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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-20704
ACX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1208699
(State of incorporation) (IRS Employer Identification No.)
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 require-
ments 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 1, 1999, there were 28,431,224 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 $349,701,765.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement filed in connection with the 1999
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 Technologies Company, Inc.
and its subsidiaries (collectively referred to as Golden
Technologies), and, prior to March 1997, Golden Aluminum Company
and its subsidiaries (collectively referred to as Golden
Aluminum).
PART I
ITEM 1. BUSINESS
(a) General Development of Business
The Company, through its wholly owned subsidiaries,
manufactures high-performance consumer and industrial packaging
products and advanced technical ceramics and other engineered
materials for industrial markets. In addition, the Company owns
through Golden Technologies several other operating companies
primarily comprised of its majority interest in Golden Genesis
Company, a group of solar electric distribution companies, which
is publicly traded on NASDAQ. The Company's strategy is to
maximize the competitive positions and growth opportunities of
its core businesses. The strategy includes a review of business
acquisitions, joint ventures, and dispositions of under-
performing assets and noncore businesses.
The Company was incorporated in Colorado in August 1992 as a
holding company for the ceramics, packaging, 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.
On January 14, 1998, the Company acquired Britton Group plc
(Britton) pursuant to a cash tender offer for approximately $420
million. Britton was an international packaging group operating
through two principal divisions: folding cartons and plastics.
The folding cartons division, Universal Packaging Corporation
(Universal Packaging), is a nonintegrated manufacturer of folding
cartons in the United States, with capabilities in design,
printing and manufacturing of multicolor folding cartons. The
plastics division of Britton (Plastics Division), which was
disposed of on April 20, 1998, operates in the United Kingdom and
includes the extrusion, conversion and printing of polyethylene
into films and bags for industrial customers. In addition, the
Company has completed several acquisitions during the prior six
years including four flexible packaging plants in 1994, a folding
carton packaging business and a controlling interest in a solar
energy distribution business in 1996, a fluoropolymer sealing
system and component manufacturer in 1997, and a Canadian
flexible packaging business in 1998.
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 of which was due by March 1999. In
December of 1998, the Company extended the due date on the $60
million payment until September 1, 1999. In accordance with the
purchase agreement and subsequent extension, the purchaser has
the right to return Golden Aluminum to the Company before
September 1, 1999 in discharge of the $60 million obligation.
The initial payment of $10 million is nonrefundable.
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, Foreign
Operations, and Foreign Sales.
Certain financial information for the Company's business
segments is included in the following summary:
Operating Depreciation
Income and Capital
(In thousands) Net Sales (Loss) Amortization Assets Expenditures
--------- --------- ------------ -------- ------------
1998
Packaging $623,852 $38,232 $35,924 $539,039 $47,498
Ceramics 296,614 28,886 19,977 248,970 26,891
Other 67,925 (3,047) 1,270 56,905 3,384
--------- --------- --------- -------- ---------
Segment total 988,391 64,071 57,171 844,914 77,773
Corporate --- (8,941) 336 116,291 690
--------- --------- --------- -------- ---------
Consolidated
total $988,391 $55,130 $57,507 $961,205 $78,463
========= ========= ========= ======== =========
1997
Packaging $365,123 $42,655 $20,211 $210,024 $18,022
Ceramics 304,824 48,249 18,664 261,471 28,812
Other 61,138 (31,186) 3,451 81,443 9,068
--------- --------- --------- -------- ---------
Segment total 731,085 59,718 42,326 552,938 55,902
Corporate --- (10,177) 337 148,258 311
--------- --------- --------- -------- ----------
Consolidated
total $731,085 $49,541 $42,663 $701,196 $56,213
========= ========= ========= ======== =========
1996
Packaging $346,547 $41,048 $19,959 $205,705 $13,314
Ceramics 276,352 44,204 16,159 214,635 30,291
Other 89,481 (48,447) 5,757 104,138 12,558
--------- --------- --------- -------- ---------
Segment total 712,380 36,805 41,875 524,478 56,163
Corporate --- (8,169) 341 35,662 327
Discontinued
operations --- --- 7,307 116,552 1,036
--------- --------- --------- -------- ---------
Consolidated
total $712,380 $28,636 $49,523 $676,692 $57,526
========= ========= ========= ======== =========
Corporate assets for 1998 and 1997 consist primarily of cash,
a note receivable from the sale of Golden Aluminum, deferred taxes,
and certain properties. The 1997 and 1996 operating losses for
Other relate primarily to asset impairment and restructuring
charges.
Certain financial information regarding the Company's domestic
and foreign operations is included in the following summary:
Net Long-Lived
(In thousands) Sales Assets
-------- ----------
1998
United States $851,010 $553,209
Canada 65,525 34,813
Other 71,856 6,551
-------- ----------
Total $988,391 $594,573
======== ==========
1997
United States $582,067 $274,710
Canada 68,616 34,619
Other 80,402 6,833
-------- ----------
Total $731,085 $316,162
======== ==========
1996
United States $578,106 $326,088
Canada 56,966 38,187
Other 77,308 2,968
-------- ----------
Total $712,380 $367,243
======== ==========
(c) Narrative Description of Business Segments
Packaging
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 business began with a
single plant in 1974 as part of the vertical integration of
ACCo's beer business operated through its subsidiary, Coors
Brewing Company (Coors Brewing). Since that time, Graphic
Packaging has expanded its product capabilities and geographic
presence through several plant expansions and acquisitions. The
1998 acquisition of Universal Packaging, which is now operating
as an integral part of Graphic Packaging, added six manufacturing
facilities and capabilities in web and sheet fed offset printing,
electron beam curing, and rotary die cutting. This acquisition
has allowed Graphic Packaging to expand into the food market and
adds a blue-ribbon customer list. As of December 31, 1998,
Graphic Packaging operated ten folding carton facilities and
seven flexible packaging facilities.
Markets and Products. The product packaging industry
includes: paperboard packaging, which consists of corrugated
products, folding cartons, and food service containers such as
disposable plates and cups; and flexible packaging, such as
printed and laminated bags, pouches, and roll stock films and
foils used for lids, overwraps, and labels. Graphic Packaging
competes in the value-added portion of the folding carton and
flexible packaging industries. The value added nature of these
operations generally allows Graphic Packaging to command higher
selling prices for their products but requires numerous and
complex operations that are not necessary in the production of
commodity packaging.
The U.S. folding carton industry is a $5 billion annual
industry that declined 1% in 1998 compared to 1997, primarily due
to continuing efforts to minimize package bulk. Between 1993 and
1997 this industry grew at an annualized rate of about 2% per
year. Over the last several years, the majority of Graphic
Packaging's internal folding carton growth has come from sales to
Coors Brewing and customers in the detergent, cereal, premium bar
soap, and quick service restaurant markets, and promotional
packaging. In addition, the Universal Packaging carton
acquisition brought Graphic Packaging a significant position in
the dry and frozen food markets.
In manufacturing specialty folding cartons, Graphic
Packaging uses an internally developed, patented composite
packaging technology, Composipac[TM](Composipac), which provides
finished products with high quality graphics that have enhanced
abrasion protection and moisture, air, or other special barrier
properties. Graphic Packaging's Composipac technology is
designed to meet the continuing specialized needs of its
beverage, powdered detergents, soap, and promotional packaging
customers. This technology also provides Graphic Packaging with
the unique ability to cost effectively produce full web
lamination holographic cartons. Demand for holographic folding
cartons is growing significantly in the toothpaste, promotional
packaging, and other market segments.
The flexible packaging industry in the U.S. and Canada is
approximately an $18 billion annual industry, which has grown
approximately 3% on an annualized basis between 1993 and 1998.
The 1998 acquisition of a Canadian flexible packaging company has
provided both sales growth and reinforced Graphic Packaging's
position in the Canadian market place. Flexible packaging offers
advantages over other packaging mediums, such as lightweight,
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, bags for snack foods, candies, and
photographic development paper. These packages require complex
laminations and extensive printing and sometimes the use of
special coating and lacquers. Other flexible packaging products
made by Graphic Packaging include 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 new high-margin products.
Graphic Packaging intends to emphasize its ability to provide
innovative products with value added characteristics that meet
exacting customer specifications. Graphic Packaging continues to
focus on commercializing new products and processes to serve
existing and new markets and to pursue acquisitions that
complement its existing business.
Graphic Packaging has developed a unique packaging system,
known as ComposiGard[TM](a one-piece, 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
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,
metallizing 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 and laminated
materials in roll stock form. Its technical capability centers
on printing premium quality graphics, production of sophisticated
laminations, and manufacture of pre-made bags.
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. Historically, Graphic Packaging
has not experienced difficulty 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 75%, 55%,
and 56% of Graphic Packaging's total sales for each of the years
ended 1998, 1997, and 1996, respectively, with the remainder
coming from flexible packaging sales. Approximately 24%, 53%,
and 54% 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 focused primarily on
the confectionery, foods, beverage labels, cookie, photographic,
and pet food markets.
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. Graphic Packaging had
approximately $121.5 million in unshipped backlog orders as of
March 1, 1999, as compared to approximately $108.9 million as of
March 1, 1998. The Company expects to ship most of the backlog
by the end of the second quarter 1999. 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 industry
include Jefferson Smurfit Corporation, Fort James Corporation,
Field Container Corporation, Mead, Gulf States, Riverwood
International Corporation, Westvaco, and Shorewood International.
There are an increasing number of competitors offering packaging
with Composipac-like qualities for promotional packaging.
The flexible packaging market has numerous competitors
varying in size. Graphic Packaging's flexible competitors
include Bemis Company, Inc., Printpack, Sealed Air, American
National Can Company, and Union Camp Corporation. 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
also significant competitive factors.
Product Development. Graphic Packaging's research and
development staff works 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, liquid
containment packages, and other packaging innovations.
Ceramics
General. Coors Ceramics develops, manufactures, and sells
advanced technical ceramic and other engineered materials across
a wide range of product lines for a variety of applications.
Coors Ceramics, which has been in business for over 78 years, is
the largest U.S. owned independent manufacturer of advanced
technical ceramics.
Markets and Products. Coors Ceramics provides components to
23 of the 24 commonly recognized industrial markets.
Approximately 64% of its sales in 1998 were to the automotive,
beverage, telecommunications, semiconductor, power generation and
mining, petrochemical and pulp and paper industrial markets.
Ceramic products are diamond hard, can withstand extreme
temperatures, and have excellent electrical properties. These
properties make ceramic an ideal material for a variety of
industrial applications. Initially more expensive than competing
materials, such as plastics and metals, ceramic products provide
higher value by contributing to longer product life and enabling
customers to enhance their technologies.
There are numerous and varied uses for ceramic components such
as:
> Slitting knives and other processing and sizing
devices used in high-speed paper making machines;
> Seals and other pump components installed in
automobiles, home appliances, chemical processing,
and blood analysis equipment;
> Fixtures for processing of 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;
> Linings for pipe used in the processing of coal
and other abrasive materials;
> Substrates (or bases) for various electronic
circuits, pressure sensors, and semiconductor
chips which are critical components in computers,
communications systems, automotive controls and
military electronics;
> Passive electronic components, such as capacitors
and insulators, used in electrical devices, and;
> Advanced electronic ceramic packages, which are
casings that surround a semiconductor chip, which
insulate and connect the chip to printed circuitry.
Cellular telephones, pagers, and radar detection
devices require these packages due to their need
for high reliability.
Coors Ceramics engineers and custom designs its products to
comply with specific customer requirements. Successful product
design requires consultation with customers in their choice of
the correct base material and selection by Coors Ceramics of the
appropriate manufacturing processes. Since Coors Ceramics sells
its advanced ceramic products primarily to industrial
manufacturers for incorporation into their products or processes,
the business is sensitive to changes in economic conditions that
affect the end users of ceramic products. For example, because
an American car currently contains approximately 17 ceramic
components, sales fluctuations in the domestic automobile
industry could directly affect Coors Ceramics' sales to the
automotive market.
Strategy. Coors Ceramics seeks to grow its business
profitably and manage its sensitivity to changing economic
conditions. In order to achieve its goal, Coors Ceramics pursues
a strategy of devoting resources to new product and material
development, internally and through acquisitions, to provide
engineered solutions for component products to a diversified
customer base.
Among Coors Ceramics' most valuable assets for achieving its
strategy is its reputation for expert custom product design,
product quality, and customer service. Coors Ceramics emphasizes
alliances with key customers in diverse industries to develop
value added, engineered products. Coors Ceramics has cooperative
development and sole-supplier agreements with several major
customers. It continuously evaluates new materials, often 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 continues to
aggressively pursue new applications for ceramic to replace metal
and other conventional materials. Coors Ceramics has developed
zirconia, tungsten carbide, silicon carbide and titanate based
ceramic products and continues to develop other materials to
complement and enhance its conventional alumina based product
lines. Coors Ceramics 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.
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 high temperature electrostatic
precipitators that remove particulates from power
plant emissions;
> Fluid handling, primarily in the area of ceramic
components in valves, pumps, and flow meters for
chemical, food processing, and petrochemical
applications; and
> Semiconductor equipment market as the supplier
of pressure parts and assemblies.
Management also anticipates near-term growth opportunities
in the power tube and pressure sensor markets.
Manufacturing and Raw Materials. Ceramic manufacturing
involves several successive operations. Initially, a powder such
as zirconia or alumina is mixed with a binding agent and other
materials that 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 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. The process for manufacturing fluoropolymer-based
parts is similar to that of ceramic except that the parts are
formed at a lower pressure and fired at a lower temperature.
The raw materials Coors Ceramics uses in its 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 2.1 million
square feet of manufacturing space in the United States and
abroad. Overall, Coors Ceramics operated at approximately 65% of
its available capacity in 1998 primarily due to lower capacity
utilization at plants, which primarily service the oilfield
products, electronics, and semiconductor industries. Capacity
utilization, not currently a major constraint, ranged between 32%
and 79% at Coors Ceramics' 22 manufacturing facilities in 1998.
These facilities specialize, to a certain degree, in a particular
market and are located strategically 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 1998, Coors Ceramics completed capacity expansion at
certain locations.
Sales and Distribution. Coors Ceramics sells products
primarily to manufacturers, including original equipment
manufacturers, for incorporation into industrial applications and
products. Coors Ceramics generates sales through direct sales
employees located throughout the United States and Europe and
manufacturers' representatives. Coors Ceramics' sales personnel,
many with engineering expertise, receive substantial technical
assistance and engineering support due to the highly technical
nature of its products.
International sales, primarily in Western European and Far
East markets, constituted approximately 25%, 27%, and 29% of
ceramic product sales in 1998, 1997, and 1996, respectively.
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 when sales are made in the
foreign currency. The strength of the dollar relative to the
currency of its customers or competitors may have an impact on
Coors Ceramics' profit margins or sales to international
customers.
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 petrochemical, automotive, power
generation and mining, and semiconductor industries comprised
16%, 13%, 12%, and 10%, respectively, of Coors Ceramics' 1998
consolidated net revenue.
Coors Ceramics' 25 largest customers accounted for
approximately 34% of its net sales for 1998, 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, 1999, Coors Ceramics had backlog orders of
approximately $82.9 million, as compared to $106.6 million as of
March 1, 1998. Coors Ceramics will ship most of the 1999 backlog
before the end of the second quarter of 1999. Customers may
place annual orders, with shipments scheduled over a twelve-month
period. Backlog orders may be higher for certain industrial
product segments due to longer time periods between order and
delivery dates under purchase orders. Sales are not seasonal but
can be 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 primarily from Kyocera Corporation (Japan),
Morgan Crucible Co. (United Kingdom), NGK Insulators, Ltd.
(Japan), and CeramTec AG (Germany). Principal competitive
factors in the worldwide market include 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. A major competitor in most of the
markets it serves, Coors Ceramics holds a prominent position in
some product lines. It has maintained long standing
relationships with major corporations based on consistent high
product quality and customer service, which management believes
is Coors Ceramics' advantage in domestic and certain foreign
markets.
Ceramic materials offer advantages over conventional
materials for applications in which certain properties such as
high electrical resistance, hardness, high-temperature strength,
wear and abrasion resistance, and precise machinability are
important. Ceramic products, however, face competition from
metals and other materials. For example, plastics are
substituting 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 continues to be attractive to customers. In accordance
with the strategy outlined above, Coors Ceramics continues to
explore and evaluate the development or acquisition of companies
with competing or complementary materials.
Product Development. Coors Ceramics continually undertakes
new product and process improvement efforts within the
manufacturing operations including new or improved materials and
processes.
Other Businesses
In addition to the primary operating businesses, the Company
owns other businesses (Other), primarily operating through its
majority owned subsidiary, Golden Genesis Company (Golden
Genesis). Golden Genesis' focus is on assembling and
distributing solar electric systems. The Other businesses also
include a real estate development partnership. Additionally, the
historical results for the Other businesses include the
operations of a biodegradable polymer project and a corn-wet
milling facility that produced high-fructose corn syrup and
refined corn starch. In 1997, the Company exited the high-
fructose corn syrup business. During 1998, the Company exited
the biodegradable polymer project. On January 31, 1999, the
Company sold the remaining corn-wet mill operations. The Company
is working toward exit strategies for all noncore businesses.
Dependence on Major Customer
Sales to Coors Brewing accounted for approximately 12.1%,
15.5%, and 16.7% of the Company's consolidated sales for 1998,
1997, and 1996, respectively; however, future sales may vary from
historical levels.
In 1998, Graphic Packaging entered into a new five-year
supply agreement with Coors Brewing to supply packaging products.
The new agreement includes stated quantity commitments and
requires annual repricing. In addition, this contract provides
for a three-year extension to be negotiated by 2000. The Company
also sold aluminum products and refined corn starch to Coors
Brewing until the disposition of these businesses on March 1,
1997 and January 31, 1999, respectively. The Company will
continue to attempt to increase its sales to unaffiliated
customers to decrease dependence on Coors Brewing. The loss of
Coors Brewing as a customer in the foreseeable future could have
a material adverse effect 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. Total research and
development expenditures for the Company were $4.6 million, $15.6
million, and $15.3 million for 1998, 1997, and 1996,
respectively. The Company's research and development
expenditures have and are expected to continue to decrease as a
percentage of net sales in the foreseeable future due to the
decisions to reduce certain activities at Golden Technologies.
The Company believes the remaining expenditures will be adequate
to meet the strategic objectives of its two core businesses.
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 Other businesses also hold several patents and
patent applications and licenses related to their businesses and
technology development pursuits.
Environmental Matters
The Company's operations 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.
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. Colorado State environmental authorities are
seeking clean up of soil and ground water contamination from a
subsequent owner. Although Coors Ceramics does not believe it is
responsible for the contamination or the cleanup, the parties
agreed to a remediation plan. Coors Ceramics will manage the
remediation and, after the first $500,000 in expenses, pay from
10 to 15 percent of the additional remediation costs. There is
no estimate of potential clean up costs, although management does
not believe it will be material.
Coors Ceramics has received a Unilateral Administrative
Order issued by the EPA relating to the Rocky Flats Industrial
Park (RFIP) Site, and is participating with the RFIP group to
perform an Engineering Evaluation/Cost Analysis on the property
including investigation and sampling. There is no estimate of
potential clean up costs, although management does not believe it
will be material.
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 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 or results of operations of the Company,
without consideration for insurance recoveries. There can be no
certainty, however, that the Company will not be named as a PRP
at additional sites or be subject to other environmental matters
in the future or that the costs associated with those additional
sites or matters would not be material.
In addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
Year 2000 Readiness Disclosure
The Year 2000 issue arose because many existing computer
programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a
year that begins with "20" instead of the familiar "19". If not
corrected, many computer applications could fail or create
erroneous results disrupting normal business operations.
Management has implemented an enterprise-wide program to
prepare the Company's financial, manufacturing and other critical
systems and applications for the year 2000. The program
includes a task force established in March 1998 that has the
support and participation of upper management and includes
individuals with expertise in risk management, legal and
information technologies. The Board of Directors monitors the
progress of the program on a quarterly basis. The task force's
objective is to ensure an uninterrupted transition to the year
2000 by assessing, testing, and modifying all information
technology (IT) and non-IT systems, interdependent systems, and
third parties such as suppliers and customers.
The Year 2000 task force has taken an inventory of all IT
and non-IT systems. This inventory categorizes potential systems
date failures into three categories: "major" (critical to the
production and could be business threatening with no short-term
alternatives available); "limited" (disrupting to the business
operations with short-term solutions available); and "minor"
(inconsequential to the business operations). The task force has
prioritized the program to focus first on "major" systems. It is
the Company's goal to have all systems Year 2000 compliant no
later than September 1, 1999.
IT Systems - The Company is primarily using internal
resources to remediate IT systems. External resources are used
to assist in testing compliance of IT systems. The Company does
not rely on any one IT system. The majority of the IT systems
have been recently purchased from third party vendors. These
systems were already Year 2000 compliant or had Year 2000
compliance upgrades. As of December 31, 1998, approximately 80%
of the Company's IT systems are Year 2000 compliant.
Non-IT Systems - The Company has approximately 40
manufacturing facilities with varying degrees of non-IT systems
(such as printing presses, automated kiln systems, statistical
process control systems, ink mixing systems, quality control
systems, and machining equipment). The vast majority of these
facilities are located in North America. To ensure Year 2000
compliance for non-IT systems, the Year 2000 task force has
contacted the suppliers of these non-IT systems and obtained
statements that the systems are Year 2000 compliant and is in the
process of testing Year 2000 compliance. The majority of these
non-IT systems use time intervals instead of dates and are Year
2000 compliant. Thus, the Company believes that potential
disruptions of such systems due to the Year 2000 issue should be
minimal. As of December 31, 1998, approximately 90% of the
Company's "major" and "limited" non-IT systems are Year 2000
compliant. The "minor" non-IT systems are in various stages of
compliance.
Third Parties - The Year 2000 task force has been in contact
with key suppliers and customers to minimize potential business
disruptions related to the Year 2000 issue between the Company
and these third parties. The task force has focused on suppliers
and customers that are classified as "major" and "limited".
While the Company cannot guarantee compliance by third parties
suppliers, the Company has developed contingency plans to ensure
the availability of inventory supplies in the event a supplier is
not Year 2000 compliant.
Contingency Plans - The Company is in the process of
finalizing contingency plans in the event there are Year 2000
failures related to the Company's IT and non-IT systems and/or
key third parties. The Company's manufacturing facilities are
not interdependent in terms of non-IT systems and its facilities
utilize a diverse range of non-IT systems (i.e., printing
presses, kilns, and other manufacturing equipment). In
addition, no one facility accounts for a significant amount of
revenue. Thus, the contingency plan includes for non-IT systems
the transfer of production between facilities and manufacturing
equipment. Currently, the Company believes that there is enough
manufacturing capacity to accommodate the contingency plan.
The Company's IT systems are also not heavily interdependent
between facilities and key third parties and the Company utilizes
a diverse range of IT systems. The contingency plan for IT
systems includes the ability to transfer transaction processing,
record keeping, and compliance work between facilities and
maintaining "hard" copies of critical information.
The Company is not dependent on any one supplier. The
Company has established back-up suppliers and will maintain
adequate inventory levels at December 31, 1999 to minimize the
potential business disruption in the event of a Year 2000 failure
by a supplier.
Costs - Through December 31, 1998, the Company has spent
approximately $0.5 million out of an estimated total $1.8 million
related to the Year 2000 issue. These costs include the costs
incurred for external consultants and professional advisors and
the costs for software and hardware. The Company has not
separately tracked internal costs such as payroll related costs
for its information technologies group and other employees
working on the Year 2000 project. The Company expenses all costs
related to the Year 2000 issue as incurred. These costs are
being funded through operating cash flows.
The Company's current estimate of the time and costs related
to the remediation of the Year 2000 issue are based on the facts
and circumstances existing at this time. New developments could
affect the Company's estimates to remediate the Year 2000 issue.
These development's include, but are not limited to: (i) the
availability and cost of personnel trained in this area; (ii) the
ability to identify and remediate all IT and non-IT systems;
(iii) unanticipated failures in IT and non-IT systems; and (iv)
the planning and Year 2000 compliance success that key customers
and suppliers attain.
Employees
As of March 1, 1999, the Company had approximately 5,600
full-time employees. Management considers its employee relations
to be good.
ITEM 2. PROPERTIES
The Company believes that its facilities are well maintained
and suitable for their respective operations. The table below
lists the Company's plants and most other physical properties and
their locations and general character:
Facility Location Character
ACX Technologies:
Company Headquarters Golden, Colorado
Graphic Packaging:
Manufacturing Boulder, Colorado(2) Folding Carton/Labels
Manufacturing Lawrenceburg, Tennessee Folding Carton
Manufacturing Richmond, Virginia Folding Carton
Manufacturing Bow, New Hampshire Folding Carton
Manufacturing Centralia, Illinois Folding Carton
Manufacturing Ft. Smith, Arkansas Folding Carton
Manufacturing Mitchell, South Dakota Folding Carton
Manufacturing Lumberton, North Carolina Folding Carton
Manufacturing Saratoga Springs, New York 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
Manufacturing Terrebonne, Quebec Flexible Packaging
Company Offices Golden, Colorado(2)
Coors Ceramics:
Manufacturing Benton, Arkansas(1) Ceramic Products
Manufacturing Milpitas, California(2) Ceramic Products
Manufacturing Grand Junction, Colorado Ceramic Products
Manufacturing Chattanooga, Tennessee Ceramic Packages
Manufacturing Hillsboro, Oregon Ceramic Products
Manufacturing Lawrence, Pennsylvania(2) Ceramic Products
Manufacturing Norman, Oklahoma Ceramic Products
Manufacturing Oklahoma City, Oklahoma(5) Ceramic Products
Manufacturing Glenrothes, Scotland Ceramic Products
Manufacturing Oak Ridge, Tennessee(3) Ceramic Products
Manufacturing Austin, Texas(2) Ceramic Products
Manufacturing Odessa, Texas Ceramic Products
Manufacturing El Segundo, California(2) Fluoropolymer Products
Manufacturing and Golden, Colorado(4) Ceramic Products
Company Offices
Golden Technologies:
Company Offices Golden, Colorado(2)
Solar Energy Business:
Integration and
Distribution Scottsdale,Arizona(2) Solar Panel
Integration and
Distribution
Manufacturing Chatsworth, California(2) Solar Panel
Manufacturing
Manufacturing San Luis Obispo, California(2) Solar Panel
Manufacturing
Manufacturing Sacramento, California(2) Solar Panel
Manufacturing
Manufacturing La Rioja, Argentina Solar Panel
Manufacturing
Company Offices Golden, Colorado(2)
(1) Two facilities.
(2) Leased facilities.
(3) Three facilities, one of which is leased.
(4) Four facilities, one of which is leased.
(5) Two facilities, one of which is leased.
The operating facilities of the Company are not constrained
by capacity issues.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company's
subsidiaries are subject to various pending claims, lawsuits and
contingent liabilities, including claims by current or former
employees relating to employment, sexual harassment, or
termination. In each of these cases, the Company is 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."
In February 1998, a subsidiary of Golden Technologies was
sued in the State District Court for Weld County, Colorado by
Johnstown Cogeneration Company for breach of a supply agreement
to purchase thermal energy for the Johnstown, Colorado plant.
Golden Technologies claims that its facility no longer had
requirements for thermal energy under the supply agreement as
that agreement was written and performed due to the March 1997
shut down of the high fructose corn syrup operations. Golden
Technologies further claims that it had no obligation to modify
existing equipment to take thermal energy. This case is in the
discovery stage and, although the outcome of litigation is never
certain, management does not believe that it will have a material
adverse effect on the Company's financial condition or results of
operations. The Company sold the Johnstown, Colorado plant in
January 1999.
In January 1997, Golden Technologies and several suppliers
of high fructose corn syrup were sued in the U.S. District Court
for the District of Oregon by a candy company claiming violation
of federal and state antitrust laws in sales of corn syrup.
Golden Technologies was only an occasional and minor supplier to
the plaintiff and was dismissed from the case in 1998.
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.
In December 1996, the Company brought an action in Colorado
State court relating to a construction contract dispute. In
November 1998, this case was settled and the Company recovered a
significant portion of the amount claimed.
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, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is quoted on the New York Stock
Exchange under the symbol ACX. The range of the high and low
sales price per share for each quarter of 1998 and 1997 were as
follows:
Market Price 1998 1997
-------------------- -------------------
High Low High Low
--------- --------- --------- --------
First Quarter $25 $22 1/2 $19 7/8 $17 3/4
Second Quarter $25 3/4 $21 1/16 $22 11/16 $17 3/4
Third Quarter $22 3/4 $12 7/16 $27 3/8 $22 5/8
Fourth Quarter $15 13/16 $ 9 13/16 $27 1/4 $24 7/16
During 1998 and 1997, 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, 1999, there were approximately 2,522
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 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Summary of Operations
Net sales $988,391 $731,085 $712,380 $660,853 $578,705
-------- -------- -------- -------- --------
Gross profit $194,445 $178,611 $156,525 $152,824 $120,172
Selling, general
and administrative
expenses $106,105 $107,190 $93,247 $91,383 $81,721
Asset impairment
and restructuring
charges 33,210 21,880 34,642 2,735 ---
-------- -------- -------- -------- --------
Operating income $55,130 $49,541 $28,636 $58,706 $38,451
-------- -------- -------- -------- --------
Income from continuing
operations $21,265 $27,716 $11,409 $31,247 $19,683
-------- -------- -------- -------- --------
Per basic share of
common stock:
Continuing operations $0.75 $0.99 $0.41 $1.17 $0.75
Net income(loss) a,b $0.75 $0.99 ($3.30) $0.89 $0.76
Per diluted share of
common stock :
Continuing operations $0.73 $0.96 $0.40 $1.14 $0.74
Net income(loss) a,b $0.73 $0.96 ($3.23) $0.87 $0.75
Financial Position
Working capital $152,544 $158,551 $154,626 $168,801 $146,678
Total assets $961,205 $701,196 $676,692 $785,486 $760,290
Current maturities
of debt $ 86,300 --- --- --- $3,600
Long-term debt $233,000 $100,000 $100,000 $100,000 $108,295
Shareholders' equity $447,955 $430,531 $397,903 $488,374 $457,454
Other Information
Total debt to
capitalization 41.6% 18.8% 20.1% 17.0% 19.7%
Net book value per
share of common
stock $15.76 $15.17 $14.24 $18.14 $17.19
a Asset impairment and restructuring charges resulted in a loss
per diluted share impact of $0.69, $0.47, $0.81, and $0.06 in
1998, 1997, 1996, and 1995, respectively.
b During 1996 the Company discontinued the operations of
Golden Aluminum Company. The income (loss) per diluted share for
Golden Aluminum was $(3.63), $(0.27), and $0.01 for 1996, 1995,
and 1994, respectively.
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 compose 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 is a nonintegrated manufacturer of both
folding carton and flexible packages and participates in the
beverage, frozen food, dried good, soap and detergent, bakery,
tobacco, pet food, confectionery, quick service restaurant,
coffee, photographic, and personal care markets. In January
1998, the Company acquired Britton Group plc (Britton). Britton
operated through two principal divisions: folding cartons and
plastics. The folding cartons division, Universal Packaging
Corporation (Universal Packaging), is a nonintegrated
manufacturer of folding cartons in the United States, with
capabilities in design, printing, and manufacturing of multicolor
folding cartons. The Company sold the plastics division of
Britton in April 1998. In March 1996, Graphic Packaging acquired
Gravure Packaging, Inc., (Gravure) located in Richmond, Virginia.
Coors Ceramics develops, manufactures, and sells advanced
technical ceramic products and other engineered materials across
a wide range of product lines for a variety of custom
applications. Coors Ceramics, which has been in business for
more than 78 years, is the largest U.S.-owned, independent
manufacturer of advanced technical ceramics. The majority of
Coors Ceramics' 1998 sales were to the automotive, petrochemical,
power generation and mining, semiconductor equipment,
telecommunications, and pulp and paper industries.
In addition to the primary operating businesses, the Company
owns other businesses (Other), primarily operating through its
majority owned subsidiary, Golden Genesis Company (Golden
Genesis). Golden Genesis' focus is on assembling and
distributing solar electric systems. The Other businesses also
include a real estate development partnership. Additionally, the
historical results for the Other businesses include the
operations of a biodegradable polymer project and a corn-wet
milling facility that produced high-fructose corn syrup and
refined corn starch. During 1998, the Company exited the
biodegradable polymer project. In 1997, the Company exited the
high-fructose corn syrup business. On January 31, 1999, the
Company sold the remaining corn-wet mill operations. The Company
is working toward exit strategies for all noncore businesses.
This financial review presents the Company's operating
results for each of the three years in the period ended December
31, 1998, and its financial condition at December 31, 1998 and
1997. 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 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, including a nonrefundable $10 million which was paid
at closing and $60 million due within two years. Subsequently,
the due date was extended to September 1, 1999. In accordance
with the purchase agreement and subsequent extension, the
purchaser has the right to return Golden Aluminum to the Company
prior to September 1, 1999 in discharge of the $60 million
obligation. In this event, the Company will pursue alternative
means to dispose of this business.
The historical operating results and the estimated loss on
the sale of Golden Aluminum have been segregated as discontinued
operations on the accompanying Consolidated Income Statement for
all periods presented. Substantially all the assets of Golden
Aluminum were sold as of December 31, 1997. 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.
From the acquisition date of Britton, the Company accounted
for the plastics division as a discontinued operation.
Therefore, due to purchase accounting, neither the operation of
the plastics division nor its disposition had an impact on the
Company's results of operations.
Results from Continuing Operations
Consolidated
Net Sales
Net sales for 1998 totaled $988.4 million, an increase of
$257.3 million, or 35.2%, over 1997 net sales of $731.1 million.
The January 14, 1998 acquisition of Universal Packaging accounted
for the increase in net sales. Partially offsetting this
increase, 1998 net sales at Coors Ceramics were down 2.7%
compared with 1997, primarily due to weaker sales to
semiconductor, pulp and paper, and electronics customers. Net
sales for 1997 increased $18.7 million, or 2.6%, over 1996 net
sales of $712.4 million. Sales growth in 1997 was driven by
increases at both Coors Ceramics and Graphic Packaging, partially
offset by sales declines in the Other businesses.
Net sales to Coors Brewing Company (Coors Brewing) consisted
of packaging products and refined corn starch and accounted for
12.1%, 15.5%, and 16.7% of 1998, 1997, and 1996 total revenues,
respectively. On January 31, 1999, the Company sold its corn-wet
milling operation and ceased to sell refined corn starch. The
Company continues to pursue new markets and customers in an
effort to be less dependent upon Coors Brewing.
The Company had 1998 sales to customers outside the United
States, primarily in Canada and western Europe, of $137.4
million, or 13.9% of total net sales. This compares to foreign
sales of $149.0 million, or 20.4% of total sales, in 1997. In
1996, foreign sales accounted for $134.3 million, or 18.8% of
total net sales. The decrease in foreign sales in 1998 is
attributable to the strength of the U.S. dollar and currency
related price competition.
Future years' sales growth is expected to be slightly better
than the U.S. economy growth rate at Coors Ceramics and slightly
better than the packaging industry rates for Graphic Packaging.
This growth will be enhanced by the pursuit of niche
acquisitions, additional base business revenues, and the strength
of relationships with existing customers for their future needs.
The Company intends to work toward exiting its other noncore
businesses.
Gross Margin
Consolidated gross margin was 19.7%, 24.4%, and 22.0% for
1998, 1997, and 1996, respectively. The lower consolidated gross
margin reflects lower gross margins at both Graphic Packaging and
Coors Ceramics. Graphic Packaging's lower margins in 1998
resulted from the acquisition of Universal Packaging, which has
lower comparative margins. Graphic Packaging's base business
margins were also lower in 1998 compared with 1997 due to
competitive pricing pressures in the industry and
underutilization of some of its flexible packaging assets. Coors
Ceramics margins declined as a result of price competition,
particularly in international markets due to the strength of the
U.S. dollar vis-a-vis certain foreign currencies. In 1997,
Graphic Packaging enjoyed higher gross margins as compared to
1996 due to increased sales volumes, productivity gains,
operating efficiencies, and the Gravure acquisition. Partially
offsetting these gains in 1997, Coors Ceramics experienced slight
declines in margins, primarily due to lower margins on certain
sales resulting from currency influenced price competition.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1998, 1997,
and 1996 were $106.1 million, $107.2 million, and $93.2 million,
which represented 10.7%, 14.7%, and 13.1% of net sales,
respectively. The decreased selling, general and administrative
expenses in 1998 reflect the addition of Universal Packaging,
which operates with lower overhead expenses, and a reduction of
research and development expenses related to the Company's
decision to exit its developmental businesses. The increase in
1997 is attributable to the inclusion of a full year of expenses
for the solar electric businesses acquired in November 1996.
Operating Income from
Continuing Operations by Segment
(In millions) 1998 1997 1996
----- ----- -----
Before asset impairment and
restructuring charges:
Graphic Packaging $59.5 $44.8 $41.0
Coors Ceramics 40.7 48.2 44.2
Other businesses (2.9) (11.4) (13.8)
Corporate (8.9) (10.2) (8.2)
----- ----- -----
Operating income before asset
impairment and restructuring charges 88.4 71.4 63.2
Asset impairment and restructuring
charges:
Graphic Packaging (21.3) (2.1) ---
Coors Ceramics (11.8) --- ---
Other businesses (0.1) (19.8) (34.6)
----- ----- -----
Operating income after asset impairment
and restructuring charges $55.2 $49.5 $28.6
===== ===== =====
Consolidated operating income for 1998, excluding asset
impairment and restructuring charges, grew to $88.4 million, an
increase of 23.8% over 1997 operating income before asset
impairment and restructuring charges. The addition of Universal
Packaging accounted for this increase, partially offset by an
operating income decline at Coors Ceramics. Consolidated
operating income for 1997, excluding asset impairment and
restructuring charges, grew to $71.4 million, an increase of
$8.2 million, or 13.0%, over 1996 operating income before asset
impairment and restructuring charges. Record operating income
in 1997 at both Coors Ceramics and Graphic Packaging contributed
to this increase.
Asset Impairment Charges
The Company recorded a total of $31.2 million, $16.6
million, and $32.2 million in asset impairment charges in 1998,
1997, and 1996, respectively. In 1998, goodwill write downs
totaled $5.5 million, with the remainder of the charge consisting
of fixed asset impairments. There were no goodwill write downs
in 1997 or 1996.
Graphic Packaging: Graphic Packaging recorded $18.5 million
in asset impairment charges in 1998. Deterioration of its
performance at certain facilities and increased competitive
conditions led management to review the carrying amounts of long-
lived assets and goodwill in conjunction with an overall
restructuring plan. (See Restructuring Charges below.)
Specifically, forecasted operating cash flows did not support the
carrying amount of certain long-lived assets and goodwill at
Graphic Packaging's Franklin, Ohio operation. In addition,
management decided to offer for sale the Vancouver, British
Columbia operation and close a divisional office in North
Carolina. Therefore, the long-lived assets and related goodwill
were written down to their estimated market values.
Coors Ceramics: During 1998, Coors Ceramics recorded $11.8
million in asset impairment charges. A $6.2 million charge was
taken in conjunction with the cancellation of Coors Ceramics' C-4
technology agreement with IBM. Changes in the market for C-4
applications extended the time frame for achieving commercial
sales beyond original expectations. The lack of near term
commercial sales opportunities, combined with increasing overhead
costs, prompted the Company to negotiate termination of the
agreement with IBM. Consequently, the Company wrote off the long-
lived assets associated with this project. The Company recorded
an additional $5.6 million asset impairment charge at the
Chattanooga, Tennessee operation. Management decided to offer
this operation for sale as strong offshore competition in the
electronic package market made it uneconomical to have a
manufacturing facility dedicated to this product line.
Consequently, the long-lived assets of the Chattanooga operations
were written down to their estimated market values.
Other: The Company recorded net asset impairment charges of
$0.9 million in its Other businesses. These charges include a
$1.0 million asset impairment charge to write down long-lived
assets of Solartec, S.A., a solar electric subsidiary in
Argentina. Since acquiring Solartec in November 1996, operating
cash flows have been below original expectations. As a result,
the Company recorded this impairment to reduce the carrying value
of its investment in Solartec to its estimated fair market value.
In addition, the Company recorded a $0.4 million asset impairment
charge related to the consolidation and outsourcing of certain
manufacturing activities at Golden Genesis. As a result, certain
long-lived assets became impaired and were written down to their
estimated market value. Also during 1998, the Company sold
certain equipment formerly used in the biodegradable polymer
project for approximately $0.5 million. These assets had been
previously written off as an asset impairment, so the resulting
gain on sale of these assets was netted against the 1998 asset
impairment charge.
During 1997, the Company recorded a $16.6 million asset
impairment charge when it adopted a plan to limit future funding
for the biodegradable polymer project. This decision reduced
expected future cash flows for this activity to a level below the
carrying value of the manufacturing and intangible assets of this
project. In 1996, the Company recorded $32.2 million in asset
impairment charges related to the corn-wet milling business and
the solar panel manufacturing activity. The assets of the corn-
wet milling business became impaired when unfavorable market
conditions decreased ongoing customer purchase commitments and
anticipated future net cash flows. The solar panel manufacturing
activity assets became impaired due to a lack of a currently
viable market for cadmium telluride solar panels, the lack of an
alternative use for panel manufacturing assets, and the Company's
move from manufacturing to solar electric distribution.
Restructuring Charges
The Company recorded restructuring charges totaling $2.0
million, $5.3 million, and $2.4 million in 1998, 1997, and 1996,
respectively. The following table summarizes accruals related to
these restructuring charges:
Corn
Biodegradable Syrup Graphic Graphic
Polymer Exit Exit Packaging Packaging
(In millions) Plan Plan Corporate Operations Other Total
------------- ----- --------- ---------- ----- -----
1996 restructuring
charges $--- $--- $--- $--- $2.4 $2.4
Cash paid --- --- --- --- (0.2) (0.2)
Non-cash expenses --- --- --- --- (0.4) (0.4)
----- ----- ----- ------ ----- -----
Balance,
December 31, 1996 --- --- --- --- 1.8 1.8
1997 restructuring
charges 0.9 2.3 2.1 --- --- 5.3
Cash paid (0.5) (1.4) (0.2) --- (1.8) (3.9)
Non-cash expenses --- --- (0.2) --- --- (0.2)
----- ----- ----- ------ ----- -----
Balance,
December 31, 1997 0.4 0.9 1.7 --- --- 3.0
1998 restructuring
charges --- (0.8) --- 2.8 --- 2.0
Cash paid (0.4) (0.1) (1.7) (1.0) --- (3.2)
----- ----- ----- ------ ----- -----
Balance,
December 31, 1998 $--- $--- $--- $1.8 $--- $1.8
===== ===== ===== ====== ===== =====
Graphic Packaging: During 1998, the Company instituted a
restructuring plan related to certain Graphic Packaging
operations and recorded $2.8 million in restructuring charges.
This plan included the consolidation and realignment of certain
administrative functions and the downsizing of its Franklin, Ohio
operation. This plan resulted in the elimination of
approximately 20 administrative and 65 manufacturing positions
with related severance costs of approximately $2.5 million. This
plan also included approximately $0.3 million in other exit costs
related to the closure of a divisional office in North Carolina.
The Company made cash payments of $1.0 million in the fourth
quarter of 1998 and expects to make the remaining cash outlays
and complete this restructuring plan in the first half of 1999.
In December 1997, the Company recorded a $2.1 million
charge related to the closure of the Graphic Packaging corporate
offices in Wayne, Pennsylvania. This closure resulted in
severance and outplacement costs of $1.1 million for
approximately 22 administrative employees. The Company made
cash payments of $1.7 million and $0.2 million related to this
plan in 1998 and 1997, respectively.
Other: During 1997, the Company eliminated 40 research and
administrative positions and recorded approximately $0.9 million
in severance and outplacement costs related to the biodegradable
polymer project. The Company made cash outlays of approximately
$0.4 million and $0.5 million related to this plan in 1998 and
1997, respectively.
The Company adopted a plan to exit the high-fructose corn
syrup business in 1997. As a result, the Company eliminated
approximately 70 manufacturing and administrative positions and
recorded $2.3 million in severance and other exit costs. The
Company made approximately $0.1 million and $1.4 million in cash
outlays related to this plan in 1998 and 1997, respectively. In
the fourth quarter of 1998, the Company determined that the
liability remaining for this exit plan was not required.
Accordingly, the remaining liability was reversed and netted
against the 1998 restructuring charges.
In 1996, the Company recorded $2.4 million in restructuring
charges related to certain management realignments made in the
solar electric distribution business resulting in the
elimination of 16 administrative positions. Approximately $1.8
million and $0.2 million were paid for severance and other exit
costs related to this charge in 1997 and 1996, respectively.
Interest Expense and Interest Income
Interest expense for 1998, 1997, and 1996 was $25.6 million,
$8.7 million, and $8.2 million, respectively. The increase in
1998 reflects additional borrowings used to finance the Britton
acquisition, along with interest on debt assumed in the
acquisition. The $0.5 million increase in 1997 resulted
primarily from lower capitalized interest amounts associated with
fewer large capital projects in 1997.
Interest income for 1998, 1997, and 1996 totaled $5.5
million, $5.7 million, and $1.3 million, respectively. The
decrease from 1997 to 1998 reflects the lower cash balances
resulting from the Company's acquisition of Britton in 1998. The
increase in interest income between 1996 and 1997 reflects
imputed interest on the Company's note receivable related to the
sale of Golden Aluminum.
Income Taxes
The consolidated effective tax rate for the Company in 1998
was 40.2% compared to 39.9% in 1997 and 49.1% in 1996. The
higher tax rate in 1996 compared with 1998 and 1997 resulted from
a lower 1996 earnings base, which increased the impact of non-
deductible items. In addition, no tax benefit was taken for
built-in losses on a subsidiary experiencing tax losses and for
capital losses that may not be deductible due to a lack of
offsetting capital gains. The Company expects to maintain its
effective tax rate for future years at the historical rate of
approximately 40%.
Graphic Packaging
Graphic Packaging's net sales for 1998 were $623.9 million,
an increase of $258.8 million, or 70.9%, over 1997 net sales of
$365.1 million. The increase is attributable to the January 1998
acquisition of Universal Packaging and better than industry sales
growth in its proprietary specialty packaging products. These
gains were offset by significant pricing pressures for flexible
packaging and volume declines to the tobacco market. Graphic
Packaging's 1997 net sales increased $18.6 million, or 5.4%, over
1996 net sales of $346.5 million. The increase in net sales for
1997 was a result of additional volume in several markets
including confectionery, bakery, snack food, and detergent. In
1998, 1997, and 1996, folding carton sales accounted for 75%,
55%, and 56% of total net sales, respectively, with flexible
sales accounting for the balance of the business. Sales to Coors
Brewing were approximately 18%, 29%, and 31% of Graphic
Packaging's net sales for 1998, 1997, and 1996, respectively.
Graphic Packaging expects to continue increasing sales to
unaffiliated customers, thereby decreasing its dependence on
Coors Brewing.
Graphic Packaging's operating income for 1998 was $38.2
million, a decrease of $4.5 million, or 10.5%, compared to 1997
operating income of $42.7 million. Operating income for 1998
includes $21.3 million in asset impairment and restructuring
charges discussed above. Excluding the asset impairment and
restructuring charges in both periods, 1998 operating income
increased $14.7 million, or 32.8%, over 1997 operating income.
The addition of Universal Packaging, strong sales of specialty
packaging, and reduced corporate costs account for this increase.
These gains were partially offset by a significant decline in
margins for flexible packaging products. Graphic Packaging's
operating income for 1997 represented an increase of $1.6
million, or 3.9%, over 1996 operating income. The increase in
1997 operating income is primarily attributable to additional
volume to the confectionery, bakery, snack food, and detergent
markets, as well as productivity improvements, partially offset
by $2.1 million in restructuring charges.
Operating margins were 6.1%, 11.7%, and 11.8% for 1998,
1997, and 1996, respectively. The lower operating margin in 1998
reflects the asset impairment and restructuring charges discussed
above and the relatively lower margins at Universal Packaging,
partially offset by savings realized in the relocation of Graphic
Packaging's corporate offices to Colorado in December 1997.
Operating margin declines in 1997 related to restructuring
charges, offset in part by the increased volumes discussed above.
Graphic Packaging continues to focus on commercializing new
products and processes to serve existing and new markets and to
pursue acquisitions that complement its existing business.
Graphic Packaging believes its strategy of being a value added
packaging provider 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.
Coors Ceramics
Coors Ceramics' 1998 net sales were $296.6 million, a
decline of $8.2 million, or 2.7%, over 1997 net sales of $304.8
million. The lower net sales in 1998 reflect downturns in sales
to the semiconductor, pulp and paper, telecommunications, and
petrochemical industries. Coors Ceramics' net sales for 1997
increased $28.4 million over 1996 net sales of $276.4 million.
This 10.3% increase is primarily attributable to a rebound in the
telecommunications, semiconductor and data processing industries
and increased sales volumes to the petrochemical industry in 1997
over 1996. International sales as a percentage of total net
sales were 25%, 27%, and 29% in 1998, 1997, and 1996,
respectively. The relatively lower international sales in 1998
and 1997 were primarily attributable to lower sales dollars from
some international customers due to currency influenced price
competition resulting from the strong U.S. dollar vis-a-vis
certain foreign currencies.
Operating income for 1998 totaled $28.9 million, a decline
of $19.3 million, or 40.0%, from 1997 operating income of $48.2
million. Excluding the asset impairment charges, operating
income totaled $40.7 million, a decline of $7.5 million, or
15.6%, from 1997. Other than the asset impairment charges, the
lower operating income in 1998 reflects a downturn in sales to
customers in key market segments and the effects of currency
influenced price competition resulting from a strong U.S. dollar.
Operating income for 1997 rose $4.0 million, or 9.1%, over 1996
operating income of $44.2 million. The increase between 1996 and
1997 operating income is attributable to increases in sales
volumes described above partially offset by margin erosion due to
currency influenced price competition.
Operating margins declined in 1998 to 9.7% from 15.8% in
1997. The lower operating margins in 1998 reflect $11.8 million
in asset impairment charges discussed above, lower sales volumes
in higher margin semiconductor and pulp and paper industry
product lines, and currency influenced price competition.
Operating margins decreased slightly in 1997 to 15.8% compared to
16.0% in 1996, primarily due to currency influenced price
competition.
In 1999, Coors Ceramics will continue its efforts to grow
through new product development, expanded market share in its
current product lines, vertical integration in key industries
such as semiconductor, and the addition of new materials and
processes to its product mix. The 1999 outlook is dependent upon
the continued strength of key segments of the U.S. and European
economies, effective capacity utilization, and Coors Ceramics'
ability to compete abroad.
Other
Net sales for the Other businesses in 1998 totaled $67.9
million, an increase of $6.8 million, or 11.1%, over 1997 net
sales of $61.1 million. The increase reflects higher sales
volumes due to acquisitions of solar electric distributors by
Golden Genesis. Net sales in 1997 reflected a decrease of $28.4
million, or 31.7%, compared to 1996 net sales of $89.5 million.
The Company's decision to exit the high-fructose corn syrup
business, partially offset by a full year of sales for Golden
Genesis, acquired in November 1996, caused this decrease.
The Other businesses reported an operating loss of $3.0
million in 1998. This compares favorably to the operating loss
of $31.2 million in 1997. The 1997 operating loss includes $19.8
million in asset impairment and restructuring charges discussed
above. Excluding the effects of asset impairment and
restructuring charges, the additional improvement of $8.5 million
between 1997 and 1998 reflects the Company's decision to exit
certain noncore businesses. The 1997 operating loss of $31.2
million compares with a 1996 operating loss of $48.4 million,
which includes $34.6 million in asset impairment and
restructuring costs. Excluding the impact of the asset
impairment and restructuring charges, the Other businesses'
operating loss decreased 17.4%, or $2.4 million, between 1996 and
1997. The 1997 operating results include a full year of results
from Golden Genesis and reflect the elimination of losses
associated with the corn syrup business, partially offset by
higher research and development expenses at the biodegradable
polymer project early in 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, acquisitions, and share
repurchases. Internally generated liquidity is measured by net
cash from operations, as discussed below, and working capital.
At December 31, 1998, the Company's working capital was $152.5
million with a current ratio of 1.74 to 1.
During 1998, the Company established a two-year, unsecured
$250 million revolving credit facility. The Company may extend
this facility for two additional one-year periods with the
consent of the participating banks. Amounts borrowed under this
facility bear interest under various pricing alternatives,
including: (i) LIBOR plus a spread depending on the Company's
debt ratings, or (ii) a competitive money market auction. In
addition, the Company pays a commitment fee on the committed
amount. At December 31, 1998, $120 million was outstanding under
this line. The Company intends to replace this facility with
longer-term financing prior to the expiration date of the
facility.
The Company has $100 million of senior notes outstanding
under a private placement agreement bearing interest at an
average rate of 8%. Of this amount, $70 million is due November
1, 1999, with the remaining $30 million due in November 2001. In
addition, the Company assumed $92.5 million of senior notes
through its acquisition of Britton. These notes bear interest at
approximately 7.1% and are payable in installments between 1999
and 2006.
The Company has entered into contracts to hedge the
underlying interest rate on $175 million of anticipated long-term
borrowings. These contracts lock an average risk-free rate of
approximately 5.78% and expire on November 1, 1999. The
anticipated borrowings will be used to refinance all or a portion
of the revolving credit facility and the senior notes due in
1999. As of December 31, 1998, the unrecognized loss associated
with these hedge contracts was approximately $15 million.
During 1998, the Company's Board of Directors approved the
repurchase of up to 5% of the outstanding common shares of the
Company. As of December 31, 1998, the Company had repurchased
181,200 shares at an aggregate cost of $2.4 million.
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 in 1999
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, was
liquidated in 1997.
As shown in the Consolidated Statement of Cash Flows, net
cash provided by operations was $97.3 million, $117.4 million,
and $46.2 million for 1998, 1997, and 1996, respectively. Cash
generated in 1997 reflects the liquidation of the working capital
of Golden Aluminum. The lower level of cash generated in 1996
relative to other years was primarily attributable to 1996 losses
in discontinued operations.
During 1998, 1997, and 1996, 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 $190.9 million, as follows:
(In millions) 1998 1997 1996
----- ----- -----
Graphic Packaging $47.5 $18.0 $13.3
Coors Ceramics 26.9 28.8 30.3
Other businesses 3.4 9.1 12.6
Golden Aluminum - discontinued in 1996 --- --- 1.0
----- ----- -----
$77.8 $55.9 $57.2
===== ===== =====
Consolidated capital spending during 1998 was primarily for
facility expansions and reconfigurations as well as technological
upgrades to machinery and equipment and related computer systems.
The Company expects its capital expenditures for 1999 to be
between $70 million and $80 million, primarily at Graphic
Packaging. Graphic Packaging's 1999 capital budget includes
completion of its new manufacturing facility in Golden, Colorado,
along with equipment for additional capacity at existing plants
and performance improvements to existing equipment. Coors
Ceramics' capital budget is expected to be substantially less
than in previous years and is planned to be focused on
performance improvements to existing equipment. The Other
businesses do not anticipate having significant capital
expenditures in 1999.
Acquisitions during 1998 utilized $300.8 million in cash,
primarily for the acquisition of Britton. The Company plans to
continue to pursue value added acquisitions that provide growth
and synergies with its core businesses.
The Company currently expects that cash flows from
operations, the sale of certain assets, borrowings under its
current credit facilities, and anticipated new borrowings will be
adequate to meet the Company's needs for working capital,
temporary financing for capital expenditures, share repurchases,
debt repayments, and acquisitions.
The impact of inflation on the Company's financial position
and results of operations has been minimal and is not expected to
adversely affect future results.
Environmental
Some of the Company's subsidiaries have been notified that
they may be potentially responsible parties (PRPs) under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 or similar state laws with respect to the remediation
of certain sites where hazardous substances have been released
into the environment. The Company cannot predict with certainty
the total costs of remediation, its share of the total costs, the
extent to which contributions will be available from other
parties, the amount of time necessary to complete the
remediation, or the availability of insurance. However, based on
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.
In addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
Year 2000 Readiness Disclosure
The Year 2000 issue arose because many existing computer
programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a
year that begins with "20" instead of the familiar "19". If not
corrected, many computer applications could fail or create
erroneous results disrupting normal business operations.
Management has implemented an enterprise-wide program to
prepare the Company's financial, manufacturing, and other
critical systems and applications for the year 2000. The program
includes a task force established in March 1998 that has the
support and participation of upper management and includes
individuals with expertise in risk management, legal, and
information technologies. The Board of Directors monitors the
progress of the program on a quarterly basis. The task force's
objective is to ensure an uninterrupted transition to the year
2000 by assessing, testing, and modifying all information
technology (IT) and non-IT systems, interdependent systems, and
third parties such as suppliers and customers.
The Year 2000 task force has taken an inventory of all IT
and non-IT systems. This inventory categorizes potential systems
date failures into three categories: "major" (critical to
production and could be business threatening with no short-term
alternatives available); "limited" (disrupting to the business
operations with short-term solutions available); and "minor"
(inconsequential to the business operations). The task force has
prioritized the program to focus first on "major" systems. It is
the Company's goal to have all systems Year 2000 compliant no
later than September 1, 1999.
IT Systems - The Company is primarily using internal
resources to remediate IT systems. External resources are used
to assist in testing compliance of IT systems. The Company does
not rely on any one IT system. The majority of the IT systems
have been recently purchased from third party vendors. These
systems were already Year 2000 compliant or had Year 2000
compliance upgrades. As of December 31, 1998, approximately 80%
of the Company's IT systems were Year 2000 compliant.
Non-IT Systems - The Company has approximately 40
manufacturing facilities with varying degrees of non-IT systems
(such as printing presses, automated kiln systems, statistical
process control systems, ink mixing systems, quality control
systems, and machining equipment). The vast majority of these
facilities are located in North America. To ensure Year 2000
compliance for non-IT systems, the Year 2000 task force has
contacted the suppliers of these non-IT systems and obtained
statements that the systems are Year 2000 compliant and is in the
process of testing Year 2000 compliance. The majority of these
non-IT systems use time intervals instead of dates and are Year
2000 compliant. Thus, the Company believes that potential
disruptions of such systems due to the Year 2000 issue should be
minimal. As of December 31, 1998, approximately 90% of the
Company's "major" and "limited" non-IT systems are Year 2000
compliant. The "minor" non-IT systems are in various stages of
compliance.
Third Parties - The Year 2000 task force has been in contact
with key suppliers and customers to minimize potential business
disruptions related to the Year 2000 issue between the Company
and these third parties. The task force has focused on suppliers
and customers that are classified as "major" and "limited."
While the Company cannot guarantee compliance by third party
suppliers, the Company has developed contingency plans to ensure
the availability of inventory supplies in the event a supplier is
not Year 2000 compliant.
Contingency Plans - The Company is in the process of
finalizing contingency plans in the event there are Year 2000
failures related to the Company's IT and non-IT systems and/or
key third parties. The Company's manufacturing facilities are
not interdependent in terms of non-IT systems, and its facilities
utilize a diverse range of non-IT systems (i.e., printing
presses, kilns, and other manufacturing equipment). In
addition, no one facility accounts for a significant amount of
revenue. Thus, the contingency plan includes for non-IT systems
the transfer of production between facilities and manufacturing
equipment. Currently, the Company believes that there is enough
manufacturing capacity to accommodate the contingency plan.
The Company's IT systems are also not heavily interdependent
between facilities and key third parties and the Company utilizes
a diverse range of IT systems. The contingency plan for IT
systems includes the ability to transfer transaction processing,
record keeping, and compliance work between facilities and
maintaining "hard" copies of critical information.
The Company is not dependent on any one supplier. The
Company has established back-up suppliers and will maintain
adequate inventory levels at December 31, 1999 to minimize the
potential business disruption in the event of a Year 2000 failure
by a supplier.
Costs - Through December 31, 1998, the Company has spent
approximately $0.5 million out of an estimated total $1.8 million
related to the Year 2000 issue. These costs include the costs
incurred for external consultants and professional advisors and
the costs for software and hardware. The Company has not
separately tracked internal costs such as payroll related costs
for its information technologies group and other employees
working on the Year 2000 project. The Company expenses all costs
related to the Year 2000 issue as incurred. These costs are
being funded through operating cash flows.
The Company's current estimate of the time and costs related
to the remediation of the Year 2000 issue are based on the facts
and circumstances existing at this time. New developments could
affect the Company's estimates to remediate the Year 2000 issue.
These developments include, but are not limited to: (i) the
availability and cost of personnel trained in this area; (ii) the
ability to identify and remediate all IT and non-IT systems;
(iii) unanticipated failures in IT and non-IT systems; and (iv)
the planning and Year 2000 compliance success that key customers
and suppliers attain.
Factors That May Affect Future Results
Certain statements in this document constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance, or achievements
of the Company to be materially different from any future
results, performance or achievements expressed or implied by the
forward-looking statements. Specifically, 1) the Company's
ability to lessen its dependence on Coors Brewing is dependent on
identifying and capturing new customers, successfully increasing
sales to existing unaffiliated customers, and the success of the
Company's marketing plans; 2) future years revenue growth is
dependent on numerous factors, including the continued strength
of the U.S. and key foreign economies, the relative position of
the U.S. dollar vis-a-vis key European and Asian currencies, the
actions of competitors and customers, the Company's ability to
execute its marketing plans, and the ability of the Company to
maintain or increase sales to existing customers and capture new
business; 3) the Company's ability to grow through acquisitions
depends on its ability to identify attractive and synergistic
acquisition opportunities, to successfully finance such
acquisitions, and to integrate acquired companies; 4) the
Company's ability to exit noncore businesses depends on
identifying and executing exit strategies for these businesses
and other factors; 5) the Company's ability to maintain its
effective tax rate at 40% depends on the current and future tax
laws, the Company's ability to identify and use its tax credits,
and other factors; 6) the ability of Graphic Packaging to
sustain profitable growth is dependent on numerous factors,
including its ability to successfully market its products to new
and existing customers, the ability to develop and bring to
market new products, the ability to complete its new facility on
time and on budget and qualify its products with customers, the
ability to successfully complete focused acquisitions (see number
3 above), and the success of its customers; 7) the Company's
overall financial results and financial condition is dependent
upon its customers and suppliers ability to execute their Year
2000 readiness plans; and 8) Coors Ceramics' ability to increase
revenues and operating income is dependent upon its ability to
continue its track record for new product innovation, general
economic conditions such as the position of the U.S. dollar vis-a-
vis other currencies, the availability and pricing of substitute
materials such as metals and plastics, the performance of key
industry segments such as semiconductor, automotive, and
electronics, and other factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Consolidated Financial Statements: Page(s)
-------
Report of Independent Accountants 30
Consolidated Income Statement for the years
ended December 31, 1998, 1997, and 1996 31-32
Consolidated Statement of Comprehensive Income
for the years ended December 31, 1998, 1997,
and 1996 32
Consolidated Balance Sheet at December 31, 1998
and December 31, 1997 33
Consolidated Statement of Cash Flows for the
years ended December 31, 1998, 1997, and 1996 34
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1998, 1997,
and 1996 35
Notes to Consolidated Financial Statements 36-53
Schedule II - Valuation and Qualifying Accounts
for the years ended December 31, 1998, 1997,
and 1996 54
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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
Denver, Colorado
January 27, 1999
MANAGEMENT'S REPORT TO SHAREHOLDERS
The preparation, integrity, and objectivity of the financial
statements and all other financial information included in this
Annual Report is the responsibility of the Management of ACX
Technologies, Inc. The financial statements have been prepared
in accordance with generally accepted accounting principles,
applying estimates based on management's best judgment where
necessary. Management believes that all material uncertainties
have been appropriately accounted for and disclosed.
The established system of accounting procedures and related
internal controls provide reasonable assurance that the assets
are safeguarded against loss and that the policies and procedures
are implemented by qualified personnel.
PricewaterhouseCoopers LLP, the Company's independent
accountants, provide an objective, independent audit of the
consolidated financial statements. Their accompanying report is
based upon an examination conducted in accordance with Generally
Accepted Auditing Standards including a review of the internal
control structure and tests of accounting procedures and records.
The Board of Directors, operating through its Audit
Committee composed of outside directors, monitors the Company's
accounting control systems, and reviews the results of the
auditing activities. The Audit Committee meets at least
quarterly, either separately or jointly, with representatives of
management, the Company's independent accountants and internal
auditors. To ensure complete independence, the Company's
independent accountants and internal auditors have full and free
access to the Audit Committee and may meet with or without the
presence of management.
JED J. BURNHAM BETH A. PARISH
Chief Financial Officer Controller and Principal
and Treasurer Accounting Officer
ACX TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENT
(In thousands, except per share data)
Years Ended December 31,
1998 1997 1996
-------- -------- --------
Sales $868,513 $617,762 $593,493
Sales to Coors Brewing 119,878 113,323 118,887
-------- -------- --------
Total sales 988,391 731,085 712,380
Cost of goods sold 793,946 552,474 555,855
-------- -------- --------
Gross profit 194,445 178,611 156,525
Selling, general and
administrative expense 106,105 107,190 93,247
Asset impairment and
restructuring charges 33,210 21,880 34,642
-------- -------- --------
Operating income 55,130 49,541 28,636
Other income (expense):
Interest expense (25,595) (8,666) (8,177)
Interest income 5,454 5,688 1,254
Miscellaneous--net 576 (447) 696
-------- -------- --------
Income from continuing operations
before income taxes 35,565 46,116 22,409
Income tax expense 14,300 18,400 11,000
-------- -------- --------
Income from continuing operations 21,265 27,716 11,409
Discontinued operations:
Loss from discontinued operations
of Golden Aluminum Company --- --- (5,033)
Loss on disposal of Golden
Aluminum Company --- --- (98,400)
-------- -------- --------
Net income (loss) $21,265 $27,716 ($92,024)
======== ======== ========
Net income (loss) per basic share
of common stock:
Continuing operations $0.75 $0.99 $0.41
Discontinued operations --- --- (3.71)
-------- -------- --------
Net income (loss) per basic share $0.75 $0.99 ($3.30)
======== ======== ========
Weighted average shares
outstanding - basic 28,504 28,118 27,899
======== ======== ========
Net income (loss) per diluted
share of common stock:
Continuing operations $0.73 $0.96 $0.40
Discontinued operations --- --- (3.63)
-------- -------- --------
Net income (loss) per diluted
share $0.73 $0.96 ($3.23)
======== ======== ========
Weighted average shares
outstanding - diluted 29,030 28,885 28,503
======== ======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Years Ended December 31,
1998 1997 1996
-------- -------- --------
Net income (loss) $21,265 $27,716 ($92,024)
-------- -------- --------
Other comprehensive income:
Foreign currency translation
adjustments (3,218) (3,127) 295
Minimum pension liability
adjustment, net of tax of $459 (688) --- ---
-------- -------- --------
Other comprehensive income (loss) (3,906) (3,127) 295
-------- -------- --------
Comprehensive income (loss) $17,359 $24,589 ($91,729)
======== ======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
December 31,
1998 1997
ASSETS -------- --------
Current assets
Cash and cash equivalents $26,196 $49,355
Accounts receivable, less allowance
for doubtful accounts of $3,978 in
1998 and $3,101 in 1997 90,679 77,276
Accounts receivable from Coors Brewing 2,084 4,083
Notes receivable 60,568 ---
Inventories 148,552 113,792
Deferred income taxes 20,090 10,946
Other assets 9,986 14,560
-------- --------
Total current assets 358,155 270,012
Properties, net 373,691 249,624
Note receivable 3,360 56,549
Goodwill, net 206,583 56,883
Other assets 19,416 68,128
-------- --------
Total assets $961,205 $701,196
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of debt $86,300 $---
Accounts payable 40,211 40,743
Accounts payable to Coors Brewing 342 2,557
Accrued salaries and vacation 17,782 24,571
Accrued expenses and other liabilities 60,976 43,590
-------- --------
Total current liabilities 205,611 111,461
Long-term debt 233,000 100,000
Accrued postretirement benefits 27,652 27,453
Other long-term liabilities 33,608 18,838
-------- --------
Total liabilities 499,871 257,752
Minority interest 13,379 12,913
Shareholders' equity
Preferred stock, nonvoting, $0.01 par
value 20,000,000 shares authorized
and no shares issued or outstanding --- ---
Common stock, $0.01 par value 100,000,000
authorized and 28,415,000 and 28,373,000
issued and outstanding at December 31,
1998 and December 31, 1997 284 284
Paid-in capital 451,401 451,336
Retained earnings (accumulated deficit) 1,710 (19,555)
Accumulated other comprehensive income
(loss) (5,440) (1,534)
-------- --------
Total shareholders' equity 447,955 430,531
-------- --------
Total liabilities and shareholders' equity $961,205 $701,196
======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years Ended December 31,
1998 1997 1996
------- -------- ---------
Cash flows from operating
activities:
Net income (loss) $21,265 $27,716 ($92,024)
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 34,488 21,880 34,642
Depreciation and
amortization 57,507 42,663 49,523
Change in deferred income
taxes 7,305 12,335 (6,058)
Change in current assets and
current liabilities, net of
effects from acquisitions:
Accounts receivable 2,865 11,603 10,882
Inventories (1,232) 17,769 (2,893)
Other assets 5,369 7,349 (3,855)
Accounts payable (18,151) (1,462) (13,561)
Accrued expenses and
other liabilities (12,300) (21,792) (31,656)
Change in deferred items and
other 178 (649) 2,758
-------- -------- --------
Net cash provided by operating
activities 97,294 117,412 46,158
Cash flows used in investing
activities:
Acquisitions, net of cash
acquired (300,774) (44,718) (34,313)
Additions to properties (78,463) (56,213) (57,526)
Proceeds from sales of assets 131,899 13,594 8,764
Other (369) (4,283) (1,250)
-------- -------- --------
Net cash used in investing
activities (247,707) (91,620) (84,325)
Cash flows from financing
activities:
Proceeds from issuance of debt 126,800 --- ---
Purchase of common shares (2,389) --- ---
Stock option exercise and other 2,843 7,892 1,152
-------- -------- --------
Net cash provided by financing
activities 127,254 7,892 1,152
Cash and cash equivalents:
Net increase (decrease) in cash
and cash equivalents (23,159) 33,684 (37,015)
Balance at beginning of period 49,355 15,671 52,686
-------- -------- --------
Balance at end of period $26,196 $49,355 $15,671
======== ======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Retained Other
Common Paid-in Earnings Comprehensive
Stock Capital (Deficit) Income (Loss) Total
------ -------- --------- ------------- --------
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)
Acquisition
accounted for
as a pooling --- --- (834) --- (834)
Cumulative
translation
adjustment --- --- --- 295 295
---- -------- ------- ----- -------
Balance at
December 31, 1996 279 443,302 (47,271) 1,593 397,903
Exercise of
stock option 4 5,168 --- --- 5,172
Tax benefit of
option exercise --- 1,359 --- --- 1,359
Issuance of
common stock 1 1,507 --- --- 1,508
Net income --- --- 27,716 --- 27,716
Cumulative
translation
adjustment --- --- --- (3,127) (3,127)
---- -------- ------- ----- -------
Balance at
December 31, 1997 284 451,336 (19,555) (1,534) 430,531
Exercise of stock
options 1 875 --- --- 876
Tax benefit of
option exercise --- 480 --- --- 480
Issuance of
common stock 1 1,097 --- --- 1,098
Share repurchase
program (2) (2,387) --- --- (2,389)
Net income --- --- 21,265 --- 21,265
Minimum pension
liability
adjustment --- --- --- (688) (688)
Cumulative
translation
adjustment --- --- --- (3,218) (3,218)
---- -------- ------- ------ -------
Balance at
December 31, 1998 $284 $451,401 $1,710 ($5,440) $447,955
==== ======== ====== ======= ========
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 primary business segments: Coors
Ceramics Company (Coors Ceramics) and Graphic Packaging
Corporation (Graphic Packaging). Graphic Packaging is a
nonintegrated manufacturer of both folding carton and flexible
packages and participates in the beverage, frozen food, dried
food, soap and detergent, bakery, tobacco, pet food,
confectionery, quick service restaurant, coffee, photographic,
and personal care markets. Coors Ceramics develops,
manufactures, and sells advanced technical ceramic products
across a wide range of product lines for a variety of
applications. The majority of Coors Ceramics' 1998 sales were to
the petrochemical, automotive, power generation and mining,
semiconductor equipment, telecommunications, and pulp and paper
industries. Graphic Packaging and Coors Ceramics accounted for
63% and 30%, respectively, of 1998 consolidated revenues.
On January 14, 1998, the Company acquired Britton Group plc
(Britton) pursuant to a cash tender offer for approximately $420
million (See Note 2). Britton was an international packaging
group operating through two principal divisions: folding cartons
and plastics. The folding cartons division, Universal Packaging
Corporation (Universal Packaging), is a nonintegrated
manufacturer of folding cartons in the United States, with
capabilities in design, printing, and manufacturing of multicolor
folding cartons. The plastics division of Britton (Plastics
Division), which was sold on April 20, 1998 (See Note 3),
operates in the United Kingdom and includes the extrusion,
conversion, and printing of polyethylene into films and bags for
industrial customers.
In addition to the primary operating businesses, the Company
owns other businesses (Other), primarily operating through its
majority owned subsidiary, Golden Genesis Company (Golden
Genesis). Golden Genesis' focus is on assembling and
distributing solar electric systems. The Other businesses also
include a real estate development partnership. Additionally, the
historical results for the Other businesses include the
operations of a biodegradable polymer project and a corn-wet
milling facility that produced high-fructose corn syrup and
refined corn starch. During 1998, the Company exited the
biodegradable polymer project. In 1997, the Company exited the
high-fructose corn syrup business. On January 31, 1999, the
Company sold the remaining corn-wet mill operations. The Company
is working toward exit strategies for all noncore businesses.
Prior to 1996, the Company operated a third business
segment, Golden Aluminum Company (Golden Aluminum), which
produced 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 1996, the Company adopted a plan to dispose of this
business and began accounting for Golden Aluminum as a
discontinued operation. In March 1997, the sale of Golden
Aluminum was completed. (See Note 3.)
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.
Management has made significant estimates with respect to 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.
Revenue Recognition: Revenue is generally recognized when
goods are shipped or services are performed.
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 $1.8 million
and $2.3 million at December 31, 1998 and 1997, respectively.
The classification of inventories, in thousands, at December
31, was as follows:
1998 1997
-------- --------
Finished $62,484 $48,607
In process 37,458 34,754
Raw materials 48,610 30,431
-------- --------
Total inventories $148,552 $113,792
======== ========
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 20 years
Building and leasehold improvements The shorter of the useful
life, lease term, or
30 years
The cost of properties and related accumulated depreciation,
in thousands, at December 31, consisted of the following:
1998 1997
------- --------
Land and improvements $ 14,995 $ 11,161
Buildings 137,247 100,739
Machinery and equipment 468,012 368,775
Real estate properties 10,251 12,533
Construction in progress 29,390 24,041
-------- --------
659,895 517,249
Less accumulated depreciation 286,204 267,625
-------- --------
Net properties $373,691 $249,624
======== ========
Accelerated depreciation methods are generally used for
income tax purposes. Expenditures for new facilities and
improvements that substantially extend the capacity or useful
life of an asset are capitalized. Ordinary repairs and
maintenance are expensed as incurred.
Impairment of Long-Lived Assets and Identifiable
Intangibles: The Company periodically reviews long-lived assets,
identifiable intangibles, and goodwill for impairment whenever
events or changes in business circumstances indicate the carrying
amount of the assets may not be fully recoverable. Measurement
of the impairment loss is based on fair value of the asset, which
is generally determined by the discounting of future estimated
cash flows. (See Note 4.)
Start-Up Costs: Start-up costs that are unrelated to
construction and associated with manufacturing facilities are
expensed as incurred.
Goodwill: Goodwill is amortized on a straight-line basis
over the estimated future periods to be benefited (not exceeding
40 years). Goodwill was $226.5 million at December 31, 1998 and
$68.2 million at December 31, 1997, less accumulated amortization
of $19.9 million and $11.3 million, respectively.
Share Repurchase Program: On September 3, 1998, the Board of
Directors authorized the repurchase of up to 5% of the Company's
outstanding common shares on the open market. During 1998, the
Company repurchased 181,200 shares for approximately $2.4 million
under this share repurchase program.
Hedging Transactions: The Company periodically enters into
forward exchange contracts to hedge transactions and firm
commitments denominated in foreign currencies. Gains and losses
on foreign exchange contracts are deferred and recognized in the
basis of the transaction when completed. The Company also
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 corn
starch. The gains and losses on qualified hedge contracts are
deferred and recognized in cost of goods sold as part of the
product cost. In addition, the Company has entered into
contracts to hedge the underlying interest rate on $175 million
of anticipated long-term borrowings. Gains and losses on the
contracts are deferred and will be recognized in the effective
interest rate of the transaction when completed. (See Note 6.)
Earnings per Share: Following is a reconciliation between
basic and diluted earnings per common share for each of the three
years in the period ended December 31, 1998 (in thousands, except
per share information):
Per
Share
Income Shares Amount
1998 ------- ------ ------
Income from continuing
operations - basic EPS $21,265 28,504 $0.75
Effect of stock options 526
------- ------
Income from continuing
operations - diluted EPS $21,265 29,030 $0.73
======= ====== =====
1997
Income from continuing
operations - basic EPS $27,716 28,118 $0.99
Effect of stock options 767
------- ------
Income from continuing
operations - diluted EPS $27,716 28,885 $0.96
======= ====== =====
1996
Income from continuing
operations - basic EPS $11,409 27,899 $0.41
Effect of stock options 604
------- ------
Income from continuing
operations - diluted EPS $11,409 28,503 $0.40
======= ====== =====
Statement of Cash Flows: The Company defines cash
equivalents as highly liquid investments with original maturities
of 90 days or less. Income taxes paid were $9.9 million, $6.0
million, and $8.8 million in 1998, 1997, and 1996, respectively.
Interest capitalized, expensed, and paid, in thousands, for
the years ended December 31, were as follows:
1998 1997 1996
------- ------ ------
Total interest costs $25,925 $9,126 $8,921
Interest capitalized $330 $460 $744
Interest expense $25,595 $8,666 $8,177
Interest paid $22,656 $8,536 $9,554
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.
Adoption of New Accounting Standards: Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued in June 1998.
This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires
the recognition of all derivatives as either assets or
liabilities in the statement of financial position at fair value.
This statement is effective for the Company's financial
statements for the year ending December 31, 2000 and the adoption
of this standard is not expected to have a material effect on the
Company's financial statements.
In 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits."
This statement revises the disclosure requirements for pensions
and other postretirement benefits. The adoption of SFAS No. 132
did not affect results of operations or financial position but
did affect the disclosure of pensions and other postretirement
benefits information. (See Note 10.)
In 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This
statement establishes standards for the way public business
enterprises report information about operating segments. It also
establishes standards for related disclosures about products and
services, geographical areas, and major customers. The adoption
of SFAS No. 131 did not affect results of operations or financial
position but did affect the disclosure of segment information.
(See Note 13.)
In 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The statement establishes standards for
reporting and display of comprehensive income in financial
statements. The adoption of this standard did not have a
material effect on the Company's financial statements.
Note 2. Acquisitions
In 1999, the Company acquired the net assets of Precision
Technologies for approximately $22 million in cash and 300,000
warrants to receive shares of the Company's common stock at an
exercise price equal to the fair market value at the date of
close. These warrants vest only upon the achievement of certain
revenue goals within three years. The acquisition will be
accounted for under the purchase method of accounting and
goodwill is estimated to be $19 million. Precision Technologies,
located in Livermore, California, manufactures precision-machined
parts for the semiconductor, medical, and aircraft industries.
In 1999, the Company acquired all of the outstanding shares
of Edwards Enterprises for approximately $18 million. The
acquisition will be accounted for under the purchase method of
accounting and goodwill is estimated to be $4 million. Edwards
Enterprises, located in Newark, California, manufactures
precision-machined parts for the semiconductor industry.
1998 Acquisitions
On August 17, 1998, the Company acquired the assets and
business of Filpac, Inc. a flexible packaging company located in
Montreal, Canada for $4.8 million in cash. The acquisition has
been accounted for under the purchase method of accounting and
has been included in the accounts of the Company since the
acquisition date. No goodwill resulted from this acquisition.
On January 14, 1998, the Company acquired Britton pursuant
to a cash tender offer for approximately $420 million. The
Britton acquisition has been accounted for under the purchase
method. Accordingly, the estimated excess of purchase price over
the fair value of net assets acquired of approximately $164
million is being amortized using the straight-line method over 30
years. The results of Universal Packaging are reflected in the
accounts of the Company beginning January 14, 1998. The Plastics
Division was carried as a discontinued operation on the books of
the Company through the April 20, 1998 disposal date. (See Note
3.)
The following unaudited pro forma information has been
prepared assuming that the Britton acquisition had occurred on
January 1, 1997. In accordance with the rules regarding the
preparation of pro forma financial information, the historical
results of Britton used to derive the accompanying pro forma
information do not include the operations of the Plastics
Division. The pro forma information includes adjustments for (1)
amortization of goodwill recorded pursuant to purchase
accounting, (2) increased interest expense related to new
borrowings at applicable rates for the purchase, and (3) the net
tax effect of pro forma adjustments at the statutory rate. The
pro forma financial information is presented for informational
purposes only and may not be indicative of the results of
operations as they would have been had the transaction been
effected on January 1, 1997 nor is it necessarily indicative of
the results of operations which may occur in the future.
Year Ended
(In thousands, except per share data) December 31, 1997
-----------------
Net sales $955,635
========
Net income $25,596
========
Net income per basic share of common stock $0.91
========
Net income per diluted share of common stock $0.89
========
1997 Acquisition
In order to broaden its material base, Coors Ceramics
acquired Tetrafluor, Inc. (Tetrafluor) for $15.8 million in
August 1997. Tetrafluor manufactures Teflon[R] fluoropolymer
sealing systems and components for use in the aerospace,
industrial, and transportation industries. The acquisition was
accounted for under the purchase method of accounting and,
accordingly, the Company's results of operations include the
results of Tetrafluor since the acquisition date. The excess of
the purchase price over the estimated fair market values of the
net assets acquired was $10.7 million, which is being amortized
over 15 years on a straight-line basis.
Note 3. Dispositions
Britton Group Plastics Division
On April 20, 1998, the Company sold the Plastics Division
for approximately pounds 82 million, or $135 million, including
pounds 80 million in cash and a pounds 2 million, 5.25% note
receivable due in 2007 or upon change in control. The majority
of the sale price, less transaction costs, was used to pay down
debt incurred by the Company for the Britton acquisition.
Since the acquisition date of Britton, the Company accounted
for the Plastics Division as a discontinued operation held for
sale. Therefore, the disposition of the Plastics Division did
not have an impact on the Company's results of operations. The
Plastics Division had net sales for the period January 14, 1998
through April 20, 1998 of $40.9 million, with break even
operating results. The Company allocated $1.8 million of
interest expense related to the acquisition of Britton to the
Plastics Division during the period January 14, 1998 through
April 20, 1998.
Golden Aluminum Company
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 was due within
two years. In December of 1998, the Company extended the due
date on the $60 million payment until September 1, 1999. In
accordance with the purchase agreement and subsequent extension,
the purchaser has the right to return Golden Aluminum to the
Company before September 1, 1999 in discharge of the $60 million
obligation. The initial payment of $10 million is nonrefundable.
The historical operating results and the estimated loss on
the sale of Golden Aluminum have been segregated as discontinued
operations on the accompanying Consolidated Income Statement for
the years ended December 31, 1997 and 1996. 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 for
the years ended December 31, 1997 and 1996.
Selected financial data for Golden Aluminum for the years
ended December 31, in thousands, are summarized as follows:
1997 1996
------- --------
Net sales $38,995 $168,446
======= ========
Loss from operations before
income taxes $--- ($8,033)
Income tax benefit --- 3,000
------- --------
Loss from operations --- (5,033)
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 loss $--- ($103,433)
======= ========
Per basic share of common
stock:
Loss from operations $--- ($0.18)
Loss on disposal --- (3.53)
------- --------
Net loss per basic share $--- ($3.71)
======= ========
Per diluted share of common
stock:
Loss from operations $--- ($0.18)
Loss on disposal --- (3.45)
------- --------
Net loss per diluted share $--- ($3.63)
======= ========
Note 4. Asset Impairment and Restructuring Charges
Asset Impairment Charges
The Company recorded a total of $31.2 million, $16.6
million, and $32.2 million in asset impairment charges in 1998,
1997, and 1996, respectively. Goodwill accounted for $5.5
million of the 1998 charge. The remainder of the 1998 charge
consisted of fixed asset impairments. The 1997 and 1996 charges
consisted entirely of fixed asset impairments.
Graphic Packaging: Graphic Packaging recorded $18.5 million
in asset impairment charges in 1998. Deterioration of the
performance at certain facilities and increased competitive
conditions led management to review the carrying amounts of long-
lived assets and goodwill in conjunction with an overall
restructuring plan. (See Restructuring Charges below.)
Specifically, forecasted operating cash flows did not support the
carrying amount of certain long-lived assets and goodwill at
Graphic Packaging's Franklin, Ohio operation. In addition,
management decided to offer for sale the Vancouver, British
Columbia operation and close a divisional office in North
Carolina. Therefore, the long-lived assets and related goodwill
were written down to their estimated market values.
Coors Ceramics: During 1998, Coors Ceramics recorded $11.8
million in asset impairment charges. A $6.2 million charge was
taken in conjunction with the cancellation of Coors Ceramics' C-4
technology agreement with IBM. Changes in the market for C-4
applications extended the time frame for achieving commercial
sales beyond original expectations. This lack of near term
commercial sales opportunities, combined with increasing overhead
costs, prompted the Company to negotiate termination of the
agreement with IBM. Consequently, the Company wrote off the long-
lived assets associated with this project. The Company recorded
an additional $5.6 million asset impairment charge at the
Chattanooga, Tennessee operation. Management decided to offer
this operation for sale as strong offshore competition in the
electronic package market made it uneconomical to have a
manufacturing facility dedicated to this product line.
Consequently, the long-lived assets of the Chattanooga operations
were written down to their estimated market values.
Other: The Company recorded net asset impairment charges of
$0.9 million in its Other businesses. These charges include a
$1.0 million asset impairment charge to write down long-lived
assets of Solartec, S.A., a solar electric subsidiary in
Argentina. Since acquiring Solartec in November 1996, operating
cash flows have been below original expectations. As a result,
the Company recorded this impairment to reduce the carrying value
of its investment in Solartec to its estimated fair market value.
In addition, the Company recorded a $0.4 million asset impairment
charge related to the consolidation and outsourcing of certain
manufacturing activities at Golden Genesis. As a result, certain
long-lived assets became impaired and were written down to their
estimated market value. Also during 1998, the Company sold
certain equipment formerly used in the biodegradable polymer
project for approximately $0.5 million. These assets had been
previously written off as an asset impairment, so the resulting
gain on sale of these assets was netted against the 1998 asset
impairment charge.
During 1997, the Company recorded a $16.6 million asset
impairment charge when it adopted a plan to limit future funding
for the biodegradable polymer project. This decision reduced
expected future cash flows for this activity to a level below the
carrying value of the manufacturing and intangible assets of this
project. In 1996, the Company recorded $32.2 million in asset
impairment charges related to the corn-wet milling business and
the solar panel manufacturing activity. The assets of the corn-
wet milling business became impaired when unfavorable market
conditions decreased ongoing customer purchase commitments and
anticipated future net cash flows. The solar panel manufacturing
activity assets became impaired due to a lack of a currently
viable market for cadmium telluride solar panels, the lack of an
alternative use for panel manufacturing assets, and the Company's
move from manufacturing to solar electric distribution.
Restructuring Charges
The Company recorded restructuring charges totaling $2.0
million, $5.3 million, and $2.4 million in 1998, 1997, and 1996,
respectively. The following table summarizes accruals related to
these restructuring charges:
Corn
Biodegradable Syrup Graphic Graphic
Polymer Exit Exit Packaging Packaging
(In millions) Plan Plan Corporate Operations Other Total
------------- ----- --------- ---------- ----- -----
1996 restructuring
charges $--- $--- $--- $--- $2.4 $2.4
Cash paid --- --- --- --- (0.2) (0.2)
Non-cash expenses --- --- --- --- (0.4) (0.4)
----- ----- ----- ------ ----- -----
Balance,
December 31, 1996 --- --- --- --- 1.8 1.8
1997 restructuring
charges 0.9 2.3 2.1 --- --- 5.3
Cash paid (0.5) (1.4) (0.2) --- (1.8) (3.9)
Non-cash expenses --- --- (0.2) --- --- (0.2)
----- ----- ----- ------ ----- -----
Balance,
December 31, 1997 0.4 0.9 1.7 --- --- 3.0
1998 restructuring
charges --- (0.8) --- 2.8 --- 2.0
Cash paid (0.4) (0.1) (1.7) (1.0) --- (3.2)
----- ----- ----- ------ ----- -----
Balance,
December 31, 1998 $--- $--- $--- $1.8 $--- $1.8
===== ===== ===== ====== ===== =====
Graphic Packaging: During 1998, the Company instituted a
restructuring plan related to certain Graphic Packaging
operations and recorded $2.8 million in restructuring charges.
This plan included the consolidation and realignment of certain
administrative functions and the downsizing of its Franklin, Ohio
operation. This plan resulted in the elimination of
approximately 20 administrative and 65 manufacturing positions
with related severance costs of approximately $2.5 million. This
plan also included approximately $0.3 million in other exit costs
related to the closure of a divisional office in North Carolina.
The Company made cash payments of $1.0 million in the fourth
quarter of 1998 and expects to make the remaining cash outlays
and complete this restructuring plan in the first half of 1999.
In December 1997, the Company recorded a $2.1 million
charge related to the closure of the Graphic Packaging corporate
offices in Wayne, Pennsylvania. This closure resulted in
severance and outplacement costs of $1.1 million for
approximately 22 administrative employees. The Company made
cash payments of $1.7 million and $0.2 million related to this
plan in 1998 and 1997, respectively.
Other: During 1997, the Company eliminated 40 research and
administrative positions and recorded approximately $0.9 million
in severance and outplacement costs related to the biodegradable
polymer project. The Company made cash outlays of approximately
$0.4 million and $0.5 million related to this plan in 1998 and
1997, respectively.
The Company adopted a plan to exit the high-fructose corn
syrup business in the first quarter of 1997. As a result, the
Company eliminated approximately 70 manufacturing and
administrative positions and recorded $2.3 million in severance
and other exit costs. The Company made approximately $0.1
million and $1.4 million in cash outlays related to this plan in
1998 and 1997, respectively. In the fourth quarter of 1998, the
Company determined that the liability remaining for this exit
plan was not required. Accordingly, the remaining liability was
reversed and netted against the 1998 restructuring charges.
In 1996, the Company recorded $2.4 million in restructuring
charges related to certain management realignments made in the
solar electric distribution business resulting in the
elimination of 16 administrative positions. Approximately $1.8
million and $0.2 million was paid for severance and other exit
costs related to this charge in 1997 and 1996, respectively.
Note 5. Indebtedness
Long-term debt, in thousands, consisted of the following as
of December 31:
1998 1997
-------- --------
7.8% unsecured notes due November 1, 1999 $ 70,000 $ 70,000
8.1% unsecured notes due November 1, 2001 30,000 30,000
7.2% unsecured notes due 2000 through 2006 45,000 -
7.0% unsecured notes due 1999 through 2003 47,500 -
Revolving credit facilities due through 2000 126,800 -
-------- --------
Total debt 319,300 100,000
Less current maturities 86,300 -
-------- --------
Total long-term debt $233,000 $100,000
======== ========
In January 1998, the Company assumed $45 million, 7.2%
unsecured notes and $47.5 million, 7.0% unsecured notes through
its acquisition of Britton. (See Note 2.) The $45 million notes
are payable in $6.4 million installments from 2000 through 2006.
The $47.5 million notes are payable in $9.5 million installments
from 1999 through 2003.
In November 1998, the Company established an unsecured $250
million, two-year revolving credit facility. The Company may
extend this facility for two additional one-year periods with the
consent of the participating banks. Amounts borrowed under this
facility bear interest under various pricing alternatives,
including (i) LIBOR plus a spread depending on the Company's debt
ratings or (ii) a competitive money market auction. In addition,
the Company pays a commitment fee on the amount of the facility.
As a condition of making this facility available, the Company is
required to comply with certain financial and nonfinancial
covenants. As of December 31, 1998, the Company was in
compliance with all required covenants, and there was $120
million outstanding under this facility at an interest rate of
6.1%.
The Company also had $6.8 million outstanding at December
31, 1998 under an uncommitted revolving credit facility bearing
interest at 6.4%.
Note 6. Fair Value of Financial Instruments
The fair value of cash and cash equivalents, notes
receivable, and current maturities of long-term debt approximates
carrying value because of the short maturity of these
instruments. The fair value of the Company's long-term debt is
estimated based on the current rates offered to the Company for
debt of the same remaining maturity and credit quality. The
carrying amount and fair value of the Company's long-term debt,
in thousands, at December 31 is as follows:
1998 1997
-------- --------
Carrying value of long-term debt $233,000 $100,000
Estimated fair value of long-term debt $237,000 $104,000
The Company has entered into contracts to hedge the
underlying interest rate on $175 million of anticipated long-term
borrowings at an average risk-free rate of approximately 5.78%.
These contracts expire on November 1, 1999 by which time the
Company expects to complete the anticipated borrowings. The
Company has accounted for the contracts as hedges of an
anticipatory borrowing and, as such, the contracts are not marked
to market and any gain or loss upon settlement will be netted
with the underlying cost of borrowing. As of December 31, 1998,
the unrecognized loss associated with these contracts was
approximately $15 million based upon a valuation performed by the
banks issuing the contracts. The Company is exposed to credit
loss in the event of nonperformance by the commercial banks that
issued the interest rate contracts. However, the Company does
not anticipate nonperformance by these banks.
The Company utilizes foreign exchange contracts to hedge
transactions and firm commitments denominated in foreign
currencies. Gains and losses on foreign exchange contracts are
deferred and recognized in the basis of the transaction when
completed. The unrecognized gains related to foreign currency
contracts at December 31, 1998 and 1997 were $0.2 million and
$0.5 million, respectively.
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, 1998, under
noncancelable operating leases with terms exceeding one year, are
as follows:
1999 $3,961
2000 3,406
2001 2,906
2002 1,943
2003 and thereafter 2,352
-------
Total $14,568
=======
Operating lease rentals for warehouse, production, office
facilities, and equipment amounted to $3.5 million in 1998, $5.5
million in 1997, and $6.2 million in 1996.
Note 8. Income Taxes
The components of income from continuing operations before
income taxes were:
Years Ended December 31,
(In thousands) 1998 1997 1996
------- ------- -------
Domestic $37,717 $39,547 $14,694
Foreign (2,152) 6,569 7,715
------- ------- -------
Income from continuing operations
before income taxes $35,565 $46,116 $22,409
======= ======= =======
The provision for income taxes included the following:
Years Ended December 31,
(In thousands) 1998 1997 1996
------- ------- -------
Current provision:
Federal $2,781 $--- $3,524
State 2,826 2,723 2,995
Foreign 2,671 3,727 2,941
------- ------- -------
Total current tax expense 8,278 6,450 9,460
Deferred provision:
Federal 8,568 10,965 (53,640)
State (931) 1,278 (4,254)
Foreign (1,615) (293) (166)
------- ------- -------
Total deferred tax
expense (benefit) 6,022 11,950 (58,060)
------- ------- -------
Total income tax expense
(benefit) $14,300 $18,400 ($48,600)
======= ======= =======
The provision for income taxes included in the Consolidated
Income Statement is as follows:
Years Ended December 31,
(In thousands) 1998 1997 1996
------- ------- -------
Continuing operations $14,300 $18,400 $11,000
Discontinued operations --- --- (59,600)
------- ------- -------
Total expense (benefit) $14,300 $18,400 ($48,600)
======= ======= =======
Temporary differences that gave rise to a significant
portion of deferred tax assets (liabilities) at December 31, 1998
and 1997, were as follows:
(In thousands) 1998 1997
-------- --------
Depreciation and other property related ($36,295) ($14,490)
Amortization of intangibles 4,963 2,636
Pension and employee benefits 21,215 17,702
Tax credits 7,028 15,811
Capitalized interest 468 (905)
Inventory 3,714 2,194
Accruals 13,992 11,115
Currently nondeductible net operating
losses 3,708 3,582
All other 157 911
------- -------
Gross deferred tax asset 18,950 38,556
Less valuation allowance 4,284 5,555
------- -------
Net deferred tax asset $14,666 $33,001
======= =======
The valuation allowance for deferred tax assets was
decreased by $1.3 million in 1998 and increased by $3.8 million
in 1997. The valuation allowance relates primarily to
uncertainty surrounding the ultimate deductibility of capital
loss carryforwards and net operating loss carryforwards of
acquired subsidiaries.
Approximately $8.8 million of net operating loss
carryforwards from subsidiaries, which are not consolidated for
tax purposes, remain at December 31, 1998. The carryforwards
expire in years 2000 through 2014.
The principal differences between the effective income tax
rate, attributable to continuing operations, and the U.S.
statutory federal income tax rate, were as follows:
Years Ended December 31,
1998 1997 1996
----- ----- -----
Expected tax rate 35.0% 35.0% 35.0%
State income taxes (net of
federal benefit) 4.2% 4.6% 7.1%
Nondeductible expenses and losses 9.7% 1.7% 9.6%
Foreign tax expense (net of
federal benefit) 0.0% 0.8% 0.3%
Change in deferred tax asset
valuation allowance (3.5%) 1.2% 7.6%
Benefit of Foreign Sales
Corporation (1.7%) 0.0% 0.0%
Research and development and
other tax credits (3.9%) (4.3%) (12.1%)
Other - net 0.4% 0.9% 1.6%
----- ----- -----
Effective tax rate 40.2% 39.9% 49.1%
===== ===== =====
The Internal Revenue Service (IRS) has completed its
examination of the Company's federal income tax returns through
1995. The IRS is currently reviewing the federal income tax
returns for 1996 and 1997. 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 approximately $14.7 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 9. Stock Compensation
The Company has an equity incentive plan that provides for
the granting of nonqualified stock options and incentive stock
options to certain key employees. The equity incentive plan also
provides for the granting of restricted stock, bonus shares,
stock units, and offers to officers of the Company to purchase
stock. In 1992, the Company authorized 4.8 million shares for
issuance under this plan. In 1997, the Company's shareholders
approved an amendment to the plan to increase the number of
shares available for award under the plan equal to 2% of the
Company's outstanding shares on each preceding December 31
beginning with 1997 and ending with 2001. Generally, options
outstanding under the Company's equity incentive plan are subject
to the following terms: (1) grant price equal to 100% of the
fair value of the stock on the date of grant; (2) ratable vesting
over either a three- or four-year service period; and (3) maximum
term of ten years from the date of grant.
Stock option activity for the three years ended December 31,
were as follows:
1998 1997 1996
--------------- --------------- ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Options outstanding
at January 1 2,616 $16.78 2,788 $15.96 2,374 $16.08
Granted 476 $23.19 404 $20.92 479 $15.29
Exercised (148) $15.33 (375) $14.83 (29) $12.75
Expired or forfeited (272) $18.94 (201) $17.31 (36) $17.36
------ -------- ------ -------- ------ --------
Options outstanding
at December 31 2,672 $17.80 2,616 $16.78 2,788 $15.96
====== ======== ====== ======== ====== ========
Exercisable at
December 31 1,964 $16.37 1,731 $15.75 1,593 $15.33
====== ======== ====== ======== ====== ========
Available for
future grant 1,529 1,173 806
====== ====== ======
The following table summarizes information about stock
options outstanding at December 31, 1998:
(Shares in
thousands) Options Outstanding Options Exercisable
- -------------------------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- -------------------------------------------------- --------------------
$10.14 to $16.56 956 3.8 years $13.31 861 $13.24
$16.88 to $18.50 923 5.2 years $18.43 872 $18.44
$19.06 to $27.06 793 8.4 years $22.49 231 $20.19
- -------------------------------------------------- --------------------
$10.14 to $27.06 2,672 5.6 years $17.80 1,964 $16.37
================================================== ====================
The Company applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its stock-based
compensation plans. Accordingly, no compensation expense has
been recognized for its equity incentive plan and employee stock
purchase plan. If the Company had elected to recognize
compensation cost based on the fair value of the stock options at
grant date as allowed by SFAS No. 123, "Accounting for Stock-
Based Compensation," compensation expense of $2.0 million, $1.7
million, and $2.2 million would have been recorded for 1998,
1997, and 1996, respectively. Net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
1998 1997 1996
------- ------- --------
Net income (loss) in thousands:
As reported $21,265 $27,716 ($92,024)
Pro forma $20,065 $26,683 ($93,411)
Earnings (loss) per
share - basic:
As reported $0.75 $0.99 ($3.30)
Pro forma $0.70 $0.95 ($3.35)
Earnings (loss) per
share - diluted:
As reported $0.73 $0.96 ($3.23)
Pro forma $0.69 $0.92 ($3.28)
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following assumptions: (1) dividend yield of 0%; (2) expected
volatility of 28.1% in 1998, 23.2% in 1997, and 22.6% in 1996;
(3) risk-free interest rate ranging from 4.7% to 5.2% in 1998,
5.3% to 5.7% in 1997, and 5.2% to 6.8% in 1996; and (4) expected
life of 3 to 6.36 years in 1998, 3 to 6.23 years in 1997, and 3
to 6.37 years in 1996. The weighted average per share fair value
of options granted during 1998, 1997, and 1996 was $7.42, $6.47,
and $5.16, respectively.
Note 10. Pension and Other Postretirement Benefit Plans
The Company maintains several defined benefit pension plans
for the majority of the Company's employees. Benefits are based
on years of service and average base compensation levels over a
period of years. Plan assets consist primarily of equity, real
estate, and interest-bearing investments. The Company's funding
policy is to contribute annually not less than the minimum
funding standards required by the internal revenue code nor more
than the maximum amount that can be deducted for federal income
tax purposes.
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. The amount the retiree pays
is based on age and service at the time of retirement. These
plans are not funded.
The Company acquired Britton on January 14, 1998, including
its pension and postretirement benefit plans.
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- ------- -------
Change in benefit
obligation
Benefit obligation at
beginning of year $130,853 $118,505 $19,816 $20,700
Service cost 4,668 4,235 569 723
Interest cost 10,105 9,620 1,301 1,500
Amendments --- --- (520) ---
Actuarial loss (gain) 5,448 5,778 (5) (2,625)
Acquisitions 10,188 --- --- ---
Benefits paid (4,600) (7,285) (1,030) (482)
-------- -------- ------- -------
Benefit obligation at
end of year 156,662 130,853 20,131 19,816
-------- -------- ------- -------
Change in plan assets
Fair value of plan assets
at beginning of year 112,630 97,308 --- ---
Actual return on plan
assets 2,217 18,740 --- ---
Acquisitions 9,411 --- --- ---
Company contributions 543 500 --- ---
Benefits paid (4,282) (3,918) --- ---
-------- -------- ------- -------
Fair value of plan assets
at end of year 120,519 112,630 --- ---
-------- -------- ------- -------
Funded status (36,143) (18,223) (20,131) (19,816)
Unrecognized actuarial
loss (gain) 18,172 3,432 (3,914) (3,524)
Unrecognized prior
service cost 5,834 6,392 (3,607) (3,988)
-------- -------- -------- --------
Accrued benefit cost ($12,137) ($8,399) ($27,652)($27,328)
======== ======== ======== ========
Amounts recognized in the
Consolidated Balance
Sheet consist of:
Accrued benefit liability ($16,943) ($8,399) ($27,652)($27,328)
Intangible asset 3,659 --- --- ---
Accumulated other
comprehensive income 1,147 --- --- ---
-------- -------- -------- --------
Net amount recognized ($12,137) ($8,399) ($27,652)($27,328)
======== ======== ======== ========
Weighted average
assumptions at year end
Discount rate 6.80% 7.25% 6.80% 7.25%
Expected return on plan
assets 9.75% 9.75%
Rate of compensation
increase 4.30% 4.75%
It is the Company's policy to amortize unrecognized gains
and losses in excess of 10% of the larger of plan assets and the
projected benefit obligation (PBO) over the expected service of
active employees (12-15 years). However, in cases where the
accrued benefit liability exceeds the actual unfunded liability
by more than 20% of the PBO, the amortization period is reduced
to 5 years.
For measurement purposes, a 7.5% annual rate of increase in
the per capita cost of covered health care benefits was assumed
for 1998. The rate was assumed to decrease by 0.5% per annum to
4.25% and remain at that level thereafter.
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
------ ------- -------- ------ ----- -----
Components of net
periodic
benefit cost
Service cost $4,668 $4,235 $4,196 $569 $723 $891
Interest cost 10,105 9,620 8,331 1,301 1,500 1,452
Expected return
on plan assets (2,092)(18,497) (14,172) --- --- ---
Amortization of
prior service
cost 671 658 347 (902) (352) (359)
Recognized
actuarial loss
(gain) (8,464) 10,502 7,940 (1,120) (2,180) (69)
------ ------ ------- ------ ------ ------
Net periodic
benefit cost $4,888 $6,518 $6,642 ($152) ($309) $1,915
====== ====== ======= ====== ====== ======
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A one-
percentage-point change in assumed health care cost trend rates
would have the following effects:
1% Point 1% Point
Increase Decrease
-------- --------
Effect on total of services and
interest cost components 416 387
Effect on postretirement benefit
obligation 1,263 1,189
Note 11. Related Party Transactions
On December 28, 1992, the Company was spun off from Adolph
Coors Company (ACCo) and since that time ACCo has had no
ownership interest in the Company. However, certain Coors family
trusts have significant interests in both the Company and ACCo.
At the time of spin-off from ACCo, the Company entered into
agreements with Coors Brewing Company (Coors Brewing), a
subsidiary of ACCo, for the sale of packaging, aluminum, starch
products, and the resale of brewery byproducts. The initial
agreements had a stated term of five years and have resulted in
substantial revenues to the Company. The Company continues to
sell packaging products to Coors Brewing. Additionally, the
Company sold aluminum products and refined corn starch to Coors
Brewing until the disposition of these businesses on March 1,
1997 and January 31, 1999, respectively.
In 1998, the supply agreement between Graphic Packaging and
Coors Brewing was renegotiated. The new five-year agreement
includes stated quantity commitments and requires annual
repricing. In addition, this contract provides for a three-year
extension to be negotiated by 2000. 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 12.1%, 15.5%, and 16.7% of
the Company's consolidated net sales for 1998, 1997, and 1996,
respectively. Included in the results of discontinued operations
are sales of aluminum products to Coors Brewing of $3.2 million
and $25.9 million for 1997, and 1996, 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 12. 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 and/or its subsidiaries are named as defendants
in various actions and proceedings arising in the normal course
of business, including claims by current or former employees
related to employment or termination. In all of these cases, the
Company is vigorously defending against 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 that would materially affect the Company's financial
position or results of operations.
The Company has been sued for breach of a supply agreement
to purchase thermal energy. Although the outcome of any lawsuit
is uncertain, in management's opinion this suit will not result
in liabilities that would materially affect the Company's
financial position or results of operations.
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. Colorado State environmental authorities are
seeking clean up of soil and ground water contamination from a
subsequent owner. Although Coors Ceramics does not believe it is
responsible for the contamination or the cleanup, the parties
agreed to a remediation plan. Coors Ceramics will manage the
remediation and, after the first $500,000 in expenses, pay from
10 to 15 percent of the additional remediation costs. There is
no estimate of potential clean up costs, although management does
not believe it will be material.
Coors Ceramics has received a Unilateral Administrative
Order issued by the EPA relating to the Rocky Flats Industrial
Park (RFIP) Site, and is participating with the RFIP group to
perform an Engineering Evaluation/Cost Analysis on the property
including investigation and sampling. There is no estimate of
potential clean up costs, although management does not believe it
will be material.
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 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 or results of operations of the Company,
without consideration for insurance recoveries. There can be no
certainty, however, that the Company will not be named as a PRP
at additional sites or be subject to other environmental matters
in the future or that the costs associated with those additional
sites or matters would not be material.
In addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
Note 13. Segment Information
The Company's reportable segments are based on its method of
internal reporting, which is based on product category. Thus,
the Company's reportable segments are Packaging and Ceramics. In
addition, the Company owns a majority interest in a group of
solar electric distribution companies and, prior to March 1999,
operated several technology-based businesses. These operations
are included in the Other segment.
The accounting policies of the segments are the same as
those described in Note 1 and there are generally no intersegment
transactions. The Company evaluates the performance of its
segments and allocates resources to them based primarily on
operating income.
The table below summarizes information about reported
segments as of and for the years ended December 31:
Operating Depreciation
Net Income and Capital
(In thousands) Sales (Loss) Amortization Assets Expenditures
-------- -------- ------------ -------- ------------
1998
Packaging $623,852 $38,232 $35,924 $539,039 $47,498
Ceramics 296,614 28,886 19,977 248,970 26,891
Other 67,925 (3,047) 1,270 56,905 3,384
-------- ------- ------- -------- -------
Segment total 988,391 64,071 57,171 844,914 77,773
Corporate --- (8,941) 336 116,291 690
-------- ------- ------- -------- -------
Consolidated
total $988,391 $55,130 $57,507 $961,205 $78,463
======== ======= ======= ======== =======
1997
Packaging $365,123 $42,655 $20,211 $210,024 $18,022
Ceramics 304,824 48,249 18,664 261,471 28,812
Other 61,138 (31,186) 3,451 81,443 9,068
-------- ------- ------- -------- -------
Segment total 731,085 59,718 42,326 552,938 55,902
Corporate --- (10,177) 337 148,258 311
-------- ------- ------- -------- -------
Consolidated
total $731,085 $49,541 $42,663 $701,196 $56,213
======== ======= ======= ======== =======
1996
Packaging $346,547 $41,048 $19,959 $205,705 $13,314
Ceramics 276,352 44,204 16,159 214,635 30,291
Other 89,481 (48,447) 5,757 104,138 12,558
-------- ------- ------- -------- -------
Segment total 712,380 36,805 41,875 524,478 56,163
Corporate --- (8,169) 341 35,662 327
Discontinued
operations --- --- 7,307 116,552 1,036
-------- ------- ------- -------- -------
Consolidated
total $712,380 $28,636 $49,523 $676,692 $57,526
======== ======= ======= ======== =======
Corporate assets for 1998 and 1997 consist primarily of cash,
a note receivable from the sale of Golden Aluminum, deferred taxes,
and certain properties. The 1997 and 1996 operating losses for
Other relate primarily to asset impairment and restructuring
charges. (See Note 4.)
The following is net sales and long-lived asset information by
geographic area as of and for the year ended December 31:
Net Long-Lived
(In thousands) Sales Assets
-------- ----------
1998
United States $851,010 $553,209
Canada 65,525 34,813
Other 71,856 6,551
-------- --------
Total $988,391 $594,573
======== ========
1997
United States $582,067 $274,710
Canada 68,616 34,619
Other 80,402 6,833
-------- --------
Total $731,085 $316,162
======== ========
1996
United States $578,106 $326,088
Canada 56,966 38,187
Other 77,308 2,968
-------- --------
Total $712,380 $367,243
======== ========
Note 14. Quarterly Financial Information (Unaudited)
The following information summarizes selected quarterly
financial information, in thousands except per share data, for
each of the two years in the period ended December 31, 1998:
1998 First Second Third Fourth Year
-------- -------- -------- -------- --------
Net sales $236,733 $257,326 $248,019 $246,313 $988,391
Cost of goods sold 188,065 204,334 205,266 196,281 793,946
-------- -------- -------- -------- --------
Gross profit 48,668 52,992 42,753 50,032 194,445
Selling, general
and administrative
expenses 27,870 27,086 24,971 26,178 106,105
Asset impairment
and restructuring
charges 7,238 --- 25,482 490 33,210
-------- -------- -------- -------- --------
Operating income(loss) 13,560 25,906 (7,700) 23,364 55,130
Other income(expense):
Interest expense (5,625) (6,727) (6,791) (6,452) (25,595)
Interest income 1,251 1,469 1,477 1,257 5,454
Miscellaneous-net (147) 207 508 8 576
-------- -------- -------- -------- --------
Income before income
taxes 9,039 20,855 (12,506) 18,177 35,565
Income tax expense
(benefit) 3,600 8,300 (5,000) 7,400 14,300
-------- -------- -------- -------- --------
Net income(loss) $5,439 $12,555 ($7,506) $10,777 $21,265
======== ======== ======== ======== ========
Net income(loss)
per basic share $0.19 $0.44 ($0.26) $0.38 $0.75
======== ======== ======== ======== ========
Net income(loss)
per diluted share $0.19 $0.43 ($0.26) $0.37 $0.73
======== ======== ======== ======== ========
1997 First Second Third Fourth Year
-------- -------- -------- -------- --------
Net sales $173,458 $186,777 $186,458 $184,392 $731,085
Cost of goods sold 131,860 140,370 140,571 139,673 552,474
-------- -------- -------- -------- --------
Gross profit 41,598 46,407 45,887 44,719 178,611
Selling, general
and administrative
expenses 26,696 28,468 25,798 26,228 107,190
Asset impairment
and restructuring
charges 2,280 --- 17,500 2,100 21,880
-------- -------- -------- -------- --------
Operating income 12,622 17,939 2,589 16,391 49,541
Other income(expense):
Interest expense (2,122) (2,109) (2,210) (2,225) (8,666)
Interest income 967 1,499 1,596 1,626 5,688
Miscellaneous-net 26 260 (269) (464) (447)
-------- -------- -------- -------- --------
Income before income
taxes 11,493 17,589 1,706 15,328 46,116
Income tax expense 4,700 7,150 750 5,800 18,400
-------- -------- -------- -------- --------
Net income $6,793 $10,439 $956 $9,528 $27,716
======== ======== ======== ======== ========
Net income per
basic share $0.24 $0.38 $0.03 $0.34 $0.99
======== ======== ======== ======== ========
Net income per
diluted share $0.24 $0.36 $0.03 $0.33 $0.96
======== ======== ======== ======== ========
See Note 4 for detail on asset impairment and restructuring
charges for 1998 and 1997.
SCHEDULE II
ACX TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Allowance for Doubtful Receivables
(deducted from accounts receivable)
Balance Additions
at charged to Balance
Beginning costs and Other Deductions at end
of Year expenses (1) (2) of year
--------- --------- ----- ---------- -------
Year Ended
December 31,
1996 $2,724 $1,272 ($30) ($931) $3,035
1997 $3,035 $1,430 $60 ($1,424) $3,101
1998 $3,101 $2,035 $850 ($2,008) $3,978
(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 1999 Annual Meeting of Shareholders.
The following executive officers of the Company serve at the
pleasure of the Board:
Jeffrey H. Coors, 54, President of the Company since its
formation in August 1992. President of Graphic Packaging since
June 1997 and 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.
Joseph Coors, Jr., 57, President of the Company since its
formation in August 1992; Chief Executive Officer of Coors
Ceramics since March 1997, President of Coors Ceramics from March
1997 to October 1998, and Chairman of Coors Ceramics since 1989;
Chairman of Golden Aluminum from 1993 to 1997; Executive Vice
President of ACCo from 1991 to 1992; President of Coors Ceramics
from 1985 to 1993; also a Director of Hecla Mining Company and
Golden Genesis Company.
Jed J. Burnham, 54, 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 Golden Genesis Company since November
1996.
Jill B. W. Sisson, 51, 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.
Beth A. Parish, 38, Controller and Principal Accounting
Officer of the Company since November 1997; Director of Financial
Reporting from 1994 to 1997; Treasury Manager from 1992 to 1994;
Tax Analyst for ACCo from 1987 to 1992.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This information is incorporated by reference to the Proxy
Statement
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)
Exhibit
Number Document Description
2.1 Recommended Cash Offers by Baring Brothers
International Limited on behalf of ACX (UK) Limited,
a wholly-owned subsidiary of ACX Technologies, Inc.
for Britton Group plc. (Incorporated by reference to
Exhibit 2 to Form 8-K filed on January 29, 1998)
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 16, 1998, 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 Amendment to Stock Purchase Agreement among Golden
Aluminum Company, Crown Cork & Seal, Inc. and ACX
Technologies, Inc.
10.3 Credit Agreement among ACX Technologies, Inc.,
Wachovia Bank, N.A., as agent, and other financial
institutions party thereto. (Incorporated by
reference to Exhibit 10.1 to Form 8-K filed on
December 23, 1998.)
10.7* Description of Officers' Life Insurance Program.
(Incorporated by reference to Exhibit 10.7 to
Form 10-K filed on March 24, 1997.)
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)
21 Subsidiaries of Registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
* Management contracts or compensatory plans,
contracts or arrangements required to be filed as
an Exhibit pursuant to Item 14(c).
The Registrant will furnish to a requesting security holder
any Exhibit requested upon payment of the Registrant's reasonable
copying charges and expenses in furnishing the Exhibit.
(b) Reports on Form 8-K.
On December 23, 1998, the Company filed a Current Report on
Form 8-K regarding the Company's two-year, $250 million credit
agreement with a group of financial institutions.
On November 2, 1998, the Company filed a Current Report on
Form 8-K regarding the Company's supply agreement with Coors
Brewing Company.
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, 1999 By/s/Jeffrey H. Coors
------------------------------
Jeffrey H. Coors
President
Date: March 24, 1999 By/s/Joseph Coors, Jr.
------------------------------
Joseph Coors, Jr.
President
Date: March 24, 1999 By/s/Jed J. Burnham
------------------------------
Jed J. Burnham
Chief Financial Officer
and Treasurer
Date: March 24, 1999 By/s/Beth A. Parish
------------------------------
Beth A. Parish
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, 1999 By/s/William K. Coors
------------------------------
William K. Coors
Chairman of the Board
of Directors and Director
Date: March 24, 1999 By/s/John D. Beckett
------------------------------
John D. Beckett
Director
Date: March 24, 1999 By/s/Jeffrey H. Coors
------------------------------
Jeffrey H. Coors
Principal Executive
Officer and Director
Date: March 24, 1999 By/s/John K. Coors
------------------------------
John K Coors
Director
Date: March 24, 1999 By/s/Joseph Coors, Jr.
------------------------------
Joseph Coors, Jr.
Principal Executive
Officer and Director
Date: March 24, 1999 By/s/Richard P. Godwin
------------------------------
Richard P. Godwin
Director
Date: March 24, 1999 By/s/John H. Mullin, III
------------------------------
John H. Mullin, III
Director
Date: March 24, 1999 By/s/James K. Peterson
------------------------------
James K. Peterson
Director
Date: March 24, 1999 By/s/John Hoyt Stookey
------------------------------
John Hoyt Stookey
Director