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 March 31, 2000
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
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
(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.)
4455 Table Mountain Drive, Golden, Colorado 80403
(Address of principal executive offices) (Zip Code)
(303) 215-4600
(Registrant's telephone number, including area code)
ACX TECHNOLOGIES, INC.
(Former name, former address and former fiscal year, if changed
since last report)
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 28,885,864 shares of common stock outstanding as of
May 1, 2000.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENT
(In thousands, except per share data)
Three Months
Ended March 31,
2000 1999
-------- --------
Net sales $263,449 $165,976
Cost of goods sold 232,065 135,741
-------- --------
Gross profit 31,384 30,235
Selling, general and
administrative expense 15,677 16,066
Goodwill amortization 4,298 2,001
Restructuring charge 3,420 ---
-------- --------
Operating income 7,989 12,168
Gain on sale of assets 5,407 ---
Interest expense - net (14,950) (4,508)
Other income - net --- 93
-------- --------
Income (loss) from continuing
operations before income taxes (1,554) 7,753
Income tax (expense) benefit 621 (3,245)
-------- --------
Income (loss) from continuing
operations (933) 4,508
Discontinued operations, net of tax
Income from discontinued operations
of CoorsTek --- 5,210
Loss from discontinued operations
of Kalamazoo Board Mill (2,523) ---
-------- --------
Net income (loss) ($3,456) $9,718
======== ========
Income (loss) per basic share:
Continuing operations ($0.03) $0.16
Discontinued operations (0.09) 0.18
-------- --------
Net income (loss) ($0.12) $0.34
======== ========
Income (loss) per diluted share:
Continuing operations ($0.03) $0.16
Discontinued operations (0.09) 0.18
-------- --------
Net income (loss) ($0.12) $0.34
======== ========
Weighted average shares
outstanding - basic 28,664 28,427
======== ========
Weighted average shares
outstanding - diluted 29,022 28,721
======== ========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
March 31, December 31,
2000 1999
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $4,089 $15,869
Accounts receivable, net 81,519 68,762
Note receivable --- 200,000
Inventories:
Finished 64,536 55,451
In process 17,793 20,466
Raw materials 35,559 43,472
--------- ---------
Total inventories 117,888 119,389
Other assets 27,406 25,444
Net current assets of
discontinued operations 5,186 4,501
--------- ---------
Total current assets 236,088 433,965
Properties at cost, less
accumulated depreciation
of $155,702 in 2000 and
$144,656 in 1999 422,886 427,489
Goodwill, net 484,218 490,558
Other assets 45,837 54,527
Net noncurrent assets of
discontinued operations 219,423 220,499
---------- ----------
Total assets $1,408,452 $1,627,038
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $199,250 $400,000
Other current liabilities 103,706 141,191
---------- ----------
Total current liabilities 302,956 541,191
Long-term debt 628,800 615,500
Other long-term liabilities 55,797 47,037
---------- ----------
Total liabilities 987,553 1,203,728
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 28,808,399 and 28,576,771
issued and outstanding at
March 31, 2000, and December 31,
1999, respectively 288 286
Paid-in capital 423,930 422,885
Retained earnings (3,456) ---
Accumulated other comprehensive
income 137 139
---------- ----------
Total shareholders' equity 420,899 423,310
---------- ----------
Total liabilities and shareholders'
equity $1,408,452 $1,627,038
========== ==========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
2000 1999
-------- --------
Cash flows from operating
activities:
Net income (loss) ($3,456) $9,718
Adjustments to reconcile net
income (loss) to
net cash provided by operating
activities:
Restructuring charge 3,420 ---
Gain on sale of assets (5,407) ---
Depreciation and amortization 21,437 14,452
Change in current assets and
current liabilities and other (34,365) (9,643)
-------- --------
Net cash provided by (used in)
operating activities (18,371) 14,527
-------- --------
Cash flows from investing
activities:
Collection of note receivable 200,000 ---
Capital expenditures (8,968) (19,285)
Acquisitions, net of cash
acquired --- (48,854)
Sale of assets 5,596 ---
-------- --------
Net cash provided by (used in)
investing activities 196,628 (68,139)
-------- --------
Cash flows provided by (used in)
financing activities (190,037) 60,163
-------- --------
Cash and cash equivalents:
Net increase (decrease) in cash
and cash equivalents (11,780) 6,551
Balance at beginning of period 15,869 26,196
-------- --------
Balance at end of period $4,089 $32,747
======== ========
Cash flows from discontinued operations have not been excluded
from the Consolidated Statement of Cash Flows.
See Notes to Consolidated Financial Statements
GRAPHIC PACKAGING INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations: Graphic Packaging International
Corporation (formerly ACX Technologies, Inc.) is a manufacturer
of packaging products used by consumer product companies as
primary packaging for their end-use products. The Company's
strategy is to maximize its competitive position and growth
opportunities in its core business, folding cartons. Toward this
end, over the past several years the Company has acquired two
significant folding carton businesses and has disposed of several
noncore businesses and under-performing assets.
Amounts included in the notes to the consolidated financial
statements pertain to continuing operations only, except where
otherwise noted.
Note 1. Discontinued Operations
The historical operating results of the following business
segments have been segregated as discontinued operations on the
accompanying Consolidated Income Statement for the quarterly
periods ended March 31, 2000 and 1999. Net assets from these
discontinued operations are similarly segregated on the face of
the accompanying Consolidated Balance Sheet for the applicable
periods. Discontinued operations have not been segregated on the
Consolidated Statement of Cash Flows.
CoorsTek Spin-off
On December 31, 1999, the Company distributed 100% of
CoorsTek's shares of common stock to the ACX Technologies'
shareholders in a tax-free transaction. Shareholders received
one share of CoorsTek stock for every four shares of ACX
Technologies stock held. CoorsTek issued a promissory note to
ACX Technologies on December 31, 1999 totaling $200 million in
satisfaction of outstanding intercompany obligations at the time
of the spin-off and as a one-time, special dividend. The note
was paid in full on January 4, 2000. No gain or loss was
recognized by ACX Technologies as a result of the spin-off
transaction.
Kalamazoo Mill
The Company purchased the Kalamazoo Mill on August 2, 1999
as part of the acquisition of the Fort James packaging business.
The Kalamazoo Mill produces coated recycled paperboard. In
December 1999, the Board of Directors approved a plan to offer
the Kalamazoo Mill for sale. The Company is pursuing the sale of
the Kalamazoo Mill, as well as evaluating other strategic
alternatives. An estimated fair value of $225 million has been
ascribed to the net assets of the Kalamazoo Mill, which includes
approximately $106 million of preliminary goodwill allocated from
the continuing operations of the Fort James packaging business
acquisition. The amount of preliminary goodwill allocated to the
Kalamazoo Mill is subject to change upon sale or other
disposition. As a result, no gain or loss will be recorded upon
the sale. The Company allocated approximately $5 million of
interest expense to the Kalamazoo Mill for the quarterly period
ended March 31, 2000, based upon the estimated fair value of $225
million. The Company plans to finalize the sale or other
disposition of the Kalamazoo Mill in the second or third quarter
of 2000.
Financial data for the Kalamazoo Mill and CoorsTek for the
quarterly periods ended March 31, in thousands, except for per
share information, are summarized as follows:
March 31, 2000 March 31, 1999
Kalamazoo Mill CoorsTek
-------------- --------------
Net sales $12,871 $76,579
============== ==============
Income (loss) from
operations before
income taxes ($4,205) $8,565
Income tax (expense) benefit 1,682 (3,355)
-------------- --------------
Net income (loss) ($2,523) $5,210
============== ==============
Per basic share of common
stock ($0.09) $0.18
============== ==============
Per diluted share of common
stock ($0.09) $0.18
============== ==============
Current assets $19,286 $127,945
Current liabilities (14,100) (39,840)
-------------- --------------
Net current assets $5,186 $88,105
============== ==============
Noncurrent assets $220,784 $193,841
Noncurrent liabilities (1,361) (79,770)
-------------- --------------
Net noncurrent assets $219,423 $114,071
============== ==============
Significant estimates have been made by management with
respect to the estimated fair value of the Kalamazoo Mill and the
resultant goodwill and interest allocations. Actual results
could differ from these estimates making it reasonably possible
that a change in these estimates could occur in the near term.
Note 2. Restructuring Charges
The Company recorded an additional restructuring charge of
$3.4 million in the first quarter of 2000 as a result of the
communication of severance packages to employees at the Saratoga
Springs, New York plant. The Saratoga Springs plant is being
closed pursuant to a plant rationalization plan approved by the
Company's Board of Directors in the fourth quarter of 1999. The
Company plans to complete the closure of the plant and the
transition of the plant's business to other Company facilities by
the end of the third quarter of 2000.
A restructuring charge of $1.9 million was recorded in the
fourth quarter of 1999 primarily related to severance at the
Lawrenceburg, Tennessee plant. The Company plans to complete its
1999 restructuring plan, including the closure of the Boulder,
Colorado plant and the reduction in force at the Lawrenceburg,
Tennessee plant, by the end of the third quarter of 2000.
The following summarizes the activity related to these
restructuring charges for the three months ended March 31, 2000
(in thousands):
Restructuring Reserve Balance
at December 31, 1999 $1,900
First quarter restructuring charge 3,420
Cash paid (500)
------
Restructuring Reserve Balance
at March 31, 2000 $4,820
======
In connection with the acquisition of the Fort James
packaging business, the Company is continuing to evaluate
rationalization opportunities within the folding carton convert-
ing operations to reduce overall operating costs while maintain-
ing capacity. This includes evaluation of the capacity of the
Company's web press facilities and evaluation of the opportu-
nity to transfer business among the various web press facilities.
In connection with this evaluation, on May 12, 2000, the Company
announced the closure of the Perrysburg, Ohio plant. The
Company expects additional cash costs of approximately $2
million may be incurred in connection with the Perrysburg
plant rationalization, related primarily to severance and other
plant shutdown costs. The Company plans to finalize its
rationalization plan by June 30, 2000. Costs related to shutting
down the Perrysburg facility, which was part of the acquisition
of the Fort James packaging business, will be accounted for as a
cost of the acquisition, with a resultant adjustment to goodwill.
Note 3. Gain on Sale of Assets
The Company sold patents and various long-lived assets of
its former developmental businesses during the first quarter of
2000 for consideration of approximately $6.2 million. A pre-tax
gain of $5.4 million was recognized related to these asset sales.
Note 4. Segment Information
The Company's reportable segments are based on its method of
internal reporting, which is based on product category. The
Company has one reportable segment in 2000 - Packaging. The
Company's 1999 reportable segments, after consideration for
discontinued operations, include an "Other" segment and are
presented for comparative purposes. The Other segment includes a
real estate development partnership, a majority interest in a
group of solar electric distribution companies prior to their
sale in August 1999, and several technology-based businesses
prior to March 1999.
The table below summarizes information, in thousands, about
reportable segments as of and for the quarterly periods ended
March 31. Discontinued operations include the Kalamazoo Mill in
2000 and CoorsTek in 1999.
Depreciation
Net Operating and Capital
Sales Income Amortization Assets Expenditures
-------- --------- ------------ ---------- ------------
2000
Packaging $263,449 $7,989 $17,014 $1,183,843 $8,614
Discontinued
operations,
net assets --- --- 4,423 224,609 354
-------- --------- ------------ ---------- ------------
Consolidated
total $263,449 $7,989 $21,437 $1,408,452 $8,968
======== ========= ============ ========== ============
1999
Packaging $150,725 $14,090 $8,566 $564,350 $17,271
Other 15,251 425 430 54,148 466
-------- --------- ------------ ---------- ------------
Segment total 165,976 14,515 8,996 618,498 17,737
Corporate --- (2,347) 68 102,970 ---
Discontinued
operations,
net assets --- --- 5,388 202,176 1,548
-------- --------- ------------ ---------- ------------
Consolidated
total $165,976 $12,168 $14,452 $923,644 $19,285
======== ========= ============ ========== ============
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General Business Overview
Graphic Packaging International Corporation (formerly ACX
Technologies, Inc.) is a manufacturer of packaging products used
by consumer product companies as primary packaging for their end-
use products. Over the past several years, and culminating with
the spin-off of CoorsTek on December 31, 1999, the Company has
moved from a diversified group of subsidiaries - each operating
in different markets - to a Company focused on the folding carton
segment of the packaging industry. By strategically disposing of
noncore businesses and under-performing assets; acquiring two
major businesses in the folding carton industry; and executing
rationalization plans, the Company has developed into one of the
largest folding carton companies in North America.
On August 2, 1999, the Company purchased the Fort James
packaging business, which included 12 folding carton converting
operations located throughout North America and a recycled
paperboard mill located in Kalamazoo, Michigan (the Kalamazoo
Mill) for approximately $849 million. The Kalamazoo Mill is
currently being offered for sale.
On September 2, 1999, the Company sold its flexible
packaging plants for approximately $105 million in cash. On
August 3, 1999 the Company sold its interest in a solar energy
distribution business (Golden Genesis Company) for approximately
$21 million in cash, plus $10 million in repayment of intercom-
pany debt.
Segment Information
The Company's continuing operations include one reportable
business segment in 2000 - Packaging. Discontinued operations
include the Kalamazoo Mill and CoorsTek, operating in the
paperboard milling and ceramics industries, respectively. The
Company's operations in 1999 included an "Other" segment,
consisting of a real estate development partnership, a majority
interest in a group of solar electric distribution companies
prior to their sale in August 1999, and several technology-based
businesses prior to March 1999.
Results from Continuing Operations
Consolidated net sales for the three months ended March 31,
2000 were $263.4 million, an increase of $97.5 million, or 59%,
compared to the same period in 1999. This increase is
attributable to the acquisition of the Fort James packaging
business on August 2, 1999, partially offset by the sale of the
Company's flexible packaging plants in the third quarter of 1999,
and the sale of the Company's Other segment businesses throughout
1999. The flexible plants and Other segment businesses had net
sales of $30.2 million and $15.3 million, respectively, during
the three months ended March 31, 1999. Industrywide pricing
pressures also have affected and continue to affect the Company's
sales and operating results.
Consolidated gross profit, as a percentage of net sales, was
12% for the three months ended March 31, 2000, compared to 18%
for the same period in 1999. The decrease in gross profit
percentage was due primarily to a change in the sales mix
resulting from the August 1999 acquisition of the Fort James
packaging business. The first quarter of 2000 included more
high volume/lower margin business than the first quarter of 1999.
The Company is also maintaining additional capacity and incurring
additional costs in 2000 related to the new converting facility
in Golden, Colorado. The process of transitioning converting
lines from the Saratoga Springs plant to other plants - which has
resulted in some necessary inefficiencies to meet customer needs
during the first quarter of 2000 - has also impacted the gross
profit percentage. As discussed below, the Saratoga Springs
plant is slated to close by the end of the third quarter.
Selling, general and administrative expenses have declined
as a percentage of net sales in the quarter ended March 31, 2000
to 6%, as compared to 10% of net sales in the same period in
1999. The Company attributes this decline to the consolidation
of holding company and other administrative functions and
synergies achieved in connection with the Fort James acquisition.
Consolidated operating income declined $4.2 million or 34%
in the three months ended March 31, 2000, as compared to the same
period in 1999. The decline is due to increased amortization of
goodwill from the Fort James purchase and the $3.4 million
restructuring charge recorded in 2000, partially offset by the
decline in selling, general and administrative expenses.
Net interest expense increased by $10.4 million in the first
quarter of 2000, as compared to the first quarter of 1999. The
increased interest expense is due to the borrowings used to
purchase the Fort James packaging business. As discussed below,
the Company continues to reduce debt through asset sales and
operations and plans to significantly reduce the balance in the
second or third quarter upon disposition of the Kalamazoo Mill.
The consolidated effective tax rate for the first quarter of
2000 was approximately 40%. The Company expects to maintain its
effective tax rate for future years to approximate this
percentage.
Restructuring Charges
During January 2000 the Company announced the closure of its
Saratoga Springs, New York plant. In connection with this
announcement, the Company recorded a restructuring charge,
principally related to severance packages for plant employees, of
$3.4 million in the first quarter of 2000. The Company plans to
complete the closure of the plant and the transition of the
plant's business to other Company facilities by the end of the
third quarter of 2000.
During the first quarter of 2000, the December 31, 1999
restructuring reserve was reduced by approximately $0.5 million
through the payment of severance to employees. The Company plans
to complete its 1999 restructuring plan, including the closure of
the Boulder, Colorado plant and the reduction in force at the
Lawrenceburg, Tennessee plant, by the end of the third quarter of
2000.
In connection with the acquisition of the Fort James
packaging business, the Company is continuing to evaluate
rationalization opportunities within the folding carton convert-
ing operations to reduce overall operating costs while maintain-
ing capacity. This includes evaluation of the capacity of the
Company's web press facilities and evaluation of the opportu-
nity to transfer business among the various web press facilities.
In connection with this evaluation, on May 12, 2000, the Company
announced the closure of the Perrysburg, Ohio plant. The
Company expects additional cash costs of approximately $2
million may be incurred in connection with the Perrysburg
plant rationalization, related primarily to severance and other
plant shutdown costs. The Company plans to finalize its
rationalization plan by June 30, 2000. Costs related to shutting
down the Perrysburg facility, which was part of the acquisition
of the Fort James packaging business, will be accounted for as a
cost of the acquisition, with a resultant adjustment to goodwill.
Gain on Sale of Assets
The Company sold patents and various long-lived assets of
its former developmental businesses during the first quarter of
2000 for consideration of approximately $6.2 million. A pre-tax
gain of $5.4 million was recognized related to these asset sales.
Discontinued Operations
Discontinued operations consists of two businesses: the
Kalamazoo Mill in 2000 and CoorsTek in 1999.
The Kalamazoo Mill was acquired on August 2, 1999 as a part
of the Fort James packaging acquisition. The Kalamazoo Mill is a
producer of high quality coated recycled paperboard and is
believed to be the largest scale, lowest cost and most efficient
recycled paperboard facility in North America. In December 1999,
the Board of Directors adopted a plan to offer the Kalamazoo Mill
for sale. The Company is pursuing the disposition of the
Kalamazoo Mill, as well as evaluating other strategic alterna-
tives. The Mill's operating results for the first quarter of
2000 include the allocation of approximately $5 million of
interest expense. The Mill's operating results for the first
quarter of 2000 have been negatively impacted due to an increase
in waste paper costs without corresponding selling price
increases. Effective April 1, 2000, the Mill announced a sales
price increase of $50 per ton for recycled paperboard.
CoorsTek develops, manufactures and sells advanced technical
products across a wide range of product lines for a variety of
applications. It has been in business since 1911 and is the
largest U.S. owned independent manufacturer of advanced technical
ceramics.
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.
On August 2, 1999, the Company entered into a $1.3 billion
revolving credit and term loan agreement (the Credit Agreement)
with a group of lenders, with Bank of America, N.A. as agent.
During the first quarter of 2000, the Company reduced the amount
available under the Credit Agreement by $50 million. The Credit
Agreement is comprised of four senior credit facilities including
a $125 million 180-day term facility, a $400 million one-year
facility, a $325 million five-year term loan facility and a $400
million five-year revolving credit facility (collectively, the
Senior Credit Facilities). Proceeds from the Senior Credit
Facilities were used to finance the August 2, 1999 $849 million
acquisition of the Fort James packaging business and to prepay
the Company's other outstanding borrowings.
During the first quarter of 2000, the Company utilized $200
million of proceeds from the CoorsTek spin-off to reduce
outstanding debt. As of March 31, 2000, the Company's borrowings
under the Senior Credit Facilities totaled approximately $828
million and bore interest at a blended rate of approximately
9.5%, including amortization of debt issuance costs.
Amounts borrowed under the Senior Credit Facilities bear
interest under various pricing alternatives plus a spread
depending on the Company's leverage ratio. The various pricing
alternatives include (i) LIBOR, or (ii) the higher of the Federal
Funds Rate plus 0.5% or the prime rate. In addition, the Company
pays a commitment fee that varies based upon the Company's
leverage ratio and the unused portion of the revolving credit
facility. Mandatory prepayments under the Senior Credit
Facilities are required from the proceeds of any significant
asset sale or from the issuance of any debt or equity securities.
In addition, the five-year term loan is due in quarterly
installments beginning with the first quarter of 2000. Total
installments for 2000 through 2004, respectively, are $25
million, $50 million, $70 million, $80 million and $100 million.
The Senior Credit Facilities are secured with first priority
liens on all material assets of the Company and all of its
domestic subsidiaries. The Credit Agreement currently limits the
Company's ability to pay dividends and imposes limitations on the
incurrence of additional debt, acquisitions, capital expenditures
and the sale of assets.
In February 2000, the Company determined that certain
covenants in its Senior Credit Facilities relating to leverage
and interest coverage should be changed to reflect anticipated
operating results for the Company in 2000. In March 2000, the
Company and its lenders amended the Senior Credit Facilities to
reset certain financial covenants including maximum debt to
EBITDA, the ratio between EBITDA and interest, and debt to
capitalization and to impose additional restrictions on capital
expenditures and acquisitions. The interest rate spread from
certain base indices was increased by 0.25% to 0.50% depending
upon the Company's leverage. The Company paid approximately $3
million in fees in connection with the amendment.
At March 31, 2000, the Company was in compliance with the
financial covenants. As revised in March 2000, quarterly
financial covenant levels in 2000 and beyond are stringent.
Although there can be no assurance that all of these covenants
will be met, management believes that the Company will remain in
compliance with the revised covenants based upon the Company's
expected performance and debt repayment forecasts. In the event
of a default under the Credit Agreement, the lenders would have
the right to call the Senior Credit Facilities immediately due
and refrain from making further advances to the Company. If the
Company is unable to pay the accelerated payments, the lenders
could elect to proceed against the collateral in order to satisfy
the Company's obligations.
As of March 31, 2000, the Company had contracts which hedged
the underlying interest rate on $175 million of anticipated
borrowings. These contracts locked an average risk-free rate of
approximately 6% and were due to expire on May 1, 2000.
Subsequent to March 31, 2000, the Company exchanged these
contracts for interest rate cap protection on $350 million of its
floating rate debt. In addition, the Company has entered into
interest rate swap arrangements to hedge $100 million of its
borrowings under the Senior Credit Facilities. Under these
interest rate swap agreements, the Company pays interest at an
average fixed rate of 5.94% on $100 million of its borrowing.
The Consolidated Statement of Cash Flows includes cash
generated or used by the operations shown in the income statement
as discontinued operations, namely CoorsTek and the Kalamazoo
Mill. On this basis, net cash provided by (used in) operations
was ($18.4) million, and $14.5 million for the quarterly periods
ended March 31, 2000 and 1999, respectively.
The Company currently expects that cash flows from
operations, the sale of certain assets, and borrowings under its
current credit facilities will be adequate to meet the Company's
needs for working capital, temporary financing for capital
expenditures and debt repayments. The Company's working capital
position as of March 31, 2000 was a negative $66.9 million.
Proceeds from the sale or other disposition of the Kalamazoo Mill
will be applied to current maturities of debt.
The impact of inflation on the Company's financial position
and results of operations has been minimal and is not expected to
adversely affect future results.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Interest Rate Risk
As of May 1, 2000, the Company's capital structure includes
approximately $828 million of debt that bears interest with an
underlying rate based upon short-term interest rates. The
Company has entered into interest rate swap agreements that lock
in a risk free interest rate of 5.94% on $100 million of the
borrowings. In addition, the Company has capped its LIBOR base
rate to 8.13% on $200 million of borrowings and 6.75% on $150
million of borrowings. With these swaps and caps in place and
based upon current debt outstanding, a 1% increase in interest
rates could impact annual pre-tax results by approximately $6.4
million.
Factors That May Affect Future Results
Certain statements in this document and other disclosures by
the Company constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. Specifically, 1) the ability of the Company to
remain in compliance with its debt convenants is dependent upon,
among other things, the sale or other disposition of the
Kalamazoo Mill at a satisfactory price, and the Company meeting
its financial plan; 2) future years' revenue growth is dependent
on numerous factors, including the continued strength of the U.S.
economy, the actions of competitors and customers, possible
future governmental regulations, the Company's ability to execute
its marketing plans and the ability of the Company to maintain or
increase sales to existing customers and capture new business; 3)
future improvements in margins will depend upon management's
ability to improve cost efficiencies and maintain profitable long-
term customer relationships; 4) the benefits of the integration
of acquisitions to be realized in 2000 and 2001 are uncertain
because of possible increases in costs and delays; 5) expected
savings in selling, general and administrative expenses might not
be realized due to the need for additional people, further
support services or increased labor costs; 6) the sale or other
disposition of the Kalamazoo Mill and related timing and amount
of proceeds is dependent on finding a buyer or other arrangement
on satisfactory terms; 7) revenues may be affected by plant
closures if customers find alternative suppliers or if the
Company is not able to efficiently move business or to qualify at
other facilities; 8) operating margins might decrease in 2000
and 2001 due to competitive pricing of products sold and
increases in costs, including costs for raw materials such as
paperboard and variances and timing of cost increases, and the
ability of the Company to pass through such increases; and 9) the
Company's ability to maintain its effective tax rate at 40%
depends on the current and future tax laws, the Company's ability
to identify and use its tax credits and other factors.
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, 1999. The accompanying
financial statements have not been examined by independent
accountants in accordance with generally accepted auditing
standards, but in the opinion of management, 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 first quarter ended March 31, 2000, may not be indicative of
results that may be expected for the year ending December 31,
2000.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In May 2000, the Board of Directors approved a shareholder
rights plan and declared a dividend distribution of one right to
purchase one one-thousandth of a share of a new series of junior
participating preferred stock for each share of common stock
held. The objective of the rights plan is to secure for
shareholders the long term value of their investment and to
protect shareholders from coercive takeover attempts by strongly
encouraging anyone seeking to acquire the Company to negotiate
with its Board of Directors. The adoption of the rights plan is
not in response to any hostile takeover proposal or any other
recent events.
The non-taxable distribution will be made on June 1, 2000,
to shareholders of record on that date. The rights will trade
with the Company's common stock as a unit unless the rights
become exercisable upon the occurrence of certain triggering
events relating to the acquisition of 15% or more of the
Company's common stock. In certain events after the rights
become exercisable they will entitle each holder, other than the
acquiror, to purchase, at the right's then current exercise price
(currently set at $42), a number of shares of common stock having
a market value of twice the right's exercise price or a number of
the acquiring company's common shares having a market value at
the time of twice the right's exercise price. For example, in
the event of an acquisition of greater than 15% of the Company's
stock without approval of the Company's Board of Directors, the
Company's shareholders (other than the 15% acquiror) would have
the right to purchase $84 worth of stock for $42. A shareholder
would have one such right for each share of stock held at the
time the rights become exercisable.
Graphic Packaging may amend the rights except in certain
limited respects or redeem the rights at $0.001 per right, in
each case at any time prior to the rights becoming exercisable.
The rights will expire on June 1, 2010. A summary of the rights
plan will be mailed after June 1, 2000 to shareholders of record
on that date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Document Description
3.1B Articles of Amendment to Articles of Incorporation
of Registrant
3.2 Bylaws of Registrant, as amended and restated
May 9, 2000
10 First Amendment to Revolving Credit and Term Loan
Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the first quarter
of 2000.
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: May 15, 2000 By /s/Gail A. Constancio
-------------------------------
Gail A. Constancio
(Chief Financial Officer)
Date: May 15, 2000 By /s/John Norman
-------------------------------
John S. Norman
(Corporate Controller)