UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
August 2, 1999
(Date of earliest event reported)
Commission file number: 0-20704
ACX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1208699
(State or other jurisdiction (I.R.S. Employer
of 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)
Item 7. Financial Statements & Exhibits
Set forth below is the information required by Item 7(a),
Financial Statements of Acquired Businesses, and by Item 7(b),
Pro Forma Financial Information, of Form 8-K with respect to the
acquisition by ACX Technologies, Inc. ("ACX" or the "Company") of
the Fort James Folding Carton Business ("FJFCB") as disclosed
on the Form 8-K filed with the Securities and Exchange Commission
on August 17, 1999.
Pro Forma Financial Information
- -------------------------------
Unaudited Pro Forma Condensed Balance Sheet as of June
30, 1999
Unaudited Pro Forma Condensed Statements of Income for
the year ended December 31, 1998 and for the six months
ended June 30, 1999
Notes to Pro Forma Condensed Financial Information
PRO FORMA CONDENSED FINANCIAL INFORMATION
INTRODUCTION
(Unaudited)
The following unaudited pro forma condensed balance sheet and
statements of income illustrate the Company's acquisition of Fort
James Folding Carton Business ("FJFCB"). The pro forma balance
sheet as of June 30, 1999 was prepared as if the acquisition
occurred on June 30, 1999. The pro forma income statements were
prepared as if the acquisition occurred January 1, 1998.
The pro forma adjustments reflect the acquisition of FJFCB for
cash consideration of $830,000,000, plus transaction and
financing costs, and an estimated additional cash payment of
$9,000,000 for a working capital adjustment. The acquisition was
funded by a newly executed $1.3 billion credit facility with Bank
of America N.A., and was accounted for using the purchase method
of accounting.
The pro forma condensed financial information is presented for
illustrative purposes only and does not purport to represent what
the Company's financial position or results of operations would
have been had the acquisition of FJFCB in fact occurred on the
date indicated or at the beginning of the period indicated or to
project the Company's financial position or results of operations
for any future date or period. The pro forma acquisition adjust-
ments are based on management's best estimates and upon avail-
able information which the Company believes is reasonable under
the circumstances. The actual purchase accounting adjustments
will be based on more precise evalutions and estimates of fair
values. It is possible that the actual adjustments could differ
substantially from those presented in the unaudited pro forma
financial statements.
The following unaudited pro forma condensed financial information
should be read in conjunction with (i) the audited financial
statements of the Company and its subsidiaries for the year ended
December 31, 1998, which are contained in the Company's 1998
Annual Report on Form 10-K; (ii) the unaudited condensed
financial statements of the Company and its subsidiaries for the
six months ended June 30, 1999, which are contained in the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1999; (iii) the audited financial statements of FJFCB
for the three years ended December 27, 1998, which are included
elsewhere in this Form 8-K; and (iv) the unaudited condensed
financial statements of FJFCB for the six months ended June
30, 1999 and 1998, which are included elsewhere in this Form
8-K.
ACX TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1999
(In thousands)
Ft James
Folding
ACX Carton ACX
Historical Historical Pro Forma
June 30, June 27, Pro Forma June 30,
1999 1999 Adjustments 1999
---------- ---------- ------------ ----------
ASSETS
Current assets:
Cash and cash
equivalents $37,321 $ --- ($ 11,493)[a] $25,828
Accounts receivable 107,549 46,218 (4,000)[c] 149,767
Inventories 153,385 72,403 10,306 [d] 236,094
Notes receivable 60,423 --- --- 60,423
Other assets 35,730 16,418 (15,004)[c] 37,144
---------- -------- -------- ----------
Total current
assets 394,408 135,039 (20,191) 509,256
---------- -------- -------- ----------
Properties, net 400,423 319,556 (9,000)[d] 710,979
Goodwill and other
intangibles, net 227,645 8,513 468,225 [b] 704,383
Other assets 24,469 46,787 (19,500)[d] 51,756
---------- -------- -------- ----------
Total assets $1,046,945 $509,895 $419,534 $1,976,374
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of
long-term debt $85,929 $ --- $439,071 [a] $525,000
Other current
liabilities 140,356 52,674 (8,300)[c] 184,730
---------- -------- -------- ----------
Total current
liabilities 226,285 52,674 430,771 709,730
Long-term debt 277,071 753 426,811 [a] 704,635
Other long-term
liabilities 60,156 115,802 (97,382)[c] 78,576
---------- -------- -------- ----------
Total liabilities 563,512 169,229 760,200 1,492,941
Minority interest 13,169 --- --- 13,169
Common stock 284 --- --- 284
Paid-in capital 452,020 340,666 (340,666)[d] 452,020
Retained earnings 22,690 --- --- 22,690
Accumulated other
comprehensive loss (4,730) --- --- (4,730)
---------- -------- -------- ----------
Shareholders' equity 470,264 340,666 (340,666) 470,264
---------- -------- -------- ----------
Total liabilities and
shareholders' equity $1,046,945 $509,895 $419,534 $1,976,374
========== ======== ======== ==========
ACX TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share data)
Ft James
Folding
ACX Carton
Historical Historical
December 31, December 27, Pro Forma ACX
1998 1998 Adjustments Pro Forma
------------ ------------ ----------- ----------
Net sales $988,391 $591,533 $ --- $1,579,924
Costs and expenses:
Cost of goods sold 793,946 515,087 1,004 [e] 1,310,037
Marketing, general
and administrative 106,105 38,422 14,628 [f] 159,155
Asset impairment and
restructuring
charges 33,210 9,693 --- 42,903
-------- -------- ------- ----------
Total operating
expenses 933,261 563,202 15,632 1,512,095
-------- -------- ------- ----------
Operating income
(loss) 55,130 28,331 (15,632) 67,829
Other income-net 576 1,177 --- 1,753
Interest expense(net) (20,141) --- (73,039)[g] (93,180)
-------- -------- ------- ----------
Income (loss)
before income taxes 35,565 29,508 (88,671) (23,598)
Income tax expense
(benefit) 14,300 12,494 (35,468)[h] (8,674)
-------- -------- ------- ----------
Net income (loss) $21,265 $17,014 ($53,203) ($14,924)
======== ======== ======== ==========
Net income (loss) per
basic share $0.75 ($0.52)
======== ==========
Net income (loss) per
diluted share $0.73 ($0.52)
======== ==========
Weighted average
shares outstanding
- basic 28,504 28,504
======== ==========
Weighted average
shares outstanding
- diluted 29,030 28,504
======== ==========
ACX TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands, except per share data)
Ft James
Folding
ACX Carton
Historical Historical
June 30, June 27, Pro Forma ACX
1999 1999 Adjustments Pro Forma
---------- ---------- ----------- ---------
Net sales $ 501,561 $ 285,026 $ --- $ 786,587
Costs and expenses:
Cost of goods sold 397,964 253,004 1,359 [e] 652,327
Marketing, general and
administrative 58,536 17,359 7,314 [f] 83,209
Asset impairment and
restructuring charges --- (839) --- (839)
--------- --------- --------- ---------
Total operating
expenses 456,500 269,524 8,673 734,697
--------- --------- --------- ---------
Operating income (loss) 45,061 15,502 (8,673) 51,890
Other income - net 16 1,039 --- 1,055
Interest expense (net) (10,597) --- (36,519)[g] (47,116)
--------- --------- --------- ---------
Income (loss) before
income taxes 34,480 16,541 (45,192) 5,829
Income tax
expense(benefit) 13,500 6,803 (18,077)[h] 2,226
--------- --------- --------- ---------
Net income (loss) $ 20,980 $ 9,738 ($ 27,115) $ 3,603
========= ========= ========= =========
Net income per
basic share $0.74 $0.13
========= =========
Net income per
diluted share $0.73 $0.13
========= =========
Weighted average shares
outstanding - basic 28,435 28,435
========= =========
Weighted average shares
outstanding - diluted 28,734 28,734
========= =========
ACX TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(In Thousands)
(Unaudited)
The following pro forma adjustments are reflected in the pro
forma balance sheet as of June 30, 1999. The estimated adjust-
ments relate to the allocation of the purchase price to the fair
value of the assets acquired pursuant to purchase accounting, the
incurrance of debt and use of cash to fund the acquisition, the
elimination of the Fort James' equity and the retention by
Fort James Corporation of various assets and liabilities recorded
in FJFCB's historical financial statements.
[a] Total Purchase Price, Transaction Costs and
Financing Costs $877,375
[b] Total Goodwill and Capitalized Debt Issuance
Costs $468,225
[c] Assets and Liabilities Retained by Seller
Accounts Receivable $4,000
Current Liabilities $8,300
Deferred Tax Asset $15,004
Deferred Tax and Postretirement
Benefit Long Term Liabilities $97,382
[d] Purchase Accounting Adjustments
Conform Inventory Policy
from LIFO to FIFO $10,306
Adjust Properties to Estimated
Fair Value ($9,000)
Adjust Intangible Assets
to Estimated Fair Value ($19,500)
Eliminate Historical Equity of FJFCB ($340,666)
The following pro forma adjustments are reflected in the pro
forma statements of income for the year ended December 31, 1998
and for the six months ended June 30, 1999. The estimated
adjustments relate primarily to the additional goodwill and debt
issuance cost amortization as well as the additional interest
expense associated with the debt incurred to acquire FJFCB.
December 31, June 30,
1998 1999
------------ --------
[e] Cost of goods sold:
Conform Inventory Policy
to FIFO $2,804 $2,259
Adjust Depreciation and
Amortization of Acquired
Assets (1,800) (900)
------- -------
$ 1,004 $1,359
======= =======
[f] Marketing, general and
administrative:
Amortization of Goodwill over
30 year period $14,628 $7,314
======= =======
[g] Interest expense on new debt at 7.75%
plus amortization of debt
issuance costs over 5 years $73,039 $36,519
======= =======
[h] Tax effect of pro forma adjustments
[e], [f] and [g] at 40% $35,468 $18,077
======= =======
The historical statement of operations of FJFCB for the six
months ended June 30, 1999 includes a charge of $6,644 ($4,060
net of taxes) as a cumulative effect of a change in accounting
principle. This charge is excluded from the pro forma statement
of income pursuant to the rules for the preparation of pro forma
financial information.
Historical Combined Financial Statements of Fort James Packaging
- ----------------------------------------------------------------
Audited Financial Statements
FOR THE THREE YEARS ENDED DECEMBER 27, 1998
Report of Independent Accountants
Combined Financial Statements
Notes to Combined Financial Statements
Unaudited Financial Statements
FOR THE SIX MONTHS ENDED JUNE 27, 1999 AND
JUNE 28, 1998
Combined Financial Statements
Notes to Combined Financial Statements
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants
The Board of Directors and Shareholders of Fort James
Corporation:
In our opinion, the accompanying combined balance sheets and
the related combined statements of operations and cash flows
present fairly, in all material respects, the financial position
of the Packaging operations of Fort James Corporation (as
described in Note 1 and referred to herein as the "Company") at
December 27, 1998 and December 28, 1997, and the combined results
of its operations and its cash flows (as described in Note 1) for
each of the three years in the period ended December 27, 1998, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of Fort James
Corporation'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
Chicago, Illinois
July 9, 1999
FORT JAMES PACKAGING
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 27, 1998,
DECEMBER 28, 1997, AND DECEMBER 29, 1996
(in thousands) 1998 1997 1996
-------- -------- --------
Net sales $591,533 $648,397 $656,919
Cost of goods sold 515,087 542,590 545,902
Selling and administrative
expenses 38,422 43,276 43,168
Restructure and other unusual
items 9,693 20,310 8,416
-------- -------- --------
Income from operations 28,331 42,221 59,433
Other income (expense), net 1,177 2,963 1,495
-------- -------- -------
Income before income taxes 29,508 45,184 60,928
Income tax expense 12,494 18,768 25,122
-------- -------- -------
Net income $17,014 $26,416 $35,806
======== ======== =======
The accompanying notes are an integral part of the combined
financial statements.
FORT JAMES PACKAGING
COMBINED BALANCE SHEETS
AS OF DECEMBER 27, 1998 AND DECEMBER 28, 1997
(in thousands) 1998 1997
-------- --------
Assets:
Current assets:
Cash $8 $77
Accounts receivable 34,193 37,149
Inventories 63,286 63,962
Deferred income taxes 15,350 16,343
Prepaid expenses and other current assets 784 1,064
-------- --------
Total current assets 113,621 118,595
-------- --------
Property, plant and equipment, net 337,249 327,181
Goodwill 13,831 14,307
Prepaid pension costs 28,719 15,542
Other assets 19,967 21,643
-------- --------
Total assets $513,387 $497,268
======== ========
Liabilities and Fort James' Investment:
Current liabilities:
Accounts payable $23,220 $24,774
Accrued liabilities 44,768 47,701
-------- --------
Total current liabilities 67,988 72,475
-------- --------
Long-term debt 753 753
Deferred income taxes 28,531 24,330
Accrued postretirement benefits other than
pensions 88,089 84,360
Other long-term liabilities 90 112
-------- ---------
Total liabilities 185,451 182,030
Fort James' investment 327,936 315,238
-------- --------
Total liabilities and Fort James' investment $513,387 $497,268
======== ========
The accompanying notes are an integral part of the combined
financial statements.
FORT JAMES PACKAGING
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 27, 1998,
DECEMBER 28, 1997, AND DECEMBER 29, 1996
(in thousands) 1998 1997 1996
------- ------- --------
Cash provided by (used for)
operating activities:
Net income $17,014 $26,416 $35,806
Depreciation expense 42,378 40,412 40,309
Amortization of goodwill 477 477 477
Deferred income tax provision 5,194 2,244 3,719
Loss on disposition of prop-
erty, plant and equipment 103 300 346
Restructure and other unusual
items 2,300 13,810 ---
Change in operating assets
and liabilities:
Accounts receivable 2,955 (1,406) 5,982
Inventories 676 (7,689) 18,510
Prepaid expenses and other
current assets 279 (178) 1,352
Other assets (1,191) (19,117) (1,314)
Accounts payable (1,554) (1,429) 7,423
Accrued liabilities (5,233) (10,000) 6,355
Pensions and retiree
medical benefits (9,449) (7,528) 8,091
------- ------- --------
Cash provided by
operating activities 53,949 36,312 127,056
------- ------- --------
Cash provided by (used for)
investing activities:
Expenditures for property,
plant and equipment (54,293) (43,307) (40,546)
Proceeds from sale of
assets 238 386 657
------- ------- -------
Cash used for investing
activities (54,055) (42,921) (39,889)
------- ------- -------
Cash provided by (used for)
financing activities:
Fort James' capital infusion
(withdrawal), net 37 6,686 (87,167)
------- ------- -------
Cash used for financing
activities 37 6,686 (87,167)
------- ------- -------
Increase (decrease) in cash (69) 77 ---
Cash, beginning of period 77 --- ---
------- ------- -------
Cash, end of period $8 $77 $---
======= ======= =======
The accompanying notes are an integral part of the combined
financial statements.
FORT JAMES PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1: Organization and Operations
The accompanying combined financial statements of Fort James
Packaging ("the Company") present the historical assets and
liabilities and operating results of certain operations of Fort
James Corporation's ("Fort James") Packaging business. The
Company primarily consists of folding carton, healthcare, and
microwave packaging manufacturing facilities in Chambersburg, PA;
Charlotte, NC; Garden Grove, CA; Gordonsville TN; Kalamazoo, MI;
Kendalville, IN; Menasha, WI; Mississauga, Ontario; Newnan, GA;
North Portland, OR; Perrysburg, OH; Portland, OR; Redmond, WA;
and Wausau, WI. The financial information included herein is not
necessarily indicative of the financial position and results of
operations of the Company in the future.
NOTE 2: Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The combined financial statements have been prepared as if
the Company had operated as an independent stand-alone entity for
all periods presented, except the Company generally did not have
significant borrowings, and there was no allocation of Fort
James' consolidated borrowings, and related interest expense,
except for interest capitalized as a component of property, plant
and equipment. The Company engaged in various transactions with
Fort James and its affiliates that are characteristic of a group
of companies under common control. Throughout the period covered
by these combined financial statements, the Company participated
in Fort James' centralized cash management system and, as such,
its cash funding requirements were met by Fort James. The
Company's operational transactions resulted in amounts receivable
from and payable to Fort James which fluctuated over time and
were not settled through cash transfers. Accordingly, the
amounts have been presented net in the balance sheet as Fort
James' investment. Significant intercompany balances and
transactions within the Company have been eliminated. Sales to
Fort James affiliates are recorded at market and totaled $14.225
million in 1998, $16.290 million in 1997, and $16.973 million in
1996.
The Company was charged by Fort James for direct costs and
expenses associated with its operations which were included in
cost of goods sold or selling and administrative expenses, as
appropriate. Fort James' administrative costs not directly
attributable to the Company, which historically had not been
allocated, have been allocated to the Company based on net sales.
Management believes that this method of allocation is reasonable
and reflects a reasonable estimate of the level of expenses that
might have been incurred had the Company operated on a stand-
alone basis. The Company's corporate allocation of such indirect
costs, which is included in Selling and administrative expenses
in the statements of operations, consisted of $6.900 million in
1998, $8.000 million in 1997, and $10.100 million in 1996.
Use of Estimates
Financial statements prepared in conformity with generally
accepted accounting principles require management to make
estimates and assumptions that affect the amounts reported
therein. Actual results could differ from those estimates.
Cash
Cash consists of separate petty cash balances maintained by
the various facilities. All other cash balances and
transactions, including the collection of customer receivables
and the payment of salaries and wages and vendor invoices, are
managed by Fort James through a centralized treasury system.
Inventories
Inventories are stated at the lower of cost or market and
include the cost of materials, labor and manufacturing overhead.
The last-in, first-out cost flow assumption is used for valuing
substantially all inventories other than stores and supplies.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less
accumulated depreciation. Expenditures for improvements which
increase asset values or extend useful lives are capitalized.
Maintenance and repair costs are expensed as incurred. For
financial reporting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of the
respective assets, which range from 20 to 50 years for buildings
and generally 5 to 25 years for machinery and equipment. For
income tax purposes, depreciation is calculated using accelerated
methods. Certain assets are depreciated using composite
depreciation methods; accordingly, no gain or loss is recognized
on partial sales or retirements of these assets.
Goodwill and Other Long-Lived Assets
The excess of the purchase price over the fair value of
identifiable net assets of acquired companies is allocated to
goodwill and amortized over the estimated useful life, not to
exceed 40 years. The recoverability of goodwill and other long-
lived assets is periodically evaluated by Fort James to determine
whether current events or circumstances warrant adjustments to
the carrying value. Such evaluation is based upon whether the
asset is fully recoverable from the projected undiscounted cash
flows of the business to which it relates.
Income Taxes
The Company has historically been included in the
consolidated federal income tax return and combined/unitary state
income tax returns of Fort James. Income taxes represent the
Company's share of Fort James' income tax provision which is
intended to approximate the expense which would have been
recognized had the Company filed separate income tax returns.
Income taxes payable have been treated as if settled
immediately through Fort James' investment. The current deferred
income tax asset and the noncurrent deferred income tax payable
have been determined on a stand-alone basis.
Environmental Liabilities
It is the Company's policy to accrue remediation costs on an
undiscounted basis when it is probable that such costs will be
incurred and when a range of loss can be reasonably estimated.
The accruals do not reflect possible future insurance recoveries.
Fort James' Investment
Fort James' investment reflects the historical activity
between the Company and Fort James and the Company's cumulative
results of operations. Transactions with Fort James are
reflected as though they were settled immediately as an addition
to or reduction of Fort James' investment and there are no
amounts due to or from Fort James at the end of any period.
Revenue Recognition
Revenue is generally recognized when products are shipped.
Other Operating Expenses
Research and development expenditures are expensed as
incurred. Direct and readily identifiable indirect research and
development costs totaled $2.539 million in 1998, $2.880 million
in 1997, and $2.716 million in 1996. Advertising and other
promotional expenses are expensed as incurred and were immaterial
in 1998, 1997 and 1996.
Software Development Costs
Software development costs are accounted for in conjunction
with Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use"
which was adopted at the beginning of fiscal 1998. Third-party
costs of materials and services and payroll costs for employees
directly associated with software development are capitalized and
amortized over the expected life of the software. Other
development-related costs are expensed as incurred. In 1998,
the effect of adopting SOP 98-1 was to increase net income by
$0.826 million.
Accumulated Other Comprehensive Income (Loss)
In 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income" which requires the reporting of
comprehensive income and accumulated other comprehensive income.
Both other comprehensive income and accumulated other
comprehensive income consisted of the minimum pension liability
adjustment and were immaterial for all periods presented.
NOTE 3: Balance Sheet Information
Inventories
(in thousands) 1998 1997
------- -------
Components:
Raw materials $21,250 $24,243
Finished goods and work in process 47,152 47,524
Stores and supplies 7,994 7,564
-------- -------
76,396 79,331
Adjustment for last-in, first-out cost (13,110) (15,369)
-------- -------
Total inventories $63,286 $63,962
======= =======
Valued at lower of cost or market:
Last-in, first-out $55,292 $56,398
First-in, first-out or average 7,994 7,564
------- -------
Total inventories $63,286 $63,962
======= =======
Property, Plant & Equipment
(in thousands) 1998 1997
------- -------
Land $6,738 $7,074
Land improvements 9,222 8,346
Buildings 96,975 92,995
Machinery and equipment 491,477 449,594
Construction in progress 20,135 33,222
-------- --------
624,547 591,231
Accumulated depreciation (287,298) (264,050)
-------- --------
Net property, plant and equipment $337,249 $327,181
======== ========
NOTE 4: Indebtedness
At December 27, 1998, the Company had outstanding $1.000
million of industrial revenue bonds which were issued at a
discount of $0.247 million. The bonds bear interest at a fixed
rate of 6.125% and mature in 2008.
NOTE 5: Income Taxes
Income tax expense consisted of the following:
(In thousands) 1998 1997 1996
------- ------- -------
Current:
Federal $5,376 $12,942 $16,882
State 1,924 3,582 4,521
------- ------- -------
Total current income tax
expense 7,300 16,524 21,403
------- ------- -------
Deferred:
Federal 4,291 1,854 3,072
State 903 390 647
------- ------- -------
Total deferred income tax
expense 5,194 2,244 3,719
------- ------- -------
Income tax expense $12,494 $18,768 $25,122
======= ======= =======
Principal reasons for the difference between the income tax
expense at the federal statutory rate and the income tax expense
at the effective tax rate were as follows:
1998 1997 1996
Income tax provision at the federal ----- ----- -----
statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax effect 6.2 5.8 5.6
Other items, net 1.1 0.7 0.6
----- ----- -----
Income tax provision at the
effective tax rate 42.3% 41.5% 41.2%
===== ===== =====
The income tax effects of temporary differences that give
rise to the net deferred tax liability as of December 27, 1998,
and December 28, 1997 were related to the following:
(In thousands) 1998 1997
------- -------
Fixed assets $53,828 $51,912
Pension 11,427 6,184
Other liabilities 2,695 2,796
------- -------
Total deferred tax liabilities 67,950 60,892
------- -------
Post retirement medical benefits 35,051 33,567
Accrued liabilities 19,498 18,753
Other assets 220 585
------- -------
Total deferred tax assets 54,769 52,905
------- -------
Net deferred tax liability $13,181 $7,987
======= =======
The Company has joined with Fort James in filing
consolidated federal income tax returns and combined/unitary
state income tax returns. Therefore, cash payments for income
taxes for the Company on a separate entity basis are not
determinable.
The Internal Revenue Service is currently reviewing Fort
James' federal income tax returns, of which the Company is
included, for the years 1995 through 1996. In the opinion of
Fort James, potential adjustments resulting from these
examinations will not have a material effect on the Company's
results of operations or financial condition.
NOTE 6: Restructure and Other Unusual Items
Restructure and other unusual items for the year ended
December 27, 1998 included $3.900 million for asset write-downs
and plant closures; $4.573 million for severance costs; and
$1.220 million for other miscellaneous expenses. For the year
ended December 28, 1997, restructure and other unusual items
included $16.210 million for asset write-downs and plant closures
and $4.100 million for severance costs. For the year ended
December 29, 1996, restructure and other unusual items included
$5.919 million for asset write-downs and plant closures; $1.297
million for severance costs; and $1.200 million for other
miscellaneous expenses.
Changes in accrued restructuring costs during the year were
as follows:
Cash Non-cash Estimate Additional
(in thousands) 1997 payments reductions revisions accruals 1998
------- -------- ---------- --------- ---------- ------
Asset write-
downs and
plant
closures $9,710 $(29) $(132) $(500) $3,200 $12,249
Severance
and other
employee
costs 4,100 (2,888) (283) (400) --- 529
------- ------- --------- -------- -------- -------
Accrued
restructure
costs $13,810 $(2,917) $(415) $(900) $3,200 $12,778
======= ======= ========= ======== ======== =======
NOTE 7: Employee Benefit Plans
Pension benefits are provided to certain eligible hourly and
salaried employees through plans sponsored by Fort James.
Benefits under these plans are based primarily on years of
service and compensation levels. Contributions to these plans are
sufficient to meet the minimum funding requirements of applicable
laws and regulations plus additional discretionary amounts. Plan
assets principally consist of equity securities and corporate and
government obligations.
Additionally, certain health care and life insurance
benefits are provided to eligible retired employees, their
covered dependents, and their beneficiaries, through plans
sponsored by Fort James. All of the Fort James retiree medical
plans are unfunded.
The following schedules present changes in, and components
of, the Company's allocated net asset/(liability) for pension and
other postretirement benefits at December 27, 1998 and December
28, 1997:
Other
Postretirement
Pension Benefits Benefits
----------------- -----------------
(in thousands) 1998 1997 1998 1997
-------- -------- ------- -------
Change in Benefit
Obligation
Benefit obligation,
beginning of year $174,153 $163,490 $56,464 $56,795
Service cost 3,904 3,955 1,232 1,374
Interest cost 12,156 14,760 3,937 4,647
Participant contributions --- --- 225 247
Amendments (1,974) 153 --- ---
Actuarial (gain)/loss 15,098 10,205 10,915 (3,754)
Curtailments (400) --- (3,600) ---
Benefits paid (8,460) (18,410) (2,987) (2,845)
-------- -------- -------- -------
Benefit obligation, end of
year $194,477 $174,153 $66,186 $56,464
======== ======== ======== =======
Change in Plan Assets
Fair value of plan assets,
beginning of year $213,718 $183,596 $--- $---
Actual return on plan
assets 13,210 44,930 --- ---
Employer contributions 1,561 3,602 2,762 2,598
Participant contributions --- --- 225 247
Benefits paid (8,460) (18,410) (2,987) (2,845)
-------- -------- -------- -------
Fair value of plan assets,
end of year $220,029 $213,718 $--- $---
======== ======== ======== =======
Funded status
Funded status at end of
year $25,552 $39,565 $(66,186) $(56,464)
Unrecognized net
transition (asset) (1,496) (2,120) --- ---
Unrecognized prior
service cost (gain) 10,603 14,429 (15,318) (16,249)
Unrecognized net
actuarial (gain) (5,940) (36,332) (6,585) (11,647)
-------- -------- -------- --------
Net amount recognized $28,719 $15,542 $(88,089) $(84,360)
======== ======== ======== ========
Amounts recognized in the
statement of financial
position consist of:
Prepaid benefit cost $28,719 $15,542 $--- $---
Accrued benefit liability (1,811) (1,006) (88,089) (84,360)
Intangible asset 1,495 988 --- ---
Deferred tax asset 123 7 --- ---
Accumulated other
comprehensive loss 193 11 --- ---
-------- -------- -------- --------
Net amount recognized $28,719 $15,542 $(88,089) $(84,360)
======== ======== ======== ========
Fort James merged its domestic pension plans into four plans
effective as of the end of the 1998 plan year. The funded status
information for 1998 reflects this merger. For plans with Company
participants which have accumulated benefit obligations in excess
of plan assets, the projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets allocated to
the Company were $1.8 million, $1.0 million, and $0.1 million,
respectively, as of December 27, 1998 and $3.1 million, $2.6
million, and $2.1 million, respectively as of December 28, 1997.
Benefit obligations were determined using the following
weighted-average assumptions:
Other
Pension Postretirement
Benefits Benefits
-------------- --------------
1998 1997 1998 1997
------ ------ ------ -----
Discount rate 6.75% 7.25% 6.75% 7.10%
Expected return on plan assets 10.00% 10.00% --- ---
Rate of compensation increase 4.50% 5.00% --- ---
====== ====== ====== =====
Unrecognized actuarial gains and losses for other
postretirement benefits are amortized using a method that
accelerates the minimum amortization amount required to be
recognized for the year.
The components of net periodic benefit cost, including
amounts allocated by Fort James, were as follows:
Other
Pension Benefits Postretirement Benefits
------------------------- -----------------------
(in thousands) 1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------ ------
Service cost $3,904 $3,955 $5,486 $1,232 $1,374 $2,190
Interest cost 12,156 14,760 18,745 3,937 4,647 4,440
Expected return on
plan assets (16,956) (18,794) (22,768) --- --- ---
Amortization of:
Transition asset (1,591) (1,269) (688) --- --- ---
Prior service
cost (gain) 2,909 3,489 2,190 (1,368) (1,867) (2,073)
Actuarial loss
(gain) 409 582 1,853 (1,031) (513) ---
Curtailment charge
(credit) (400) --- --- (3,600) --- ---
Contributions to
multiemployer
pension plans 116 129 137 --- --- ---
------- ------- ------- ------ ------ ------
Net periodic
benefit(income)
expense $547 $2,852 $4,955 $(830) $3,641 $4,557
======= ======= ======= ====== ====== ======
For purposes of determining the cost and obligation for
postretirement medical benefits a health care cost trend rate of
7.0% for 1999, decreasing ratably to 4.5% in 2006 and thereafter,
was assumed. The assumed health care cost trend rate has a
significant effect on the amounts reported for retiree medical
benefits. A one-percentage point change in the assumed health
care cost trend rate would have had the following effects:
1 Percentage Point
--------------------
(in thousands) Increase (Decrease)
-------- ----------
Allocated effect on service and interest
components of net periodic cost $671 $(603)
Allocated effect of accumulated postretirement
benefit obligation 7,141 (6,219)
======== ========
Stock Plans for Employees
Substantially all employees are eligible to participate in
the StockPlus Investment Plan, a defined contribution plan
sponsored by Fort James. Several alternative investment funds are
available, including an investment fund consisting of Fort James
common stock. Participating employees may contribute, through
periodic payroll deductions, up to 10% of their compensation.
Participant contributions of up to 6% of compensation are matched
by Fort James at a 60% rate. Additionally, Fort James may make
discretionary contributions of up to 1% of all eligible
employees' base salary to the plan. Employer contributions for
the Company's employees totaled $2.489 million in 1998, $2.403
million in 1997 and $2.677 million in 1996.
Effective January 1, 1999, the StockPlus Investment Plan
merged with other Fort James sponsored defined contribution plans
to form the Fort James 401(k) Plan. Under the terms of the new
plan, participants may contribute up to 15% of their annual
salary. Participant contributions of up to 10% of compensation
are matched by Fort James at a 60% rate.
Stock Option and Incentive Plans
Certain key employees of the Company are participants in
Fort James' incentive plans. Restricted and incentive stock
awards vest in three to eight years, with the potential for
earlier vesting of certain awards based on Fort James'
performance. Compensation expense allocated to the Company for
these plans was $1.226 million in 1998, $0.359 million in 1997,
and $0.181 million in 1996.
Fort James also sponsors various stock option plans which
provide for the granting of options to purchase Fort James common
stock to certain directors, officers and key employees, including
those of the Company. Options are granted at exercise prices
equal to the fair market value of such stock as of the date of
the grant and have terms of ten years. The options vest in two
equal annual installments.
During 1997, James River Corporation of Virginia merged with
and into Fort Howard Corporation ("Fort Howard") to form Fort
James. Effective with this merger, Fort Howard's options were
automatically converted into fully vested Fort James options at
the merger exchange ratio.
Fort James follows the disclosure-only provisions of SFAS
123, "Accounting for Stock-Based Compensation", but applies
Accounting Principles Bulletin No. 25 and related interpretations
in accounting for its plans. If the issuance of Fort James
options to employees had been based on the fair value at the
grant dates using the method prescribed by SFAS No. 123, the
compensation expense allocated to the Company would have impacted
its net income as follows:
(in thousands) 1998 1997 1996
------- ------- -------
Net income - as reported $17,014 $26,416 $35,806
Pro forma compensation expense,
net of tax 1,051 905 442
------- ------- -------
Net income - pro forma $15,963 $25,511 $35,364
======= ======= =======
Stock option activity allocated to the Company, including
the retroactive effect of converting Fort Howard's options into
Fort James' options, was as follows:
1998 1997 1996
------- ------ -------
Grants 249,000 31,000 227,000
Weighted-average exercise price $37.48 $40.27 $23.90
======= ====== =======
The fair value of each option grant, including the
retroactive effect of converting Fort Howard's options into Fort
James' options, was estimated on the grant date using the Black-
Scholes option-pricing model with the following assumptions:
Fort
Fort James Howard
----------------------- --------
1998 1997 1996 1996
------- ------ ------ --------
Dividend yield 1.60% 1.50% 2.00% 0.00%
Volatility rate 29.82 27.56 27.26 19.26
Risk-free interest rate 5.17 6.27 6.18 6.07
Expected option life 5 years 5 years 5 years 5 years
NOTE 8: Commitments and Contingent Liabilities
Operating Leases
Fort James leases certain facilities, vehicles and equipment
which are utilized by the Company. None of the lease agreements
contain unusual renewal or purchase options. As of December 27,
1998, future minimum rental payments under these noncancelable
operating leases were as follows:
Minimum
(in thousands) Rentals
-------
1999 $551
2000 509
2001 258
2002 76
2003 and thereafter 47
-------
Total future minimum rentals $1,441
=======
Rent expense, which includes an allocation of corporate rent
expense, totaled $1.391 million in 1998, $3.937 million in 1997,
and $4.686 million in 1996.
Litigation and Environmental Matters
Fort James is a party to various legal proceedings generally
incidental to the Company's business and is subject to a variety
of environmental and pollution control laws and regulations at
the Company's facilities. As is the case with other companies in
similar industries, Fort James faces exposure from actual or
potential claims and legal proceedings.
Although the ultimate disposition of legal proceedings
cannot be predicted with certainty, it is the present opinion of
Fort James' management that the outcome of any claim which is
pending or threatened, either individually or on a combined
basis, will not have a materially adverse effect on the combined
financial position of the Company but could materially affect
combined results of operations in a given year.
Like its competitors, the Company is subject to extensive
regulation by various federal, state, provincial, and local
agencies concerning compliance with environmental control
statutes and regulations. These regulations impose limitations,
including effluent and emission limitations, on the discharge of
materials into the environment as well as require the Company to
obtain and operate in compliance with conditions of permits and
other governmental authorizations. Future regulations could
materially increase the Company's capital requirements and
certain operating expenses in future years.
Fort James, along with others, has been identified as a
potentially responsible party ("PRP") at a U.S. Environmental
Protection Agency ("EPA") designated superfund site on the
Kalamazoo River. Fort James is currently participating in the
funding of a remedial investigation/feasibility study of
contamination of this site. Any obligations associated with
possible remediation of the site represent corporate obligations
of Fort James as they are not associated with the operating
results of the Company for the years presented or the results of
its ongoing business.
The Company's accrued environmental liabilities, including
remediation and landfill closure costs, totaled $0.704 million as
of December 27, 1998 and $0.648 million as of December 28, 1997.
Estimates of costs for future remediation are necessarily
imprecise due to, among other things, the identification of
presently unknown remediation sites and the allocation of costs
among potentially responsible parties. Fort James believes that
the Company's share of the costs of cleanup for its current
remediation sites will not have a material adverse impact on its
combined financial position but could have a material effect on
combined results of operations in a given year. As is the case
with most manufacturing and many other entities, there can be no
assurance that the Company will not be named as a PRP at
additional previously or currently owned sites in the future or
that the costs associated with such additional sites would not be
material.
UNAUDITED FINANCIAL STATEMENTS
FORT JAMES PACKAGING
COMBINED BALANCE SHEETS
JUNE 27, 1999 AND DECEMBER 27, 1998
(in thousands) June 27, December 27,
1999 1998
-------- ------------
Assets:
Current assets:
Cash $ --- $8
Accounts receivable 46,218 34,193
Inventories 72,403 63,286
Deferred income taxes 15,004 15,350
Prepaid expenses and other current assets 1,414 784
-------- --------
Total current assets 135,039 113,621
-------- --------
Property, plant and equipment, net 319,556 337,249
Goodwill 8,513 13,831
Prepaid pension costs 29,361 28,719
Other assets 17,426 19,967
-------- --------
Total assets $509,895 $513,387
======== ========
Liabilities and Fort James' Investment:
Current liabilities:
Accounts payable $18,697 $23,220
Accrued liabilities 33,977 44,768
-------- --------
Total current liabilities 52,674 67,988
-------- --------
Long-term debt 753 753
Deferred income taxes 27,382 28,531
Accrued postretirement benefits other than
pensions 88,330 88,089
Other long-term liabilities 90 90
-------- --------
Total liabilities 169,229 185,451
Fort James' investment 340,666 327,936
-------- --------
Total liabilities and Fort James' investment $509,895 $513,387
======== ========
The accompanying notes are an integral part of the combined
financial statements.
FORT JAMES PACKAGING
COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 27, 1999
AND JUNE 28, 1998
(in thousands) 1999 1998
-------- --------
Net sales $285,026 $301,244
Cost of goods sold (253,004) (260,713)
Selling and administrative expenses (17,359) (20,216)
Restructure and other unusual items 839 (1,862)
-------- --------
Income from operations 15,502 18,453
Other income (expense), net 1,039 593
-------- --------
Income before income taxes and
cumulative effect of a change in
accounting principle 16,541 19,046
Income tax expense (6,803) (7,844)
-------- --------
Income before cumulative effect of a
change in accounting principle 9,738 11,202
Cumulative effect of change in accounting
principle, net of taxes (4,060) ---
-------- --------
Net income $5,678 $11,202
======== ========
The accompanying notes are an integral part of the combined
financial statements.
FORT JAMES PACKAGING
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 27, 1999
AND JUNE 28, 1998
(in thousands) 1999 1998
------- -------
Cash provided by (used for)
operating activities:
Net income $5,678 $11,202
Depreciation expense 20,454 21,113
Amortization of goodwill 194 238
Deferred income tax provision 1,539 2,597
Loss on disposition of prop-
erty, plant and equipment 31 194
Restructure and other unusual
items (839) ---
Cumulative effect of change in accounting
principle, net of tax 4,060 ---
Change in operating assets
and liabilities:
Accounts receivable (12,025) (1,552)
Inventories (9,117) (1,608)
Prepaid expenses and other
current assets (629) (715)
Other assets 2,541 (485)
Accounts payable (4,523) (4,923)
Accrued liabilities (4,829) (4,021)
Pensions and retiree
medical benefits (401) (3,255)
------- -------
Cash provided by operating activities 2,134 18,785
------- -------
Cash provided by (used for)
investing activities:
Expenditures for property,
plant and equipment (19,771) (29,558)
Proceeds from sale of
assets 160 193
------- -------
Cash used for investing
activities (19,611) (29,365)
------- -------
Cash provided by (used for)
financing activities:
Fort James' capital infusion
(withdrawal), net 17,469 10,583
------- -------
Cash used for financing
activities 17,469 10,583
------- -------
Increase (decrease) in cash (8) 3
Cash, beginning of period 8 77
------- -------
Cash, end of period $ --- $80
======= =======
The accompanying notes are an integral part of the combined
financial statements.
FORT JAMES PACKAGING
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Basis of Presentation
The accompanying combined financial statements of Fort James
Packaging ("the Company") present the historical assets and
liabilities and operating results of certain operations of Fort
James Corporation's ("Fort James") Packaging business. The
Company primarily consists of folding carton, healthcare and
microwave packaging manufacturing facilities in Chambersburg, PA;
Charlotte, NC; Garden Grove, CA; Gordonsville, TN; Kalamazoo, MI;
Kendalville, IN; Menasha, WI; Mississauga, Ontario; Newnan, GA;
North Portland, OR; Perrysburg, OH; Portland, OR; Redmond, WA;
and Wausau, WI. The financial information included herein is not
necessarily indicative of the financial position and results of
operations of the Company in the future.
In the opinion of management, the accompanying unaudited combined
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the
Company's financial position as of June 27, 1999 and its results
of operations and cash flows for the six months ended June 27,
1999 and June 28, 1998. The balance sheet as of December 27,
1998 was derived from audited financial statements as of that
date. The results of operations for the six months ended June
27, 1999 are not necessarily indicative of the results to be
expected for the full year.
2. Changes in Accounting Policy
The Company adopted Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" which requires that start-up
and organization costs be expensed as incurred as of the
beginning of 1999. The change in accounting policy has been
applied retroactively to unamortized start-up costs capitalized
in prior years. As a result, a charge of $6,644,000 ($4,060,000
net of taxes) was recorded as a cumulative effect of a change in
accounting principle in the first six months of 1999.
3. Inventories
The components of inventories were as follows as of June 27,
1999 and December 27, 1998:
(in thousands) 1999 1998
------- -------
Raw materials $17,557 $21,250
Finished goods and work in process 57,172 47,152
Stores and supplies 7,980 7,994
------- -------
82,709 76,396
Reduction to state certain inventories
at last-in, first-out cost (10,306) (13,110)
------- -------
Total inventories $72,403 $63,286
======= =======
4. Commitments and Contingent Liabilities
Fort James is a party to various legal proceedings generally
incidental to the Company's business and is subject to a variety
of environmental and pollution control laws and regulations at
the Company's facilities. As is the case with other companies in
similar industries, Fort James faces exposure from actual or
potential claims and legal proceedings.
Although the ultimate disposition of legal proceedings
cannot be predicted with certainty, it is the present opinion of
Fort James' management that the outcome of any claim which is
pending or threatened, either individually or on a combined
basis, will not have a materially adverse effect on the combined
financial position of the Company but could materially affect
combined results of operations in a given year.
Like its competitors, the Company is subject to extensive
regulation by various federal, state, provincial and local
agencies concerning compliance with environmental control
statutes and regulations. These regulations impose limitations,
including effluent and emission limitations, on the discharge of
materials into the environment as well as require the Company to
obtain and operate in compliance with conditions of permits and
other governmental authorizations. Future regulations could
materially increase the Company's capital requirements and
certain operating expenses in future years.
Fort James, along with others, has been identified as a
potentially responsible party ("PRP") at a U.S. Environmental
Protection Agency ("EPA") designated superfund site on the
Kalamazoo River. For James is currently participating in the
funding of a remedial investigation/feasibility study of
contamination of this site. Any obligations associated with
possible remediation of the site represent corporate obligations
of Fort James, as they are not associated with the operating
results of the Company for the years presented or the results of
its ongoing business.
The Company's accrued environmental liabilities, including
remediation and landfill closure costs, totaled $750,000 as of
June 27, 1999. Estimates of costs for future remediation are
necessarily imprecise due to, among other things, the
identification of presently unknown remediation sites and the
allocation of costs among potentially responsible parties. Fort
James believes that the Company's share of the costs of cleanup
for its current remediation sites will not have a material
adverse impact on its combined financial position but could have
a material effect on combined results of operations in a given
year. As is the case with most manufacturing and many other
entities, there can be no assurance that the Company will not be
named as a PRP at additional previously or currently owned sites
in the future or that the costs associated with such additional
sites would not be material.
SIGNATURE
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 hereunto duly authorized.
October 18, 1999 ACX Technologies, Inc.
By:/s/Beth A. Parish
-------------------------------
Beth A. Parish
(Controller and Principal
Accounting Officer)
