FORM 10-Q
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 September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 0-20704
ACX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1208699
(State or other jurisdiction (IRS Employer
of incorporation or Identification No.)
organization)
16000 Table Mountain Parkway, Golden, Colorado 80403
(Address of principal executive offices) (Zip Code)
(303) 271-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There were 28,497,310 shares of common stock outstanding as of
November 2, 1998.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACX TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENT
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
Net sales $248,019 $186,458 $742,078 $546,693
Costs and expenses:
Cost of goods sold 205,266 140,571 597,665 412,801
Selling, general and
administrative 23,747 21,713 75,013 68,461
Research and development 1,224 4,085 4,914 12,501
Asset impairment and
restructuring charges 25,482 17,500 32,720 19,780
------- ------- ------- -------
Total operating expenses 255,719 183,869 710,312 513,543
------- ------- ------- -------
Operating income (loss) (7,700) 2,589 31,766 33,150
Other income (expense) - net 508 (269) 568 17
Interest expense - net (5,314) (614) (14,946) (2,379)
------- ------- ------- ------
Income (loss) before income
taxes (12,506) 1,706 17,388 30,788
Income tax expense (benefit) (5,000) 750 6,900 12,600
------- ------- ------- -------
Net income (loss) ($7,506) $956 $10,488 $18,188
======= ======= ======= =======
Total comprehensive income
(loss) (See Note 4) ($8,066) $838 $8,929 $17,164
======= ======= ======= =======
Net income (loss) per basic
share ($0.26) $0.03 $0.37 $0.65
======= ======= ======= =======
Net income (loss) per diluted
share ($0.26) $0.03 $0.36 $0.63
======= ======= ======= =======
Weighted average shares
outstanding - basic 28,581 28,181 28,520 28,051
======= ======= ======= =======
Weighted average shares
outstanding - diluted 29,019 29,046 29,126 28,767
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
September 30, December 31,
1998 1997
ASSETS ------------- ------------
Current assets:
Cash and cash equivalents $37,014 $49,355
Accounts receivable 113,195 81,359
Inventories:
Finished 60,345 48,607
In process 38,075 34,754
Raw materials 50,349 30,431
---------- -------
Total inventories 148,769 113,792
Notes receivable 58,978 --
Other assets 31,531 25,506
---------- -------
Total current assets 389,487 270,012
Properties at cost less accumulated
depreciation of $299,497 in 1998 and
$267,625 in 1997 375,361 249,624
Note receivable 3,360 56,549
Goodwill, net 208,835 56,883
Other assets 32,381 68,128
---------- --------
Total assets $1,009,424 $701,196
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $155,900 $--
Other current liabilities 166,349 111,461
---------- --------
Total current liabilities 322,249 111,461
Long-term debt 183,000 100,000
Other long-term liabilities 50,822 46,291
---------- --------
Total liabilities 556,071 257,752
Minority interest 13,277 12,913
Shareholders' equity
Preferred stock, non-voting, $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
28,584,000 and 28,373,000 issued
and outstanding at September 30,
1998, and December 31, 1997 286 284
Paid-in capital 453,051 451,336
Accumulated deficit (9,067) (19,555)
Cumulative translation adjustment
and other (4,194) (1,534)
---------- --------
Total shareholders' equity 440,076 430,531
---------- --------
Total liabilities and shareholders'
equity $1,009,424 $701,196
========== ========
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Nine months ended
September 30,
1998 1997
-------- -------
Cash flows from operating activities:
Net income $10,488 $18,188
Adjustments to reconcile net income
to net cash provided by operating
activities:
Asset impairment and
restructuring charges 32,720 17,103
Depreciation and amortization 40,631 31,440
Change in deferred income taxes (9,151) 12,960
Change in current assets and
current liabilities (1,585) 12,922
Change in deferred items and
other (6,614) (1,257)
-------- -------
Net cash provided by operating
activities 66,489 91,356
-------- -------
Cash flows used in investing
activities:
Acquisitions, net of cash acquired (293,564) (18,349)
Proceeds from sales of assets 129,952 11,093
Capital expenditures (61,939) (38,842)
Other (2,098) (3,282)
-------- -------
Net cash used in investing activities (227,649) (49,380)
-------- -------
Cash flows provided by financing
activities:
Proceeds from issuance of debt
and other 148,819 5,675
-------- -------
Cash and cash equivalents:
Net increase (decrease) in cash and
cash equivalents (12,341) 47,651
Balance at beginning of period 49,355 15,671
-------- -------
Balance at end of period $37,014 $63,322
======== =======
See Notes to Consolidated Financial Statements.
ACX TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Acquisition
On January 14, 1998, ACX Technologies, Inc. (the Company)
acquired Britton Group plc (Britton) pursuant to a cash tender
offer for $420 million. Britton was an international packaging
group operating through two principal divisions: folding cartons
and plastics. The folding cartons division, Universal Packaging
Corporation (Universal Packaging), is a nonintegrated
manufacturer of folding cartons in the United States, with
capabilities in design, printing and manufacturing of multicolor
folding cartons. The plastics division of Britton (Plastics
Division), which was disposed of on April 20, 1998 (See Note 2),
operates in the United Kingdom and includes the extrusion,
conversion and printing of polyethylene into films and bags for
industrial customers.
The Britton acquisition has been accounted for under the purchase
method. Accordingly, the estimated excess of purchase price over
the fair value of net assets acquired of approximately $164
million is being amortized using the straight-line method over 30
years. The results of Universal Packaging are reflected in the
accounts of the Company beginning January 14, 1998. In
accordance with management's decision to dispose of the Plastics
Division, this business was carried as a discontinued operation
on the books of the Company
The following pro forma information has been prepared assuming
that the Britton acquisition had occurred on January 1, 1997. In
accordance with the rules regarding the preparation of pro forma
financial statements, the historical results of Britton used to
derive the accompanying pro forma information do not include the
operations of the Plastics Division, which was sold on April 20,
1998. The pro forma information includes adjustments for (1)
amortization of goodwill recorded pursuant to purchase
accounting, (2) increased interest expense related to new
borrowings at applicable rates for the purchase, and (3) the net
tax effect of pro forma adjustments at the statutory rate. The
pro forma financial information is presented for informational
purposes only and may not be indicative of the results of
operations as they would have been had the transaction been
effected on the assumed date nor is it necessarily indicative of
the results of operations which may occur in the future.
Three Months Nine Months
(In thousands, except Ended Ended
per share data) September 30, 1997 September 30, 1997
------------------ ------------------
Net sales $242,167 $711,062
======== ========
Net income $514 $17,344
======== ========
Net income per basic share
of common stock $0.02 $0.62
======== ========
Net income per diluted
share of common stock $0.02 $0.60
======== ========
Note 2. Dispositions
Britton Group Plastics Division
On April 20, 1998, the Company sold the Plastics Division for
approximately pounds 82.0 million, or $135.0 million, including
pounds 80 million in cash and a pounds 2 million,5.25% note
receivable due in 2007 or upon change in control. The majority
of the sale price, less transaction costs, was used to pay down
debt incurred by the Company for the Britton acquisition.
Since the acquisition date of Britton, the Company accounted for
the Plastics Division as a discontinued operation held for sale.
Therefore, the disposition of the Plastics Division did not have
an impact on the Company's results of operations. The Plastics
Division had net sales for the period January 14, 1998 through
April 20, 1998 of $40.9 million, with break even operating
results. The Company allocated $1.8 million of interest expense
to the Plastics Division during the period January 14, 1998
through April 20, 1998.
Golden Aluminum Company
In 1996, the Board of Directors adopted a plan to dispose of the
Company's aluminum rigid container sheet business operated by
Golden Aluminum Company. In March of 1997, the sale of Golden
Aluminum was completed for $70 million, of which $10 million was
paid at closing and $60 million is due on or before March 1,
1999. In accordance with the purchase agreement, the purchaser
has the right to return Golden Aluminum Company to the Company
prior to March 1, 1999 in discharge of the $60 million
obligation. The initial payment of $10 million is nonrefundable.
Net sales for Golden Aluminum for the period January 1, 1997
through March 1, 1997 were $38.5 million. There was no income or
loss from the operations of Golden Aluminum in 1997. The
consolidated statement of cash flows has not been restated for
the discontinued operation and, therefore, includes sources and
uses of cash for Golden Aluminum's operations.
Note 3. Asset Impairment and Restructuring Charges
1998 Asset Impairment Charges
During the third quarter of 1998, the Company recorded $15.7
million in asset impairment charges at Graphic Packaging.
Deterioration of its performance in the flexible packaging
industry led management to review the carrying amounts of long-
lived assets and goodwill in conjunction with an overall
restructuring plan. (See 1998 Restructuring Charges below).
Specifically, historical and forecasted operating cash flows did
not support the carrying amount of certain long-lived assets and
goodwill at Graphic Packaging's Franklin, Ohio flexible
operation. Accordingly, the decision was made to downsize and
eliminate certain manufacturing activities at this location. In
addition, management decided to offer for sale the Vancouver,
British Columbia flexible operation. Therefore, the goodwill of
this operation was written-off and the long-lived assets were
written-down to their estimated market values. Lastly, certain
long-lived assets at Graphic Packaging's flexible packaging
headquarters became impaired when the Company decided to
consolidate offices and centralize certain administrative
functions.
During the third quarter of 1998, the Company recorded a $5.6
million asset impairment charge at the Chattanooga, Tennessee
operation of Coors Ceramics. Management decided to offer for
sale this operation as strong offshore competition in the
electronic package market made it uneconomical to have a
manufacturing facility dedicated to this product line.
Consequently, the long-lived assets of the Chattanooga operations
were written-down to their estimated market values.
During the third quarter of 1998, the Company recorded a $0.4
million asset impairment charge at its Solar Electric segment.
Management's decision to consolidate and out-source certain
manufacturing activities resulted in the impairment of certain
long-lived assets. Consequently, these assets were written-down
to their estimated market value.
During first quarter of 1998, Coors Ceramics recorded a $6.2
million asset impairment charge related to the cancellation of
its C-4 technology agreement with IBM. Changes in the market for
C-4 applications extended the time frame for achieving commercial
sales beyond original expectations. This lack of near term
commercial sales opportunities, combined with increasing overhead
costs, prompted the Company to negotiate termination of the
agreement. Consequently, the Company wrote-off the long-lived
assets associated with this project.
During the first quarter of 1998, the Solar Electric segment
recorded a $1.0 million asset impairment charge to write down its
investment in Solartec, S.A., a solar electric systems
distributor located in Argentina. Since acquiring Solartec in
November 1996, operating cash flows have been below original
expectations. As a result, the Company recorded this impairment
to reduce the carrying value of its investment in Solartec to its
estimated fair market value.
1997 Asset Impairment Charge
During the third quarter of 1997, a $16.6 million asset
impairment charge was recorded for the Company's biodegradable
polymer project. The manufacturing and intangible assets of this
activity, which is reported in the Company's Other segment,
became impaired when the Company adopted a plan to limit future
funding for this project. This plan reduced expected future cash
flows to a level below the carrying value of these assets. As of
September 30, 1998, the operations of this project have ceased
and the equipment is being sold.
1998 Restructuring Charges
During the third quarter of 1998, the Company instituted a
restructuring plan related to Graphic Packaging's flexible
packaging operations and recorded $3.8 million for severance and
certain exit costs. The Company anticipates an additional $2.4
million in severance charges in the fourth quarter of 1998
related to this restructuring plan. Specifically, the
restructuring charges in both quarters will provide for severance
and exits costs related to the elimination of approximately 65
positions due to the downsizing of the Franklin, Ohio flexible
operation, the elimination of approximately 20 positions due to
the consolidation of flexible packaging's corporate offices and
the centralization of administrative functions, and the decision
to sell the Vancouver, British Columbia flexible operation. The
Company expects to complete this plan and make the corresponding
cash outlays by the end of the first quarter of 1999.
1997 Restructuring Charges
The Company recorded a total of $5.3 million in restructuring
charges in 1997. The following table summarizes accruals related
to the restructuring charges for 1997:
Corn
Biodegradable Syrup Graphic
Polymer Exit Packaging
(In thousands) Exit Plan Plan Headquarters Total
------------- ----- ------------ ------
Balance,
December 31,1997 $438 $882 $1,660 $2,980
Cash paid (438) (299) (1,409) (2,146)
------------- ----- ------------ ------
Balance,
September 30, 1998 $0 $583 $251 $834
============= ===== ============ ======
Note 4. Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," was issued in June 1997 and
adopted by the Company in the first quarter of 1998. This
statement establishes standards for the reporting and display of
comprehensive income in financial statements. Comprehensive
income is generally defined as the change in equity of a business
enterprise during the period from transactions and other events
and circumstances from nonowner sources. The Company's total
comprehensive income consists of the following:
Three Months Nine Months
Ended Ended
September 30, September 30,
(In thousands) 1998 1997 1998 1997
------- ------ ------- -------
Net income (loss) ($7,506) $956 $10,488 $18,188
Foreign currency
translation adjustments (933) (197) (2,598) (1,706)
Income tax benefit 373 79 1,039 682
------- ----- ------- -------
Total comprehensive
income (loss) ($8,066) $838 $8,929 $17,164
======= ===== ======= =======
Note 5. Adoption of New Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. This statement establishes
accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
This statement is effective for the Company's financial
statements for the year ended December 31, 2000 and the adoption
of this standard is not expected to have a material effect on the
Company's financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued in February 1998. This
statement revises the disclosure requirement for pensions and
other postretirement benefits. This statement is effective for
the Company's financial statements for the year ended December
31, 1998 and the adoption of this standard is not expected to
have a material effect on the Company's financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued in June 1997. This statement
establishes standards for the way public business enterprises
report information about operating segments. It also establishes
standards for related disclosure about products and services,
geographical areas and major customers. This statement is
effective for the Company's financial statements for the year
ended December 31, 1998 and the adoption of this standard is not
expected to have a material effect on the Company's financial
statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General Business Overview
The operations of ACX Technologies, Inc. (the Company) consist of
two primary business segments, Graphic Packaging Corporation
(Graphic Packaging) and Coors Ceramics Company (Coors Ceramics).
Graphic Packaging produces high-value consumer and industrial
flexible packaging and folding cartons while Coors Ceramics
manufactures advanced technical ceramic and other engineered
materials. In addition to its primary business units, the
Company owns a majority interest in Golden Genesis Company, a
group of solar electric distribution companies, which is publicly
traded company on NASDAQ. Prior to 1998, the Company operated
several technology-based developmental businesses through Golden
Technologies Company, Inc. The Company is in the process of
winding down these developmental businesses.
On January 14, 1998, the Company acquired Britton Group plc
(Britton), an international packaging company operating through
two principal divisions: folding cartons and plastics. The
folding cartons division, Universal Packaging Corporation
(Universal Packaging), is a nonintegrated manufacturer of folding
cartons in the United States. The plastics division, which
operates in the United Kingdom, was accounted for as a
discontinued operation since the acquisition and was sold on
April 20, 1998 for pounds 82 million ($135 million).
Operating Results
Quarter
Consolidated net sales for the 1998 third quarter were $248.0
million, an increase of $61.6 million, or 33.0%, compared to the
similar 1997 period. The increase in sales is primarily
attributable to the additional sales related to the acquisition
of Universal Packaging, partially offset by decreased sales at
Coors Ceramics due to weaknesses in the pulp and paper,
semiconductor, electronic, and petrochemical industries and
currency influenced price competition.
Consolidated gross margin was 17.2% for the third quarter of 1998
compared to 24.6% for the similar 1997 period. Contributing to
the lower consolidated gross margin were margin declines at
Graphic Packaging, Coors Ceramics, and Solar Electric due to
increased price competition. Also, a lower comparative gross
margin at Universal Packaging and an increase in inventory
obsolescence and bad debt expense at both Graphic Packaging and
Solar Electric contributed to the decrease in consolidated gross
margin.
For the third quarter of 1998, the Company had a consolidated
operating loss of $7.7 million compared to consolidated operating
income of $2.6 million for the 1997 similar period. The
consolidated operating loss for the 1998 quarter was impacted by
$15.7 million in asset impairment charges and a $3.8 million
restructuring charge at Graphic Packaging, a $5.6 million asset
impairment charge at the Chattanooga, Tennessee operation of
Coors Ceramics, and a $0.4 asset impairment charge at Solar
Electric. (See Note 3 to the Consolidated Financial Statements
for further discussion on asset impairment and restructuring
charges.) Also contributing to the consolidated operating loss
for the third quarter was continuing price competition for
Graphic Packaging, Coors Ceramics and Solar Electric. Lastly, an
increase in inventory obsolescence and bad debt expense at both
Graphic Packaging and Solar Electric contributed to the
consolidated operating loss for the 1998 quarter.
Net interest expense was $5.3 million for the third quarter of
1998 compared to $0.6 million for the third quarter of 1997. The
increase is a result of acquisition financing and debt assumed in
the Britton purchase.
Year to Date
Consolidated net sales for the nine months ended September 30,
1998 were $742.1 million, an increase of $195.4 million, or
35.7%, compared to the similar 1997 period. The increase in
sales is primarily attributable to the additional sales from the
acquisition of Universal Packaging. Increased sales at Coors
Ceramics resulting from the acquisition of Tetrafluor, Inc. in
August 1997, along with stronger sales to the automotive and
beverage valve industries also contributed to the increase in
consolidated net sales. Increased sales in the Solar Electric
segment were mostly offset by decreased sales in the Other
segment as a result of the Company's 1997 decision to exit its
developmental businesses.
Consolidated gross margin was 19.5% for the nine months ended
September 30, 1998 compared to 24.5% for the similar 1997 period.
Contributing to the lower consolidated gross margin was a margin
decline at Graphic Packaging due to increased price competition,
lower comparative margins at Universal Packaging, and an increase
in inventory obsolescence and bad debt expense. Coors Ceramics
experienced a lower gross margin as a result of currency
influenced price competition. Lastly, Solar Electric experienced
a decline in gross margin primarily due to an increase in
inventory obsolescence and bad debt expense.
Consolidated operating income for the nine months ended September
30, 1998, was $31.8 million compared to $33.2 million for the
similar 1997 period. Consolidated operating income for the 1998
period was impacted by $15.7 million in asset impairment charges
and a $3.8 million restructuring charge at Graphic Packaging, a
$5.6 million asset impairment charge at the Chattanooga,
Tennessee operation of Coors Ceramics and a $6.2 million asset
impairment charge related to Coors Ceramics' termination of its C-
4 technology agreement with IBM, and $1.4 million in asset
impairment charges at Solar Electric. (See Note 3 to the
Consolidated Financial Statements for further discussion on asset
impairment and restructuring charges.) Also contributing to the
decrease in consolidated operating income for the 1998 period was
continuing price competition for Graphic Packaging, Coors
Ceramics and Solar Electric. Lastly, an increase in inventory
obsolescence and bad debt expense at both Graphic Packaging and
Solar Electric contributed to the decrease in consolidated
operating income for the nine month period ended September 30,
1998. Consolidated operating income for the nine months ended
September 30, 1997 was impacted by $19.8 million in asset
impairment and restructuring charge at the Other segment.
Net interest expense was $14.9 million for the nine months ended
September 30, 1998 compared to $2.4 million for similar 1997
period. The increase is the result of acquisition financing and
debt assumed in the Britton purchase.
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. During the third
quarter of 1998, the Company had access to an unsecured $150
million revolving credit facility that expires on January 8, 1999
and a $175 million unsecured revolving credit facility that
expires on November 30, 1998. In November 1998, the Company
expects to execute a two-year, unsecured $250 million revolving
credit facility that will replace these facilities.
During the first quarter of 1998, the Company borrowed
approximately $276 million under its credit facilities to finance
the Britton acquisition. In conjunction with that transaction,
the Company also assumed an additional $92.5 million in debt. On
April 20, 1998, the Company completed the sale of Britton's
Plastics Division for approximately $135 million. The majority
of the proceeds of this sale were used to pay down debt. In
addition, the Company has entered into contracts to hedge the
underlying interest rate on $175 million of anticipated long-term
borrowings at an average risk-free rate of approximately 5.78%.
The contracts expire on November 1, 1999. The Company has
accounted for the contracts as hedges of an anticipatory
borrowing and as such, the contracts are not marked to market and
any gain or loss upon settlement will be netted with the
underlying cost of borrowing.
In September 1998, the Company's Board of Directors authorized a
program to repurchase up to 5% of its common stock in open market
transactions. The stock may be purchased from time to time as
the Company's financial condition and market conditions permit.
In connection therewith, the Company has repurchased 87,000
shares at a cost of $1.1 million through November 2, 1998.
Net cash generated from operations for the nine months ended
September 30, 1998 was $66.5 million compared to $91.4 million
generated in the nine months ended September 30, 1997. The 1997
period included the partial liquidation of the working capital of
Golden Aluminum Company.
Year 2000
Management has initiated an enterprise-wide program to prepare
the Company's financial, manufacturing and other critical systems
and applications for the year 2000. The program involves the
Company's upper management as well as project leaders from each
of the Company's business segments. The Board of Directors
monitors the progress of the program on a quarterly basis. The
focus of the program is to identify affected software and
hardware, develop a plan to correct that software or hardware in
the most effective manner and implement and monitor that plan.
The program also includes communications with the Company's
significant suppliers and customers to determine the extent to
which the Company is vulnerable to any failures by them to
address the Year 2000 issue.
State of Readiness
Although the Company's Year 2000 program is in various stages of
completion across its business segments, the Company anticipates
it will have all modifications and replacements in place and
tested before the end of 1999. The Company's program addresses
information technology (IT) and non-IT systems, interdependent
computer systems, and third parties such as suppliers and
customers.
Costs
The Company has incurred internal staff costs as well as
consulting and other expenses related to the Year 2000 program.
In addition, the Company will replace certain older software with
new programs and systems. Some of these upgrades will be in
response to the Year 2000 issue; however, many upgrades are part
of the Company's normal business plan. To date, the Company has
spent approximately $0.3 million on its Year 2000 program and
expects to incur an additional $1.6 million. The costs to
address the Year 2000 issue are being expensed as incurred.
Risks
Given the information available at this time, it is not possible
to determine the operational impact of the failure of the
Company's Year 2000 program or of the failure of a third party.
Management currently anticipates that the cost to address the
Year 2000 issue should not have a material adverse effect on the
Company's results of operations, liquidity, and financial
position. However, the Company continues to gather information
regarding the total estimated costs and there can be no
assurances that these costs will not be material.
Contingency Plans
Although the Company's Year 2000 contingency plans are currently
in various stages of completion across its business segments, the
Company anticipates it will have the appropriate contingency
plans in place and tested before the end of 1999.
Segment Information
Third Quarter Only
(In thousands)
Operating
Net Sales Income(Loss)
------------------- ------------------
1998 1997 1998 1997
-------- -------- ------- -------
Coors Ceramics $70,023 $79,329 $3,146 $12,454
Graphic Packaging 159,740 92,513 (7,618) 12,992
Solar Electric 13,178 10,453 (1,976) (261)
Other 5,078 4,163 (1,252) (22,596)
-------- -------- ------- -------
$248,019 $186,458 $(7,700) $2,589
======== ======== ======= =======
Third Quarter - Year to Date
(In thousands)
Operating
Net Sales Income(Loss)
------------------- ------------------
1998 1997 1998 1997
-------- -------- ------- -------
Coors Ceramics $230,390 $225,756 $20,319 $36,691
Graphic Packaging 461,773 275,597 23,213 32,151
Solar Electric 37,033 27,745 (5,183) (3,087)
Other 12,882 17,595 (6,583) (32,605)
-------- -------- ------- -------
$742,078 $546,693 $31,766 $33,150
======== ======== ======= =======
COORS CERAMICS
Coors Ceramics' third quarter 1998 net sales were $70.0 million
compared to $79.3 million for the similar 1997 period. The
decrease in sales is primarily due to weaknesses in the pulp and
paper, semiconductor, electronic, and petrochemical industries
and currency influenced price competition.
Third quarter 1998 operating income was $3.1 million compared to
$12.5 for the third quarter of 1997. The decrease in operating
income is primarily attributable to the decrease in sales and
currency influenced price competition. In addition, during the
1998 quarter, Coors Ceramics recorded a $5.6 million asset
impairment charge at the Chattanooga, Tennessee operation.
Coors Ceramics' sales for the nine months ended September 30,
1998 were $230.4 million compared to $225.8 million for the
similar 1997 period. The increase in sales is due to the August
1997 acquisition of Tetrafluor, Inc., along with increased sales
to the automotive and beverage valve industries, partially offset
by decreases in sales to the pulp and paper, electronic, and
semiconductor industries.
Operating income for the nine months ended September 30, 1998 was
$20.3 million compared to $36.7 million for the similar 1997
period. The 1998 period included $11.8 million in asset
impairment charges related to the termination of Coors Ceramics'
C-4 technology agreement with IBM and the decision to offer for
sale the Chattanooga, Tennessee operation. In addition,
weaknesses in the pulp and paper, electronic, and semiconductor
industries contributed to the decrease in operating income.
The Company expects continued pricing pressures in certain
product lines, along with continued softness in the semiconductor
industry, to impact Coors Ceramics in the fourth quarter of 1998.
Coors Ceramics continues to focus on growth through new product
development, expanding market share in its current product lines
and the addition of new materials to its product mix.
GRAPHIC PACKAGING
Graphic Packaging's third quarter 1998 net sales were $159.7
million, an increase of $67.2 million, or 72.7%, compared to the
similar 1997 period. The increase in sales is primarily
attributable to the acquisition of Universal Packaging.
Decreased sales to the flexible packaging industry, mostly due to
price competition and lower volume, partially offset the increase
in sales for the quarter.
For the third quarter of 1998, Graphic Packaging had an operating
loss of $7.6 million compared to operating income of $13.0
million of the 1997 similar period. The operating loss for the
1998 quarter includes $15.7 million in asset impairment charges
and a $3.8 million restructuring charge. In addition, increased
price competition, reduced volume, and an increase in inventory
obsolescence and bad debt expense related to the flexible
packaging businesses contributed to the operating loss for the
1998 quarter. Partially offsetting these charges was the
additional operating income related to Universal Packaging and
cost savings realized by Graphic Packaging's corporate
headquarters relocation in the fourth quarter of 1997.
Graphic Packaging's net sales for the nine months ended September
30, 1998 were $461.8 million, an increase of $186.2 million, or
67.6%, compared to the similar 1997 period. The increase in
sales is primarily attributable to the acquisition of Universal
Packaging. In addition, increased sales volume to specialty
folding carton customers in the fast food and snack food
industries contributed to the increase in sales for the period.
Partially offsetting these increases were decreased sales to the
flexible packaging industry, mostly due to price competition and
reduced volume, and a decrease in folding carton sales to the
tobacco industry.
Operating income for the nine months ended September 30, 1998 was
$23.2 million compared to $32.2 million for the similar 1997
period. The decrease in operating income is partially a result
of $15.7 million in asset impairment charges and a $3.8 million
restructuring charge. In addition, increased price competition,
reduced volume, and an increase in inventory obsolescence and bad
debt expense related to the flexible packaging businesses
contributed to the decrease in operating income. Offsetting
these charges was the additional operating income related to the
Universal Packaging acquisition and cost savings realized by
Graphic Packaging's corporate headquarters relocation in the
fourth quarter of 1997.
The Company expects Graphic Packaging to continue to experience
pricing pressures in certain product lines in the fourth quarter
of 1998. However, the Company expects improved performance
related to plant efficiencies and cost savings from the third
quarter restructuring. Management continues to work to develop
additional synergies between Graphic Packaging and Universal
Packaging in the areas of sales, purchasing, and administration
and expects to realize additional financial advantages in the
future. In addition, Graphic Packaging continues to evaluate
opportunities to expand its business with new and existing
customers, as well as through strategic acquisition
opportunities.
SOLAR ELECTRIC
Solar Electric's net sales for the third quarter were $13.2
million, an increase of $2.7 million, or 26.1%, compared to the
third quarter of 1997. Increased sales in the distribution
business due to the expansion of product lines and an increase in
domestic demand contributed to the increased sales for the
quarter. In addition, the January 1998 acquisition of Utility
Power Group contributed to the increased sales.
For the third quarter of 1998, Solar Electric had an operating
loss of $2.0 million compared to an operating loss of $0.3
million for the similar period of 1997. The third quarter 1998
operating loss was primarily attributable to an increase in
inventory obsolescence and bad debt expense and a $0.4 million
asset impairment charge.
For the nine months ended September 30, 1998, net sales were
$37.0 million, an increase of $9.3 million, or 33.5%, compared to
the similar 1997 period. Increased sales in the distribution
business due to the expansion of product lines and an increase in
domestic demand, the completion of large telecommunications and
power projects in the Middle East and Africa, and the acquisition
of Utility Power Group, contributed to the increased sales.
For the nine months ended September 30, 1998, Solar Electric had
an operating loss of $5.2 million compared to an operating loss
of $3.1 million for the third quarter of 1997. The 1998
operating loss was primarily attributable to $1.4 million in
asset impairment charges and an increase in inventory and bad
debt expense.
OTHER
The Company's remaining developmental business operated by Golden
Technologies, together with the Company's corporate costs,
comprise the Other segment.
Operating loss for the third quarter of 1998 was $1.2 million
compared to $22.6 million for the similar 1997 period. The third
quarter of 1997 was impacted by $17.5 million in asset impairment
and restructuring charges. Operating loss for the nine months
ended September 30, 1998 was $6.6 million compared to $32.6
million for the similar 1997 period. The 1997 period was
impacted by $19.8 million in asset impairment and restructuring
charges.
Forward-Looking Statements
Some of the statements in this Form 10-Q Quarterly Report, as
well as statements by the Company in periodic press releases,
oral statements made by the Company's officials to analysts and
shareholders in the course of presentations about the Company and
conference calls following quarterly earnings releases,
constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Words or
phrases denoting the anticipated results of future events such as
"anticipate," "believe," "estimate," "will likely," "are expected
to," "will continue," "project," "trends" and similar expressions
that denote uncertainty are intended to identify such forward-
looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the
Company to be materially different from any future results,
performance or achievements expressed or implied by the forward-
looking statements. Such factors include, among other things,
(i) general economic and business conditions; (ii) changes in
industries in which the Company does business, such as beverage,
food, telecommunications, automotive, semiconductor, pulp and
paper, petrochemical, and tobacco; (iii) the loss of major
customers; (iv) the loss of market share and increased
competition in certain markets; (v) industry shifts to
alternative materials, such as replacement of ceramics by
plastics or metals and competitors offering products with
characteristics similar to the Company's products; (vi) changes
in consumer buying habits; (vii) governmental regulation
including environmental laws; (viii) the ability of the Company
to successfully identify and maximize efficiencies between
Graphic Packaging and the companies it acquires and successfully
merge the corporate cultures; and (ix) other factors over which
the Company has little or no control.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K
for the year ended December 31, 1997. The accompanying financial
statements have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the
opinion of management of ACX Technologies, such financial
statements include all adjustments necessary to summarize fairly
the Company's financial position and results of operations.
Except for certain reclassifications made to consistently report
the information contained in the financial statements, all
adjustments made to the interim financial statements presented
are of a normal recurring nature. The results of operations for
the three and nine month periods ended September 30, 1998, may
not be indicative of results that may be expected for the year
ending December 31, 1998. Certain 1997 information has been
reclassified to conform to the 1998 presentation.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Document Description
3.2 Bylaws of Registrant, as amended and restated August 25,
1998.
(b) Reports on Form 8-K
A report on Form 8-K was filed on November 2, 1998
which included a supply agreement between Graphic
Packaging Corporation and Coors Brewing Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 16, 1998 By /s/Jed J. Burnham
----------------------------
Jed J. Burnham
(Chief Financial Officer and
Treasurer)
Date: November 16, 1998 By /s/Beth A. Parish
----------------------------
Beth A. Parish
(Controller and Principal
Accounting Officer)