FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-20704
ACX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1208699
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There were 28,451,804 shares of common stock outstanding as of
July 23, 1999.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACX TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENT
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net sales $259,006 $257,326 $501,561 $494,059
Cost of goods sold 203,918 204,334 397,964 392,399
-------- -------- -------- --------
Gross profit 55,088 52,992 103,597 101,660
Selling, general and
administrative 31,461 27,086 58,536 54,956
Asset impairment charges --- --- --- 7,238
-------- -------- -------- --------
Operating income 23,627 25,906 45,061 39,466
Other income (expense) - net (77) 207 16 60
Interest expense - net (5,388) (5,258) (10,597) (9,632)
-------- -------- -------- --------
Income before income taxes 18,162 20,855 34,480 29,894
Income tax expense 6,900 8,300 13,500 11,900
-------- -------- -------- --------
Net income $11,262 $12,555 $20,980 $17,994
======== ======== ======== ========
Comprehensive income $12,260 $10,565 $21,781 $16,280
======== ======== ======== ========
Net income per basic share $0.40 $0.44 $0.74 $0.63
======== ======== ======== ========
Net income per diluted share $0.39 $0.43 $0.73 $0.62
======== ======== ======== ========
Weighted average shares
outstanding - basic 28,443 28,552 28,435 28,489
======== ======== ======== ========
Weighted average shares
outstanding - diluted 28,748 29,222 28,734 29,179
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
June 30, December 31,
1999 1998
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $37,321 $26,196
Accounts receivable 107,549 92,763
Inventories
Finished 67,002 62,484
In process 43,195 37,458
Raw materials 43,188 48,610
---------- ---------
Total inventories 153,385 148,552
Notes receivable 60,423 60,568
Other assets 35,730 30,076
---------- ---------
Total current assets 394,408 358,155
Properties at cost less accumulated
depreciation of $331,109 in 1999
and $286,204 in 1998 400,423 373,691
Goodwill, net 227,645 206,583
Other assets 24,469 22,776
---------- ---------
Total assets $1,046,945 $961,205
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $85,929 $86,300
Other current liabilities 140,356 119,311
---------- ---------
Total current liabilities 226,285 205,611
Long-term debt 277,071 233,000
Other long-term liabilities 60,156 61,260
---------- ---------
Total liabilities 563,512 499,871
Minority interest 13,169 13,379
Shareholders' equity
Preferred stock, nonvoting, $0.01 par
value, 20,000,000 shares authorized
and no shares issued or outstanding --- ---
Common stock, $0.01 par value
100,000,000 shares authorized
and 28,448,612 and 28,373,000 issued
and outstanding at June 30, 1999,
and December 31, 1998 284 284
Paid-in capital 452,020 451,401
Retained earnings 22,690 1,710
Accumulated other comprehensive loss (4,730) (5,440)
---------- ---------
Total shareholders' equity 470,264 447,955
---------- ---------
Total liabilities and shareholders'
equity $1,046,945 $961,205
========== =========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Six months ended
June 30,
---------------------
1999 1998
-------- --------
Cash flows from operating
activities:
Net income $20,980 $17,994
Adjustments to reconcile net
income to net cash provided
by operating activities:
Asset impairment charges --- 7,238
Depreciation and amortization 30,049 28,713
Change in current assets and
current liabilities and other 4,278 (22,660)
-------- --------
Net cash provided by operating
activities 55,307 31,285
Cash flows from investing
activities:
Capital expenditures (37,513) (36,993)
Acquisitions, net of cash
acquired (55,008) (293,394)
Proceeds from sale of Britton
Plastics --- 126,642
Other 4,076 (2,838)
-------- --------
Net cash used in investing
activities (88,445) (206,583)
Cash flows from financing
activities:
Proceeds from the issuance of
debt 53,763 161,528
Repayment of debt (9,500) ---
-------- --------
Net cash provided by financing
activities 44,263 161,528
Cash and cash equivalents:
Net increase (decrease) in cash
and cash equivalents 11,125 (13,770)
Balance at beginning of period 26,196 49,355
-------- --------
Balance at end of period $37,321 $35,585
======== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. 1999 Acquisitions
On April 25, 1999, the Company entered into a definitive
purchase agreement with Fort James Corporation (Fort James) to
acquire the net assets of Fort James' folding carton business for
$830 million in cash. The folding carton business of Fort James
is a major supplier of folding cartons to leading consumer
product companies. The Fort James folding carton business is
comprised of 12 carton plants and a recycled paperboard mill.
The Boards of Directors of both the Company and Fort James have
approved the agreement. The Company expects to finance the
acquisition with a combination of short-term and long-term credit
facilities with Bank of America and to close the transaction in
early August.
On March 12, 1999, the Company acquired the net assets of
Precision Technologies (Precision) for approximately $22 million
in cash and 300,000 warrants to receive shares of the Company's
common stock at an exercise price equal to the fair market value
at the date of closing. These warrants vest only upon the
achievement of certain revenue goals within three years. The
Precision acquisition has been accounted for under the purchase
method. Accordingly, the excess of the purchase price over the
fair value of net assets acquired of approximately $19 million is
being amortized using the straight-line method over 20 years.
Precision, located in Livermore, California, manufactures
precision-machined parts for the semiconductor, medical, and
aircraft industries.
On March 1, 1999, the Company acquired all of the
outstanding shares of Edwards Enterprises (Edwards) for
approximately $18 million in cash. The Edwards acquisition has
been accounted for under the purchase method. Accordingly, the
excess of the purchase price over the fair value of net assets
acquired of approximately $4 million is being amortized using the
straight-line method over 20 years. Edwards, located in Newark,
California, manufactures precision-machined parts for the
semiconductor industry.
Note 2. Asset Impairment Charges
During the first quarter of 1998, the Company recorded $7.2
million in asset impairment charges at Coors Ceramics and the
Solar Electric business unit.
Coors Ceramics recorded a $6.2 million charge related to the
cancellation of its 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. Consequently, the Company wrote
off the long-lived assets associated with this project.
The Solar Electric business unit recorded a $1.0 million
asset impairment charge to write down the long-lived assets of
Solartec, S.A., a solar electric systems distributor located in
Argentina. Since acquiring Solartec in November 1996, operating
cash flows were below original expectations. As a result, the
Company recorded this impairment to the asset value of Solartec
to an amount that could be realized through estimated future
operating cash flows.
Note 3. Segment Information
The Company's reportable segments (Packaging and Ceramics)
are based on its method of internal reporting, which is based on
product category. In addition, as of June 30, 1999, the Company
owns a majority interest in a group of solar electric
distribution companies and a real estate developmental
partnership, which are included in the Other segment. The Other
segment also includes, prior to January 31, 1999, a corn-wet
milling facility, and prior to March 1998, a biodegradable
polymer developmental business.
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 three months ended June 30:
Operating Depreciation
Net Income and Capital
(In thousands) Sales (Loss) Amortization Expenditures
--------- --------- ------------ ------------
1999
Packaging $148,534 $14,784 $8,727 $15,294
Ceramics 95,411 11,834 6,702 2,423
Other 15,061 2 101 493
-------- ------- --------- -------
Segment total 259,006 26,620 15,530 18,210
Corporate --- (2,993) 67 18
-------- ------- --------- -------
Consolidated
total $259,006 $23,627 $15,597 $18,228
======== ======= ========= =======
1998
Packaging $162,497 $17,478 $9,351 $7,884
Ceramics 79,422 11,596 5,065 8,442
Other 15,407 (811) 448 1,167
-------- ------- --------- -------
Segment total 257,326 28,263 14,864 17,493
Corporate --- (2,357) 77 284
-------- ------- --------- -------
Consolidated
total $257,326 $25,906 $14,941 $17,777
======== ======= ========= =======
The table below summarizes information about reported
segments as of and for the six months ended June 30:
Operating Depreciation
Net Income and Capital
(In thousands) Sales (Loss) Amortization Assets Expenditures
-------- --------- ------------ ---------- ------------
1999
Packaging $299,261 $27,623 $17,293 $568,385 $32,565
Ceramics 171,989 22,351 12,090 313,565 3,971
Other 30,311 427 531 54,426 959
-------- ------- --------- ---------- ---------
Segment total 501,561 50,401 29,914 936,376 37,495
Corporate --- (5,340) 135 110,569 18
-------- ------- --------- ---------- ---------
Consolidated
total $501,561 $45,061 $30,049 $1,046,945 $37,513
======== ======= ========= ========== =========
1998
Packaging $302,033 $30,831 $17,768 $578,374 $18,030
Ceramics 160,367 17,173 9,881 267,310 16,315
Other 31,659 (3,776) 907 66,285 2,321
-------- ------- --------- ---------- ---------
Segment total 494,059 44,228 28,556 911,969 36,666
Corporate --- (4,762) 157 86,678 327
-------- ------- --------- ---------- ---------
Consolidated
total $494,059 $39,466 $28,713 $998,647 $36,993
======== ======= ========= ========== =========
Note 4. Golden Aluminum Company
On May 26, 1999, the Company announced that it had been
notified by Crown Cork & Seal Company, Inc. (Crown) of its
intention to return Golden Aluminum Company (Golden Aluminum) to
the Company effective August 23, 1999. Under the terms of a
March 1997 agreement between the Company and Crown, as amended,
Crown paid a non-refundable $10 million payment and issued a $60
million note to the Company in exchange for Golden Aluminum.
Crown also had the option of returning Golden Aluminum to the
Company in satisfaction of the $60 million note. The Company is
actively working to sell Golden Aluminum to another buyer and has
received interest from several parties. The Company is working
toward a sale of Golden Aluminum by the end of 1999.
Note 5. Subsequent Events
On July 26, 1999 the Company announced that it has agreed to
sell the assets and business of its flexible packaging division
to Sonoco Products Company for approximately $105 million in
cash. This transaction is expected to close in September. The
Company will use the proceeds, after transaction costs, to pay
down debt associated with its acquisition of the packaging
business of Fort James.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General Business Overview
ACX Technologies, Inc. ("ACX" or the "Company"), together
with its subsidiaries, is a diversified, value added
manufacturing organization focused on pioneering differentiated
customer solutions. Two business segments comprise the majority
of the Company's results from operations: the packaging business,
operated through Graphic Packaging Corporation (Graphic
Packaging), and the ceramics business, operated through Coors
Ceramics Company (Coors Ceramics). On June 15, 1999, the Company
announced a plan to spin-off Coors Ceramics. Under the proposed
spin-off plan, the Company would distribute 100% of the shares of
Coors Ceramics to shareholders of ACX in a tax-free transaction.
The transaction, which is subject to regulatory approvals, a
favorable IRS ruling and final approval of the Company's Board of
Directors, is planned for completion by the end of 1999.
Graphic Packaging is a nonintegrated manufacturer of both
folding cartons 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. Graphic
Packaging has announced that its future strategy will focus
primarily on folding cartons.
To further its folding carton strategy, on April 25, 1999
the Company entered into a definitive purchase agreement with
Fort James Corporation (Fort James) to acquire the net assets of
Fort James' folding carton business for $830 million in cash. The
folding carton business of Fort James is a major supplier of
folding cartons to leading consumer product companies. The Fort
James folding carton business is comprised of 12 carton plants
and a paper mill. The Company expects to close the acquisition
in early August 1999.
On July 26, 1999, the Company announced it had reached an
agreement to sell the assets and business of its flexible
packaging division to Sonoco Products Company for approximately
$105 million in cash. This transaction is expected to close in
September 1999.
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' sales are to the semiconductor equipment,
petrochemical, power generation and mining, automotive,
telecommunications, and pulp and paper industries. In March
1999, the Company acquired Precision Technologies (Precision) and
Edwards Enterprises (Edwards), both manufacturers of precision-
machined parts primarily for the semiconductor equipment
industry.
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. On May 25, 1999, the
Company announced that Kyocera International, Inc., a wholly
owned subsidiary of Kyocera Corporation, has agreed to purchase
100% of the common shares of Golden Genesis, including the
Company's majority ownership, for $2.33 per share. The Company
expects to receive proceeds of approximately $30 million for its
majority interest in Golden Genesis, including the repayment of
certain intercompany debt. Closing is scheduled for August 3,
1999.
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. During 1998, the
Company exited the biodegradable polymer project. On January 31,
1999, the Company sold the corn-wet mill operation.
Results from Continuing Operations
Consolidated net sales for the three months ended June 30,
1999 increased slightly to $259.0 million as compared to
consolidated net sales of $257.3 million for the same period in
1998. For the six months ended June 30, consolidated net sales
grew 1.5% to $501.6 million compared to the first half of 1998.
These increases are primarily attributable to the March
acquisitions of Edwards and Precision, partially offset by sales
declines at Graphic Packaging due to changes in product mix,
softness in sales to tobacco and dried foods customers, and
certain price reductions. Base business sales at Coors Ceramics
were also down due to price competition and continued softness in
the pulp and paper and electronics markets.
Consolidated gross margin for the second quarter and six
months ended June 30, 1999 were 21.3% and 20.6%, respectively, in
line with the 20.6% gross margins recorded for the second quarter
and six months ended June 30, 1998.
Consolidated operating income for the second quarter of 1999
totaled $23.7 million, a $2.3 million decrease from operating
income for the second quarter of 1998. For the six months ended
June 30, 1999, consolidated operating income grew 14.2% to $45.1
million over consolidated operating income for the same six month
period in 1998, which was due primarily to the $7.2 million in
asset impairment charges recorded during the first half of 1998
with no such charges in 1999. Excluding this charge,
consolidated operating income in the 1999 first half was $1.6
million lower than in the comparable period in 1998. The
decreases in operating income in 1999 are primarily attributable
to lower revenues and competitive pricing pressure at both
Graphic Packaging and in Coors Ceramics' base business.
Net interest expense for the second quarter of 1999 totaled
$5.4 million, a slight increase from the $5.3 million in net
interest expense recorded in the 1998 second quarter. This
increase reflects debt financing of the Edwards and Precision
acquisitions, partially offset by debt repayments funded by
operating cash flow. For the first six months of 1999, net
interest expenses totaled $10.6 million, compared with $9.6
million in the first half of 1998. This increase is attributable
to debt financing for the Edwards and Precision acquisitions in
1999 and reflects the timing of borrowings for the Universal
Packaging acquisition in mid-January 1998.
The consolidated effective tax rate for the first half of
1999 was approximately 39%, compared with 40% in the first half
of 1999.
Liquidity and Capital Resources
The Company's liquidity is generated from both internal and
external sources and is used to fund short-term working capital
needs, capital expenditures, and acquisitions. At June 30, 1999,
the Company's working capital was $168.1 million with a current
ratio of 1.74 to 1.
During the second quarter of 1999, the Company entered into
an agreement with Bank of America to provide $1.3 billion in
short and long-term credit facilities (the Credit Facilities) to
finance the Company's acquisition of the Fort James folding
carton business and repay all existing debt. The Company expects
to close on the Credit Facilities in early August. Amounts
borrowed under the new facilities will bear interest at LIBOR
plus a spread that varies depending on the Company's financial
performance. In addition, the Company will pay a commitment fee
on the unused portion of the Credit Facilities. Borrowings will
be secured with a pledge of 100% of the common and preferred
shares of the Company's domestic subsidiaries and 65% of the
common and preferred shares of material foreign subsidiaries. If
the Company fails to meet certain financial measures and repay at
least $525 million within 180 days of closing the Credit
Facilities, then borrowings will become secured by all assets of
the Company and its subsidiaries. The Company expects to raise
funds for repayment of the Credit Facilities through the sale of
its interest in Golden Genesis, the sale of its flexible
packaging division, operating cash flow, and other sources.
Additionally, the Company expects to receive approximately $200
million in cash upon the spin-off of Coors Ceramics.
The Company has access to a two-year, unsecured $250 million
revolving credit facility. 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 June
30, 1999, $180 million was outstanding under this line. The
Company intends to cancel this facility and repay all amounts
borrowed upon closing of the Credit Facilities.
The Company has $100 million of senior notes outstanding
under a private placement agreement bearing interest at an
average rate of 8%. In addition, the Company assumed $92.5
million of senior notes through its acquisition of Britton Group
plc in January 1998, of which $9.5 million was repaid in the
first quarter of 1999. These notes bear interest at approxi-
mately 7.1%. The Company intends to repay these notes upon
closing of the Credit Facilities. In addition to principal and
accrued interest, the Company anticipates paying approximately $5
million in prepayment penalties associated with the early
retirement of these notes.
The Company has an uncommitted $20 million revolving credit
facility with Wachovia Bank, N.A. As of June 30, 1999, there
were no amounts outstanding under this facility.
The Company has entered into contracts to hedge the
underlying interest rate on $175 million of anticipated long-term
borrowings. These contracts lock in an average risk-free rate of
approximately 5.78% and expire on November 1, 1999. The
anticipated borrowings will be used to refinance a portion of the
Credit Facilities. As of June 30 1999, the unrecognized loss
associated with these hedge contracts was approximately $1.2
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 June 30, 1999, the Company had repurchased
181,200 shares at an aggregate cost of $2.4 million.
The Company currently expects that the Credit Facilities
will provide adequate sources of funds to finance the acquisition
of the Fort James folding carton business and repay existing
debt. Additionally, the Company believes that cash flows from
operations, the sale of certain assets, and borrowings under the
Credit Facilities will be adequate to meet the required debt
repayments and the Company's needs for working capital and
temporary financing for capital expenditures.
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 June 30, 1999, 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 June 30, 1999, 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 for non-IT systems includes 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 June 30, 1999, the Company has spent
approximately $0.9 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.
Segment Information
Net sales and operating income for the second quarter 1999
and 1998 are summarized by segment below:
Operating
Net Sales Income(Loss)
-------------------- -----------------
(In thousands) 1999 1998 1999 1998
-------- -------- ------- -------
Graphic Packaging $148,534 $162,497 $14,784 $17,478
Coors Ceramics 95,411 79,422 11,834 11,596
Other 15,061 15,407 2 (811)
Corporate --- --- (2,993) (2,357)
-------- -------- ------- -------
$259,006 $257,326 $23,627 $25,906
======== ======== ======= =======
Net sales and operating income for the six months ended June
30 are summarized by segment below:
Operating
Net Sales Income(Loss)
-------------------- -----------------
(In thousands) 1999 1998 1999 1998
-------- -------- ------- -------
Graphic Packaging $299,261 $302,033 $27,623 $30,831
Coors Ceramics 171,989 160,367 22,351 17,173
Other 30,311 31,659 427 (3,776)
Corporate --- --- (5,340) (4,762)
-------- -------- ------- -------
$501,561 $494,059 $45,061 $39,466
======== ======== ======= =======
Graphic Packaging
Graphic Packaging reported net sales for the second quarter
and six months ended June 30, 1999 of $148.5 million and $299.3
million, respectively. This compares to net sales of $162.5
million and $302.0 million for the corresponding periods in 1998.
The lower 1999 net sales are primarily due to softness in the
tobacco and dry foods markets, changes in product mix, a decline
in sales of promotional packaging, and price reductions given to
satisfy continuous improvement initiatives, partially offset by a
full first quarter of sales from Universal Packaging in 1999.
Universal Packaging was acquired on January 14, 1998, and
consequently, was not included for the full six months in the
1998 period.
Graphic Packaging's operating income for the second quarter
and six months ended June 30 totaled $14.8 million and $27.6
million, respectively. This compares to $17.5 million and $30.8
million reported for the same periods in 1998. Operating margins
declined slightly from 10.8% in the second quarter 1998 to 10.0%
in the 1999 second quarter. For the six month ended June 30,
1999, operating margins fell to 9.2% from 10.2% in the same
period of 1998. The declines in operating profits and margins
are attributable to competitive pricing pressures across all
lines of business. Additionally, price reductions given to
customers have outpaced cost cutting efforts.
Coors Ceramics
Coors Ceramics' second quarter 1999 net sales were $95.4
million, an increase of 20.1% over the 1998 second quarter. For
the six months ended June 30, 1999 net sales totaled $172.0
million, an increase of $11.6 million over the same six-month
period in 1998. The net sales increases are attributable to the
March 1999 acquisitions of Edwards and Precision. Coors
Ceramics' continues to see currency influenced price pressures
and softness in the pulp and paper and electronics markets, which
has negatively impacted base business sales.
Coors Ceramics' operating income was $11.8 million for the
second quarter of 1999 compared to $11.6 million for the second
quarter of 1998. The addition of Edwards and Precision increased
operating income for the 1999 quarter, partially offset by lower
base business operating income resulting from price competition
and continued softness in the pulp and paper and electronics
markets. For the six months ended June 30, 1999, operating
income increased 30.2% to $22.4 million as compared to the same
period in 1998. Operating income for the 1998 first half was
negatively impacted by $6.2 million in asset impairment charges
related to the termination of the Company's C-4 technology
agreement with IBM.
Operating margins for the quarter and six months ended June
30, 1999 fell to 12.4% and 13.0% from 14.6% and 14.6% in the
corresponding periods in 1998, excluding the 1998 asset
impairment charge. Coors Ceramics continues to maintain and
increase unit sales volumes but has reduced prices in many cases
to compete with foreign competitors, resulting in lower operating
margins.
Other
As of June 30, 1999, the Company's Other businesses includes
its majority interest in Golden Genesis, a real estate
partnership, and the results of the Company's corn-wet mill,
which was sold on January 31, 1999. The Company plans to
liquidate its majority interest in Golden Genesis as a part of
Golden Genesis' merger into Kyocera International, Inc. in early
August 1999.
For the first half of 1998, the Other businesses also
included the results of the Company's biodegradable polymer
project.
Net sales for the Other businesses were $15.0 million for
the second quarter of 1999, in line with the $15.4 million in net
sales recorded for the 1998 second quarter. For the six months
ended June 30, 1999, net sales declined to $30.3 million as
compared to $31.7 million for the same period in 1998. This
decrease is primarily a result of the sale of the corn-wet mill
in January 1999.
For the second quarter 1999, the Other businesses had break
even operating results compared to an operating loss of $0.8
million for the 1998 second quarter. For the six months ended
June 30, 1999, the Other businesses recorded operating income of
$0.4 million compared to a $3.8 million operating loss in the
1998 first half. The improvement in 1999 reflects the
elimination of expenses associated with the biodegradable polymer
project in 1998. The 1998 first half operating loss also
includes a $1.0 million asset impairment charge related to the
long-lived assets of Solartec, S.A., a solar electric distributor
in Argentina and a $1.1 million write-down of inventories and
accounts receivable associated with the Company's battery
charging operations in Brazil.
Corporate
Corporate costs totaled $3.0 million and $5.3 million for
the second quarter and six months ended June 30, 1999,
respectively. This compares to corporate costs of $2.4 million
and $4.8 million for the same periods in 1998. The increase in
corporate costs reflects higher professional fees and other costs
associated with the Company's plan to spin off Coors Ceramics.
Forward-Looking Statements
Some of the statements in this Form 10-Q Quarterly Report,
as well as statements by the Company in periodic press releases,
oral statements made by the Company's officials to analysts and
shareholders in the course of presentations about the Company and
conference calls following quarterly earnings releases,
constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Words or
phrases denoting the anticipated results of future events such as
"anticipate," "believe," "estimate," "will likely," "are expected
to," "will continue," "project," and similar expressions that
denote uncertainty are intended to identify such forward-looking
statements. 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. Such factors include, among other things, (i)
general economic and business conditions; (ii) changes in
industries in which the Company does business, such as beverage,
food, telecommunications, automotive, semiconductor,
petrochemical, and tobacco; (iii) the loss of major customers;
(iv) the loss of market share and increased competition in
certain markets; (v) industry shifts to alternative materials,
such as replacement of ceramics by plastics or metals, a
substitution of flexible packaging for folding cartons, and
competitors offering products with characteristics similar to the
Company's products; (vi) changes in consumer buying habits; (vii)
governmental regulation including environmental laws; (viii) the
ability of the Company to successfully execute exit strategies
for non-core businesses and Golden Aluminum Company; (ix) the
Company's ability to successfully integrate acquisitions; and (x)
other factors over which the Company has little or no control.
These statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1998. The accompanying
financial statements have not been examined by independent
accountants in accordance with generally accepted auditing
standards, but in the opinion of management of ACX Technologies,
such financial statements include all adjustments necessary to
summarize fairly the Company's financial position and results of
operations. Except for certain reclassifications made to
consistently report the information contained in the financial
statements, all adjustments made to the interim financial
statements presented are of a normal recurring nature. The
results of operations for the second quarter ended June 30, 1999,
may not be indicative of results that may be expected for the
year ending December 31, 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Document Description
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 19, 1999
regarding the Company's announcement on April 6, 1999
of its intention to dispose of the Flexible Packaging
Division of Graphic Packaging Corporation.
A report on Form 8-K was filed on April 27, 1999
regarding the Company's announcement on April 26,
1999 of its planned acquisition of the folding carton
business of Fort James Corporation.
A report on Form 8-K was filed on May 27, 1999
regarding the Company's announcement on May 25, 1999
of the merger of Golden Genesis Company into Kyocera
International, Inc.
A report on Form 8-K was filed on May 28, 1999
regarding the Company's announcement on May 26, 1999
that Crown Cork & Seal Company, Inc. had notified ACX
of its intention to return Golden Aluminum Company to
the Company.
A report on Form 8-K was filed on June 23, 1999
regarding the Company's announcement on June 15, 1999
of its intention to spin-off Coors Ceramics Company.
SIGNATURES
Pursuant to the requirements 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.
Date: July 29, 1999 By /s/Jed J. Burnham
----------------------------
Jed J. Burnham
(Chief Financial Officer and
Treasurer)
Date: July 29, 1999 By /s/Beth A. Parish
----------------------------
Beth A. Parish
(Controller and Principal
Accounting Officer)
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