-----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, Vr3vh50C4tREHJgI+FX50mi+0dPD7DIi1ZuLz7LgzkPnuaz1RZ9Q4WZddPY0Q5Tv O2e+Cd/QYqL7tj6mzG++Kg== 0000892793-99-000033.txt : 19991019 0000892793-99-000033.hdr.sgml : 19991019 ACCESSION NUMBER: 0000892793-99-000033 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990802 ITEM INFORMATION: FILED AS OF DATE: 19991018 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-14060 FILM NUMBER: 99730190 BUSINESS ADDRESS: STREET 1: 16000 TABLE MOUNTAIN PKWY CITY: GOLDEN STATE: CO ZIP: 80403 BUSINESS PHONE: 3032717000 8-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 August 2, 1999 (Date of earliest event reported) Commission file number: 0-20704 ACX TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Colorado 84-1208699 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 16000 Table Mountain Parkway, Golden, Colorado 80403 (Address of principal executive offices) (Zip Code) (303) 271-7000 (Registrant's telephone number, including area code) Item 7. Financial Statements & Exhibits Set forth below is the information required by Item 7(a), Financial Statements of Acquired Businesses, and by Item 7(b), Pro Forma Financial Information, of Form 8-K with respect to the acquisition by ACX Technologies, Inc. ("ACX" or the "Company") of the Fort James Folding Carton Business ("FJFCB") as disclosed on the Form 8-K filed with the Securities and Exchange Commission on August 17, 1999. Pro Forma Financial Information - ------------------------------- Unaudited Pro Forma Condensed Balance Sheet as of June 30, 1999 Unaudited Pro Forma Condensed Statements of Income for the year ended December 31, 1998 and for the six months ended June 30, 1999 Notes to Pro Forma Condensed Financial Information PRO FORMA CONDENSED FINANCIAL INFORMATION INTRODUCTION (Unaudited) The following unaudited pro forma condensed balance sheet and statements of income illustrate the Company's acquisition of Fort James Folding Carton Business ("FJFCB"). The pro forma balance sheet as of June 30, 1999 was prepared as if the acquisition occurred on June 30, 1999. The pro forma income statements were prepared as if the acquisition occurred January 1, 1998. The pro forma adjustments reflect the acquisition of FJFCB for cash consideration of $830,000,000, plus transaction and financing costs, and an estimated additional cash payment of $9,000,000 for a working capital adjustment. The acquisition was funded by a newly executed $1.3 billion credit facility with Bank of America N.A., and was accounted for using the purchase method of accounting. The pro forma condensed financial information is presented for illustrative purposes only and does not purport to represent what the Company's financial position or results of operations would have been had the acquisition of FJFCB in fact occurred on the date indicated or at the beginning of the period indicated or to project the Company's financial position or results of operations for any future date or period. The pro forma acquisition adjust- ments are based on management's best estimates and upon avail- able information which the Company believes is reasonable under the circumstances. The actual purchase accounting adjustments will be based on more precise evalutions and estimates of fair values. It is possible that the actual adjustments could differ substantially from those presented in the unaudited pro forma financial statements. The following unaudited pro forma condensed financial information should be read in conjunction with (i) the audited financial statements of the Company and its subsidiaries for the year ended December 31, 1998, which are contained in the Company's 1998 Annual Report on Form 10-K; (ii) the unaudited condensed financial statements of the Company and its subsidiaries for the six months ended June 30, 1999, which are contained in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1999; (iii) the audited financial statements of FJFCB for the three years ended December 27, 1998, which are included elsewhere in this Form 8-K; and (iv) the unaudited condensed financial statements of FJFCB for the six months ended June 30, 1999 and 1998, which are included elsewhere in this Form 8-K. ACX TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET JUNE 30, 1999 (In thousands) Ft James Folding ACX Carton ACX Historical Historical Pro Forma June 30, June 27, Pro Forma June 30, 1999 1999 Adjustments 1999 ---------- ---------- ------------ ---------- ASSETS Current assets: Cash and cash equivalents $37,321 $ --- ($ 11,493)[a] $25,828 Accounts receivable 107,549 46,218 (4,000)[c] 149,767 Inventories 153,385 72,403 10,306 [d] 236,094 Notes receivable 60,423 --- --- 60,423 Other assets 35,730 16,418 (15,004)[c] 37,144 ---------- -------- -------- ---------- Total current assets 394,408 135,039 (20,191) 509,256 ---------- -------- -------- ---------- Properties, net 400,423 319,556 (9,000)[d] 710,979 Goodwill and other intangibles, net 227,645 8,513 468,225 [b] 704,383 Other assets 24,469 46,787 (19,500)[d] 51,756 ---------- -------- -------- ---------- Total assets $1,046,945 $509,895 $419,534 $1,976,374 ========== ======== ======== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long-term debt $85,929 $ --- $439,071 [a] $525,000 Other current liabilities 140,356 52,674 (8,300)[c] 184,730 ---------- -------- -------- ---------- Total current liabilities 226,285 52,674 430,771 709,730 Long-term debt 277,071 753 426,811 [a] 704,635 Other long-term liabilities 60,156 115,802 (97,382)[c] 78,576 ---------- -------- -------- ---------- Total liabilities 563,512 169,229 760,200 1,492,941 Minority interest 13,169 --- --- 13,169 Common stock 284 --- --- 284 Paid-in capital 452,020 340,666 (340,666)[d] 452,020 Retained earnings 22,690 --- --- 22,690 Accumulated other comprehensive loss (4,730) --- --- (4,730) ---------- -------- -------- ---------- Shareholders' equity 470,264 340,666 (340,666) 470,264 ---------- -------- -------- ---------- Total liabilities and shareholders' equity $1,046,945 $509,895 $419,534 $1,976,374 ========== ======== ======== ========== ACX TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (In thousands, except per share data) Ft James Folding ACX Carton Historical Historical December 31, December 27, Pro Forma ACX 1998 1998 Adjustments Pro Forma ------------ ------------ ----------- ---------- Net sales $988,391 $591,533 $ --- $1,579,924 Costs and expenses: Cost of goods sold 793,946 515,087 1,004 [e] 1,310,037 Marketing, general and administrative 106,105 38,422 14,628 [f] 159,155 Asset impairment and restructuring charges 33,210 9,693 --- 42,903 -------- -------- ------- ---------- Total operating expenses 933,261 563,202 15,632 1,512,095 -------- -------- ------- ---------- Operating income (loss) 55,130 28,331 (15,632) 67,829 Other income-net 576 1,177 --- 1,753 Interest expense(net) (20,141) --- (73,039)[g] (93,180) -------- -------- ------- ---------- Income (loss) before income taxes 35,565 29,508 (88,671) (23,598) Income tax expense (benefit) 14,300 12,494 (35,468)[h] (8,674) -------- -------- ------- ---------- Net income (loss) $21,265 $17,014 ($53,203) ($14,924) ======== ======== ======== ========== Net income (loss) per basic share $0.75 ($0.52) ======== ========== Net income (loss) per diluted share $0.73 ($0.52) ======== ========== Weighted average shares outstanding - basic 28,504 28,504 ======== ========== Weighted average shares outstanding - diluted 29,030 28,504 ======== ========== ACX TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999 (In thousands, except per share data) Ft James Folding ACX Carton Historical Historical June 30, June 27, Pro Forma ACX 1999 1999 Adjustments Pro Forma ---------- ---------- ----------- --------- Net sales $ 501,561 $ 285,026 $ --- $ 786,587 Costs and expenses: Cost of goods sold 397,964 253,004 1,359 [e] 652,327 Marketing, general and administrative 58,536 17,359 7,314 [f] 83,209 Asset impairment and restructuring charges --- (839) --- (839) --------- --------- --------- --------- Total operating expenses 456,500 269,524 8,673 734,697 --------- --------- --------- --------- Operating income (loss) 45,061 15,502 (8,673) 51,890 Other income - net 16 1,039 --- 1,055 Interest expense (net) (10,597) --- (36,519)[g] (47,116) --------- --------- --------- --------- Income (loss) before income taxes 34,480 16,541 (45,192) 5,829 Income tax expense(benefit) 13,500 6,803 (18,077)[h] 2,226 --------- --------- --------- --------- Net income (loss) $ 20,980 $ 9,738 ($ 27,115) $ 3,603 ========= ========= ========= ========= Net income per basic share $0.74 $0.13 ========= ========= Net income per diluted share $0.73 $0.13 ========= ========= Weighted average shares outstanding - basic 28,435 28,435 ========= ========= Weighted average shares outstanding - diluted 28,734 28,734 ========= ========= ACX TECHNOLOGIES, INC. NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION (In Thousands) (Unaudited) The following pro forma adjustments are reflected in the pro forma balance sheet as of June 30, 1999. The estimated adjust- ments relate to the allocation of the purchase price to the fair value of the assets acquired pursuant to purchase accounting, the incurrance of debt and use of cash to fund the acquisition, the elimination of the Fort James' equity and the retention by Fort James Corporation of various assets and liabilities recorded in FJFCB's historical financial statements. [a] Total Purchase Price, Transaction Costs and Financing Costs $877,375 [b] Total Goodwill and Capitalized Debt Issuance Costs $468,225 [c] Assets and Liabilities Retained by Seller Accounts Receivable $4,000 Current Liabilities $8,300 Deferred Tax Asset $15,004 Deferred Tax and Postretirement Benefit Long Term Liabilities $97,382 [d] Purchase Accounting Adjustments Conform Inventory Policy from LIFO to FIFO $10,306 Adjust Properties to Estimated Fair Value ($9,000) Adjust Intangible Assets to Estimated Fair Value ($19,500) Eliminate Historical Equity of FJFCB ($340,666) The following pro forma adjustments are reflected in the pro forma statements of income for the year ended December 31, 1998 and for the six months ended June 30, 1999. The estimated adjustments relate primarily to the additional goodwill and debt issuance cost amortization as well as the additional interest expense associated with the debt incurred to acquire FJFCB. December 31, June 30, 1998 1999 ------------ -------- [e] Cost of goods sold: Conform Inventory Policy to FIFO $2,804 $2,259 Adjust Depreciation and Amortization of Acquired Assets (1,800) (900) ------- ------- $ 1,004 $1,359 ======= ======= [f] Marketing, general and administrative: Amortization of Goodwill over 30 year period $14,628 $7,314 ======= ======= [g] Interest expense on new debt at 7.75% plus amortization of debt issuance costs over 5 years $73,039 $36,519 ======= ======= [h] Tax effect of pro forma adjustments [e], [f] and [g] at 40% $35,468 $18,077 ======= ======= The historical statement of operations of FJFCB for the six months ended June 30, 1999 includes a charge of $6,644 ($4,060 net of taxes) as a cumulative effect of a change in accounting principle. This charge is excluded from the pro forma statement of income pursuant to the rules for the preparation of pro forma financial information. Historical Combined Financial Statements of Fort James Packaging - ---------------------------------------------------------------- Audited Financial Statements FOR THE THREE YEARS ENDED DECEMBER 27, 1998 Report of Independent Accountants Combined Financial Statements Notes to Combined Financial Statements Unaudited Financial Statements FOR THE SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998 Combined Financial Statements Notes to Combined Financial Statements AUDITED FINANCIAL STATEMENTS Report of Independent Accountants The Board of Directors and Shareholders of Fort James Corporation: In our opinion, the accompanying combined balance sheets and the related combined statements of operations and cash flows present fairly, in all material respects, the financial position of the Packaging operations of Fort James Corporation (as described in Note 1 and referred to herein as the "Company") at December 27, 1998 and December 28, 1997, and the combined results of its operations and its cash flows (as described in Note 1) for each of the three years in the period ended December 27, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Fort James Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois July 9, 1999 FORT JAMES PACKAGING COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 27, 1998, DECEMBER 28, 1997, AND DECEMBER 29, 1996 (in thousands) 1998 1997 1996 -------- -------- -------- Net sales $591,533 $648,397 $656,919 Cost of goods sold 515,087 542,590 545,902 Selling and administrative expenses 38,422 43,276 43,168 Restructure and other unusual items 9,693 20,310 8,416 -------- -------- -------- Income from operations 28,331 42,221 59,433 Other income (expense), net 1,177 2,963 1,495 -------- -------- ------- Income before income taxes 29,508 45,184 60,928 Income tax expense 12,494 18,768 25,122 -------- -------- ------- Net income $17,014 $26,416 $35,806 ======== ======== ======= The accompanying notes are an integral part of the combined financial statements. FORT JAMES PACKAGING COMBINED BALANCE SHEETS AS OF DECEMBER 27, 1998 AND DECEMBER 28, 1997 (in thousands) 1998 1997 -------- -------- Assets: Current assets: Cash $8 $77 Accounts receivable 34,193 37,149 Inventories 63,286 63,962 Deferred income taxes 15,350 16,343 Prepaid expenses and other current assets 784 1,064 -------- -------- Total current assets 113,621 118,595 -------- -------- Property, plant and equipment, net 337,249 327,181 Goodwill 13,831 14,307 Prepaid pension costs 28,719 15,542 Other assets 19,967 21,643 -------- -------- Total assets $513,387 $497,268 ======== ======== Liabilities and Fort James' Investment: Current liabilities: Accounts payable $23,220 $24,774 Accrued liabilities 44,768 47,701 -------- -------- Total current liabilities 67,988 72,475 -------- -------- Long-term debt 753 753 Deferred income taxes 28,531 24,330 Accrued postretirement benefits other than pensions 88,089 84,360 Other long-term liabilities 90 112 -------- --------- Total liabilities 185,451 182,030 Fort James' investment 327,936 315,238 -------- -------- Total liabilities and Fort James' investment $513,387 $497,268 ======== ======== The accompanying notes are an integral part of the combined financial statements. FORT JAMES PACKAGING COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 27, 1998, DECEMBER 28, 1997, AND DECEMBER 29, 1996 (in thousands) 1998 1997 1996 ------- ------- -------- Cash provided by (used for) operating activities: Net income $17,014 $26,416 $35,806 Depreciation expense 42,378 40,412 40,309 Amortization of goodwill 477 477 477 Deferred income tax provision 5,194 2,244 3,719 Loss on disposition of prop- erty, plant and equipment 103 300 346 Restructure and other unusual items 2,300 13,810 --- Change in operating assets and liabilities: Accounts receivable 2,955 (1,406) 5,982 Inventories 676 (7,689) 18,510 Prepaid expenses and other current assets 279 (178) 1,352 Other assets (1,191) (19,117) (1,314) Accounts payable (1,554) (1,429) 7,423 Accrued liabilities (5,233) (10,000) 6,355 Pensions and retiree medical benefits (9,449) (7,528) 8,091 ------- ------- -------- Cash provided by operating activities 53,949 36,312 127,056 ------- ------- -------- Cash provided by (used for) investing activities: Expenditures for property, plant and equipment (54,293) (43,307) (40,546) Proceeds from sale of assets 238 386 657 ------- ------- ------- Cash used for investing activities (54,055) (42,921) (39,889) ------- ------- ------- Cash provided by (used for) financing activities: Fort James' capital infusion (withdrawal), net 37 6,686 (87,167) ------- ------- ------- Cash used for financing activities 37 6,686 (87,167) ------- ------- ------- Increase (decrease) in cash (69) 77 --- Cash, beginning of period 77 --- --- ------- ------- ------- Cash, end of period $8 $77 $--- ======= ======= ======= The accompanying notes are an integral part of the combined financial statements. FORT JAMES PACKAGING NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1: Organization and Operations The accompanying combined financial statements of Fort James Packaging ("the Company") present the historical assets and liabilities and operating results of certain operations of Fort James Corporation's ("Fort James") Packaging business. The Company primarily consists of folding carton, healthcare, and microwave packaging manufacturing facilities in Chambersburg, PA; Charlotte, NC; Garden Grove, CA; Gordonsville TN; Kalamazoo, MI; Kendalville, IN; Menasha, WI; Mississauga, Ontario; Newnan, GA; North Portland, OR; Perrysburg, OH; Portland, OR; Redmond, WA; and Wausau, WI. The financial information included herein is not necessarily indicative of the financial position and results of operations of the Company in the future. NOTE 2: Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The combined financial statements have been prepared as if the Company had operated as an independent stand-alone entity for all periods presented, except the Company generally did not have significant borrowings, and there was no allocation of Fort James' consolidated borrowings, and related interest expense, except for interest capitalized as a component of property, plant and equipment. The Company engaged in various transactions with Fort James and its affiliates that are characteristic of a group of companies under common control. Throughout the period covered by these combined financial statements, the Company participated in Fort James' centralized cash management system and, as such, its cash funding requirements were met by Fort James. The Company's operational transactions resulted in amounts receivable from and payable to Fort James which fluctuated over time and were not settled through cash transfers. Accordingly, the amounts have been presented net in the balance sheet as Fort James' investment. Significant intercompany balances and transactions within the Company have been eliminated. Sales to Fort James affiliates are recorded at market and totaled $14.225 million in 1998, $16.290 million in 1997, and $16.973 million in 1996. The Company was charged by Fort James for direct costs and expenses associated with its operations which were included in cost of goods sold or selling and administrative expenses, as appropriate. Fort James' administrative costs not directly attributable to the Company, which historically had not been allocated, have been allocated to the Company based on net sales. Management believes that this method of allocation is reasonable and reflects a reasonable estimate of the level of expenses that might have been incurred had the Company operated on a stand- alone basis. The Company's corporate allocation of such indirect costs, which is included in Selling and administrative expenses in the statements of operations, consisted of $6.900 million in 1998, $8.000 million in 1997, and $10.100 million in 1996. Use of Estimates Financial statements prepared in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect the amounts reported therein. Actual results could differ from those estimates. Cash Cash consists of separate petty cash balances maintained by the various facilities. All other cash balances and transactions, including the collection of customer receivables and the payment of salaries and wages and vendor invoices, are managed by Fort James through a centralized treasury system. Inventories Inventories are stated at the lower of cost or market and include the cost of materials, labor and manufacturing overhead. The last-in, first-out cost flow assumption is used for valuing substantially all inventories other than stores and supplies. Property, Plant and Equipment Property, plant and equipment is stated at cost, less accumulated depreciation. Expenditures for improvements which increase asset values or extend useful lives are capitalized. Maintenance and repair costs are expensed as incurred. For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from 20 to 50 years for buildings and generally 5 to 25 years for machinery and equipment. For income tax purposes, depreciation is calculated using accelerated methods. Certain assets are depreciated using composite depreciation methods; accordingly, no gain or loss is recognized on partial sales or retirements of these assets. Goodwill and Other Long-Lived Assets The excess of the purchase price over the fair value of identifiable net assets of acquired companies is allocated to goodwill and amortized over the estimated useful life, not to exceed 40 years. The recoverability of goodwill and other long- lived assets is periodically evaluated by Fort James to determine whether current events or circumstances warrant adjustments to the carrying value. Such evaluation is based upon whether the asset is fully recoverable from the projected undiscounted cash flows of the business to which it relates. Income Taxes The Company has historically been included in the consolidated federal income tax return and combined/unitary state income tax returns of Fort James. Income taxes represent the Company's share of Fort James' income tax provision which is intended to approximate the expense which would have been recognized had the Company filed separate income tax returns. Income taxes payable have been treated as if settled immediately through Fort James' investment. The current deferred income tax asset and the noncurrent deferred income tax payable have been determined on a stand-alone basis. Environmental Liabilities It is the Company's policy to accrue remediation costs on an undiscounted basis when it is probable that such costs will be incurred and when a range of loss can be reasonably estimated. The accruals do not reflect possible future insurance recoveries. Fort James' Investment Fort James' investment reflects the historical activity between the Company and Fort James and the Company's cumulative results of operations. Transactions with Fort James are reflected as though they were settled immediately as an addition to or reduction of Fort James' investment and there are no amounts due to or from Fort James at the end of any period. Revenue Recognition Revenue is generally recognized when products are shipped. Other Operating Expenses Research and development expenditures are expensed as incurred. Direct and readily identifiable indirect research and development costs totaled $2.539 million in 1998, $2.880 million in 1997, and $2.716 million in 1996. Advertising and other promotional expenses are expensed as incurred and were immaterial in 1998, 1997 and 1996. Software Development Costs Software development costs are accounted for in conjunction with Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" which was adopted at the beginning of fiscal 1998. Third-party costs of materials and services and payroll costs for employees directly associated with software development are capitalized and amortized over the expected life of the software. Other development-related costs are expensed as incurred. In 1998, the effect of adopting SOP 98-1 was to increase net income by $0.826 million. Accumulated Other Comprehensive Income (Loss) In 1998, the Company adopted FASB Statement No. 130, "Reporting Comprehensive Income" which requires the reporting of comprehensive income and accumulated other comprehensive income. Both other comprehensive income and accumulated other comprehensive income consisted of the minimum pension liability adjustment and were immaterial for all periods presented. NOTE 3: Balance Sheet Information Inventories (in thousands) 1998 1997 ------- ------- Components: Raw materials $21,250 $24,243 Finished goods and work in process 47,152 47,524 Stores and supplies 7,994 7,564 -------- ------- 76,396 79,331 Adjustment for last-in, first-out cost (13,110) (15,369) -------- ------- Total inventories $63,286 $63,962 ======= ======= Valued at lower of cost or market: Last-in, first-out $55,292 $56,398 First-in, first-out or average 7,994 7,564 ------- ------- Total inventories $63,286 $63,962 ======= ======= Property, Plant & Equipment (in thousands) 1998 1997 ------- ------- Land $6,738 $7,074 Land improvements 9,222 8,346 Buildings 96,975 92,995 Machinery and equipment 491,477 449,594 Construction in progress 20,135 33,222 -------- -------- 624,547 591,231 Accumulated depreciation (287,298) (264,050) -------- -------- Net property, plant and equipment $337,249 $327,181 ======== ======== NOTE 4: Indebtedness At December 27, 1998, the Company had outstanding $1.000 million of industrial revenue bonds which were issued at a discount of $0.247 million. The bonds bear interest at a fixed rate of 6.125% and mature in 2008. NOTE 5: Income Taxes Income tax expense consisted of the following: (In thousands) 1998 1997 1996 ------- ------- ------- Current: Federal $5,376 $12,942 $16,882 State 1,924 3,582 4,521 ------- ------- ------- Total current income tax expense 7,300 16,524 21,403 ------- ------- ------- Deferred: Federal 4,291 1,854 3,072 State 903 390 647 ------- ------- ------- Total deferred income tax expense 5,194 2,244 3,719 ------- ------- ------- Income tax expense $12,494 $18,768 $25,122 ======= ======= ======= Principal reasons for the difference between the income tax expense at the federal statutory rate and the income tax expense at the effective tax rate were as follows: 1998 1997 1996 Income tax provision at the federal ----- ----- ----- statutory income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal income tax effect 6.2 5.8 5.6 Other items, net 1.1 0.7 0.6 ----- ----- ----- Income tax provision at the effective tax rate 42.3% 41.5% 41.2% ===== ===== ===== The income tax effects of temporary differences that give rise to the net deferred tax liability as of December 27, 1998, and December 28, 1997 were related to the following: (In thousands) 1998 1997 ------- ------- Fixed assets $53,828 $51,912 Pension 11,427 6,184 Other liabilities 2,695 2,796 ------- ------- Total deferred tax liabilities 67,950 60,892 ------- ------- Post retirement medical benefits 35,051 33,567 Accrued liabilities 19,498 18,753 Other assets 220 585 ------- ------- Total deferred tax assets 54,769 52,905 ------- ------- Net deferred tax liability $13,181 $7,987 ======= ======= The Company has joined with Fort James in filing consolidated federal income tax returns and combined/unitary state income tax returns. Therefore, cash payments for income taxes for the Company on a separate entity basis are not determinable. The Internal Revenue Service is currently reviewing Fort James' federal income tax returns, of which the Company is included, for the years 1995 through 1996. In the opinion of Fort James, potential adjustments resulting from these examinations will not have a material effect on the Company's results of operations or financial condition. NOTE 6: Restructure and Other Unusual Items Restructure and other unusual items for the year ended December 27, 1998 included $3.900 million for asset write-downs and plant closures; $4.573 million for severance costs; and $1.220 million for other miscellaneous expenses. For the year ended December 28, 1997, restructure and other unusual items included $16.210 million for asset write-downs and plant closures and $4.100 million for severance costs. For the year ended December 29, 1996, restructure and other unusual items included $5.919 million for asset write-downs and plant closures; $1.297 million for severance costs; and $1.200 million for other miscellaneous expenses. Changes in accrued restructuring costs during the year were as follows: Cash Non-cash Estimate Additional (in thousands) 1997 payments reductions revisions accruals 1998 ------- -------- ---------- --------- ---------- ------ Asset write- downs and plant closures $9,710 $(29) $(132) $(500) $3,200 $12,249 Severance and other employee costs 4,100 (2,888) (283) (400) --- 529 ------- ------- --------- -------- -------- ------- Accrued restructure costs $13,810 $(2,917) $(415) $(900) $3,200 $12,778 ======= ======= ========= ======== ======== ======= NOTE 7: Employee Benefit Plans Pension benefits are provided to certain eligible hourly and salaried employees through plans sponsored by Fort James. Benefits under these plans are based primarily on years of service and compensation levels. Contributions to these plans are sufficient to meet the minimum funding requirements of applicable laws and regulations plus additional discretionary amounts. Plan assets principally consist of equity securities and corporate and government obligations. Additionally, certain health care and life insurance benefits are provided to eligible retired employees, their covered dependents, and their beneficiaries, through plans sponsored by Fort James. All of the Fort James retiree medical plans are unfunded. The following schedules present changes in, and components of, the Company's allocated net asset/(liability) for pension and other postretirement benefits at December 27, 1998 and December 28, 1997: Other Postretirement Pension Benefits Benefits ----------------- ----------------- (in thousands) 1998 1997 1998 1997 -------- -------- ------- ------- Change in Benefit Obligation Benefit obligation, beginning of year $174,153 $163,490 $56,464 $56,795 Service cost 3,904 3,955 1,232 1,374 Interest cost 12,156 14,760 3,937 4,647 Participant contributions --- --- 225 247 Amendments (1,974) 153 --- --- Actuarial (gain)/loss 15,098 10,205 10,915 (3,754) Curtailments (400) --- (3,600) --- Benefits paid (8,460) (18,410) (2,987) (2,845) -------- -------- -------- ------- Benefit obligation, end of year $194,477 $174,153 $66,186 $56,464 ======== ======== ======== ======= Change in Plan Assets Fair value of plan assets, beginning of year $213,718 $183,596 $--- $--- Actual return on plan assets 13,210 44,930 --- --- Employer contributions 1,561 3,602 2,762 2,598 Participant contributions --- --- 225 247 Benefits paid (8,460) (18,410) (2,987) (2,845) -------- -------- -------- ------- Fair value of plan assets, end of year $220,029 $213,718 $--- $--- ======== ======== ======== ======= Funded status Funded status at end of year $25,552 $39,565 $(66,186) $(56,464) Unrecognized net transition (asset) (1,496) (2,120) --- --- Unrecognized prior service cost (gain) 10,603 14,429 (15,318) (16,249) Unrecognized net actuarial (gain) (5,940) (36,332) (6,585) (11,647) -------- -------- -------- -------- Net amount recognized $28,719 $15,542 $(88,089) $(84,360) ======== ======== ======== ======== Amounts recognized in the statement of financial position consist of: Prepaid benefit cost $28,719 $15,542 $--- $--- Accrued benefit liability (1,811) (1,006) (88,089) (84,360) Intangible asset 1,495 988 --- --- Deferred tax asset 123 7 --- --- Accumulated other comprehensive loss 193 11 --- --- -------- -------- -------- -------- Net amount recognized $28,719 $15,542 $(88,089) $(84,360) ======== ======== ======== ======== Fort James merged its domestic pension plans into four plans effective as of the end of the 1998 plan year. The funded status information for 1998 reflects this merger. For plans with Company participants which have accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets allocated to the Company were $1.8 million, $1.0 million, and $0.1 million, respectively, as of December 27, 1998 and $3.1 million, $2.6 million, and $2.1 million, respectively as of December 28, 1997. Benefit obligations were determined using the following weighted-average assumptions: Other Pension Postretirement Benefits Benefits -------------- -------------- 1998 1997 1998 1997 ------ ------ ------ ----- Discount rate 6.75% 7.25% 6.75% 7.10% Expected return on plan assets 10.00% 10.00% --- --- Rate of compensation increase 4.50% 5.00% --- --- ====== ====== ====== ===== Unrecognized actuarial gains and losses for other postretirement benefits are amortized using a method that accelerates the minimum amortization amount required to be recognized for the year. The components of net periodic benefit cost, including amounts allocated by Fort James, were as follows: Other Pension Benefits Postretirement Benefits ------------------------- ----------------------- (in thousands) 1998 1997 1996 1998 1997 1996 ------- ------- ------- ------- ------ ------ Service cost $3,904 $3,955 $5,486 $1,232 $1,374 $2,190 Interest cost 12,156 14,760 18,745 3,937 4,647 4,440 Expected return on plan assets (16,956) (18,794) (22,768) --- --- --- Amortization of: Transition asset (1,591) (1,269) (688) --- --- --- Prior service cost (gain) 2,909 3,489 2,190 (1,368) (1,867) (2,073) Actuarial loss (gain) 409 582 1,853 (1,031) (513) --- Curtailment charge (credit) (400) --- --- (3,600) --- --- Contributions to multiemployer pension plans 116 129 137 --- --- --- ------- ------- ------- ------ ------ ------ Net periodic benefit(income) expense $547 $2,852 $4,955 $(830) $3,641 $4,557 ======= ======= ======= ====== ====== ====== For purposes of determining the cost and obligation for postretirement medical benefits a health care cost trend rate of 7.0% for 1999, decreasing ratably to 4.5% in 2006 and thereafter, was assumed. The assumed health care cost trend rate has a significant effect on the amounts reported for retiree medical benefits. A one-percentage point change in the assumed health care cost trend rate would have had the following effects: 1 Percentage Point -------------------- (in thousands) Increase (Decrease) -------- ---------- Allocated effect on service and interest components of net periodic cost $671 $(603) Allocated effect of accumulated postretirement benefit obligation 7,141 (6,219) ======== ======== Stock Plans for Employees Substantially all employees are eligible to participate in the StockPlus Investment Plan, a defined contribution plan sponsored by Fort James. Several alternative investment funds are available, including an investment fund consisting of Fort James common stock. Participating employees may contribute, through periodic payroll deductions, up to 10% of their compensation. Participant contributions of up to 6% of compensation are matched by Fort James at a 60% rate. Additionally, Fort James may make discretionary contributions of up to 1% of all eligible employees' base salary to the plan. Employer contributions for the Company's employees totaled $2.489 million in 1998, $2.403 million in 1997 and $2.677 million in 1996. Effective January 1, 1999, the StockPlus Investment Plan merged with other Fort James sponsored defined contribution plans to form the Fort James 401(k) Plan. Under the terms of the new plan, participants may contribute up to 15% of their annual salary. Participant contributions of up to 10% of compensation are matched by Fort James at a 60% rate. Stock Option and Incentive Plans Certain key employees of the Company are participants in Fort James' incentive plans. Restricted and incentive stock awards vest in three to eight years, with the potential for earlier vesting of certain awards based on Fort James' performance. Compensation expense allocated to the Company for these plans was $1.226 million in 1998, $0.359 million in 1997, and $0.181 million in 1996. Fort James also sponsors various stock option plans which provide for the granting of options to purchase Fort James common stock to certain directors, officers and key employees, including those of the Company. Options are granted at exercise prices equal to the fair market value of such stock as of the date of the grant and have terms of ten years. The options vest in two equal annual installments. During 1997, James River Corporation of Virginia merged with and into Fort Howard Corporation ("Fort Howard") to form Fort James. Effective with this merger, Fort Howard's options were automatically converted into fully vested Fort James options at the merger exchange ratio. Fort James follows the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation", but applies Accounting Principles Bulletin No. 25 and related interpretations in accounting for its plans. If the issuance of Fort James options to employees had been based on the fair value at the grant dates using the method prescribed by SFAS No. 123, the compensation expense allocated to the Company would have impacted its net income as follows: (in thousands) 1998 1997 1996 ------- ------- ------- Net income - as reported $17,014 $26,416 $35,806 Pro forma compensation expense, net of tax 1,051 905 442 ------- ------- ------- Net income - pro forma $15,963 $25,511 $35,364 ======= ======= ======= Stock option activity allocated to the Company, including the retroactive effect of converting Fort Howard's options into Fort James' options, was as follows: 1998 1997 1996 ------- ------ ------- Grants 249,000 31,000 227,000 Weighted-average exercise price $37.48 $40.27 $23.90 ======= ====== ======= The fair value of each option grant, including the retroactive effect of converting Fort Howard's options into Fort James' options, was estimated on the grant date using the Black- Scholes option-pricing model with the following assumptions: Fort Fort James Howard ----------------------- -------- 1998 1997 1996 1996 ------- ------ ------ -------- Dividend yield 1.60% 1.50% 2.00% 0.00% Volatility rate 29.82 27.56 27.26 19.26 Risk-free interest rate 5.17 6.27 6.18 6.07 Expected option life 5 years 5 years 5 years 5 years NOTE 8: Commitments and Contingent Liabilities Operating Leases Fort James leases certain facilities, vehicles and equipment which are utilized by the Company. None of the lease agreements contain unusual renewal or purchase options. As of December 27, 1998, future minimum rental payments under these noncancelable operating leases were as follows: Minimum (in thousands) Rentals ------- 1999 $551 2000 509 2001 258 2002 76 2003 and thereafter 47 ------- Total future minimum rentals $1,441 ======= Rent expense, which includes an allocation of corporate rent expense, totaled $1.391 million in 1998, $3.937 million in 1997, and $4.686 million in 1996. Litigation and Environmental Matters Fort James is a party to various legal proceedings generally incidental to the Company's business and is subject to a variety of environmental and pollution control laws and regulations at the Company's facilities. As is the case with other companies in similar industries, Fort James faces exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the present opinion of Fort James' management that the outcome of any claim which is pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the combined financial position of the Company but could materially affect combined results of operations in a given year. Like its competitors, the Company is subject to extensive regulation by various federal, state, provincial, and local agencies concerning compliance with environmental control statutes and regulations. These regulations impose limitations, including effluent and emission limitations, on the discharge of materials into the environment as well as require the Company to obtain and operate in compliance with conditions of permits and other governmental authorizations. Future regulations could materially increase the Company's capital requirements and certain operating expenses in future years. Fort James, along with others, has been identified as a potentially responsible party ("PRP") at a U.S. Environmental Protection Agency ("EPA") designated superfund site on the Kalamazoo River. Fort James is currently participating in the funding of a remedial investigation/feasibility study of contamination of this site. Any obligations associated with possible remediation of the site represent corporate obligations of Fort James as they are not associated with the operating results of the Company for the years presented or the results of its ongoing business. The Company's accrued environmental liabilities, including remediation and landfill closure costs, totaled $0.704 million as of December 27, 1998 and $0.648 million as of December 28, 1997. Estimates of costs for future remediation are necessarily imprecise due to, among other things, the identification of presently unknown remediation sites and the allocation of costs among potentially responsible parties. Fort James believes that the Company's share of the costs of cleanup for its current remediation sites will not have a material adverse impact on its combined financial position but could have a material effect on combined results of operations in a given year. As is the case with most manufacturing and many other entities, there can be no assurance that the Company will not be named as a PRP at additional previously or currently owned sites in the future or that the costs associated with such additional sites would not be material. UNAUDITED FINANCIAL STATEMENTS FORT JAMES PACKAGING COMBINED BALANCE SHEETS JUNE 27, 1999 AND DECEMBER 27, 1998 (in thousands) June 27, December 27, 1999 1998 -------- ------------ Assets: Current assets: Cash $ --- $8 Accounts receivable 46,218 34,193 Inventories 72,403 63,286 Deferred income taxes 15,004 15,350 Prepaid expenses and other current assets 1,414 784 -------- -------- Total current assets 135,039 113,621 -------- -------- Property, plant and equipment, net 319,556 337,249 Goodwill 8,513 13,831 Prepaid pension costs 29,361 28,719 Other assets 17,426 19,967 -------- -------- Total assets $509,895 $513,387 ======== ======== Liabilities and Fort James' Investment: Current liabilities: Accounts payable $18,697 $23,220 Accrued liabilities 33,977 44,768 -------- -------- Total current liabilities 52,674 67,988 -------- -------- Long-term debt 753 753 Deferred income taxes 27,382 28,531 Accrued postretirement benefits other than pensions 88,330 88,089 Other long-term liabilities 90 90 -------- -------- Total liabilities 169,229 185,451 Fort James' investment 340,666 327,936 -------- -------- Total liabilities and Fort James' investment $509,895 $513,387 ======== ======== The accompanying notes are an integral part of the combined financial statements. FORT JAMES PACKAGING COMBINED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998 (in thousands) 1999 1998 -------- -------- Net sales $285,026 $301,244 Cost of goods sold (253,004) (260,713) Selling and administrative expenses (17,359) (20,216) Restructure and other unusual items 839 (1,862) -------- -------- Income from operations 15,502 18,453 Other income (expense), net 1,039 593 -------- -------- Income before income taxes and cumulative effect of a change in accounting principle 16,541 19,046 Income tax expense (6,803) (7,844) -------- -------- Income before cumulative effect of a change in accounting principle 9,738 11,202 Cumulative effect of change in accounting principle, net of taxes (4,060) --- -------- -------- Net income $5,678 $11,202 ======== ======== The accompanying notes are an integral part of the combined financial statements. FORT JAMES PACKAGING COMBINED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 27, 1999 AND JUNE 28, 1998 (in thousands) 1999 1998 ------- ------- Cash provided by (used for) operating activities: Net income $5,678 $11,202 Depreciation expense 20,454 21,113 Amortization of goodwill 194 238 Deferred income tax provision 1,539 2,597 Loss on disposition of prop- erty, plant and equipment 31 194 Restructure and other unusual items (839) --- Cumulative effect of change in accounting principle, net of tax 4,060 --- Change in operating assets and liabilities: Accounts receivable (12,025) (1,552) Inventories (9,117) (1,608) Prepaid expenses and other current assets (629) (715) Other assets 2,541 (485) Accounts payable (4,523) (4,923) Accrued liabilities (4,829) (4,021) Pensions and retiree medical benefits (401) (3,255) ------- ------- Cash provided by operating activities 2,134 18,785 ------- ------- Cash provided by (used for) investing activities: Expenditures for property, plant and equipment (19,771) (29,558) Proceeds from sale of assets 160 193 ------- ------- Cash used for investing activities (19,611) (29,365) ------- ------- Cash provided by (used for) financing activities: Fort James' capital infusion (withdrawal), net 17,469 10,583 ------- ------- Cash used for financing activities 17,469 10,583 ------- ------- Increase (decrease) in cash (8) 3 Cash, beginning of period 8 77 ------- ------- Cash, end of period $ --- $80 ======= ======= The accompanying notes are an integral part of the combined financial statements. FORT JAMES PACKAGING NOTES TO COMBINED FINANCIAL STATEMENTS 1. Significant Accounting Policies Basis of Presentation The accompanying combined financial statements of Fort James Packaging ("the Company") present the historical assets and liabilities and operating results of certain operations of Fort James Corporation's ("Fort James") Packaging business. The Company primarily consists of folding carton, healthcare and microwave packaging manufacturing facilities in Chambersburg, PA; Charlotte, NC; Garden Grove, CA; Gordonsville, TN; Kalamazoo, MI; Kendalville, IN; Menasha, WI; Mississauga, Ontario; Newnan, GA; North Portland, OR; Perrysburg, OH; Portland, OR; Redmond, WA; and Wausau, WI. The financial information included herein is not necessarily indicative of the financial position and results of operations of the Company in the future. In the opinion of management, the accompanying unaudited combined financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of June 27, 1999 and its results of operations and cash flows for the six months ended June 27, 1999 and June 28, 1998. The balance sheet as of December 27, 1998 was derived from audited financial statements as of that date. The results of operations for the six months ended June 27, 1999 are not necessarily indicative of the results to be expected for the full year. 2. Changes in Accounting Policy The Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" which requires that start-up and organization costs be expensed as incurred as of the beginning of 1999. The change in accounting policy has been applied retroactively to unamortized start-up costs capitalized in prior years. As a result, a charge of $6,644,000 ($4,060,000 net of taxes) was recorded as a cumulative effect of a change in accounting principle in the first six months of 1999. 3. Inventories The components of inventories were as follows as of June 27, 1999 and December 27, 1998: (in thousands) 1999 1998 ------- ------- Raw materials $17,557 $21,250 Finished goods and work in process 57,172 47,152 Stores and supplies 7,980 7,994 ------- ------- 82,709 76,396 Reduction to state certain inventories at last-in, first-out cost (10,306) (13,110) ------- ------- Total inventories $72,403 $63,286 ======= ======= 4. Commitments and Contingent Liabilities Fort James is a party to various legal proceedings generally incidental to the Company's business and is subject to a variety of environmental and pollution control laws and regulations at the Company's facilities. As is the case with other companies in similar industries, Fort James faces exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the present opinion of Fort James' management that the outcome of any claim which is pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the combined financial position of the Company but could materially affect combined results of operations in a given year. Like its competitors, the Company is subject to extensive regulation by various federal, state, provincial and local agencies concerning compliance with environmental control statutes and regulations. These regulations impose limitations, including effluent and emission limitations, on the discharge of materials into the environment as well as require the Company to obtain and operate in compliance with conditions of permits and other governmental authorizations. Future regulations could materially increase the Company's capital requirements and certain operating expenses in future years. Fort James, along with others, has been identified as a potentially responsible party ("PRP") at a U.S. Environmental Protection Agency ("EPA") designated superfund site on the Kalamazoo River. For James is currently participating in the funding of a remedial investigation/feasibility study of contamination of this site. Any obligations associated with possible remediation of the site represent corporate obligations of Fort James, as they are not associated with the operating results of the Company for the years presented or the results of its ongoing business. The Company's accrued environmental liabilities, including remediation and landfill closure costs, totaled $750,000 as of June 27, 1999. Estimates of costs for future remediation are necessarily imprecise due to, among other things, the identification of presently unknown remediation sites and the allocation of costs among potentially responsible parties. Fort James believes that the Company's share of the costs of cleanup for its current remediation sites will not have a material adverse impact on its combined financial position but could have a material effect on combined results of operations in a given year. As is the case with most manufacturing and many other entities, there can be no assurance that the Company will not be named as a PRP at additional previously or currently owned sites in the future or that the costs associated with such additional sites would not be material. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. October 18, 1999 ACX Technologies, Inc. By:/s/Beth A. Parish ------------------------------- Beth A. Parish (Controller and Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----