UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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)
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 31,423,261 shares of common stock outstanding as of
May 1, 2001.
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,
--------------------
2001 2000
-------- --------
Net sales $288,444 $276,320
Cost of goods sold 248,210 243,424
-------- --------
Gross profit 40,234 32,896
Selling, general and administrative expense 14,489 15,777
Goodwill amortization 5,169 5,184
Asset impairment and restructuring charges 2,000 3,420
-------- --------
Operating income 18,576 8,515
Gain on sale of assets - net 3,650 5,407
Interest expense - net (16,125) (19,680)
-------- --------
Income (loss) before income taxes 6,101 (5,758)
Income tax (expense) benefit (2,420) 2,302
-------- --------
Net income (loss) 3,681 (3,456)
Preferred stock dividend declared (2,500) ---
-------- --------
Net income (loss) attributable to common
shareholders $1,181 ($3,456)
======== ========
Income (loss) attributable to common
shareholders per basic share $0.04 ($0.12)
======== ========
Income (loss) attributable to common
shareholders per diluted share $0.04 ($0.12)
======== ========
Weighted average shares outstanding - basic 30,951 28,664
======== ========
Weighted average shares outstanding - diluted 31,476 28,664
======== ========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Three Months
Ended March 31,
--------------------
2001 2000
-------- --------
Net income (loss) $3,681 ($3,456)
-------- --------
Other comprehensive income:
Foreign currency translation adjustments (274) (2)
Cumulative effect of change in accounting
principle (See Note 2), net of tax
of $2,012 (3,217) ---
Recognition of hedge results to interest
expense during the period, net of tax
of $208 333 ---
Change in fair value of cash flow hedges
during the period, net of tax of $587 (936) ---
------- -------
Other comprehensive income (loss) (4,094) (2)
------- -------
Comprehensive income (loss) ($413) ($3,458)
======= =======
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
March 31, December 31,
2001 2000
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $4,238 $4,012
Accounts receivable, net 85,497 75,187
Inventories:
Finished 59,405 61,038
In process 14,557 13,301
Raw materials 32,249 30,889
---------- -----------
Total inventories 106,211 105,228
Other assets 32,539 31,634
---------- -----------
Total current assets 228,485 216,061
Properties, net 472,973 480,395
Goodwill, net 575,149 580,299
Other assets 45,624 54,695
---------- ----------
Total assets $1,322,231 $1,331,450
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $61,000 $58,500
Accounts payable 43,282 38,903
Other current liabilities 74,471 79,345
---------- ----------
Total current liabilities 178,753 176,748
Long-term debt 566,550 576,600
Other long-term liabilities 62,790 62,951
---------- ----------
Total liabilities 808,093 816,299
Shareholders' equity
Preferred stock, nonvoting, 20,000,000
shares authorized:
Series A, $0.01 par value, no shares
issued or outstanding
Series B, $0.01 par value, 1,000,000
shares issued and outstanding at
stated value of $100 per share 100,000 100,000
Common stock, $0.01 par value,
100,000,000 shares authorized and
31,308,260 and 30,544,449 issued and
outstanding at March 31, 2001, and
December 31, 2000, respectively 313 305
Paid-in capital 421,719 422,327
Retained earnings (deficit) (3,317) (6,998)
Accumulated other comprehensive income
(loss) (4,577) (483)
---------- ----------
Total shareholders' equity 514,138 515,151
---------- ----------
Total liabilities and shareholders'
equity $1,322,231 $1,331,450
========== ==========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income (loss) $3,681 ($3,456)
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Asset impairment and restructuring
charges 2,000 3,420
Gain on sale of assets (3,650) (5,407)
Depreciation and amortization 20,154 21,437
Amortization of debt issuance
costs 1,950 2,135
Change in current assets and
current liabilities and other (10,700) (36,500)
-------- --------
Net cash provided by (used in) operating
activities 13,435 (18,371)
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets 3,650 5,596
Collection of note receivable --- 200,000
Capital expenditures (6,679) (8,968)
-------- --------
Net cash provided by (used in) investing
activities (3,029) 196,628
-------- --------
Cash flows from financing activities:
Proceeds from borrowings 64,450 64,825
Repayment of debt (72,000) (252,275)
Payment of debt issuance costs --- (3,635)
Payment of preferred stock dividends (2,500) ---
Proceeds from issuance of stock and
other (130) 1,048
-------- --------
Cash flows used in financing activities (10,180) (190,037)
-------- --------
Cash and cash equivalents:
Net increase (decrease) in cash and
cash equivalents 226 (11,780)
Balance at beginning of period 4,012 15,869
-------- --------
Balance at end of period $4,238 $4,089
======== ========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Basis of Presentation
Graphic Packaging International Corporation (the Company or
GPC) is a manufacturer of packaging products used by consumer
product companies as primary packaging for their end-use
products.
The consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the
disclosures included herein are adequate to make the information
presented not misleading. A description of the Company's
accounting policies and other financial information is included
in the audited financial statements filed with the Securities
and Exchange Commission in the Company's Form 10-K for the year
ended December 31, 2000.
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to present
fairly the financial position of the Company at March 31, 2001,
and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring
nature. The results of operations for the three months ended
March 31, 2001 are not necessarily indicative of the results that
may be achieved for the full fiscal year and cannot be used to
indicate financial performance for the entire year.
Certain prior period information has been reclassified to
conform to the current presentation.
Note 2. New Accounting Standard for Derivatives and Hedging
Activities
In accordance with the Company's interest rate risk-
management strategy, the Company has entered into contracts to
hedge the interest rates on approximately $575 million of its
borrowings. Swap agreements are in place on $225 million of
borrowings and cap agreements are in place on $350 million of
borrowings. The swap agreements lock in an average LIBOR rate of
6.5%, $150 million of the caps provide upside protection to the
Company if LIBOR moves above 6.75% and $200 million of the caps
provide upside protection to the Company if LIBOR moves above
8.13%. The hedging instruments expire in 2002. The fair value
of these hedge agreements at March 31, 2001 was a liability of
$6.2 million, which has been recorded in the accompanying
balance sheet.
The Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities (FAS 133) on January 1, 2001. In accordance
with the transition provisions of FAS 133, as of January 1, 2001
the Company recorded a net-of-tax cumulative loss adjustment to
other comprehensive income totaling $3.2 million which relates to
the fair value of previously designated cash flow hedging
relationships. Based upon current interest rates, approximately
$4 million of the interest rate hedging pre-tax loss currently in
other comprehensive income is expected to flow through interest
expense during the next twelve months.
All derivatives are recognized on the balance sheet at their
fair value. On the date that the Company enters into a
derivative contract, it designates the derivative as (1) a hedge
of (a) the fair value of a recognized asset or liability or (b)
an unrecognized firm commitment (a fair value hedge); (2) a
hedge of (a) a forecasted transaction or (b) the variability of
cash flows that are to be received or paid in connection with a
recognized asset or liability (a cash flow hedge); or (3) a
foreign-currency fair-value or cash flow hedge (a foreign
currency hedge). The Company does not enter into derivative
contracts for trading or non-hedging purposes. Currently, all of
the Company's derivatives are designated as cash flow hedges and
are recognized on the balance sheet at their fair value. Changes
in the fair value of the Company's cash flow hedges, to the
extent that the hedges are highly effective, are recorded in
other comprehensive income, until earnings are affected by the
variability of cash flows of the hedged transaction through
interest expense. Any hedge ineffectiveness (which represents
the amount by which the changes in the fair value of the
derivative exceed the variability in the cash flows being hedged)
is recorded in current period earnings. Hedge ineffectiveness
during the quarter ended March 31, 2001 was immaterial.
The Company formally documents all relationships between
hedging instruments and hedged items, as well as its risk-
management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that
are designated as fair value, cash flow, or foreign currency
hedges to (1) specific assets and liabilities on the balance
sheet or (2) specific firm commitments or forecasted
transactions. The Company also formally assesses (both at the
hedge's inception and on an ongoing basis) whether the
derivatives that are used in hedging transactions have been
highly effective in offsetting changes in the cash flows of
hedged items and whether those derivatives may be expected to
remain highly effective in future periods. When it is determined
that a derivative is not (or has ceased to be) highly effective
as a hedge, the Company discontinues hedge accounting
prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when
(1) it determines that the derivative is no longer effective in
offsetting changes in the fair value or cash flows of a hedged
item (including hedged items such as firm commitments or
forecasted transactions); (2) the derivative expires or is sold,
terminated, or exercised; (3) it is no longer probable that the
forecasted transaction will occur; (4) a hedged firm commitment
no longer meets the definition of a firm commitment; or (5)
management determines that designating the derivative as a
hedging instrument is no longer appropriate.
When hedge accounting is discontinued due to the Company's
determination that the derivative no longer qualifies as an
effective fair value hedge, the Company will continue to carry
the derivative on the balance sheet at its fair value but cease
to adjust the hedged asset or liability for changes in fair
value. When hedge accounting is discontinued because the hedged
item no longer meets the definition of a firm commitment, the
Company will continue to carry the derivative on the balance
sheet at its fair value, removing from the balance sheet any
asset or liability that was recorded to recognize the firm
commitment and recording it as a gain or loss in current period
earnings. When the Company discontinues hedge accounting because
it is no longer probable that the forecasted transaction will
occur in the originally expected period, the gain or loss on the
derivative remains in accumulated other comprehensive income and
is reclassified into earnings when the forecasted transaction
affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified
time period or within an additional two-month period of time
thereafter, the gains and losses that were accumulated in other
comprehensive income will be recognized immediately in earnings.
In all situations in which hedge accounting is discontinued and
the derivative remains outstanding the Company will carry the
derivative at its fair value on the balance sheet, recognizing
changes in the fair value in current period earnings.
Note 3. Asset Impairment and Restructuring Charges
Asset Impairment Charges
The Company recorded an asset impairment charge of $1.5
million in the quarter ended March 31, 2001 related to its
Saratoga Springs, New York building. Operations of the Saratoga
Springs plant have been transferred to other Company manufactur-
ing locations and the building and real property are currently
for sale.
Restructuring Charges
The Company recorded restructuring charges of $1.0 million
in the first quarter of 2001 in continuance of the plan announced
in the fourth quarter of 2000 that will eliminate approximately
200 non-production positions across the Company. The total cost
of the plan is expected to be approximately $5.0 million, with
$3.0 million being recognized in December 2000. The 2001 charge
relates to severance packages that were communicated to employees
in the first quarter of 2001. The remaining cost of
approximately $1 million will be recognized in the second
quarter of 2001 when the remaining severance packages are
communicated to employees.
The Company recorded a restructuring charge of $3.4 million
in the first quarter of 2000 for anticipated severance costs as a
result of the announced closure of the Saratoga Springs, New York
plant. The Company has completed the closure of the Saratoga
Springs plant, except the sale of the building, and has
transferred the plant's business to other Company facilities.
The Company is currently offering the property for sale.
Approximately $2.6 million of the charges have been paid through
March 2001. Of the remaining accruals for the Saratoga Springs
closure, approximately $500 thousand were not necessary to meet
severance obligations for the plant's former employees and were
reversed in the first quarter of 2001.
The following table summarizes accruals related to all the
Company's restructuring activities during the first quarter of
2001:
(in millions)
Balance, December 31, 2000 $ 5.0
Transfer of enhanced benefit to pension liability (1.5)
Additional restructuring charges 1.0
Reversal of Saratoga Springs severance accrual (0.5)
Cash paid (1.6)
------
Balance, March 31, 2001 $ 2.4
======
Note 4. 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.
In the first quarter of 2001, a pre-tax gain of $3.6 million was
recognized upon receipt of additional consideration for assets of
the Company's former developmental businesses.
Note 5. 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 2001 and 2000 - Packaging.
In addition, the Company's holdings and operations outside the
United States are nominal in 2001 and 2000. Therefore, no
additional segment information is provided herein.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General Business Overview
Graphic Packaging International Corporation (the Company or
GPC) 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 sole business, folding
cartons.
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 2001 and 2000 - Packaging,
and the Company's holdings and operations outside the United
States are nominal in 2001 and 2000.
Results from Operations
Net sales for the three months ended March 31, 2001 were
$288.4 million, an increase of $12.1 million, or 4.4%, compared
to the same period in 2000. The increase came principally from
shipments of value-added products with existing customers. The
increase would have been 8.2% after excluding $9.8 million of
sales generated by the Malvern, Pennsylvania plant in the first
quarter of 2000, which was sold in October 2000.
Gross profit, as a percentage of net sales, was 13.9% for
the three months ended March 31, 2001, compared to 11.9% for the
same period in 2000. In addition to utilizing more capacity in
the quarter through increased sales, the Company's system-wide
optimization and restructuring activities contributed to the
improvement over last year. Improvements over prior year were
partially off-set by rising energy costs during 2000 and into the
first quarter of 2001.
Selling, general and administrative expenses have declined
as a percentage of net sales in the quarter ended March 31, 2001
to 5%, as compared to 6% in the same period in 2000. The Company
attributes this decline to rationalization efforts over the last
eighteen months and strives to maintain this percentage at 6%
or lower going forward.
Net interest expense decreased by $3.6 million in the first
quarter of 2001, as compared to the first quarter of 2000. The
major contributors to the decrease have been the August 2000
issuance of $100 million of preferred stock, the proceeds of
which were used to repay debt, and a focus by the Company on cash
flow and debt reduction. Beginning in the second quarter of
2001, the Company expects to see the benefit of reduced market
interest rates and a reduced interest rate spread on its Senior
Credit Facilities as the Company's overall leverage continues to
improve. The $100 million of preferred stock issued in August
2000 carries a 10% annual dividend, resulting in $2.5 million of
dividends for the quarter ended March 31, 2001.
The effective tax rate for the first quarter of 2001 was
approximately 40%. The Company expects to maintain an effective
tax rate of approximately 40% for the remainder of 2001.
Asset Impairment and Restructuring Charges
Asset Impairment Charges
The Company recorded an asset impairment charge of $1.5
million in the quarter ended March 31, 2001 related to its
Saratoga Springs, New York building. Operations of the Saratoga
Springs plant have been transferred to other Company manufactur-
ing locations and the building and real property are currently
for sale.
Restructuring Charges
The Company recorded restructuring charges of $1.0 million
in the first quarter of 2001 in continuance of the plan announced
in the fourth quarter of 2000 that will eliminate approximately
200 non-production positions across the Company. The total cost
of the plan is expected to be approximately $5.0 million, with
$3.0 million being recognized in December 2000. The 2001 charge
relates to severance packages that were communicated to employees
in the first quarter of 2001. The remaining cost of
approximately $1 million will be recognized in the second
quarter of 2001 when the remaining severance packages are
communicated to employees.
The Company recorded a restructuring charge of $3.4 million
in the first quarter of 2000 for anticipated severance costs as a
result of the announced closure of the Saratoga Springs, New York
plant. The Company has completed the closure of the Saratoga
Springs plant, except the sale of the building, and has
transferred the plant's business to other Company facilities.
The Company is currently offering the property for sale.
Approximately $2.6 million of the charges have been paid through
March 2001. Of the remaining accruals for the Saratoga Springs
closure, approximately $500 thousand were not necessary to meet
severance obligations for the plant's former employees and were
reversed in the first quarter of 2001.
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.
In the first quarter of 2001, a pre-tax gain of $3.6 million was
recognized upon receipt of additional consideration for assets of
the Company's former developmental businesses.
Financial Resources and Liquidity
The Company's liquidity is generated from both internal and
external sources and is used to fund short-term working capital
needs, capital expenditures, preferred stock dividends and
acquisitions.
Capital Structure
The Company has 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. Currently, 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.) The Company reduced amounts
outstanding under its Senior Credit Facilities in the first
quarter of 2001 by $7.6 million, largely through cash generated
by operations. Borrowings under the revolving credit facility on
May 1, 2001 were approximately $278 million, leaving $122 million
available for future borrowing needs. As of March 31, 2001 the
Company's borrowings under the Senior Credit Facilities were as
follows (in thousands):
One-year term facility due August 15, 2001 $ 33,500
Five-year term facility due August 2, 2004 306,250
Five-year revolving credit facility due
August 2, 2004 287,800
--------
Total 627,550
Less: Current maturities 61,000
--------
Long-term maturities $566,550
========
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. Total annual installments for 2001 through 2003,
respectively, are $25 million, $35 million and $40 million, with
the balance of the borrowings due in 2004. The Company has also
agreed to use its best efforts to place at least $50 million of
subordinated debt at economically reasonable terms before August
15, 2001. If the Company does not place this subordinated debt,
the applicable margin over LIBOR will increase by 75 basis points
and the Company will pay an additional fee of $750 thousand to
the lenders.
The Senior Credit Facilities are collateralized by 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 other than permitted
dividends on its Series B preferred stock, and imposes
limitations on the incurrence of additional debt, capital
expenditures, acquisitions and the sale of assets. At March 31,
2001, the Company was in compliance with all covenants. Although
there can be no assurance that all of these covenants will
continue to be met, management believes that the Company will
remain in compliance with the 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.
The Company maintains an interest rate risk-management
strategy that uses derivative instruments to minimize
significant, unanticipated earnings fluctuations that may arise
from volatility in interest rates. The Company's specific goals
are to (1) manage interest rate sensitivity by modifying the
repricing or maturity characteristics of some of its debt and (2)
lower (where possible) the cost of its borrowed funds. In
accordance with the Company's interest rate risk-management
strategy, the Company has entered into contracts to hedge the
interest rates on approximately $575 million of its borrowings.
Swap agreements are in place on $225 million of borrowings and
cap agreements are in place on $350 million of borrowings. The
swap agreements lock in an average LIBOR rate of 6.5%, $150
million of the caps provide upside protection to the Company if
LIBOR moves above 6.75% and $200 million of the caps provide
upside protection to the Company if LIBOR moves above 8.13%.
The hedging instruments expire in 2002.
The Company's capital structure also includes $100 million
of Series B preferred stock, issued on August 15, 2000. The
Series B preferred stock is convertible into shares of the
Company's common stock at $2.0625 per share and is entitled to
receive a dividend payable quarterly at an annual rate of 10%.
The Company may redeem the Series B preferred stock beginning on
August 15, 2005 at 105% of par reducing by 1% per year until
August 15, 2010 at which time the Company can elect to redeem the
shares at par. The Series B preferred stock has a liquidation
preference over the Company's common stock and is entitled to one
vote for every two shares held on an as-converted basis.
Working Capital
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, 2001 was $49.7 million.
During the first quarter of 2001, net cash from operations
was used to fund capital requirements. During the first quarter
of 2000, capital requirements were met largely through financing
and investing activities. The Company expects its capital
expenditures for 2001 to be approximately $35 million, primarily
related to a new enterprise resource planning system and upgrades
to equipment.
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, 2001, the Company's capital structure includes
approximately $618 million of debt that bears interest based upon
an underlying rate that fluctuates with short-term interest
rates, specifically LIBOR. The Company has entered into
interest rate swap agreements that lock LIBOR at 5.94% on $100
million of borrowings and 6.98% on $125 million of its
borrowings. In addition, the Company has interest rate
contracts that cap the LIBOR interest rate at 8.13% on $200
million of borrowings and 6.75% for $150 million of borrowings.
With the Company's interest rate protection contracts, a 1% rise
in interest rates would impact annual pre-tax results by
approximately $3.9 million.
Factors That May Affect Future Results
Certain statements in this document constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks and 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, a) revenue for
2001 might be reduced because customers experience lower demand
for their products, find alternative suppliers, or otherwise
reduce their demand for our products, or because the Company, as
a result of plant closures, is unable to efficiently move
business or to qualify that business at other plants; b) the
Golden, Colorado plant might continue to have technical and other
challenges and therefore not be able to achieve planned
throughput and efficiency; c) margins might be reduced due to
market conditions for products sold and due to increases in
operating and materials costs, including energy-related costs,
recycled fiber and paperboard; d) the future benefits of
restructuring, reorganization, integration, cost reduction and
optimization to be realized are uncertain because of possible
delays and increases in costs; e) the ability to further reduce
working capital is dependent in part on customers' order and
inventory levels, credit taken by them, and on suppliers' terms;
f) capital expenditures might be higher than planned due to
unexpected requirements or opportunities; g) debt may not be
reduced due to lower than expected free cash flow; h) the Company
may be exposed to higher than predicted interest rates on the
unhedged portion of its debt and on any new debt it might incur;
i) if the Company is unable to meet the financial terms of its
senior debt, including the refinancing of a portion of its senior
debt with subordinated debt, it could be subject to higher
interest rates or possible default; j) the Company might not meet
its estimates for 2001, including keeping selling, general and
administrative costs lower than 6% of net sales, as a result of
higher integration costs following the transfer of production
within the system, market conditions for pricing products, higher
production costs, higher than predicted interest rates, and other
business factors; and k) the Company might not be able to
maintain its effective tax rate at 40% due to 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, 2000. 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, 2001, may not be indicative of
results that may be expected for the year ending December 31,
2001.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the first quarter
of 2001.
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 8, 2001 By /s/ Gail A. Constancio
------------------------------
Gail A. Constancio
(Chief Financial Officer)
Date: May 8, 2001 By /s/ John S. Norman
------------------------------
John S. Norman
(Corporate Controller)