden Technologies were extended
through 1999.
Of Graphic Packaging's total sales for 1996, approximately
31% consisted of sales to Coors Brewing. This percentage
represented a decrease from approximately 37% and 41% of Graphic
Packaging's total sales in 1994 and 1993, respectively. Also,
between $12 million and $13 million of the Company's consolidated
sales for each of the past three years resulted from sales to
Coors Brewing of refined corn starch produced at the Johnstown
corn wet milling plant. Golden Technologies also has a marketing
arrangement with Coors Brewing under which it purchases and
resells yeast and other brewery by-products.
In recent years, Graphic Packaging has sought to increase
sales to unaffiliated customers. The addition of four flexible
packaging plants in July 1994 and a folding carton facility in
March 1996 reduced the percentage of Graphic Packaging's sales to
Coors Brewing. The Company will continue to attempt to increase
its sales to unaffiliated customers in order to decrease its
dependence on Coors Brewing. There can be no assurance that
Graphic Packaging's or Golden Technologies' supply agreements
will be renewed or that the terms of renewal will be favorable to
the Company. The loss of Coors Brewing as a customer for the
Company's products could have an adverse affect on the Company's
results of operations.
Research and Development
The Company's ability to commercialize its technologies and
compete effectively in its various markets depends significantly
on its continued and timely development of innovative technology,
materials, products and processes using advanced and cost-
efficient manufacturing processes. See "Packaging Business--
Product Development," "Ceramics Business--Product Development,"
and "Developmental Businesses--Biodegradable Polymers." See also
"Patents, Proprietary Rights and Licenses." Total research and
development expenditures for the Company were $15.3 million,
$16.3 million and $14.4 million for 1996, 1995 and 1994,
respectively. The Company's research and development
expenditures are not expected to increase significantly as a
percentage of net sales for the foreseeable future. The Company
believes such expenditures will be adequate to meet its strategic
objectives.
Patents, Proprietary Rights and Licenses
Graphic Packaging, Coors Ceramics and Golden Technologies
each hold a number of patents and pending patent applications in
the U.S. and in foreign countries. Their policy generally is to
pursue patent protection that they consider necessary or
advisable for the patentable inventions and technological
improvements of their respective businesses. They also rely
significantly on 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 their competitive positions in
their respective markets.
Coors Ceramics considers the name "Coors" and the goodwill
associated with it to be material to its customer recognition.
As part of the spin-off from ACCo, Coors Ceramics received
certain licensing rights to use the Coors name. In addition, the
patent protection of Composipac is significant to Graphic
Packaging's operations.
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 of patents, trademarks or
licenses. The developmental businesses also hold several patents
and patent applications and licenses related to their businesses
and technology development pursuits, which will be critical to
the success of some of the Company's research projects.
Environmental Matters
The manufacturing operations of the Company's subsidiaries
are subject to all federal, state and local environmental, health
and safety laws and regulations and, in a few instances, foreign
laws, that regulate health and safety matters and the discharge
of materials into air, land and water, and govern the handling
and disposal of solid and hazardous wastes. The Company believes
it is in substantial compliance with applicable environmental and
health and safety laws and regulations and does not believe that
costs of compliance with these laws and regulations will have a
material effect upon its capital expenditures, earnings or
competitive position.
In 1990, Coors Ceramics was notified that the State of
California was seeking reimbursement for response costs from
various parties relating to the Chatham Brothers Barrel Yard site
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA) and California's analog to CERCLA.
Coors Ceramics' estimated share has been reduced to 0.7%, based
on volume and toxicity of its contribution. The Company believes
the amount recorded is adequate to cover Coors Ceramics'
liability related to this site.
In May 1993, Graphic Packaging and Coors Ceramics reached an
agreement with the City and County of Denver and Chemical Waste
Management, Inc. for the resolution of claims relating to the
Lowry Landfill Superfund Site in Denver, Colorado. This
settlement agreement provided for the resolution of remediation
costs, if total site remediation costs do not exceed an assumed
present value. The Company does not believe that significant
cost overruns in excess of this assumed amount are likely.
In conjunction with the acquisition of four flexible
packaging facilities in mid 1994, the former shareholders of the
acquired company deposited ACX Technologies common stock, valued
at $10 million at the date of acquisition, into escrow and
severally agreed to indemnify the Company against certain
liabilities including environmental liabilities through June 30,
2002. See ITEM 3. LEGAL PROCEEDINGS.
Coors Ceramics has received a demand for payment arising out
of contamination of a semiconductor manufacturing facility
formerly owned by a subsidiary of Coors Ceramics, Coors
Components, Inc. (CCI). Colorado State environmental authorities
are negotiating with the party to whom Coors Ceramics sold the
property (Buyer) to clean up soil and ground water contamination
on this parcel of property. In addition, Buyer is seeking
indemnification for damages paid in 1995 arising out of
litigation by the adjacent landowner. The contamination is
believed to have occurred prior to Coors Ceramics' ownership of
CCI. CCI was sold to Buyer in November 1987. Coors Ceramics
does not believe it has any responsibility for the contamination
or the cleanup, and has notified the party from whom it acquired
the property that Coors Ceramics will seek indemnification under
the terms of its purchase agreement in the event of liability.
The Company has received requests from the Environmental
Protection Agency for information related to other disposal
sites; however, the Company believes its potential liability is
minimal. Some of the Company's subsidiaries have been notified
that they may be potentially responsible parties (PRPs) under
CERCLA or similar state laws with respect to the remediation of
certain sites where hazardous substances have been released into
the environment. The law governing Superfund sites provides that
PRPs may be jointly and severally liable for the total costs of
remediation. Generally, however, liability is determined through
litigation and/or settlement among the PRPs based on equitable
factors including waste volume contribution. The ultimate
magnitude of liability for any PRP under CERCLA depends upon a
number of factors such as their equitable share of liability, the
selected method of remediation, the timing of work, the number of
financially solvent PRPs ultimately responsible for payment, the
effect of inflation, the ability to recover costs from former and
current insurance carriers and the development of new remediation
technologies. The Company cannot predict with certainty the
total costs of remediation, its share of the total costs, the
extent to which contribution will be available from other
parties, the amount of time necessary to complete the
remediation, or the availability of insurance. However, based on
investigations to date, the Company believes that any liability
with respect to these sites would not be material to the
financial condition and results of operations of the Company,
without consideration of insurance recoveries. There can be no
certainty, however, that the Company will not be named as a PRP
at additional Superfund 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.
The Clean Air Act Amendments of 1990 (CAAA) establish new
permitting requirements. Regulations promulgated and continuing
to be promulgated under Title V and Title III of the CAAA require
new permits at several of the Company's facilities to be obtained
during 1996 and 1997. The Company's subsidiaries continue to
address the requirements under these regulations and, until the
permitting process is complete, the full economic impact of these
regulations cannot be determined.
Congress and state legislatures have considered and continue
to consider various proposals that, if passed, could impose
significant new requirements on the packaging industry related to
recyclability, recycled content or minimization of packaging
products. Although Graphic Packaging believes its products
compare favorably to known competitors' products in these areas,
these legislative requirements, if adopted, could adversely
affect Graphic Packaging's operations. The Company is unable to
predict whether, or when, such legislative changes, if any, may
be made. Graphic Packaging continually strives to minimize the
amount of material required to fabricate packaging for its
customers and to use recycled materials to produce packaging that
can be recycled or safely incinerated.
Various local, state and federal laws, rules and regulations
relating to the environment, health and safety are applicable to
the Company's ongoing operations. The complexity and number of
these regulations continue to proliferate. The resulting impact
of these actions increases the cost structure of the Company's
subsidiaries and the price of their products.
The Company seeks to proactively take steps to decrease its
potential for environmental liabilities, and has remediated
potential sites and taken actions to avoid using hazardous
substances.
Employees
As of March 1, 1997, the Company had 4,500 full-time
employees. A total of approximately 400 employees of the Company
are covered by collective bargaining agreements. 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:
Co. Headquarters Golden, Colorado
Coors Ceramics:
Manufacturing Benton, Arkansas(1) Structural Ceramics
Manufacturing Milpitas, California(2) Structural Ceramics
Manufacturing Grand Junction,
Colorado Electronic Ceramics
Manufacturing Chattanooga, Tennessee Electronic Ceramic
Packages
Manufacturing Hillsboro, Oregon Structural Ceramics
Manufacturing Lawrence, Pennsylvania(2) Structural Ceramics
Manufacturing Norman, Oklahoma Structural Ceramics
Manufacturing Oklahoma City, Oklahoma Structural Ceramics
Manufacturing Glenrothes, Scotland Electronic Ceramics
Manufacturing Oak Ridge, Tennessee(3) Structural Ceramics
Manufacturing Austin, Texas(2) Structural Ceramics
Manufacturing
& Company Offices Golden, Colorado(4) Structural and
Electronic Ceramics
Graphic Packaging:
Manufacturing Boulder, Colorado(2) Folding Carton/Labels
Manufacturing Lawrenceburg, Tennessee Folding Carton
Manufacturing Richmond, Virginia Folding Carton
Manufacturing Golden, Colorado Labels
Manufacturing Malvern, Pennsylvania Flexible Packaging
Manufacturing Franklin, Ohio Flexible Packaging
Manufacturing Richmond, British
Columbia(2) Flexible Packaging
Manufacturing Winnipeg, Manitoba Flexible Packaging
Manufacturing Mississauga, Ontario(2) Flexible Packaging
Manufacturing Charlotte, North Carolina Flexible Packaging
Company Offices Wayne, Pennsylvania(2)
Huntersville, North
Carolina(2)
Golden Aluminum(5):
Rolling Mill Ft. Lupton, Colorado Aluminum Sheet Stock
Rolling Mill and
Company Offices San Antonio, Texas Aluminum Sheet Stock
Developmental Businesses:
Grain Processing Johnstown, Colorado Refined Starch and Fructose
Grain Elevator Johnstown, Colorado Corn Handling and Storage
Research Facilities Golden, Colorado Research and Pilot Operations
Integration and
Distribution Scottsdale, Arizona Solar Panel
Integration and Distribution
Manufacturing Safford, Arizona(2) Solar Panel Distribution
Manufacturing Houston, Texas(2) Solar Panel Distribution
Company Offices Golden, Colorado(2)
(1) Two facilities.
(2) Leased facilities.
(3) Four facilities, two of which are leased.
(4) Four facilities, one of which is leased, one is a land lease only.
(5) Business was disposed of March 1, 1997.
Graphic Packaging is currently utilizing approximately 85%
of its folding carton manufacturing capacity and 85% of its
flexible packaging manufacturing capacity. Graphic Packaging's
management continually review plans to expand its manufacturing
capacity via equipment upgrades and plant expansions. The other
operating facilities of the Company have excess capacity.
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 or termination. In addition,
the Company has brought a suit relating to a fixed-price
construction contract dispute in which a counterclaim has been
filed. In each of these cases, the Company is denying the
allegations made against it and is vigorously 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."
Coors Ceramics and a beryllium supplier have been named as
defendants in a lawsuit brought by several current and former
employees of a defense equipment manufacturer and their spouses.
Plaintiffs are seeking damages in connection with the
manufacture, sale and distribution of certain products containing
beryllium and allege that they contracted chronic beryllium
disease from products supplied by Coors Ceramics and the
beryllium supplier. The suit is in the early stages of
litigation; however, the Company believes it has meritorious
defenses to the allegations raised and intends to defend itself
vigorously against these allegations.
Golden Technologies and several other defendants have
recently been sued by a candy company claiming violation of
federal and state antitrust laws in sales of high-fructose corn
syrup and corn syrup from 1988 to 1996. The Company was only an
occasional and minor supplier of high-fructose corn syrup to the
plaintiff and Golden Technologies intends to vigorously defend
itself against these allegations. This action is only in the
preliminary stages.
As part of the 1994 acquisition of four flexible packaging
facilities, the former shareholders of the acquired company
deposited ACX Technologies' common stock, valued at $10 million
at the date of acquisition, into escrow and severally agreed to
indemnify the Company against certain liabilities including: (i)
environmental liabilities if the Company makes a successful claim
for indemnification by June 30, 2002; (ii) tax liabilities, if
the claim is made within 30 days after expiration of applicable
statutes of limitation or appeals; and (iii) other liabilities,
if the claim was made by June 30, 1996. In March 1995, an action
was brought against the Company in Calgary, Alberta for which the
Company is seeking indemnification under the escrow agreement in
the event that the Company suffers a loss. The action is being
held in abeyance until the resolution of the underlying tax issue
with Revenue Canada. The Company believes that it will prevail
in the litigation or be indemnified against a loss.
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, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is currently quoted on the New
York Stock Exchange under the symbol ACX. During 1994 and
through November 30, 1995, the Company's common stock was quoted
on the NASDAQ Stock Market National Market under the symbol ACX.
The range of the high and low sales price per share for each
quarter of 1996 and 1995, restated for the September 18, 1995
two-for-one stock split, were as follows:
Market Price 1996 1995
High Low High Low
First Quarter $18 1/4 $14 5/8 $20 5/8 $18 7/8
Second Quarter $22 $17 1/2 $22 $19 1/2
Third Quarter $20 1/2 $16 3/8 $30 3/4 $19 1/2
Fourth Quarter $20 $16 7/8 $20 $13 3/4
During 1996 and 1995, no 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 require maintenance of certain financial ratios
that may affect its ability to pay dividends.
On March 1, 1997, there were approximately 2,850
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) 1996 1995 1994 1993 1992
Summary of Operations
Net sales $712,380 $660,853 $578,705 $513,037 $474,023
Gross profit $156,525 $152,824 $120,172 $ 98,689 $ 78,768
Marketing, general and
administrative 77,947 75,071 67,311 60,886 56,055
Research and development 15,300 16,312 14,410 13,499 17,150
Asset impairment and
restructuring charges[a] 34,642 2,735 --- --- 13,720
Operating income (loss) $ 28,636 $ 58,706 $ 38,451 $ 24,304 $ (8,157)
Income (loss) from
continuing operations $ 11,409 $ 31,247 $ 19,683 $ 13,014 $ (7,412)
Per share of common stock
from:
Continuing operations[a] $ 0.40 $ 1.13 $ 0.74 $ 0.51 $ (0.29)
Net income (loss)[b] $ (3.21) $ 0.86 $ 0.75 $ 0.49 $ (1.34)
Financial Position
Working capital $154,626 $168,801 $146,678 $ 51,845 $ 21,375
Total assets $676,692 $785,486 $760,290 $656,217 $631,788
Short-term debt $ --- $ --- $ 3,600 $ 71,000 $ 73,000
Long-term debt $100,000 $100,000 $108,295 $ --- $ ---
Shareholders' equity $397,903 $488,374 $457,454 $418,602 $399,980
Other Information
Total debt to
capitalization 20.1% 17.0% 19.7% 14.5% 15.4%
Net book value per share
of common stock $ 14.24 $ 18.14 $ 17.19 $ 16.32 $ 15.90
[a] Asset impairment and restructuring charges of $34.6 million,
$2.7 million and $13.7 million were recorded in 1996, 1995 and
1992, resulting in a loss per share impact of $0.80, $0.06 and
$0.34, respectively.
[b] During 1996 the Company discontinued the operations of
Golden Aluminum Company. The income (loss) per share for Golden
Aluminum was $(3.61), $(0.27), $0.01, $(0.02) and $(0.48) for the
periods between 1996 and 1992, respectively. In 1992, the
Company adopted the accounting standards related to
postretirement benefits and income taxes which increased the 1992
loss per share by $0.57.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Overview
ACX Technologies, Inc. (the Company), together with its
subsidiaries, is a diversified, value-added manufacturing
organization focused on pioneering differentiated customer
solutions. Two business segments comprise the majority of the
Company's results from operations: the packaging business,
operated through Graphic Packaging Corporation (Graphic
Packaging) and the ceramics business, operated through Coors
Ceramics Company (Coors Ceramics). Graphic Packaging
manufactures both folding carton and flexible packages and
participates in the beverage, detergent, cereal, tobacco, pet
food, confection and personal care markets. Coors Ceramics
manufactures structural ceramics, electronic ceramic components
and advanced electronic ceramic packages for the
telecommunications, semiconductor, power generation,
petrochemical, automotive and pulp and paper industries, along
with numerous others.
In addition to the primary operating businesses, the Company
owns technology-based developmental businesses operated through
Golden Technologies Company, Inc. (Golden Technologies). Golden
Technologies' focus is on assembling and distributing solar
electric systems, developing biodegradable plastics and marketing
a health food ingredient. The solar electric systems business
was enhanced by Golden Technologies' November 1996 acquisition of
a controlling interest in Photocomm, Inc. (Photocomm), a publicly
traded company (NASDAQ: PCOM). Additionally, the historical
results for the developmental businesses include its interest as
the general partner of a real estate development partnership and
the operations of a corn-wet milling facility that produced high-
fructose corn syrup and refined corn starch. The Company has
recently decided to exit the high-fructose corn syrup business
amid rising corn costs and excess high-fructose corn syrup
supply.
This financial review presents the Company's operating
results for each of the three years in the period ended December
31, 1996, and its financial condition at December 31, 1996 and
1995. This review should be read in connection with the
information presented in the Consolidated Financial Statements
and the related notes thereto.
Discontinued Operations
In 1996, the Board of Directors adopted a plan to dispose of
the Company's aluminum rigid container sheet business operated by
Golden Aluminum Company (Golden Aluminum). In conjunction with
this decision, the Company recorded pretax charges of $155
million for anticipated losses for the sale and estimated
operating losses of the business through the disposition date.
On March 1, 1997, the sale of Golden Aluminum was completed for
$70 million, $10 million of which was received at closing and $60
million is due within two years. In accordance with the purchase
agreement, the purchaser has the right to return Golden Aluminum
to the Company during the two year period rather than pay the $60
million obligation. The initial payment of $10 million is non-
refundable.
The historical operating results and the estimated loss on
the sale of this business have been segregated as discontinued
operations on the accompanying Consolidated Statement of Income
for all periods presented. The assets and liabilities of Golden
Aluminum which were held for sale at December 31, 1996 have been
separately identified on the December 31, 1996 Consolidated
Balance Sheet as net current or noncurrent assets of discontinued
operations. The Consolidated Balance Sheet as of December 31,
1995 has not been restated. Discontinued operations have not
been segregated on the Consolidated Statement of Cash Flows and
therefore, includes sources and uses of cash for Golden Aluminum.
Results from Continuing Operations
Consolidated
Net sales for 1996 were $712.4 million, an increase of $51.5
million or 7.8% over 1995. Net sales for 1995 of $660.9 million
increased 14.2% over 1994 net sales of $578.7 million. The
Company's sales growth benefited from acquisitions by Graphic
Packaging in mid-1994 and in March of 1996. Coors Ceramics'
sales also grew, primarily due to internally generated sales
opportunities. Net sales to Coors Brewing Company (Coors
Brewing) consisted of packaging products and refined corn starch
and comprised 16.7%, 19.0% and 20.6%, of 1996, 1995 and 1994
total revenues, respectively. The Company continues to pursue
new markets and customers in an effort to be less dependent upon
Coors Brewing. International sales to Western European and
Canadian markets in 1996 and 1995 were 18.9% and 20.3% of net
sales, respectively. In 1994, these sales accounted for 15.4% of
consolidated net sales and were principally to Western European
markets.
Future years' sales growth is expected to be solid in both
the packaging and ceramics businesses, fostered by the pursuit of
niche acquisitions, additional base business revenues and by
building strong relationships with existing customers for their
future needs. The developmental businesses are expected to
experience a significant decline in sales due to the decision to
exit the high-fructose corn syrup business, although this decline
will be offset in part by the fourth quarter 1996 acquisition of
a controlling interest in Photocomm.
Operating Income From Continuing Operations By Segment
(In millions) 1996 1995 1994
Coors Ceramics $44.2 $47.4 $33.1
Graphic Packaging 41.0 34.5 27.9
Golden Technologies Before
Asset Impairment and
Restructuring Charges (13.8) (11.4) (13.2)
Corporate (8.2) (9.5) (9.3)
Operating Income Before Golden
Technologies' Charges 63.2 61.0 38.5
Golden Technologies' Asset Impairment
and Restructuring Charges (34.6) (2.3) ---
Operating Income After Charges $28.6 $58.7 $38.5
Consolidated operating income for 1996 included $34.6
million in asset impairment and restructuring charges related to
the elimination of non-strategic operations at Golden
Technologies versus $2.3 million in restructuring charges
reported in 1995. The 1996 asset impairment charges of $32.2
million were taken primarily to reflect the impact of unfavorable
market conditions for high-fructose corn syrup and the Company's
inability at this time to demonstrate the commercial viability of
its cadmium telluride solar panel production process. The 1996
restructuring charges of $2.4 million consist primarily of
severance charges and pertain to a reorganization of
administrative functions at Golden Technologies and management
realignments in the solar energy distribution business.
Excluding these charges, operating income grew $2.2 million in
1996 to $63.2 million, primarily attributable to Graphic
Packaging's 1996 folding carton facility acquisition. The
comparable increase in operating income in 1995 over 1994 was
$22.5 million or 58.4% to $61.0 million. Coors Ceramics led this
increase through additional sales with relatively few additional
fixed costs. Graphic Packaging's contribution to the 1995
increase was primarily attributable to the 1995 full year
inclusion of the flexible packaging acquisition that occurred in
mid-1994.
Consolidated gross margin (gross profit as a percentage of
net sales) was 22.0%, 23.1% and 20.8% for 1996, 1995 and 1994,
respectively. Gross margin improved at Graphic Packaging during
both 1996 and 1995 due to increased sales volumes, productivity
gains, shop floor improvements and the acquisitions. Coors
Ceramics' telecommunication and semiconductor business
contributed to the 1995 gross margin improvement while downturns
in these same businesses in the following year reduced overall
margins for 1996. Marketing, general and administrative expenses
for 1996, 1995 and 1994 were $77.9 million, $75.1 million and
$67.3 million, which represented 10.9%, 11.4% and 11.6% of net
sales, respectively. Research and development costs decreased
$1.0 million to $15.3 million in 1996 after having increased $1.9
million between 1994 and 1995. Changes in research and
development expenses are attributable primarily to changes in
activity levels at Golden Technologies. During 1995, additional
expenses were incurred in developing photovoltaic panels and
biodegradable polymer technologies while the 1996 decrease was
related to the 1995 decision to exit certain non-strategic
ceramic research projects. Ongoing research and development
efforts at Golden Technologies will be directed primarily toward
the biodegradable polymer technologies.
Interest expense for 1996, 1995 and 1994 was $8.2 million,
$9.3 million and $6.4 million, respectively. The $1.1 million
decrease in 1996 pertains to reduced borrowing costs associated
with the committed bank facility and fewer short-term borrowings
during the year. The 1995 increase was due to higher interest
rates associated with the transition from short-term borrowings
to long-term debt.
The consolidated effective tax rate for the Company in 1996
was 49% compared to 39% in 1995 and 40% in 1994. Contributing to
the higher tax rate for 1996 was a lower 1996 earnings base which
increased the impact of the Company's non-deductible items. In
addition, no tax benefit was taken for built-in-losses on an
entity experiencing tax losses and for capital losses that may
not be deductible due to a lack of offsetting capital gains. The
Company anticipates that non-deductible goodwill associated with
acquisitions will produce an ongoing effective tax rate of
approximately 42%.
As a result of the asset impairment and restructuring
charges discussed above, consolidated income from continuing
operations declined $19.8 million to $11.4 million in 1996.
Excluding these charges for both years, 1996 income from
continuing operations was $34.2 million or $1.20 per share while
1995 income from continuing operations was $32.9 million or $1.19
per share.
Coors Ceramics
Coors Ceramics' net sales for 1996 increased $5.5 million to
$276.4 million over 1995 net sales of $270.9 million. This 2.0%
increase was achieved despite the loss of more than $15 million
in revenues in the telecommunications industry and the loss of
over $8 million in revenues from the semiconductor and data
processing industries. Increases in these industries between
1994 and 1995 helped drive Coors Ceramics' 1995 sales growth of
17.1%. Offsetting the 1996 declines in semiconductor processing
and telecommunications sales were increased volumes for power
tubes, beverage valves, precipitators and pulp and paper industry
products. Although customers continue to seek price reductions,
Coors Ceramics competes primarily on quality and thus volume, not
price, has been the primary catalyst behind the changes in sales
dollars. International sales continued to prosper and comprised
30.5% of total sales in 1996, 28.1% in 1995 and 26.7% in 1994.
During 1996, structural products contributed 71% of Coors
Ceramics' sales, up from 64% in 1995 and 60% in 1994. Electronic
products and advanced ceramic electronic packages, which comprise
the remainder of sales, declined as a percentage of total sales,
primarily due to the severe decline in the volume of advanced
ceramic electronic packages sold to the telecommunications
industry.
Coors Ceramics' operating income for 1996 declined $3.2
million, or 6.7%, when compared to the record-setting operating
income of $47.4 million reported in 1995. The 1995 results
improved $14.3 million or 43.2% over the $33.1 million recorded
in 1994. Operating margins were 16.0% in 1996, down from 17.5%
in 1995, which were improved over 1994 operating margins of
14.3%. Operating results for 1996 turned downward in correlation
with the telecommunications and semiconductor processing
industries. The 1996 declines were offset in part by stronger
margins in the petrochemical and pulp and paper industry.
As applications for ceramic materials continue to increase,
Coors Ceramics believes its commitment to uncompromising quality
and its focus on new ceramic materials and synergistic
acquisitions will propel it squarely into the next century. The
1997 outlook for Coors Ceramics is in part dependent upon the
turnaround expected in mid to late 1997 in the telecommunications
and semiconductor processing industries.
Graphic Packaging
Graphic Packaging's net sales for 1996 were $346.5 million,
an increase of $38.4 million, or 12.5%, over 1995 net sales of
$308.1 million. Net sales for 1995 increased 19.0% over 1994 net
sales of $258.8 million. Acquisitions in mid-1994 and at the
beginning of 1996 accounted for a significant portion of the
increases reported in both periods. The 1996 acquisition
contributed $44.4 million in 1996 revenues while the mid-1994
acquisition provided approximately $44 million in incremental
1995 revenues because of the full year inclusion of this
acquisition in operations for 1995. The remaining 1995
improvement related to higher sales prices in the folding carton
division primarily due to higher raw materials prices which are
generally passed along to customers. Sales to Coors Brewing were
approximately 31%, 37% and 41% of Graphic Packaging's net sales
for 1996, 1995 and 1994, respectively. The acquisitions have
enhanced Graphic Packaging's customer base thereby reducing its
dependence upon Coors Brewing. In addition, the acquisitions
have expanded Graphic Packaging's geographic reach, especially
into Canadian markets, which were approximately 14% of 1996 net
sales.
In 1996, 1995 and 1994, folding carton sales accounted for
56%, 50% and 57%, respectively, with flexible sales accounting
for the balance of the business. Net folding carton sales were
$194.3 million in 1996, an increase of $39.7 million over net
sales of $154.6 million in 1995. Excluding the effect of the
1996 acquisition, folding carton net sales were down $4.7 million
related primarily to volume declines in folding carton sales to
the beverage industry, offset in part by increased volumes for
specialty packaging to the cereal markets and the fast service
restaurant industry and added sales of ComposiCups. Flexible
packaging sales for 1996 declined $2.2 million to $152.2 million
due to a combination of: (i) lower volumes in the snack food
business; (ii) the elimination of less profitable extruded film
business in 1996; (iii) lower raw material costs passed through
to customers in the form of lower prices; and (iv) customer-
initiated packaging specification changes that reduce total
package cost.
Graphic Packaging posted superior growth in 1996 operating
income, which rose $6.5 million or 18.8% to $41.0 million over
1995 when operating income was $34.5 million. 1995 results
reflected an increase of $6.6 million when compared to 1994
operating income of $27.9 million. Improvements in 1996 were
generated by a combination of increased shop floor efficiencies,
the 1996 acquisition which contributed $3.8 million in operating
income and a favorable product mix with higher margins. In
addition, the elimination of certain extruded film business
contributed to a more favorable product mix in the flexible
packaging division and improved 1996 operating margins for this
division when compared to 1995. The 1995 improvement over 1994
related principally to the mid-1994 acquisition and the resultant
synergies realized from that acquisition. The 1994 acquisition
contributed $6.6 million of operating income in 1995 while the
1994 six-month contribution was $2.3 million. Operating margins
were 11.8%, 11.2% and 10.8% in 1996, 1995 and 1994,
respectively. This trend reflects Graphic Packaging's focus on
high-margin, value-added products, improved performances at the
acquired facilities, and the benefit of synergies realized
subsequent to the acquisitions.
Graphic Packaging continues to focus on commercializing new
products and processes to serve existing and new markets, and to
pursue niche acquisitions that complement its existing business.
Graphic Packaging believes its strategy of being a niche
packaging provider for higher margin markets will continue to
sustain its profitable growth into the future. The combination
of innovative products, new state of the art facilities and
focused acquisitions will continue to support its growth
objectives in a highly competitive, consolidating industry.
Golden Technologies
Golden Technologies' 1996 net sales were $89.5 million, an
increase of $7.6 million or 9.3% compared to 1995 net sales of
$81.9 million. Net sales in 1995 declined $6.7 million compared
to 1994 net sales of $88.6 million. Almost $3 million of the
1996 increase was the impact of the November, 1996 acquisition of
a majority interest in Photocomm, a solar electric distributor.
The remaining increase was the result of increased selling prices
for commodities that are byproducts of the high-fructose corn
syrup operation, offset in part by lower selling prices for
fructose. The 1995 decrease in sales was the result of
businesses that were disposed of in 1994.
Golden Technologies reported an operating loss of $48.4
million in 1996, which included asset impairment and
restructuring charges of $34.6 million. Operating losses for
1995 were $13.7 million, including $2.3 million in restructuring
costs. The 1996 asset impairment charges were taken primarily to
reflect the impact of unfavorable market conditions for high-
fructose corn syrup and the Company's inability at this time to
demonstrate the commercial viability of its cadmium telluride
solar panel production process. The 1996 restructuring charges
pertain to a reorganization of administrative functions at Golden
Technologies and management realignments in the solar energy
distribution business. The 1995 restructuring charge related to
the exit of certain non-strategic ceramic research projects.
Excluding the impact of the asset impairment and
restructuring charges, Golden Technologies' operating loss
increased from $11.4 million in 1995 to $13.8 million in 1996.
The 1995 results included approximately $5.0 million of operating
income from the corn-wet milling business while 1996 operating
results of this business were approximately break-even.
Because of the oversupply present in the corn fructose
marketplace and significant declines in fructose selling prices,
a decision was reached in February of 1997 to exit the high-
fructose corn syrup business. Golden Technologies' net sales for
1997 will decline significantly as an outcome of this decision,
although 1997 net sales will reflect an entire year of sales from
the November acquisition of Photocomm. An additional charge of
approximately $2 million to $3 million is expected to be recorded
in the first quarter related to the 1997 decision to exit the
high-fructose corn syrup business.
Future activity at Golden Technologies will be directed
primarily toward the solar electric distribution business and the
development of biodegradable polymers. Start-up of a 2 million
pound per year semi-works lactide monomer facility in Johnstown,
Colorado, is targeted to begin near the end of the first quarter
of 1997. This facility, combined with a polylactide facility
currently under construction, is intended to enable Golden
Technologies to put biodegradable polymers in the hands of
customers for qualification tests in mid to late 1997.
Financial Resources and Liquidity
ACX Technologies' liquidity is generated from both internal
and external sources and is used to fund short-term working
capital needs, capital expenditures and acquisitions. Internally
generated liquidity is measured by net cash from operations as
discussed below and working capital. At December 31, 1996, the
Company's working capital (excluding the net current assets of
the discontinued operation) was $101.6 million with a current
ratio of 1.9 to 1. The Company considers its working capital
sufficient to meet its anticipated short-term requirements. In
addition, in March of 1997, the Company completed the sale of
Golden Aluminum. This sale generated $10 million in cash at
closing and is expected to generate an additional $60 million in
cash within two years if the buyer does not return Golden
Aluminum to the Company as permitted by the purchase agreement.
The working capital of Golden Aluminum, which was not part of the
sale agreement, will be liquidated during the first half of 1997
and is expected to produce between $50 million and $55 million in
cash.
For long-term requirements, the Company has a multi-year
unsecured revolving credit facility with a total commitment of
$125.0 million, under which no borrowings were outstanding at
December 31, 1996 and 1995. The Company also has a Canadian bank
credit facility with a total commitment of C$7.5 million. Under
this facility, no borrowings were outstanding at December 31,
1996 and 1995. In addition, the Company has in place a shelf
registration statement, which allows the Company to borrow or
sell up to $100 million in securities. The Company currently
expects that cash flows from operations and the sale of Golden
Aluminum and borrowings under its revolving credit facilities
will be adequate to meet the Company's needs for working capital,
temporary financing for capital expenditures and acquisitions.
As shown in the Consolidated Statement of Cash Flows, net
cash provided by operations was $46.2 million, $97.2 million and
$45.2 million for the years 1996, 1995 and 1994, respectively.
The decrease from 1995 to 1996 was primarily attributable to
increased losses experienced in discontinued operations as well
as declines in accounts payable and the reduction in deferred
revenue associated with aluminum and corn commodities hedging
programs.
During 1996, 1995 and 1994, net cash from operations was
used to fund capital requirements and acquisitions. Over this
three year period, total capital expenditures for the Company,
excluding corporate, were $160.0 million, as follows:
(In millions) 1996 1995 1994
Coors Ceramics $30.3 $25.1 $18.9
Graphic Packaging 13.3 20.1 8.4
Golden Technologies 12.6 7.4 5.9
Golden Aluminum -
Discontinued in 1996 1.0 7.2 9.8
$57.2 $59.8 $43.0
Consolidated capital spending during 1996 has been primarily
for technological upgrades to machinery and equipment and related
computer systems as well as costs associated with facility
expansions and reconfigurations. The Company expects its capital
expenditures for 1997 to be more than $60 million, primarily at
Coors Ceramics and Graphic Packaging. Coors Ceramics has planned
facility and material preparation expansions while Graphic
Packaging's 1997 capital will be used for performance
improvements to existing equipment and to increase capacity for
growing markets. Golden Technologies' 1997 plans are to complete
the semi-works facilities for its biodegradable polymer
technology.
Acquisitions during 1996 consumed over $30 million in cash,
primarily for the fourth quarter acquisition of a majority
interest in a solar energy distribution company. Cash was also
used to fund part of Graphic Packaging's acquisition of a folding
carton facility in Virginia and Coors Ceramics' acquisition of
assets of an Oklahoma-based manufacturer that services the
oilfield industry. Although a future strategy of the Company is
to pursue niche acquisitions that provide growth and synergies
with the base businesses, there are currently no planned
acquisitions that would put a constraint on the Company's cash
position.
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
Coors Ceramics has received a demand for payment arising out
of contamination of a semiconductor manufacturing facility formerly
owned by a subsidiary of Coors Ceramics, Coors Components,
Inc. (CCI). Colorado State environmental authorities are negotiat-
ing with the party to whom Coors Ceramics sold the property (Buyer)
to clean up soil and ground water contamination on this parcel of
property. In addition, Buyer is seeking indemnification for
damages paid in 1995 arising out of litigation by the adjacent
landowner. The contamination is believed to have occurred prior
to Coors Ceramics' ownership of CCI. CCI was sold to Buyer in
November 1987. Coors Ceramics does not believe it has any
responsibility for the contamination or the cleanup, and has
notified the party from whom it acquired the property that Coors
Ceramics will seek indemnification under the terms of its
purchase agreement in the event of liability.
In 1990, Coors Ceramics was notified that the State of
California was seeking reimbursement for response costs from
various parties relating to the Chatham Brothers Barrel Yard site
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA) and California's analog to CERCLA.
Coors Ceramics' estimated share has been reduced to 0.7%, based
on volume and toxicity of its contribution. The Company believes
the amount recorded is adequate to cover Coors Ceramics'
liability related to this site.
The Company has received requests from the Environmental
Protection Agency for information related to other disposal
sites; however, the Company believes its potential liability is
minimal.
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
ACX Technologies to be materially different from any future
results, performance or achievements expressed or implied by the
forward-looking statements. Such factors include, among other
things: (i) general economic and business conditions; (ii)
changes in industries in which ACX Technologies does business,
such as beverage, telecommunications, semiconductor and
automotive; (iii) the loss of major customers; (iv) the loss of
market share and increased competition in certain markets; (v)
industry shifts to alternative materials, such as replacement of
ceramics by plastics and competitors offering products with
characteristics similar to ACX Technologies' products, including
packaging; (vi) changes in consumer buying habits; (vii)
governmental regulation including environmental laws; and (viii)
other factors over which ACX Technologies has little or no
control.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page(s)
Consolidated Financial Statements:
Report of Independent Accountants 27
Consolidated Statement of Income
for the years ended
December 31, 1996, 1995 and 1994 28
Consolidated Balance Sheet at
December 31, 1996 and
December 31, 1995 29-30
Consolidated Statement of Cash Flows
for the years ended
December 31 1996, 1995 and 1994 31
Consolidated Statement of Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994 32
Notes to Consolidated Financial Statements 33-45
Schedule II - Valuation and Qualifying
Accounts for the years ended
December 31, 1996, 1995 and 1994 46
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, 1996 and 1995, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards 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.
PRICE WATERHOUSE LLP
Denver, Colorado
February 18, 1997
MANAGEMENT'S REPORT TO SHAREHOLDERS
Management is responsible for the preparation, integrity and
objectivity of the financial statements and all other financial
information included in this annual report. The financial
statements, which include amounts using management's best
judgments and estimates, have been prepared in accordance with
generally accepted accounting principles. Management believes
that all material uncertainties have been either appropriately
accounted for or disclosed. Other financial information
appearing in this annual report is consistent with that in the
financial statements.
Management has established and maintains accounting and
reporting systems supported by an internal accounting control
system, which management believes are adequate to provide
reasonable assurance that assets are safeguarded against loss
from unauthorized use or disposition and financial records are
reliable for the preparation of financial statements.
On the recommendation of management, Price Waterhouse LLP
was selected by the Board of Directors to render a professional
opinion on the consolidated financial statements. The opinion of
the independent accountants, based on their audits, is shown
above.
The Board of Directors, through its Audit Committee of
directors who are not officers or employees of the Company, is
responsible for reviewing and monitoring the Company's financial
and accounting practices. The Audit Committee meets regularly,
either separately or jointly, with representatives of management,
Price Waterhouse LLP and the Company's internal auditors to
discuss auditing, accounting and financial matters. To ensure
complete independence, Price Waterhouse LLP and the Company's
internal auditors have unrestricted access to the Audit Committee
and may meet with or without the presence of management.
JED J. BURNHAM GAIL A. CONSTANCIO
Chief Financial Officer Controller and Principal
and Treasurer Accounting Officer
ACX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
Years Ended December 31,
1996 1995 1994
Sales $593,493 $535,419 $459,688
Sales to Coors Brewing 118,887 125,434 119,017
Total sales 712,380 660,853 578,705
Costs and expenses:
Cost of goods sold 555,855 508,029 458,533
Marketing, general and
administrative 77,947 75,071 67,311
Research and development 15,300 16,312 14,410
Asset impairment and
restructuring charges 34,642 2,735 ---
Total operating expenses 683,744 602,147 540,254
Operating income 28,636 58,706 38,451
Other income (expense):
Interest expense (8,177) (9,306) (6,370)
Interest income 1,254 1,395 603
Miscellaneous--net 696 452 99
Total other expense (6,227) (7,459) (5,668)
Income from continuing
operations before income taxes 22,409 51,247 32,783
Income tax expense 11,000 20,000 13,100
Income from continuing
operations 11,409 31,247 19,683
Discontinued operations:
Income (loss) from discontinued
operations of Golden Aluminum (5,033) (7,376) 142
Loss on disposal of Golden
Aluminum (98,400) --- ---
Net income (loss) $(92,024) $23,871 $19,825
Net income (loss) per share of
common stock:
Continuing operations $ 0.40 $ 1.13 $0.74
Discontinued operations (3.61) (0.27) 0.01
Net income (loss) per share $(3.21) $ 0.86 $0.75
Weighted average shares
outstanding 28,651 27,655 26,587
See Notes to Consolidated Financial Statements
ACX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
December 31, December 31,
1996 1995
ASSETS
Current assets
Cash and cash equivalents $15,671 $52,686
Accounts receivable, less
allowance for doubtful
accounts of $2,085 in 1996 and
$2,724 in 1995 68,840 88,913
Accounts receivable from Coors
Brewing 3,046 9,148
Inventories 101,520 117,500
Deferred income taxes 18,218 7,275
Other assets 11,571 16,986
Net current assets of
discontinued operations 53,052 ---
Total current assets 271,918 292,508
Properties, net 244,615 426,832
Goodwill, net 46,799 34,828
Other assets 49,860 31,318
Noncurrent assets of discontinued
operations 63,500 ---
Total assets $676,692 $785,486
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $33,021 $51,029
Accounts payable to Coors
Brewing 753 2,237
Accrued salaries and vacation 20,175 21,070
Taxes other than income 7,598 6,349
Accrued expenses and other
liabilities 55,745 43,022
Total current liabilities 117,292 123,707
Long-term debt 100,000 100,000
Accrued postretirement benefits 27,890 27,008
Deferred income taxes --- 22,970
Other long-term liabilities 19,002 15,861
Total liabilities 264,184 289,546
Minority interest 14,605 7,566
Shareholders' equity
Preferred stock, non-voting,
$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
and 27,934,000 and 26,917,000
issued and outstanding at
December 31, 1996 and 1995,
respectively 279 269
Paid-in capital 443,302 441,220
Retained earnings (deficit) (47,271) 45,587
Cumulative translation adjustment
and other 1,593 1,298
Total shareholders' equity 397,903 488,374
Total liabilities and
shareholders' equity $676,692 $785,486
See Notes to Consolidated Financial Statements
ACX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $(92,024) $23,871 $19,825
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Loss on disposal of discontinued
operations, net of tax 98,400 --- ---
Asset impairment and
restructuring charges 34,642 2,735 ---
Depreciation and amortization 49,523 49,857 46,100
Change in deferred income taxes (6,058) 731 2,063
Change in accrued postretirement
benefits 882 1,309 1,851
(Gain) loss on sale of
properties 98 (476) 3,097
Change in current assets and
current liabilities net of effects
from acquisitions:
Accounts receivable 10,882 5,343 (20,206)
Inventories (2,893) 272 (9,108)
Other assets (3,855) 8,549 (1,531)
Accounts payable (13,561) 5,330 (6,696)
Accrued expenses and other
liabilities (31,656) (21) 5,082
Change in deferred items 1,939 (121) 1,905
Other (161) (195) 2,816
Net cash provided by operating
activities 46,158 97,184 45,198
Cash flows from investing activities:
Additions to properties (57,526) (60,027) (43,097)
Acquisitions, net of cash acquired (34,313) --- (18,354)
Proceeds from sale of properties 8,764 13,253 4,882
Other (1,250) (199) (106)
Net cash used in investing
activities (84,325) (46,973) (56,675)
Cash flows from financing activities:
Proceeds from long-term debt --- --- 100,000
Payments on short-term borrowings --- (3,600) (86,746)
Payments on long-term debt --- (8,295) (950)
Stock option exercises and other 1,152 4,593 2,191
Net cash provided (used) by
financing activities 1,152 (7,302) 14,495
Cash and cash equivalents:
Net increase (decrease) in cash and
cash equivalents (37,015) 42,909 3,018
Balance at beginning of year 52,686 9,777 6,759
Balance at end of year $ 15,671 $52,686 $ 9,777
See Notes to Consolidated Financial Statements
ACX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Retained
Common Paid-in Earnings
Stock Capital (Deficit) Other Total
Balance at December 31, 1993 $128 $417,480 $1,891 $(897) $418,602
Exercise of stock options 1 1,207 --- --- 1,208
Tax benefit of option
exercise --- 238 --- --- 238
Issuance of common stock 4 16,892 --- --- 16,896
Net income --- --- 19,825 --- 19,825
Cumulative translation
adjustment and other --- --- --- 685 685
Balance at December 31, 1994 133 435,817 21,716 (212) 457,454
Exercise of stock options 1 3,246 --- --- 3,247
Tax benefit of option
exercise --- 875 --- --- 875
Issuance of common stock --- 1,417 --- --- 1,417
Stock split 135 (135) --- --- ---
Net income --- --- 23,871 --- 23,871
Cumulative translation
adjustment and other --- --- --- 1,510 1,510
Balance at December 31, 1995 269 441,220 45,587 1,298 488,374
Exercise of stock options --- 308 --- --- 308
Tax benefit of option
exercise --- 48 --- --- 48
Issuance of common stock 10 1,726 --- --- 1,736
Net loss --- --- (92,024) --- (92,024)
Cumulative translation
adjustment and other --- --- (834) 295 (539)
Balance at December 31, 1996 $279 $443,302 $(47,271) $1,593 $397,903
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Operations
The operations of ACX Technologies, Inc. (the Company)
include two reportable business segments. Coors Ceramics Company
(Coors Ceramics) participates in three markets of the advanced
technical ceramics industry. Structural ceramics are components
in mechanical devices used in various applications including
automotive, fluid handling and power generation. Electronic
ceramics are the base for various electronic circuits, pressure
sensors and semiconductor chips in computers, telecommunications
and automotive controls. Advanced electronic packages are
casings that surround computer chips used in the
telecommunications and computing industries.
Graphic Packaging Corporation (Graphic Packaging) develops
and sells value-added paperboard folding cartons and flexible
packaging products. The end use for Graphic Packaging's flexible
packaging products are principally pet foods, personal care,
beverages, confections and baking/snacks. Primary folding carton
products include beverages, concentrated detergents, bar soaps
and cereals.
In 1996, Coors Ceramics and Graphic Packaging contributed
approximately 40% and 50%, respectively, of consolidated
revenues. In addition, the Company owns technology-based
developmental businesses operated through Golden Technologies
Company, Inc. (Golden Technologies). The Company's markets
include the United States, Western Europe, Canada, South America
and the Far East.
In 1996, the Company adopted a plan to dispose of Golden
Aluminum Company (Golden Aluminum), which 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. In March
1997, the sale of Golden Aluminum was completed.
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.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, using
management's best estimates and judgments where appropriate.
Significant estimates have been made by management with respect
to 1996 asset impairment and restructuring charges. Actual
results could differ from these estimates making it reasonably
possible that a change in these estimates could occur in the near
term.
Inventories: Inventories are stated at the lower-of-cost or
market. Cost is determined by the first-in, first-out (FIFO)
method for the majority of inventories. At Graphic Packaging,
cost is determined on the last-in, first-out (LIFO) method for
certain inventories. For such inventories, FIFO cost, which
approximates replacement cost, exceeded LIFO cost by $2.4 million
and $3.2 million at December 31, 1996 and 1995, respectively.
Properties: Land, buildings and equipment 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 10 to 40 years
Machinery and equipment 3 to 10 years
Building and leasehold improvements The shorter of the useful
life, lease term or 20 years
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: In 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The statement requires the recognition of an
impairment loss for an asset held for use when the estimate of
undiscounted future cash flows expected to be generated by the
asset is less than its carrying amount. Measurement of the
impairment loss is based on fair value of the asset. 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. See Note 3.
Start-Up Costs: Start-up costs that are unrelated to
construction and associated with manufacturing facilities are
expensed as incurred.
Goodwill and Other Intangibles: Goodwill and other
intangibles are amortized on a straight-line basis over the
estimated future periods to be benefited (not exceeding 40
years). Goodwill and other intangibles were $65.1 million at
December 31, 1996, and $50.3 million at December 31, 1995, less
accumulated amortization of $14.1 million and $11.3 million,
respectively.
Hedging Transactions: The Company periodically enters into
forward, future and option contracts for commodities to hedge its
exposure to price fluctuations primarily for raw materials used
in the production of high-fructose corn syrup. The gains and
losses on qualified hedge contracts are deferred and recognized
in cost of goods sold as part of the product cost.
Statement of Cash Flows: The Company defines cash
equivalents as highly liquid investments with original maturities
of 90 days or less. The carrying value of the Company's cash
equivalents approximates their fair market value. Income taxes
paid were $8.8 million, $13.9 million and $9.7 million in 1996,
1995 and 1994, respectively.
Interest capitalized, expensed and paid, in thousands, for
the years ended December 31, were as follows:
1996 1995 1994
Total interest costs $8,921 $10,381 $6,826
Interest capitalized $ 744 $ 1,075 $ 456
Interest expensed $8,177 $ 9,306 $6,370
Interest paid $9,554 $ 9,421 $5,163
During 1994, the Company exchanged approximately $8.0
million of assets held by a wholly-owned subsidiary of Golden
Technologies for an equity interest in a privately-held company.
Miscellaneous - net: Income attributable to minority
interests and activity for certain royalty arrangements are
included in "Miscellaneous - net" in the Consolidated Statement
of Income.
Environmental Expenditures: 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.
Per Share of Common Stock: Per share information is based
on the weighted average number of common shares outstanding
during the year. Per share information for all periods presented
is adjusted for a two-for-one stock split in 1995.
Reclassifications: Certain 1995 and 1994 information has
been reclassified to conform to the 1996 presentation.
Note 2. Discontinued Aluminum Operations
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 pretax charges of $155 million for anticipated losses
upon the disposition and estimated operating losses of the
business through the disposition date. In March of 1997, the
sale of Golden Aluminum was completed for $70 million, of which
$10 million was paid at closing and $60 million is due within two
years. In accordance with the purchase agreement, the purchaser
has the right to sell the property, plant and equipment back to
the Company during the two year period in discharge of the $60
million obligation. The initial payment of $10 million is non-
refundable.
The historical operating results and the estimated loss on
the sale of this business have been segregated as discontinued
operations on the accompanying Consolidated Statement of Income
for all periods presented. The assets and liabilities of Golden
Aluminum which were held for sale at December 31, 1996 have been
separately identified on the December 31, 1996 Consolidated
Balance Sheet as net current or noncurrent assets of discontinued
operations. The current assets consist primarily of accounts
receivable and inventory, partially offset by accounts payable.
The noncurrent assets are composed of the fixed assets of Golden
Aluminum. The Consolidated Balance Sheet as of December 31, 1995
has not been restated. 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 Golden Aluminum.
Selected financial data for Golden Aluminum, in thousands,
are summarized as follows:
Years Ended December 31,
1996 1995 1994
Net sales $168,446 $250,001 $152,798
Income (loss) from
operations before income
taxes $(8,033) $(10,076) $ 142
Income tax benefit 3,000 2,700 ---
Income (loss) from
operations (5,033) (7,376) 142
Loss on disposal before
income taxes (124,700) --- ---
Loss on operations during
disposition period before
income taxes (30,300) --- ---
Income tax benefit 56,600 --- ---
Net income (loss) $(103,433) $(7,376) $ 142
Per common share:
Income (loss) from
operations $ (0.18) $ (0.27) $ 0.01
Estimated loss on disposal (3.43) --- ---
Net income (loss) $ (3.61) $ (0.27) $ 0.01
Note 3. Asset Impairment and Restructuring Charges
In the fourth quarter of 1996, the Company recorded $32.2
million in asset impairment charges at Golden Technologies. The
charges relate primarily to the corn-wet milling business and
solar panel manufacturing activity. The assets of the corn-wet
milling business became impaired when unfavorable market
conditions in the high-fructose corn syrup market reduced selling
prices by half and decreased ongoing customer purchase
commitments and anticipated future net cash flows. Additional
future expense and cash outlays are expected to be approximately
$2.0 million to $3.0 million and consist primarily of employee
severance to be paid out in the first quarter related to the 1997
decision to exit the high-fructose corn syrup business. The
following circumstances in Golden Technologies' solar panel
manufacturing activity resulted in an impairment of the assets
associated with this activity: (i) the lack of a currently
viable market for cadmium telluride solar panels; (ii) the lack
of an alternative use for panel manufacturing assets; and (iii)
management's new focus on solar energy distribution.
Certain administrative functions at Golden Technologies were
restructured in the fourth quarter of 1996 and management
realignments were made in the solar energy distribution business.
This resulted in a restructuring charge of $2.4 million,
primarily consisting of estimated severance costs for 16
employees in administrative functions. Cash outlays related to
the restructuring charges are expected to occur in the first
quarter of 1997.
Note 4. Acquisitions
1996 Acquisitions
During 1996, the Company consummated several acquisitions,
including: (i) a controlling interest in the stock of Photocomm,
Inc., a publicly traded company headquartered in Scottsdale,
Arizona, engaged in the manufacture and marketing of solar
electric systems; and (ii) the operating assets of H.B. Company,
Inc., a manufacturer of oilfield pump components based in
Oklahoma City, Oklahoma. These acquisitions were accounted for
under the purchase method of accounting, and accordingly, the
Company's results of operations for 1996 include the results of
Photocomm since November 21, 1996 and of H.B. Company since March
19, 1996. The aggregate consideration in connection with these
acquisitions was $24.2 million, which was allocated to the net
assets acquired based upon their estimated fair market values.
The excess of the purchase price over the estimated fair market
values of the net assets acquired was $14.3 million, which is
being amortized over 15 years on a straight-line basis.
On March 1, 1996, the Company acquired Gravure Packaging,
Inc., based in Richmond, Virginia. Gravure is a manufacturer of
high-quality folding cartons for the packaged consumer goods
industry and had annual net sales of approximately $44 million in
1996. Under terms of the acquisition, which was accounted for as
a pooling of interests, the Company issued 911,000 shares of its
common stock and paid $2.4 million in exchange for all of
Gravure's stock. In addition, the Company paid $7.5 million at
closing to reduce the short-term borrowings of Gravure.
The above acquisitions were not material to the Company's
balance sheet or results of operations. Accordingly, prior
period financial statements have not been restated to include the
results of the Gravure pooling of interests transaction.
1994 Acquisition
In mid-1994 the Company acquired the stock of a flexible
packaging company with plants in Canada and the United States.
Consideration for the transaction included approximately $17
million in cash and notes, 845,000 shares of the Company's
common stock and assumption of $56 million in liabilities. The
transaction was accounted for under the purchase method of
accounting and accordingly, the results of the acquired company
have been included in the Company's results of operations since
July 1, 1994. Goodwill recorded in the transaction of
approximately $28 million is being amortized over 15 years on a
straight-line basis.
Note 5. Inventories
The classification of inventories, in thousands, at December
31, was as follows:
1996 1995
Finished $ 46,312 $ 41,228
In process 28,837 41,712
Raw materials 26,371 34,560
Total inventories $101,520 $117,500
Note 6. Properties
The cost of properties and related accumulated depreciation,
in thousands, at December 31, consists of the following:
1996 1995
Land and improvements $ 11,107 $ 19,110
Buildings 90,136 125,706
Machinery and equipment 342,304 557,312
Real estate properties 10,261 11,084
Construction in progress 25,055 35,883
478,863 749,095
Less accumulated depreciation 234,248 322,263
Net properties $244,615 $426,832
Note 7. Operating Leases
The Company has leases for a variety of equipment and
facilities that expire in various years. Future minimum lease
payments, in thousands, required as of December 31, 1996, under
non-cancelable operating leases with terms exceeding one year,
are as follows:
1997 $ 6,432
1998 4,424
1999 3,502
2000 3,159
2001 and thereafter 5,073
Total $22,590
Operating lease rentals for warehouse, production and office
facilities and equipment amounted to $6.2 million in 1996, $4.6
million in 1995 and $4.4 million in 1994.
Note 8. Long-Term Debt
Long-term debt, in thousands, consists of the following as
of December 31:
1996 1995
7.8% Unsecured notes due November 1, 1999 $ 70,000 $ 70,000
8.1% Unsecured notes due November 1, 2001 30,000 30,000
Total long-term debt $100,000 $100,000
The Company also has an unsecured $125 million revolving
credit facility under which no amounts were outstanding at
December 31, 1996 and 1995. The fair value of the Company's debt
approximates its carrying value.
Note 9. Income Taxes
The components of income from continuing operations before
income taxes were:
Years Ended December 31,
(In thousands) 1996 1995 1994
Domestic $14,694 $44,470 $30,502
Foreign 7,715 6,777 2,281
Total income from
continuing operations
before income taxes $22,409 $51,247 $32,783
The total provision for income taxes includes the following:
Years Ended December 31,
(In thousands) 1996 1995 1994
Current provision:
Federal $ 3,524 $ 9,549 $ 7,780
State 2,995 3,232 2,467
Foreign 2,941 3,936 779
Total current tax
expense 9,460 16,717 11,026
Deferred provision:
Federal (53,640) 1,064 2,167
State (4,254) 53 (494)
Foreign (166) (534) 401
Total deferred tax
expense (benefit) (58,060) 583 2,074
Total income tax expense
(benefit) $(48,600) $17,300 $13,100
The total provision for income taxes is included in the
Consolidated Statement of Income as follows:
Years Ended December 31,
(In thousands) 1996 1995 1994
Continuing operations $ 11,000 $20,000 $13,100
Discontinued operations (59,600) (2,700) ---
Total income tax expense
(benefit) $(48,600) $17,300 $13,100
Temporary differences that give rise to a significant
portion of deferred tax assets (liabilities) at December 31, 1996
and 1995, were as follows:
(In thousands) 1996 1995
Pension and employee benefits $ 18,996 $ 16,430
Alternative minimum tax 15,435 15,424
Depreciation and other property related (9,324) (56,145)
Inventory 3,649 1,110
Capitalized interest 3,044 2,674
Amortization of intangibles 2,252 551
All other 13,085 4,261
Gross deferred tax assets (liabilities) 47,137 (15,695)
Less valuation allowance (1,800) ---
Net deferred tax assets (liabilities) $ 45,337 $(15,695)
The valuation allowance of $1.8 million was established due
to the uncertainty surrounding the ultimate deductibility of
capital losses, which are deductible only to the extent of
offsetting capital gains.
The principal differences between the effective income
tax rate attributable to continuing operations and the U.S.
statutory federal income tax rate are as follows:
Years Ended December 31,
1996 1995 1994
Expected tax rate 35.0% 35.0% 35.0%
State income taxes (net of
federal benefit) 7.1% 4.0% 3.7%
Non-deductible expenses and
losses 9.6% 0.1% 1.8%
Foreign tax expense (net of
federal benefit) 0.3% 0.8% 0.5%
Change in valuation allowance 7.6% --- ---
Research and development and
other tax credits (12.1%) --- ---
Other - net 1.6% (0.9%) (1.0%)
Effective tax rate 49.1% 39.0% 40.0%
The Internal Revenue Service (IRS) has completed its
examination of the Company's federal income tax returns through
1992. The IRS is currently reviewing the federal income tax
returns for fiscal years 1993, 1994 and 1995. In the opinion of
management, adequate accruals have been provided for all income
tax matters and related interest.
The Company has not provided for U.S. or additional foreign
taxes on $11.3 million of undistributed earnings of foreign
subsidiaries to the extent they are considered to be reinvested
indefinitely. If these earnings were distributed, foreign tax
credits should become available under current law to reduce or
eliminate the resulting U.S. income tax liability. When the
Company identifies exceptions to the general reinvestment policy,
additional taxes will be provided.
Note 10. Stock Compensation
The Company's Equity Incentive Plan provides for the
granting of non-qualified stock options to certain key employees.
The Equity Incentive Plan also provides for the grant of
restricted stock, bonus shares, stock units and offers to
officers of the Company to purchase stock. The Company has
authorized 4.8 million shares for issuance under this plan.
Generally, options outstanding under the Company's Equity
Incentive Plan are subject to the following terms: (i) grant
price equal to fair market value of the stock on the date of
grant; (ii) ratable vesting over either a three or four year
service period; and (iii) maximum term of ten years from the date
of grant.
Transactions in options for the years ended December 31,
1996, 1995 and 1994 were as follows:
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
Options outstanding
at January 1 2,374 $16.08 2,313 $15.27 1,359 $12.64
Granted 479 $15.29 369 $19.34 1,088 $18.22
Exercised (29) $12.75 (271) $13.15 (110) $12.56
Expired or forfeited (36) $17.36 (37) $19.38 (24) $12.44
Options outstanding
at December 31 2,788 $15.96 2,374 $16.08 2,313 $15.27
Exercisable at
December 31 1,593 $15.33 1,251 $14.81 1,077 $13.96
Available for future
grant 806 1,368 1,713
Options outstanding at December 31, 1996 had exercise prices
between $9.93 and $20.88 per share and had a weighted average
remaining contractual life of 6.7 years.
The Company applies APB 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 options at grant date as allowed by
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," compensation expense of $2.2
million and $0.5 million would have been recorded for 1996 and
1995, respectively. Net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
1996 1995
Net income (loss) in thousands:
As reported $(92,024) $23,871
Pro forma $(93,411) $23,591
Earnings (loss) per share:
As reported $ (3.21) $ 0.86
Pro forma $ (3.26) $ 0.85
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: (i) dividend yield of 0%; (ii) expected
volatility of 22.6%; (iii) risk-free interest rate ranging from
5.2% to 6.8%; and (iv) expected life of 3 to 6.37 years. The
weighted average per share fair value of options granted during
1996 and 1995 was $5.16 and $6.65, respectively.
Note 11. Employee Retirement 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, real
estate and interest-bearing investments. The Company's funding
policy is to contribute annually not less than the ERISA minimum
funding standards nor more than the maximum amount that can be
deducted for federal income tax purposes. Total expense for
these plans, the Company's 401(k) plan and other defined
contribution plans was $8.3 million in 1996, $6.7 million in 1995
and $9.4 million in 1994.
The funded status of the pension plans and amounts
recognized in the Consolidated Balance Sheet as of December 31,
were as follows:
(In thousands) 1996 1995
Actuarial present value of accumulated
plan benefits (including vested
benefits of $84,093 in 1996 and
$79,447 in 1995) $ 90,940 $ 87,720
Projected benefit obligation for
service rendered to date 118,505 111,340
Plan assets available for benefits 97,308 83,654
Plan assets less than projected
benefit obligation (21,197) (27,686)
Unrecognized net loss 11,798 25,744
Prior service cost not yet recognized 7,321 3,668
Unrecognized net assets being
recognized over 15 years (689) (954)
Net prepaid pension asset (liability) $ (2,767) $ 772
The components of net pension expense for the years ended
December 31, were as follows:
(In thousands) 1996 1995 1994
Service cost for benefits
earned during the year $ 4,196 $ 3,100 $ 4,331
Interest cost on projected
benefit obligation 8,331 7,458 7,455
Actual gain on plan assets (14,172) (14,877) (522)
Net amortization and deferral 8,287 9,287 (4,163)
Net pension expense $ 6,642 $ 4,968 $ 7,101
Significant assumptions used in determining the valuation of
the projected benefit obligation were:
1996 1995 1994
Settlement rate 7.8% 7.3% 8.3%
Increase in compensation
levels 5.3% 5.3% 5.3%
Rate of return on plan assets 9.8% 9.8% 9.8%
Note 12. Other Postretirement Benefits
Certain subsidiaries of the Company provide health care and
life insurance benefits to retirees 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. Retirees who meet the age
and service requirement necessary to retire early without any
actuarial reductions from the Company's retirement plan for early
retirement, either pay no premium or the same premium as active
employees. Eligible retirees who do not meet this age and
service requirement pay a greater amount. These plans are not
funded.
The amounts recognized in the Consolidated Balance Sheet as
of December 31, were as follows:
(In thousands) 1996 1995
Accumulated Postretirement Benefit
Obligation (APBO)
Retirees $ 9,315 $ 1,089
Fully eligible, active plan
participants 2,898 3,035
Other active plan participants 8,487 8,176
20,700 22,300
Unrecognized net gain 3,872 525
Unrecognized prior service cost 4,443 4,905
Accrued other postretirement benefit
cost $29,015 $27,730
The components of net periodic other postretirement benefit
cost for the years ended December 31, were as follows:
(In thousands) 1996 1995 1994
Service cost for benefits
earned during the year $ 891 $ 889 $1,114
Interest cost on APBO 1,452 1,824 1,832
Recognized amortized gain (428) (157) (118)
Net periodic postretirement
benefit cost $ 1,915 $ 2,556 $ 2,828
The accumulated postretirement benefit obligation was
determined based on the terms of the pertinent health and life
insurance plans, together with relevant actuarial assumptions and
health care cost trend rates ranging ratably from 10.0% in 1996
to 5.0% through the year 2006. The discount rate used to
determine the APBO at December 31, 1996 and 1995, was 7.8% and
7.3%, respectively.
If the health care cost trend rate was increased 1%, the
APBO as of December 31, 1996, would have increased by
approximately $2.0 million. The effect of this change on the
ongoing annual cost would be approximately $0.3 million.
Note 13. Related Party Transactions
The Company sells packaging and refined corn starch products
to Coors Brewing Company (Coors Brewing), a subsidiary of Adolph
Coors Company (ACCo). Additionally, the Company sold aluminum
products to Coors Brewing until the sale of Golden Aluminum on
March 1, 1997. On December 28, 1992, the Company was spun off
from 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
(operating agreements) with Coors Brewing for the sale of
aluminum, packaging and starch products and the resale of brewery
byproducts. The operating agreements had a stated term of five
years and have resulted in substantial revenues to the Company.
During 1995, the Golden Aluminum operating agreement was
canceled. In early 1997, the supply agreement with Graphic
Packaging was modified to a three year, rolling term contract
that provides stated quantity commitments and annual repricing.
In addition, the corn starch and brewery byproduct agreements
were extended through 1999. The Company will continue to attempt
to increase its sales to unaffiliated customers to decrease
dependence on Coors Brewing.
Sales of packaging products and refined corn starch to Coors
Brewing accounted for approximately 16.7%, 19.0% and 20.6% of the
Company's consolidated net sales for 1996, 1995 and 1994,
respectively. Included in the results of discontinued operations
are sales of aluminum products of $25.9 million, $121.1 million
and $82.5 million for 1996, 1995 and 1994, respectively. 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.
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.
The Company is named as defendant in various actions and
proceedings arising in the normal course of business, including
claims by current or former employees relating to employment or
termination. In addition, the Company is a plaintiff in a fixed
price construction contract dispute under which a counterclaim
has been filed. In all of these cases, the Company is denying
the allegations made against it and is vigorously defending them.
Although the eventual outcome of the various lawsuits cannot be
predicted, it is management's opinion that these suits will not
result in liabilities to such extent that they would materially
affect the Company's financial position or results of operations.
Coors Ceramics and a beryllium supplier have been named as
defendants in a lawsuit brought by several current and former
employees of a defense equipment manufacturer and their spouses.
Plaintiffs are seeking damages in connection with the
manufacture, sale and distribution of certain products containing
beryllium and allege that they contracted chronic beryllium
disease from products supplied by Coors Ceramics and the
beryllium supplier. The suit is in the early stages of
litigation; however, the Company believes it has meritorious
defenses to the allegations raised and intends to defend itself
vigorously against these allegations.
Golden Technologies and several other defendants have
recently been sued by a candy company claiming violation of
federal and state antitrust laws in sales of corn syrup from 1988
to 1996. It appears that the Company was only an occasional and
minor supplier to the plaintiff and Golden Technologies intends
to vigorously defend itself against these allegations.
The Company has agreed to grant or guarantee a line of
credit for two years not to exceed $8.0 million for National
Empowerment Television, Inc. (NET). This agreement will grant
the Company the right to purchase a portion of NET's common stock
at a discount from the current market value under certain
circumstances. NET is a privately-held cable television network
located in Washington, D.C. If the Company is called upon to
satisfy the guarantee, the Company has the option to convert the
loan into an equity position of NET.
Coors Ceramics has received a demand for payment arising out
of contamination of a semiconductor manufacturing facility
formerly owned by a subsidiary of Coors Ceramics, Coors
Components, Inc. (CCI). Colorado State environmental authorities
are negotiating with the party to whom Coors Ceramics sold the
property (Buyer) to clean up soil and ground water contamination
on this parcel of property. In addition, Buyer is seeking
indemnification for damages paid in 1995 arising out of
litigation by the adjacent landowner. The contamination is
believed to have occurred prior to Coors Ceramics' ownership of
CCI. CCI was sold to Buyer in November 1987. Coors Ceramics
does not believe it has any responsibility for the contamination
or the cleanup, and has notified the party from whom it acquired
the property that Coors Ceramics will seek indemnification under
the terms of its purchase agreement in the event of liability.
Some of the Company's subsidiaries have been notified that
they may be potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (CERCLA) 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
investigations to date, the Company believes that any liability
with respect to these sites would not be material to the
financial condition and 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.
Note 15. Quarterly Financial Information (Unaudited)
The following information summarizes selected quarterly
financial information, in thousands, for each of the two years in
the period ended December 31, 1996.
1996 First Second Third Fourth Year
Net sales $ 177,138 $183,987 $175,154 $176,101 $712,380
Cost of goods sold 138,478 142,585 137,218 137,574 555,855
Marketing, general &
administrative 19,588 19,507 18,459 20,393 77,947
Research & development 3,623 3,771 3,602 4,304 15,300
Asset impairment and
restructuring charges --- --- --- 34,642 34,642
Other expense 1,589 2,158 1,693 787 6,227
Total costs & expenses 163,278 168,021 160,972 197,700 689,971
Income (loss) from
continuing operations
before income taxes 13,860 15,966 14,182 (21,599) 22,409
Income tax expense (benefit) 5,700 6,200 5,600 (6,500) 11,000
Income (loss) from
continuing operations 8,160 9,766 8,582 (15,099) 11,409
Discontinued operations:
Loss from discontinued
operations of
Golden Aluminum (5,033) --- --- --- (5,033)
Loss on disposal of Golden
Aluminum (70,000) --- --- (28,400) (98,400)
Net income (loss) $(66,873) $ 9,766 $ 8,582 $(43,499) $(92,024)
Per share of common stock:
Continuing operations $ 0.29 $ 0.34 $ 0.30 $ (0.53) $ 0.40
Discontinued operations (2.62) --- --- (0.99) (3.61)
Net income (loss) $ (2.33) $ 0.34 $ 0.30 $ (1.52) $ (3.21)
1995
Net sales $155,884 $169,235 $171,210 $164,524 $660,853
Cost of goods sold 121,073 128,776 130,248 127,932 508,029
Marketing, general &
administrative 18,265 19,237 18,475 19,094 75,071
Research & development 4,447 4,763 3,161 3,941 16,312
Restructuring charges --- --- --- 2,735 2,735
Other expense 2,362 2,170 1,794 1,133 7,459
Total costs & expenses 146,147 154,946 153,678 154,835 609,606
Income from continuing
operations before
income taxes 9,737 14,289 17,532 9,689 51,247
Income tax expense 3,850 5,550 6,900 3,700 20,000
Income from continuing
operations 5,887 8,739 10,632 5,989 31,247
Discontinued operations:
Income (loss) from
discontinued operations of
Golden Aluminum 2,763 1,180 (3,676) (7,643) (7,376)
Net income (loss) $ 8,650 $ 9,919 $ 6,956 $ (1,654) $ 23,871
Per share of common stock:
Continuing operations $ 0.21 $ 0.32 $ 0.38 $ 0.22 $ 1.13
Discontinued operations 0.10 0.04 (0.13) (0.28) (0.27)
Net income (loss) $ 0.31 $ 0.36 $ 0.25 $ (0.06) $ 0.86
Included in the 1996 fourth quarter loss from continuing
operations were asset impairment and restructuring charges of
$34.6 million at Golden Technologies. The after-tax effect of
these charges was $22.8 million, or $0.80 per share. See Note 3.
Note 16. Segment Information
Certain financial information for the Company's business
segments, in thousands, is included in the following summary:
Operating Depreciation Additions
Net Income and to
(In thousands) Sales (Loss) Assets Amortization Properties
1996
Ceramics $276,352 $44,204 $214,635 $16,159 $30,291
Packaging 346,547 41,048 205,705 19,959 13,314
Developmental
businesses 89,481 (48,447) 104,138 5,757 12,558
Discontinued
operations --- --- 116,552 7,307 1,036
Corporate --- (8,169) 35,662 341 327
$712,380 $28,636 $676,692 $49,523 $57,526
1995
Ceramics $270,877 $47,395 $189,191 $14,046 $25,122
Packaging 308,109 34,551 197,587 16,945 20,149
Developmental
businesses 81,867 (13,740) 80,350 5,643 7,426
Discontinued
operations --- --- 268,260 12,618 7,177
Corporate --- (9,500) 50,098 605 153
$660,853 $58,706 $785,486 $49,857 $60,027
1994
Ceramics $231,288 $33,091 $165,804 $11,831 $18,949
Packaging 258,833 27,889 197,330 13,632 8,407
Developmental
businesses 88,584 (13,174) 88,852 8,842 5,920
Discontinued
operations --- --- 297,962 11,573 9,768
Corporate --- (9,355) 10,342 222 53
$578,705 $38,451 $760,290 $46,100 $43,097
Operating income (loss) for reportable segments is exclusive
of certain unallocated corporate expenses. Corporate assets
include cash and cash equivalents and certain properties.
SCHEDULE II
ACX TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Allowance for doubtful receivables
(deducted from accounts receivable)
Additions
Balance at charged to Balance
Year Ended beginning costs and at end
December 31 of year expenses Other Deductions of year
1994 $2,899 $1,335 $ 6(1) $ (796)(2) $3,444
1995 $3,444 $ 742 $ 7(1) $(1,469)(2) $2,724
1996 $2,724 $1,272 $(30)(1) $ (931)(2) $3,035
(1) The effect of translating foreign subsidiaries' financial
statements into U.S. dollars.
(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 1997 Annual Meeting of Shareholders.
The following executive officers of the Company serve at the
pleasure of the Board:
Jeffrey H. Coors, 52, President of the Company since its
formation in August 1992. Chairman of Graphic Packaging and
Golden Technologies since 1985 and 1989, respectively; Executive
Vice President of ACCo from 1991 to 1992; President of Coors
Technology Companies from 1989 to 1992; Director of Photocomm,
Inc. since November 1996.
Joseph Coors, Jr., 55, President of the Company since its
formation in August 1992; President and Chief Executive Officer
of Coors Ceramics since March 1997 and Chairman of Coors Ceramics
since 1989; President of Coors Ceramics from 1985 to 1993;
Chairman of Golden Aluminum from 1993 to 1997; Executive Vice
President of ACCo from 1991 to 1992; also a director of Hecla
Mining Company.
Jed J. Burnham, 52, Chief Financial Officer and Treasurer of
the Company since March 1995 and August 1992, respectively; Chief
Credit Officer for non-metro Denver banks at Norwest Bank from
1990 to 1992; Director of Photocomm, Inc. since November 1996.
Jill B. W. Sisson, 49, 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.
Gail A. Constancio, 36, Controller and Principal Accounting
Officer of the Company since May 1994; Manager of Financial
Reporting and Investor Relations from 1992 to 1994; Financial
Reporting Specialist for ACCo from 1989 to 1992.
The following table identifies and provides information
regarding the principal executives of the Company's major
subsidiaries:
David H. Hofmann, 59, President and Chief Executive Officer
of Graphic Packaging since October 1989; President of the Health
Care Division of Paper Manufacturers Company from 1980 to 1989.
Dean A. Rulis, 49, President of Golden Technologies since
1992; President of Wilbanks International, Inc., a subsidiary of
Coors Ceramics, 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) The following documents are filed as part of this
report:
(1) Financial Statements: See index of financial
statements in Part II, Item 8.
(2) Financial Statement Schedule: See index of financial
statements in Part II, Item 8:
Schedule II- Valuation and Qualifying Accounts for
the years ended December 31, 1996, 1995 and 1994
Schedules other than those referred to above are omitted
because they are not required or the information is shown in the
financial statements or notes thereto.
(3) Exhibits:
Exhibit
Number Document Description
2.1 Plan of disposition for Golden Aluminum
Company. (Incorporated by reference to Exhibit
2.1 to Form 10-Q filed on May 3, 1996, file No.
0-20704)
3.1 Articles of Incorporation of Registrant.
(Incorporated by reference to Exhibit 3.1 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 Exhibit 3.1A to Form 8 filed on
December 3, 1992, file No. 0-20704)
3.2 Bylaws of Registrant, as amended.
(Incorporated by reference to Exhibit 3.2 to
Form 10-Q filed on November 7, 1996, file No. 0-
20704)
4 Form of Stock Certificate of Common Stock.
(Incorporated by reference to Exhibit 4 to Form
10-K filed on March 7, 1996, file No. 0-20704)
10.1 Stock Purchase Agreement Among Golden
Aluminum Company, Crown Cork & Seal, Inc. and
ACX Technologies, Inc. (Incorporated by
reference to Exhibit 10.1 to 8-K filed on March
14, 1997, file No. 0-20704)
10.2 Supply Agreement between Graphic Packaging
Corporation and Coors Brewing Company, dated
January 1, 1997. (Confidential treatment has
been requested for portions of this Exhibit)
10.6 Gravure International Capital Corporation
Purchase Agreement. (Incorporated by reference
to Form 8-K filed on July 1, 1994, file No. 0-20704)
10.7* Description of Officers' Life
Insurance Program.
10.8* Form of Officers' Salary Continuation
Agreement, as amended. (Incorporated by
reference to Exhibit 10.10 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 Exhibit 10.9 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
Exhibit A 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 Exhibit
10.11 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 Exhibit 10.15 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
Exhibit 10.16 to Form 10-K filed on March 7,
1996, file No. 0-20704)
12 Statement of Computation of Ratio of
Earnings to Fixed Charges.
21 Subsidiaries of Registrant.
23 Consent of Price Waterhouse 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.
There were no reports filed on Form 8-K for the quarter ended
December 31, 1996.
(c) Other Exhibits.
No exhibits in addition to those previously filed or listed in
Item 14(a)(3) are filed herein.
(d) Other Financial Statement Schedules.
No additional financial statement schedules are required.
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 24, 1997 By /s/ Jeffrey H. Coors
Jeffrey H. Coors
President
Date: March 24, 1997 By /s/ Joseph Coors, Jr.
Joseph Coors, Jr.
President
Date: March 24, 1997 By /s/ Jed J. Burnham
Jed J. Burnham
Chief Financial
Officer and Treasurer
Date: March 24, 1997 By /s/ Gail A. Constancio
Gail A. Constancio
Controller and
Principal Accounting
Officer
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 24, 1997 By /s/ William K. Coors
William K. Coors
Chairman of the
Board of Directors
and Director
Date: March 24, 1997 By /s/ John D. Beckett
John D. Beckett
Director
Date: March 24, 1997 By /s/ Jeffrey H. Coors
Jeffrey H. Coors
Principal Executive
Officer and Director
Date: March 24, 1997 By /s/ John K. Coors
John K. Coors
Director
Date: March 24, 1997 By /s/ Joseph Coors, Jr.
Joseph Coors, Jr.
Principal Executive
Officer and Director
Date: March 24, 1997 By /s/ Richard P. Godwin
Richard P. Godwin
Director
Date: March 24, 1997 By /s/John H. Mullin,III
John H. Mullin, III
Director
Date: March 24, 1997 By /s/ John Hoyt Stookey
John Hoyt Stookey
Director