-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rb1eQq7F/XNqjt1Vh3p+M3DGRajaZomlHwSoCKIS/gd3JqEgeaolneLLGmHR0432 GWaKrsyOTpA+NfvmXap70A== 0000892793-99-000014.txt : 19990514 0000892793-99-000014.hdr.sgml : 19990514 ACCESSION NUMBER: 0000892793-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACX TECHNOLOGIES INC CENTRAL INDEX KEY: 0000892793 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD CONTAINERS & BOXES [2650] IRS NUMBER: 841208699 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14060 FILM NUMBER: 99620334 BUSINESS ADDRESS: STREET 1: 16000 TABLE MOUNTAIN PKWY CITY: GOLDEN STATE: CO ZIP: 80403 BUSINESS PHONE: 3032717000 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 0-20704 ACX TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Colorado 84-1208699 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 16000 Table Mountain Parkway, Golden, Colorado 80403 (Address of principal executive offices) (Zip Code) (303) 271-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] There were 28,440,291 shares of common stock outstanding as of May 1, 1999. PART I. FINANCIAL INFORMATION Item 1. Financial Statements ACX TECHNOLOGIES, INC. CONSOLIDATED INCOME STATEMENT (In thousands, except per share data) Three months ended March 31, -------------------- 1999 1998 -------- -------- Net sales $242,555 $236,733 Cost of goods sold 194,046 188,065 -------- -------- Gross profit 48,509 48,668 Selling, general and administrative 27,075 27,870 Asset impairment charges --- 7,238 -------- -------- Operating income 21,434 13,560 Other income (expense) - net 93 (147) Interest expense - net (5,209) (4,374) -------- -------- Income before income taxes 16,318 9,039 Income tax expense 6,600 3,600 -------- -------- Net income $9,718 $5,439 ======== ======== Comprehensive income $9,568 $5,810 ======== ======== Net income per basic share $0.34 $0.19 ======== ======== Net income per diluted share $0.34 $0.19 ======== ======== Weighted average shares outstanding - basic 28,427 28,425 ======== ======== Weighted average shares outstanding - diluted 28,721 29,134 ======== ======== See Notes to Consolidated Financial Statements. ACX TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET (In thousands, except share data) March 31, December 31, 1999 1998 ASSETS ----------- ------------ Current assets: Cash and cash equivalents $32,747 $26,196 Accounts receivable 106,118 92,763 Inventories: Finished 72,507 62,484 In process 40,458 37,458 Raw materials 44,173 48,610 ---------- -------- Total inventories 157,138 148,552 Notes receivable 60,438 60,568 Other assets 30,542 30,076 ---------- -------- Total current assets 386,983 358,155 Properties at cost less accumulated depreciation of $305,838 in 1999 and $286,204 in 1998 395,742 373,691 Goodwill, net 228,165 206,583 Other assets 23,598 22,776 ---------- -------- Total assets $1,034,488 $961,205 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long-term debt $105,129 $86,300 Other current liabilities 126,807 119,311 ---------- -------- Total current liabilities 231,936 205,611 Long-term debt 274,071 233,000 Other long-term liabilities 57,477 61,260 ---------- -------- Total liabilities 563,484 499,871 Minority interest 13,181 13,379 Shareholders' equity Preferred stock, nonvoting, $0.01 par value, 20,000,000 shares authorized and no shares issued or outstanding --- --- Common stock, $0.01 par value 100,000,000 shares authorized and 28,436,000 and 28,373,000 issued and outstanding at March 31, 1999, and December 31, 1998 284 284 Paid-in capital 451,700 451,401 Retained earnings 11,428 1,710 Accumulated other comprehensive loss (5,589) (5,440) ---------- -------- Total shareholders' equity 457,823 447,955 ---------- -------- Total liabilities and shareholders' equity $1,034,488 $961,205 ========== ======== See Notes to Consolidated Financial Statements. ACX TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Three months ended March 31, -------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net income $9,718 $5,439 Adjustments to reconcile net income to net cash provided by operating activities: Asset impairment charges --- 7,238 Depreciation and amortization 14,452 13,772 Change in current assets and current liabilities and other (9,643) (17,674) ------ ------- Net cash provided by operating activities 14,527 8,775 ------ ------- Cash flows from investing activities: Capital expenditures (19,285) (19,216) Acquisitions, net of cash acquired (48,854) (294,435) ------ ------- Net cash used in investing activities (68,139) (313,651) ------ ------- Cash flows from financing activities: Proceeds from the issuance of debt 69,663 282,690 Repayment of debt (9,500) --- ------ ------- Net cash provided by financing activities 60,163 282,690 ------ ------- Cash and cash equivalents: Net increase (decrease) in cash and cash equivalents 6,551 (22,186) Balance at beginning of period 26,196 15,671 ------ ------- Balance at end of period $32,747 ($6,515) ======= ======= See Notes to Consolidated Financial Statements. ACX TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. 1999 Acquisitions On March 12, 1999, the Company acquired the net assets of Precision Technologies (Precision) for approximately $22 million in cash and 300,000 warrants to receive shares of the Company's common stock at an exercise price equal to the fair market value at the date of closing. These warrants vest only upon the achievement of certain revenue goals within three years. The Precision acquisition has been accounted for under the purchase method. Accordingly, the estimated excess of the purchase price over the fair value of net assets acquired of approximately $19 million is being amortized using the straight-line method over 20 years. Precision Technologies, located in Livermore, California, manufactures precision-machined parts for the semiconductor, medical, and aircraft industries. On March 1, 1999, the Company acquired all of the outstanding shares of Edwards Enterprises (Edwards) for approximately $18 million in cash. The Edwards acquisition has been accounted for under the purchase method. Accordingly, the estimated excess of the purchase price over the fair value of net assets acquired of approximately $4 million is being amortized using the straight-line method over 20 years. Edwards Enterprises, located in Newark, California, manufactures precision-machined parts for the semiconductor industry. Note 2. Asset Impairment Charges During the first quarter of 1998, the Company recorded $7.2 million in asset impairment charges at Coors Ceramics and the Solar Electric business unit. Coors Ceramics recorded a $6.2 million charge related to the cancellation of its C-4 technology agreement with IBM. Changes in the market for C-4 applications extended the time frame for achieving commercial sales beyond original expectations. This lack of near term commercial sales opportunities, combined with increasing overhead costs, prompted the Company to negotiate termination of the agreement. Consequently, the Company wrote off the long-lived assets associated with this project. The Solar Electric business unit recorded a $1.0 million asset impairment charge to write down the long-lived assets of Solartec, S.A., a solar electric systems distributor located in Argentina. Since acquiring Solartec in November 1996, operating cash flows were below original expectations. As a result, the Company recorded this impairment to the asset value of Solartec to an amount that could be realized through estimated future operating cash flows. Note 3. Segment Information The Company's reportable segments (Packaging and Ceramics) are based on its method of internal reporting, which is based on product category. In addition, as of March 31, 1999, the Company owns a majority interest in a group of solar electric distribution companies and a real estate developmental partnership, which are included in the Other Segment. The Other Segment also includes, prior to January 31, 1999, a corn-wet milling facility, and prior to March 1998, a biodegradable polymer developmental business. The Company evaluates the performance of its segments and allocates resources to them based primarily on operating income. The table below summarizes information about reported segments as of and for the three months ended March 31: Operating Depreciation Net Income and Capital (In thousands) Sales (Loss) Amortization Assets Expenditures -------- --------- ------------ ---------- ------------ 1999 Packaging $150,726 $12,839 $8,566 $564,350 $17,271 Ceramics 76,579 10,517 5,388 313,020 1,548 Other 15,250 425 430 54,148 466 -------- --------- ---------- ---------- ----------- Segment total 242,555 23,781 14,384 931,518 19,285 Corporate --- (2,347) 68 102,970 --- -------- --------- ---------- ---------- ----------- Consolidated total $242,555 $21,434 $14,452 $1,034,488 $19,285 ======== ========= ========== ========== =========== 1998 Packaging $139,536 $13,353 $8,417 $558,729 $10,146 Ceramics 80,945 5,577 4,816 270,184 7,873 Other 16,252 (2,965) 459 77,029 1,154 -------- --------- ---------- -------- ----------- Segment total 236,733 15,965 13,692 905,942 19,173 Corporate --- (2,405) 80 80,016 43 Discontinued operations --- --- --- 126,049 --- -------- --------- ---------- ---------- ----------- Consolidated total $236,733 $13,560 $13,772 $1,112,007 $19,216 ======== ========= ========== ========== =========== Note 4. Subsequent Event On April 25, 1999, the Company entered into a definitive purchase agreement with Fort James Corporation (Fort James) to acquire the net assets of Fort James' folding carton business for $830 million in cash. The folding carton business of Fort James is a major supplier of folding cartons to leading consumer product companies. The Fort James folding carton business is comprised of 12 carton plants and a paper mill. The agreement has been approved by the Boards of Directors of both the Company and Fort James and is still subject to regulatory approvals. The Company expects to finance the acquisition with a combination of short-term and long-term credit facilities with Bank of America and to close the transaction by July 1999. In April 1999, the Company decided to seek a strategic buyer for its flexible packaging business. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Business Overview ACX Technologies, Inc. (the Company), together with its subsidiaries, is a diversified, value added manufacturing organization focused on pioneering differentiated customer solutions. Two business segments comprise the majority of the Company's results from operations: the packaging business, operated through Graphic Packaging Corporation (Graphic Packaging), and the ceramics business, operated through Coors Ceramics Company (Coors Ceramics). Graphic Packaging is a nonintegrated manufacturer of both folding cartons and flexible packages and participates in the beverage, frozen food, dried food, soap and detergent, bakery, tobacco, pet food, confectionery, quick service restaurant, coffee, photographic, and personal care markets. In April 1999, the Company decided to seek a strategic buyer for its flexible packaging business in order to concentrate on the folding carton business. On April 25, 1999, the Company entered into a definitive purchase agreement with Fort James Corporation (Fort James) to acquire the net assets of Fort James' folding carton business for $830 million in cash. The folding carton business of Fort James is a major supplier of folding cartons to leading consumer product companies. The Fort James folding carton business is comprised of 12 carton plants and a paper mill. The Company expects to close the acquisition by the end of July 1999. Coors Ceramics develops, manufactures, and sells advanced technical ceramic products and other engineered materials across a wide range of product lines for a variety of custom applications. Coors Ceramics, which has been in business for more than 78 years, is the largest U.S.-owned, independent manufacturer of advanced technical ceramics. The majority of Coors Ceramics' sales are to the semiconductor equipment, petrochemical, power generation and mining, automotive, telecommunications, and pulp and paper industries. In March 1999, the Company acquired Precision Technologies (Precision) and Edwards Enterprises (Edwards), both manufacturers of precision- machined parts primarily for the semiconductor equipment industry. In addition to the primary operating businesses, the Company owns other businesses (Other); primarily operating through its majority owned subsidiary, Golden Genesis Company (Golden Genesis). Golden Genesis' focus is on assembling and distributing solar electric systems. The Other businesses also include a real estate development partnership. Additionally, the historical results for the Other businesses include the operations of a biodegradable polymer project and a corn-wet milling facility. During 1998, the Company exited the biodegradable polymer project. On January 31, 1999, the Company sold the corn-wet mill operation. The Company is working toward exit strategies for all noncore businesses. Results from Continuing Operations Consolidated net sales for the three months ended March 31, 1999 were $242.6 million, an increase of $5.8 million, or 2.5%, compared to the same period in 1998. This increase is primarily attributable to having a full quarter of sales related to Universal Packaging, which was acquired on January 14, 1998, offset by lower comparative sales at Ceramics and the Other businesses. Consolidated gross profit was $48.5 million, a decrease of $0.2 million compared to the same period in 1998. Consolidated gross margin was 20.0% for the first quarter 1999 compared to 20.6% for the 1998 similar period. The lower 1999 first quarter consolidated gross profit and gross margin resulted from margin declines at both Coors Ceramics and Graphic Packaging, primarily due to competitive price pressures. For the first quarter of 1999, consolidated operating income increased $7.9 million to $21.4 million. This increase in operating income is primarily due to $7.2 million in asset impairment charges recorded in the first quarter of 1998. Coors Ceramics recorded a $6.2 million asset impairment charge related to the termination of its C-4 technology agreement with IBM. The Solar Electric business unit recorded a $1.0 million asset impairment charge to write down the long-lived assets of its Argentinean subsidiary, Solartec. In addition, the elimination of operating losses from the Other businesses contributed to the increase in first quarter 1999 operating income. Offsetting these positive factors were lower operating income at both Graphic Packaging and Coors Ceramics, due to increased price pressures in the first quarter 1999 as compared to the similar period last year. Net interest expense increased to $5.2 million in the first quarter of 1999, compared to $4.4 million for the first quarter of 1998. The increase in interest expense is due to additional borrowings related to the recent Ceramics' acquisitions and borrowings related to 1999 and 1998 capital expenditures. This increase in net interest expense is partially offset by a decrease in the Company's weighted average interest rate in the first quarter of 1999 compared to the first quarter of 1998. The consolidated effective tax rate for the first quarter of 1999 and 1998 was approximately 40%. The primary difference between the 1999 first quarter effective tax rate and the statutory rate relates to state and foreign taxes, as well as the impact of charges that are not deductible for tax purposes such as the amortization of goodwill. Liquidity and Capital Resources The Company's liquidity is generated from both internal and external sources and is used to fund short-term working capital needs, capital expenditures, and acquisitions. At March 31, 1999, the Company's working capital was $155.0 million with a current ratio of 1.67 to 1. In 1998, the Company established a two-year, unsecured $250 million revolving credit facility. The Company may extend this facility for two additional one-year periods with the consent of the participating banks. Amounts borrowed under this facility bear interest under various pricing alternatives, including (i) LIBOR plus a spread depending on the Company's debt ratings or (ii) a competitive money market auction. In addition, the Company pays a commitment fee on the committed amount. At March 31, 1999, $177 million was outstanding under this line. The Company intends to replace this facility with longer-term financing prior to the expiration date of the facility. The Company has $100 million of senior notes outstanding under a private placement agreement bearing interest at an average rate of 8%. Of this amount, $70 million is due November 1, 1999, with the remaining $30 million due in November 2001. In addition, the Company assumed $92.5 million of senior notes through its acquisition of Britton, of which $9.5 million was repaid in the first quarter of 1999. These notes bear interest at approximately 7.1% and are payable in installments between 1999 and 2006. The Company has an uncommitted $20 million revolving credit facility with Wachovia Bank, N.A. As of March 31, 1999, $19.2 million was outstanding under this facility. The Company expects to finance the acquisition of Fort James' folding carton businesses with a combination of short-term and long-term credit facilities with Bank of America. In conjunction with this acquisition, the Company plans to use these credit facilities to prepay the $100 million senior note holders and the $83 million senior note holders remaining from the Britton acquisition and repay all amounts outstanding under the two-year, unsecured $250 million revolving credit facility. The Company has entered into contracts to hedge the underlying interest rate on $175 million of anticipated long-term borrowings. These contracts lock in an average risk-free rate of approximately 5.78% and expire on November 1, 1999. The anticipated borrowings will be used to refinance a portion of the Bank of America credit facilities. As of March 31, 1999, the unrecognized loss associated with these hedge contracts was approximately $5.3 million. During 1998, the Company's Board of Directors approved the repurchase of up to 5% of the outstanding common shares of the Company. As of March 31, 1999, the Company had repurchased 181,200 shares at an aggregate cost of $2.4 million. The Company currently expects that cash flows from operations, the sale of certain assets, borrowings under its current credit facilities, and anticipated new borrowings will be adequate to meet the Company's needs for working capital, temporary financing for capital expenditures, debt repayments, and acquisitions. Year 2000 Readiness Disclosure The Year 2000 issue arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19". If not corrected, many computer applications could fail or create erroneous results disrupting normal business operations. Management has implemented an enterprise-wide program to prepare the Company's financial, manufacturing, and other critical systems and applications for the year 2000. The program includes a task force established in March 1998 that has the support and participation of upper management and includes individuals with expertise in risk management, legal, and information technologies. The Board of Directors monitors the progress of the program on a quarterly basis. The task force's objective is to ensure an uninterrupted transition to the year 2000 by assessing, testing, and modifying all information technology (IT) and non-IT systems, interdependent systems, and third parties such as suppliers and customers. The Year 2000 task force has taken an inventory of all IT and non-IT systems. This inventory categorizes potential systems date failures into three categories: "major" (critical to production and could be business threatening with no short-term alternatives available); "limited" (disrupting to the business operations with short-term solutions available); and "minor" (inconsequential to the business operations). The task force has prioritized the program to focus first on "major" systems. It is the Company's goal to have all systems Year 2000 compliant no later than September 1, 1999. IT Systems - The Company is primarily using internal resources to remediate IT systems. External resources are used to assist in testing compliance of IT systems. The Company does not rely on any one IT system. The majority of the IT systems have been recently purchased from third party vendors. These systems were already Year 2000 compliant or had Year 2000 compliance upgrades. As of March 31, 1999, approximately 80% of the Company's IT systems were Year 2000 compliant. Non-IT Systems - The Company has approximately 40 manufacturing facilities with varying degrees of non-IT systems (such as printing presses, automated kiln systems, statistical process control systems, ink mixing systems, quality control systems, and machining equipment). The vast majority of these facilities are located in North America. To ensure Year 2000 compliance for non-IT systems, the Year 2000 task force has contacted the suppliers of these non-IT systems and obtained statements that the systems are Year 2000 compliant and is in the process of testing Year 2000 compliance. The majority of these non-IT systems use time intervals instead of dates and are Year 2000 compliant. Thus, the Company believes that potential disruptions of such systems due to the Year 2000 issue should be minimal. As of March 31, 1999, approximately 90% of the Company's "major" and "limited" non-IT systems are Year 2000 compliant. The "minor" non-IT systems are in various stages of compliance. Third Parties - The Year 2000 task force has been in contact with key suppliers and customers to minimize potential business disruptions related to the Year 2000 issue between the Company and these third parties. The task force has focused on suppliers and customers that are classified as "major" and "limited." While the Company cannot guarantee compliance by third party suppliers, the Company has developed contingency plans to ensure the availability of inventory supplies in the event a supplier is not Year 2000 compliant. Contingency Plans - The Company is in the process of finalizing contingency plans in the event there are Year 2000 failures related to the Company's IT and non-IT systems and/or key third parties. The Company's manufacturing facilities are not interdependent in terms of non-IT systems, and its facilities utilize a diverse range of non-IT systems (i.e., printing presses, kilns, and other manufacturing equipment). In addition, no one facility accounts for a significant amount of revenue. Thus, the contingency plan for non-IT systems includes the transfer of production between facilities and manufacturing equipment. Currently, the Company believes that there is enough manufacturing capacity to accommodate the contingency plan. The Company's IT systems are also not heavily interdependent between facilities and key third parties and the Company utilizes a diverse range of IT systems. The contingency plan for IT systems includes the ability to transfer transaction processing, record keeping, and compliance work between facilities and maintaining "hard" copies of critical information. The Company is not dependent on any one supplier. The Company has established back-up suppliers and will maintain adequate inventory levels at December 31, 1999 to minimize the potential business disruption in the event of a Year 2000 failure by a supplier. Costs - Through March 31, 1999, the Company has spent approximately $0.9 million out of an estimated total $1.8 million related to the Year 2000 issue. These costs include the costs incurred for external consultants and professional advisors and the costs for software and hardware. The Company has not separately tracked internal costs such as payroll related costs for its information technologies group and other employees working on the Year 2000 project. The Company expenses all costs related to the Year 2000 issue as incurred. These costs are being funded through operating cash flows. The Company's current estimate of the time and costs related to the remediation of the Year 2000 issue are based on the facts and circumstances existing at this time. New developments could affect the Company's estimates to remediate the Year 2000 issue. These developments include, but are not limited to: (i) the availability and cost of personnel trained in this area; (ii) the ability to identify and remediate all IT and non-IT systems; (iii) unanticipated failures in IT and non-IT systems; and (iv) the planning and Year 2000 compliance success that key customers and suppliers attain. Segment Information Net sales and operating income for the first quarter 1999 and 1998 are summarized by segment below: Operating (In thousands) Net Sales Income (Loss) ------------------- ----------------- 1999 1998 1999 1998 -------- -------- ------- ------- Graphic Packaging $150,726 $139,536 $12,839 $13,353 Coors Ceramics 76,579 80,945 10,517 5,577 Other 15,250 16,252 425 (2,965) Corporate --- --- (2,347) (2,405) -------- -------- ------- ------- $242,555 $236,733 $21,434 $13,560 ======== ======== ======= ======= Graphic Packaging Graphic Packaging reported net sales for the first quarter of 1999 of $150.7 million, an increase of $11.2 million, or 8.0% over 1998 first quarter net sales. This increase is primarily attributable to having a full quarter of sales related to Universal Packaging, which was acquired on January 14, 1998. Graphic Packaging's 1999 first quarter base folding carton business net sales were flat compared to the same period in 1998. Graphic Packaging's flexible division had lower sales for the first quarter of 1999 compared to the similar 1998 period due to competitive price pressures within the industry. Graphic Packaging's operating income was $12.8 million for the first quarter of 1999 compared to $13.4 million for the similar 1998 period. Operating margins decreased to 8.5% for the first quarter of 1999 from 9.6% for the first quarter of 1998. The decreases in operating profit and operating margin are primarily attributable to competitive pricing pressures at both the base folding carton and flexible packaging businesses. An increase in volume at the folding carton business and improved manufacturing efficiencies partially offset the decrease in operating income from price concessions. Coors Ceramics Coors Ceramics' first quarter 1999 net sales were $76.6 million compared to first quarter 1998 net sales of $80.9 million. Increased sales volumes to the semiconductor equipment and mining and power generation industries were more than offset by decreased sales to the petrochemical, defense, and telecommunications industries. The increased sales to the semiconductor equipment industry were partially attributable to the March 1999 acquisitions of Precision and Edwards. Coors Ceramics' continues to see currency influenced price pressures in several of the industries in which it competes. Coors Ceramics' operating income was $10.5 million for the first quarter of 1999 compared to $5.6 million for the first quarter of 1998. The 1998 quarter was impacted by a $6.2 million asset impairment charge related to the termination of the Company's C-4 technology agreement with IBM. The lack of near- term commercial sales opportunities for this technology, combined with increased overhead costs, prompted the Company to negotiate termination of the agreement and write-off the long-lived assets related to this project. Excluding the impact of this charge, operating income decreased $1.3 million compared to the first quarter 1998. Operating margins decreased to 13.7% for the first quarter of 1999 compared to 14.6% for the first quarter of 1998, excluding the 1998 asset impairment charge. The decreases in operating income and operating margins are primarily attributable to currency-influenced price competition. Coors Ceramics continues to focus on growth through new product development, increasing sales in its current product lines, and the addition of new materials to its product mix. Other As of March 31, 1999, the Company's Other businesses includes its majority interest in Golden Genesis Company, Inc., a real estate partnership, and the results of the Company's corn- wet mill, which was sold on January 31, 1999. For the first quarter of 1998, the Other businesses also included the results of the Company's biodegradable polymer project. Net sales for the Other businesses were $15.3 million for the first quarter of 1999 compared to $16.3 million for the similar 1998 period. This decrease is primarily a result of the sale of the corn-wet mill in January of 1999. Also, contributing to the decrease in sales was lower sales for the Solar business due to fewer telecommunications and petrochemical solar power projects in 1999 compared to 1998. For the first quarter 1999, the Other businesses had operating income of $0.4 compared to an operating loss of $3.0 million for the 1998 first quarter. The 1998 operating loss includes a $1.0 million asset impairment charge related to the long-lived assets of Solartec, S.A., a solar electric distributor in Argentina. Since acquiring Solartec in November 1996, operating cash flows were below original expectations. As a result, the Company recorded an impairment to reduce the carrying value of its investment in Solartec to an amount that could be realized through estimated future operating cash flows. Operating income for the first quarter of 1998 also includes a $1.1 million write-down of inventories and accounts receivable associated with the Company's battery charging operations in Brazil. Excluding these charges, operating losses totaled $0.6. Corporate Corporate costs of $2.3 million for the first quarter were relatively flat compared to corporate costs of $2.4 million for the first quarter of 1998. Forward-Looking Statements Some of the statements in this Form 10-Q Quarterly Report, as well as statements by the Company in periodic press releases, oral statements made by the Company's officials to analysts and shareholders in the course of presentations about the Company and conference calls following quarterly earnings releases, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words or phrases denoting the anticipated results of future events such as "anticipate," "believe," "estimate," "will likely," "are expected to," "will continue," "project," and similar expressions that denote uncertainty are intended to identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (i) general economic and business conditions; (ii) changes in industries in which the Company does business, such as beverage, food, telecommunications, automotive, semiconductor, petrochemical, and tobacco; (iii) the loss of major customers; (iv) the loss of market share and increased competition in certain markets; (v) industry shifts to alternative materials, such as replacement of ceramics by plastics or metals, a substitution of flexible packaging for folding cartons, and competitors offering products with characteristics similar to the Company's products; (vi) changes in consumer buying habits; (vii) governmental regulation including environmental laws; (viii) the ability of the Company to successfully execute its developmental business exit strategies; 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, 1998. The accompanying financial statements have not been examined by independent accountants in accordance with generally accepted auditing standards, but in the opinion of management of ACX Technologies, such financial statements include all adjustments necessary to summarize fairly the Company's financial position and results of operations. Except for certain reclassifications made to consistently report the information contained in the financial statements, all adjustments made to the interim financial statements presented are of a normal recurring nature. The results of operations for the first quarter ended March 31, 1999, may not be indicative of results that may be expected for the year ending December 31, 1999. 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 13, 1999 By/s/Jed J. Burnham ------------------------------- Jed J. Burnham (Chief Financial Officer and Treasurer) Date: May 13, 1999 By/s/Beth A. Parish ------------------------------- Beth A. Parish (Controller and Principal Accounting Officer) EX-27 2
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 32,747 0 106,118 0 157,138 386,983 701,580 305,838 1,034,488 231,936 0 0 0 284 457,539 1,034,488 242,555 242,555 194,046 194,046 0 0 5,209 16,318 6,600 9,718 0 0 0 9,718 0.34 0.34
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