SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
February 12, 2002
(Date of earliest event reported)
Commission file number:
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
(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.)
4455 Table Mountain Drive, Golden, Colorado 80403
(Address of principal executive offices) (Zip Code)
(303) 215-4600
(Registrant's telephone number, including area code)
Item 9. Regulation FD Disclosure
On February 12, 2002, Graphic Packaging International Corporation
("GPIC") announced its audited results for the quarter and year ended
December 31, 2001. A copy of the press release is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
On February 14, 2002, GPIC announced that it had priced its offering
of $300,000,000 of 8 5/8% senior subordinated notes due 2012 issued by its
wholly owned subsidiary, Graphic Packaging Corporation ("GPC"). The net
proceeds of the offering and borrowings under its new credit facility will be
used to repay borrowings under GPIC's existing credit facility and to
repurchase its existing subordinated notes at par (the "Refinancing
Transactions"). A copy of the press release issued by GPIC on February 14, 2002
is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion of GPIC's consolidated results of operations
and current financial position. This discussion should be read in conjunction
with our consolidated financial statements and the related notes included
elsewhere in this offering circular. This discussion of our results of
operations and financial condition includes various forward-looking statements
about our markets, the demand for our products and services and our future
results. These statements are based on certain assumptions that we consider
reasonable. For information about risks and exposures relating to our businesses
and our company, you should read the section entitled "Risk Factors" in this
offering circular.
Overview
We are one of the two leading manufacturers of folding cartons in North
America with an estimated 13% market share. Our business strategy is to maintain
and improve our customer relationships and market leadership, while leveraging
our low cost position.
GPIC was incorporated in Colorado in August 1992 as a holding company for the
packaging, ceramics, aluminum and developmental businesses formerly owned by
Adolph Coors Company, or ACCo. In December 1992, ACCo distributed to its
shareholders all outstanding shares of GPIC's stock. During our initial years,
we operated packaging, ceramics, aluminum and various developmental businesses.
Through various acquisitions and divestitures, a spin-off and other
transactions, we are now strategically focused on the folding carton segment of
the fiber-based product packaging industry.
Significant transactions completed since 1997 that have enabled us to
strategically focus on the folding carton industry include the following:
Acquisitions
On January 14, 1998, we acquired The Britton Group plc, an international
packaging group operated through two principal divisions: folding cartons and
plastics. The folding carton division, Universal Packaging, operated in the
United States. The plastics division operated in the United Kingdom and was sold
on April 20, 1998.
On August 2, 1999, we acquired the Fort James Corporation's folding carton
operations, which included folding carton converting operations located
throughout North America and a recycled paperboard mill located in Kalamazoo,
Michigan.
Divestitures
On August 3, 1999, we sold our majority interest in a solar distribution
company.
On September 2, 1999, we sold our flexible packaging plants.
On November 5, 1999, we sold our discontinued aluminum operations.
On December 31, 1999, we spun-off our ceramics business, CoorsTek.
On October 31, 2000, we sold our Malvern, Pennsylvania packaging plant.
Throughout 1999 and 2000 we sold or closed various developmental businesses.
The Selected Consolidated Financial Information included in this offering
circular reflects the financial impact our acquisitions and dispositions have
had on consolidated operating results since the date of the applicable
acquisition or divestiture.
3
Segment Information
Our reportable segments are based on our method of internal reporting, which
is based on product category. Since the spin-off of CoorsTek on December 31,
1999, we have operated principally in the United States and in only one
reportable segment.
Factors That Impact Our Business
Sales. We sell our products primarily to major consumer product manufacturers
in non-cyclical industries. Sales are driven primarily by consumer buying habits
in the markets our customers serve. New product introductions and promotional
activity by our customers, and our introduction of innovative packaging
solutions, also impact our sales.
Our products are used in the following end-use markets:
. food--cereal; desserts; frozen and microwave foods; pet foods; prepared
foods; snacks; tobacco; and food service products;
. household products--dishwasher and laundry detergent; sporting goods;
healthcare; and tissues and papers; and
. beverage--bottle and can carriers and cases.
We market our products directly to our customers through a relatively small
internal sales force. Our top 20 customers, with whom we have long-term
relationships, represent approximately 79% of our gross sales. Our competition
includes other large national folding carton companies, as well as numerous
smaller regional companies. We work to maintain our market share through
efficiency, innovation and strategic sourcing to our customers.
In addition, we believe that we have the opportunity to expand the folding
carton market by developing new products that can replace other types of
packaging. Our research and development organization is closely involved with
our customers in the development of new packaging alternatives.
Cost of Goods Sold. Our costs of goods sold consist primarily of recycled
paper fiber, purchased paperboard, ink, plastic films and resins and labor,
which are all variable cost components. Energy is also a component of our costs,
particularly for our Kalamazoo, Michigan recycled paperboard mill. Variable
costs are estimated to be 80% and fixed costs to be 20% of total costs in 2001.
In light of rising margin pressure throughout our industry, we have
aggressively reduced costs. We have controlled costs in our converting
facilities by coordinating and determining the optimal configuration of
equipment among our facilities. A substantial portion of our production is
centrally planned and can be allocated among different plants in the system in
order to take advantage of equipment optimization, capacity scheduling, staffing
and freight. Our ability to work as an integrated business, as opposed to
different units, has given us opportunities to reduce production overhead costs
and to take advantage of economies of scale in purchasing, customer service,
freight and other areas common to all of our facilities. Our newest initiative
to reduce our variable manufacturing costs is our recent introduction of a
company-wide Six Sigma process. This implementation includes extensive training
for our employees in the Six Sigma process.
We have also taken steps to reduce our fixed manufacturing and corporate
overhead (selling, general and administrative) costs. In addition to closing
five plants and moving equipment and business to other facilities, we have also
undertaken downsizing initiatives to reduce fixed personnel costs and are
exploring ways to use the Six Sigma program to make our non-production business
processes more cost effective.
4
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
On an on-going basis, we evaluate the continued appropriateness of our
accounting policies and resulting estimates, including those related to:
. asset impairment and restructuring charges;
. allowances against the collectibility of accounts receivable;
. self-insurance reserves;
. minimum pension liabilities and liabilities for other retiree benefits;
. contingencies and litigation; and
. goodwill valuation.
We believe that the accounting policies discussed in Note 1 to our
consolidated financial statements included herein are the most critical policies
relating to our ability to fairly present our financial condition and results of
our operations each reporting period.
Results of Operations
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 and
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Sales
Net sales for 2001 totaled $1,112.5 million, a nominal increase over net
sales in 2000. However, if the sales from our Malvern plant that we sold in the
fourth quarter 2000 are subtracted from 2000 sales, our improvement year-to-year
is approximately 4%. Increased sales in 2001 are primarily the result of
increased sales of promotional packaging to existing customers. Net sales for
2000 totaled $1,102.6 million, an increase of $252.4 million, or 30%, over net
sales of $850.2 million in 1999. The increase in net sales in 2000 was primarily
the result of the acquisition of the Fort James Corporation's folding carton
operations on August 2, 1999. This increase in net sales was offset in part by
the sale of our flexible packaging plants on September 2, 1999. Our 1999 net
sales for the flexible packaging plants were $114.3 million. After adjusting for
the acquisition of the Fort James Corporation's folding carton operations and
the sale of the flexible packaging plants, our net sales in 2001 grew
approximately 4% from the 2000 level and our net sales in 2000 grew
approximately 5% from the 1999 level in a relatively flat market, primarily
because of volume increases with existing customers.
Sales for the year ended December 31, 2001 to Coors Brewing totaled $122.8
million, an increase of $10.6 million, or 9%, over sales for 2000. Sales for the
year ended December 31, 2000 to Coors Brewing totaled $112.2 million, an
increase of $4.6 million, or 4%, over sales of $107.6 million in 1999. The
increase in both periods was due to increased brewery sales and the resulting
higher demand for packaging.
Our business is largely within the United States, particularly since the
spin-off of CoorsTek. We had sales to customers outside the United States,
primarily in Canada, which accounted for 0.3%, 0.2% and 6.0% of net sales during
2001, 2000 and 1999, respectively. The decrease in foreign sales as a percentage
of net sales in 2000 was attributable to the September 2, 1999 sale of several
flexible packaging plants in Canada.
5
Net sales in our Other segment totaled $44.6 million in 1999. These sales
accounted for approximately 4% of our consolidated sales in 1999. The lack of
net sales of the Other segment in 2001 and 2000 resulted from our divestiture of
the majority of these businesses by the end of 1999.
Gross Profit
Consolidated gross profit was 13.7%, 12.6% and 15.2% of net sales in 2001,
2000 and 1999, respectively. The improved profit margins in 2001 are
attributable to cost reduction through plant closings, reductions in work force
and Six Sigma projects company-wide that have reduced costs and increased
productivity. The decrease in 2000 reflects trends in the packaging industry in
terms of changing raw material costs, coupled with pricing pressures due to
increased competition. The decrease in 2000 also reflects the integration costs
associated with the acquisition of the Fort James Corporation's folding carton
operations. As discussed below, future improvements in gross profit will depend
upon management's ability to improve cost efficiencies and to maintain
profitable, long-term customer relationships.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, excluding goodwill
amortization, have declined from 8.6% of sales in 1999 to 5.7% in 2001. This is
a reflection of our higher revenue base and restructuring efforts, particularly
the reduction of staff levels and administrative facilities. Selling, general
and administrative expenses have increased in 2001 to 5.7% over 2000 levels of
5.5% due principally to employee incentive programs. Our goal is to remain below
6% of sales in this category.
Operating Income
Consolidated operating income for 2001 was $59.9 million, an increase of $8.7
million, or 17%, over operating income for 2000. Consolidated operating income
for 2000 was $51.2 million, an increase of $16.8 million, or 49%, over operating
income for 1999. As shown below, a similar, positive trend occurs when our asset
impairment and restructuring charges are added back to operating income. The
increase over the past three years is directly due to increased sales,
optimizing our assets since the acquisition of the former Fort James plants in
1999 and our reduced selling, general and administrative expenses.
Operating Income from Continuing Operations by Segment
Year ended
December 31,
----------------------
1999 2000 2001
------ ------ ------
(in millions)
Before asset impairment and restructuring charges:
Packaging............................................................ $ 50.6 $ 56.8 $ 68.8
Other businesses..................................................... 2.1 -- --
Corporate............................................................ (10.5) -- --
------ ------ ------
Operating income before asset impairment and restructuring charges... 42.2 56.8 68.8
Asset impairment and restructuring charges:
Packaging............................................................ (7.8) (5.6) (8.9)
Other businesses..................................................... -- -- --
------ ------ ------
Operating income after asset impairment and restructuring charges.... $ 34.4 $ 51.2 $ 59.9
====== ====== ======
Asset Impairment and Restructuring Charges
We have recorded asset impairment and restructuring charges totaling $8.9
million, $5.6 million and $7.8 million in 2001, 2000, and 1999, respectively. In
addition, asset impairment and restructuring reserves of
6
$7.8 million related to the Perrysburg, Ohio plant closure were recorded in 2000
as a cost of the acquisition of the Fort James Corporation's folding carton
operations. We review the relative cost effectiveness of our assets, including
plant facilities and equipment, and the allocation of human resources across all
functions while integrating acquisitions and responding to pressures on margins
from industry conditions. As a result, we have closed plants and downsized our
workforce with the ultimate goal of maximizing our profits and optimizing our
resources.
Asset Impairment Charges
2001: We recorded an asset impairment charge of $3.5 million in the fourth
quarter of 2001 in conjunction with the announcement of the planned closure of
the Newnan, Georgia plant, a plant that is more expensive to operate than other
plants in our system and produces margins below our expectations. We expect to
shut down the plant's operations during 2002 and sell the plant's building and
land. The net book value of the Newnan building and land was approximately $2.1
million at December 31, 2001. The plant's business will be transferred to other
plants in our system.
We recorded an asset impairment charge of $1.5 million in the quarter ended
March 31, 2001 related to our Saratoga Springs, New York building. This is in
addition to a $3.0 million asset impairment charge taken in 1999 related to
Saratoga Springs' assets. Operations of the Saratoga Springs plant were
transferred to our other manufacturing locations and the building and real
property were sold in June 2001 for cash proceeds of $3.4 million. No gain or
loss was recognized on the June 2001 sale.
2000: We announced the planned closure of our Perrysburg, Ohio folding carton
plant in the second quarter of 2000. The Perrysburg plant was part of the Fort
James Corporation's folding carton operations and was eliminated due to excess
capacity. The shutdown and restructuring plan for the Perrysburg facility
included asset impairments totaling $6.5 million, which were recorded in the
second quarter of 2000 as a cost of the acquisition, with a resultant adjustment
to goodwill. We completed the closure of the plant and transition of the plant's
business to our other facilities by the end of 2000. On July 11, 2001, the
remaining real estate was sold for cash proceeds of approximately $1.9 million.
No gain or loss was recognized on the sale.
1999: We recorded $5.9 million of asset impairment charges in 1999 due to
decisions to close our Boulder, Colorado and Saratoga Springs, New York plants.
The Boulder plant has been replaced by a new manufacturing facility in Golden,
Colorado, which uses advanced equipment to improve the production process. Due
to certain delays in production transition to Golden, the Boulder facility
remains partially operational. The Saratoga Springs plant operated at higher
overhead levels than other plants and used gravure press technology. Therefore,
the decision was made to sell the Saratoga Springs property, move the business
to other folding carton plants and dispose of the gravure presses at Saratoga
Springs. Boulder writedowns totaled $2.9 million and Saratoga Springs writedowns
totaled $3.0 million. The Saratoga Springs facility shutdown was complete at
December 31, 2000 and the real estate was sold in July 2001.
Restructuring Charges
2001: In connection with the announced closure of the Newnan, Georgia plant
discussed above, we recorded restructuring charges totaling $2.4 million in the
fourth quarter of 2001. The charges relate to severance packages for 105 plant
personnel that were communicated to employees in December 2001. We expect to
complete the Newnan restructuring plan by the end of 2002.
2000: In December 2000 we announced a restructuring plan to reduce fixed-cost
personnel. The plan includes the elimination of approximately 200 non-production
positions, including the closure of our folding carton plant in Portland,
Oregon, and offers severance packages in accordance with our policies. The total
cost of the reduction in force is $5.0 million, of which $3.0 million was
recognized in the fourth quarter of 2000 results. The remaining cost of
approximately $2.0 million was recognized in the first half of 2001 when
severance packages were communicated to employees. The restructuring plan is
essentially complete at December 31, 2001 with approximately $0.2 million
remaining to be paid in 2002. No additional charges related to this
restructuring plan are expected.
7
In connection with the announced closure of the Perrysburg, Ohio plant,
restructuring reserves were recorded totaling approximately $1.3 million in the
second quarter of 2000. The reserves relate to the severance of approximately
100 production positions and other plant closing costs. Consistent with the
asset impairments related to the Perrysburg closure, the restructuring costs
have been accounted for as a cost of the acquisition of Fort James Corporation's
folding carton operations with a resultant adjustment to goodwill. At December
31, 2001, all the restructuring charges have been paid relating to the
Perrysburg closure.
We recorded a restructuring charge of $3.4 million in the first quarter of
2000 for anticipated severance costs as a result of the announced closure of the
Saratoga Springs, New York plant. The Saratoga Springs plant was closed pursuant
to a plant rationalization plan approved by our Board of Directors in the fourth
quarter of 1999. We have completed the closure of the Saratoga Springs plant and
the transition of the plant's business to other facilities. In the first quarter
of 2001, we reversed approximately $0.5 million of severance accruals which were
not needed related to the Saratoga Springs facility shutdown to complete the
Saratoga Springs restructuring plan. Essentially all of the remaining
restructuring charges have been paid through December 31, 2001.
1999: We recorded a $1.9 million restructuring charge pursuant to a plant
rationalization plan approved by our board of directors in the fourth quarter of
1999. We instituted this plan to further our goal of refining our focus on
folding carton packaging and to reduce headcount. We initially planned to
complete this restructuring plan by the end of 2000. However, customer needs in
both Boulder, Colorado and Lawrenceburg, Tennessee impacted the completion of
the restructuring and resulted in the savings of approximately $0.8 million of
anticipated restructuring costs related to severance at the Lawrenceburg
facility. The 2000 restructuring expense is net of this $0.8 million benefit. At
December 31, 2001, there are no further restructuring charges related to this
rationalization plan.
The following table summarizes accruals related to our restructurings (in
millions):
1999 2000 2000 2000/2001 2001
Plant S/Springs Perrysburg Reduction Newnan
Rationalization Plant Plant In Plant
Plan Closure Closure Force Closure Totals
--------------- --------- ---------- --------- ------- ------
Balance, December 31, 1998.................. $ 1.8 $ -- $ -- $ -- $ -- $ 1.8
1999 restructuring charges.................. 1.9 -- -- -- -- 1.9
Cash paid................................... (1.8) -- -- -- -- (1.8)
----- ----- ----- ----- ---- -----
Balance, December 31, 1999.................. 1.9 -- -- -- -- 1.9
2000 restructuring charges, net of reversals (0.8) 3.4 -- 3.0 -- 5.6
2000 restructuring--Perrysburg.............. -- -- 1.3 -- -- 1.3
Cash paid................................... (1.0) (2.0) (0.7) (0.1) -- (3.8)
----- ----- ----- ----- ---- -----
Balance, December 31, 2000.................. 0.1 1.4 0.6 2.9 -- 5.0
2001 restructuring charges, net of reversals -- (0.5) -- 2.0 2.4 3.9
Transfer of enhanced benefits to pension
liabilities............................... -- -- -- (2.2) -- (2.2)
Cash paid................................... (0.1) (0.8) (0.6) (2.5) -- (4.0)
----- ----- ----- ----- ---- -----
Balance, December 31, 2001.................. $ -- $ 0.1 $ -- $ 0.2 $2.4 $ 2.7
===== ===== ===== ===== ==== =====
8
Gain from Sale of Businesses and Other Assets
We disposed of two businesses and several non-core assets during 2001, 2000
and 1999, for which the following pre-tax gains were recognized:
Intangible
Assets
2001: --------------
(in thousands)
Cash proceeds.. $ 3,650
Net book value. --
-------
Gain recognized $ 3,650
=======
Other
Malvern Intangible Long-lived
Plant Assets Assets Total
2000: -------- ---------- ---------- --------
(in thousands)
Cash proceeds.. $ 35,000 $ 5,407 $ 2,600 $ 43,007
Net book value. (23,635) -- (200) (23,835)
-------- ------- ------- --------
Gain recognized $ 11,365 $ 5,407 $ 2,400 $ 19,172
======== ======= ======= ========
Flexible Golden
Plants Genesis Total
1999: -------- -------- --------
(in thousands)
Cash proceeds.. $105,000 $ 20,800 $125,800
Net book value. (82,300) (13,264) (95,564)
-------- -------- --------
Gain recognized $ 22,700 $ 7,536 $ 30,236
======== ======== ========
Interest Expense
Interest expense for 2001, 2000 and 1999 was $52.8 million, $82.1 million and
$34.2 million, respectively. The decrease in 2001 reflects lower debt levels, as
well as lower market interest rates and improvements in our interest rate
spreads. The increase in 2000 was due to additional financing to acquire Fort
James Corporation's folding carton operations on August 2, 1999. Interest
expense of $16.0 million was allocated to the discontinued operations of
CoorsTek in 1999, based upon CoorsTek's $200.0 million allocation of total
consolidated debt at the time of the spin-off for 1999. We capitalized interest
of $1.8 million, $1.1 million and $2.0 million in 2001, 2000 and 1999,
respectively. Capitalized interest primarily related to the construction of our
Golden, Colorado facility and our new enterprise resource planning system in
2001 and 2000.
See "Liquidity and Capital Resources".
Income Taxes
Our consolidated effective tax rate in 2001 and 2000 was 40% compared to 39%
in 1999. We expect to maintain our effective tax rate for future years at our
historical rate of approximately 40%.
Discontinued Operations
Coincident with our strategic folding carton acquisitions, several non-core
businesses and underperforming assets were selected for sale or other
disposition during 1999.
CoorsTek Spin-off
On December 31, 1999, we distributed 100% of CoorsTek's shares of common
stock to our shareholders in a tax-free transaction. Shareholders received one
share of CoorsTek stock for every four shares of our stock they
9
held. CoorsTek issued to us a promissory note on December 31, 1999 totaling
$200.0 million in satisfaction of outstanding intercompany obligations at the
time of the spin-off and as a special one-time dividend. The note was paid in
full in January 2000. No gain or loss was recognized by us as a result of the
spin-off transaction. The tax basis allocation of costs for our shares acquired
prior to the spin-off was Graphic Packaging 55.56% and CoorsTek 44.44%.
Golden Aluminum
In 1996, the board of directors adopted a plan to dispose of our aluminum
rigid-container sheet business operated by Golden Aluminum. In conjunction with
this decision, we recorded pre-tax charges of $155.0 million for anticipated
losses upon the disposition and estimated operating losses of the business
through the disposition date. In March 1997, Golden Aluminum was sold for $70.0
million, of which $10.0 million was paid at closing and $60.0 million was due
within two years. In December 1998, we extended the due date on the $60.0
million payment until September 1, 1999. In accordance with the purchase
agreement, the purchaser exercised its right to return Golden Aluminum to us on
August 23, 1999 in discharge of the $60.0 million obligation. The initial
payment of $10.0 million was nonrefundable. We subsequently sold the assets of
Golden Aluminum to another buyer for approximately $41 million on November 5,
1999 and recorded an additional pre-tax charge of $10.0 million in 1999 related
to the ultimate disposition of Golden Aluminum.
Liquidity and Capital Resources
We generate our liquidity from both internal and external sources and use it
to fund our short-term working capital needs, capital expenditures, preferred
stock dividends and acquisitions.
We intend to fund future working capital needs, capital expenditures,
preferred stock dividends and acquisitions through cash flow generated from
operations and borrowings under our new credit facility. GPC will be the primary
borrower on the new credit facility, and GPIC will guarantee the loan. We expect
the new credit facility will consist of a $300.0 million, five-year revolving
credit facility, or the Revolver, and a $150.0 million, seven-year term loan, or
the Term Loan. The Revolver will bear interest at LIBOR plus a spread tied to
our leverage, with a single principal payment due at maturity. The Term Loan
will bear interest at LIBOR plus 300 basis points, with principal amortization
of 1% a year and the balance due at maturity. The new credit facility will be
secured by all of GPIC's, GPC's and our domestic subsidiaries' material assets.
We will use the net proceeds from the Refinancing Transactions to refinance
our existing bank debt, to repurchase our existing subordinated notes at par, to
pay related fees and expenses and fund ongoing working capital needs.
In connection with the Refinancing Transactions, we will incur a non-cash
charge to write off our remaining unamortized debt issuance costs. These costs
amounted to $17.0 million at December 31, 2001. If we continue to reduce
LIBOR-based borrowings through increased cash flows, we may also incur a charge
related to our existing interest rate swap agreements if they no longer qualify
as a hedge of interest rate risk. At December 31, 2001, we had $225.0 million
notional value of interest rate swap agreements, which had a negative fair value
of $7.5 million.
Pursuant to our existing senior credit agreement, we completed a $50.0
million private placement of subordinated unsecured notes on August 15, 2001,
which are included in long-term debt at December 31, 2001. These subordinated
notes accrue interest at 10% per annum and mature August 15, 2008. We have
agreed with the holder of these notes to repurchase them at par concurrently
with the closing of this offering. The proceeds of the subordinated notes were
used to repay the remaining balance on a one-year term note due August 15, 2001
and to pay down indebtedness under our five-year senior credit facility. By
issuing the subordinated debt, we avoided an additional interest rate spread of
75 basis points on our senior credit facility and a fee of $750,000 to our
senior lenders.
10
After giving effect to the Refinancing Transactions, our borrowings at
December 31, 2001 would consist of the following (in thousands):
Seven-year term facility due 2009................ $150,000
Five-year revolving credit facility due 2007..... 84,785
Senior subordinated notes due 2012............... 300,000
Subordinated notes due 2008...................... --
Various notes payable (1)........................ 5,974
--------
Total............................................ 540,759
Less current maturities.......................... 3,900
--------
Long-term maturities............................. $536,859
========
---------------------
/(1)/The notes bear interest at rates ranging from 5.25% to 13.06% and mature
from 2002 through 2008.
We maintain an interest rate risk-management strategy that uses derivative
instruments to minimize significant, unanticipated earnings fluctuations that
may arise from volatility in interest rates. Our specific goals are to (1)
manage interest rate sensitivity by modifying the re-pricing or maturity
characteristics of some of our debt and (2) lower (where possible) the cost of
our borrowed funds. In accordance with our interest rate risk-management
strategy, we have contracts in place to hedge the interest rates on all of our
variable rate borrowings in the form of swap agreements on $225.0 million of
borrowings and cap agreements on $350.0 million of borrowings. The swap
agreements lock in an average LIBOR rate of 6.5%, $150.0 million of the caps
provide upside protection to us if LIBOR moves above 6.75% and $200.0 million of
the caps provide upside protection to us if LIBOR moves above 8.13%. The hedging
instruments expire in 2002.
Our capital structure also includes $100.0 million of Series B preferred
stock, issued on August 15, 2000. The Series B preferred stock is convertible
into shares of our common stock at $2.0625 per share and is entitled to receive
a dividend payable quarterly at an annual rate of 10%. We may redeem the Series
B preferred stock beginning on August 15, 2005 at 105% of par. This premium
decreases by 1% per year until August 15, 2010, at which time we can elect to
redeem the shares at par. The Series B preferred stock has a liquidation
preference over our common stock and is entitled to one vote for every two
shares held on an as-converted basis.
Working Capital
Our working capital is dependent upon our ability to manage our
inventories, collect our receivables on a timely basis, and maintain favorable
terms with our vendors. Our working capital can be negatively impacted if our
operations run less efficiently, particularly at times when business is moved
among plants or new plants are acquired, or if inventories build up due to lower
than planned sales during a period.
We currently expect that cash flows from operations and borrowings under our
new credit facility will be adequate to meet our needs for working capital,
temporary financing for capital expenditures and debt repayments for the
foreseeable future. Our working capital position (including current maturities
of long term debt) at December 31, 2001 was $22.4 million, and $173.2 million
was available under our current revolving credit facility.
During 2001, we funded our capital requirements with net cash from
operations. During the year ended December 31, 2000, we funded our capital
requirements through financing and investing activities. We expect our capital
expenditures for 2002 to be approximately $40 million, primarily related to a
new enterprise resource planning system and upgrades to equipment.
Inflation
The impact of inflation on our financial position and results of operations
has been minimal and is not expected to adversely affect future results.
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New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, was issued in 2001. This statement establishes new accounting and
reporting standards that will, among other things, eliminate the
pooling-of-interest method of accounting for business combinations and require
that the purchase method of accounting be used. This statement is effective for
all of our future business combinations.
SFAS No. 142, Goodwill and Other Intangible Assets, was issued in 2001. This
statement establishes new accounting and reporting standards that will, among
other things, eliminate amortization of goodwill and certain intangible assets
with an indefinite useful life. This statement is effective for us for the year
beginning January 1, 2002. We do not currently have any intangible assets with
indefinite lives and do not expect any impact from this element of the new
statement.
Upon adoption of SFAS No. 142, which is expected in the first quarter of
2002, we will stop amortizing our goodwill. Based upon current goodwill levels,
the annual reduction in amortization expense will be $20.6 million before taxes.
Because some of our goodwill amortization is nondeductible for tax purposes, our
effective tax rate may be lower as a result of implementing the new accounting
standard. We previously followed the guidance in SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which permitted the use of an undiscounted cash flow model to evaluate goodwill
for impairment. As required by the new standard, SFAS No. 142, our goodwill will
be evaluated annually for impairment using a fair-value based approach and, if
there is impairment, the carrying amount of goodwill will be written down to the
implied fair value. Any impairment loss as a result of the initial adoption of
the new accounting standard will be recognized as a cumulative effect of a
change in accounting principle. Any subsequent impairment losses will be
recorded as a charge to operating income. Although we are still evaluating the
impact of this new accounting standard, including the most appropriate method to
use in valuing our goodwill, initial estimates using current market data and
discounted cash flow valuations indicate a significant goodwill impairment could
exist upon adoption, potentially up to $200 million.
In 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the recognition of a liability and offsetting
asset for any legal obligation associated with the retirement of long-lived
assets. The asset retirement cost is depreciated over the life of the related
asset. This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. Our management does not believe SFAS No.
143 will have a significant effect on us.
In 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. SFAS No. 144 retains the fundamental provisions of SFAS No. 121
for the recognition and measurement of the impairment of long-lived assets to
be held and used and the measurement of long-lived assets to be disposed of by
sale. Under SFAS No. 144, long-lived assets are measured at the lower of
carrying amount or fair value less cost to sell. We have adopted this statement
as of January 1, 2002. Our management does not believe SFAS No. 144 will have a
significant effect on us.
12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants............. 14
Consolidated Income Statement................. 15
Consolidated Statement of Comprehensive Income 17
Consolidated Balance Sheet.................... 18
Consolidated Statement of Cash Flows.......... 19
Consolidated Statement of Shareholders' Equity 20
Notes to Consolidated Financial Statements.... 21
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Graphic Packaging International
Corporation:
In our opinion, the accompanying consolidated financial statements listed in
the accompanying index present fairly, in all material respects, the financial
position of Graphic Packaging International Corporation and its subsidiaries at
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company'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 auditing standards generally accepted in the United States of
America, 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 our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 12, 2002
14
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENT
(in thousands, except per share data)
Year Ended December 31,
----------------------------------
2001 2000 1999
----------- ----------- --------
Sales to unrelated parties........................................ $ 989,716 $ 990,390 $742,510
Sales to Coors Brewing Company.................................... 122,819 112,200 107,645
----------- ----------- --------
Total net sales................................................... 1,112,535 1,102,590 850,155
Cost of goods sold............................................. 960,258 963,979 721,350
----------- ----------- --------
Gross profit...................................................... 152,277 138,611 128,805
Selling, general and administrative expense.................... 62,874 61,134 73,357
Goodwill amortization.......................................... 20,649 20,634 13,276
Asset impairment and restructuring charges..................... 8,900 5,620 7,813
----------- ----------- --------
Operating income.................................................. 59,854 51,223 34,359
Gain from sale of businesses and other assets.................. 3,650 19,172 30,236
Interest expense............................................... (52,811) (82,071) (34,240)
----------- ----------- --------
Income (loss) from continuing operations before income taxes
and extraordinary item.......................................... 10,693 (11,676) 30,355
Income tax (expense) benefit................................... (4,257) 4,678 (11,945)
----------- ----------- --------
Income (loss) from continuing operations before extraordinary
item............................................................ 6,436 (6,998) 18,410
Discontinued operations, net of tax
Income from discontinued operations of CoorsTek................ -- -- 15,637
Loss on disposal of Golden Aluminum............................ -- -- 6,456
----------- ----------- --------
-- -- 9,181
----------- ----------- --------
Income (loss) before extraordinary item........................... 6,436 (6,998) 27,591
Extraordinary loss on early extinguishment of debt, net of tax
of $1,312.................................................... -- -- 2,332
----------- ----------- --------
Net income (loss)................................................. 6,436 (6,998) 25,259
Preferred stock dividends declared................................ (10,000) (3,806) --
----------- ----------- --------
Net income (loss) attributable to common shareholders............. $ (3,564) $ (10,804) $ 25,259
=========== =========== ========
Net income (loss) attributable to common shareholders per basic share of common
stock:
Continuing operations.......................................... ($ 0.11) ($ 0.37) $ 0.65
Discontinued operations........................................ -- -- 0.32
Extraordinary loss............................................. -- -- (0.08)
----------- ----------- --------
Net income (loss) attributable to common shareholders per
basic share..................................................... ($ 0.11) ($ 0.37) $ 0.89
=========== =========== ========
Weighted average shares outstanding--basic........................ 31,620 29,337 28,475
=========== =========== ========
See Notes to Consolidated Financial Statements.
15
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENT
(in thousands, except per share data)
Year Ended December 31,
---------------------------
2001 2000 1999
-------- -------- -------
Net income (loss) attributable to common shareholders per diluted
share of common stock:
Continuing operations......................................... ($ 0.11) ($ 0.37) $ 0.64
Discontinued operations....................................... -- -- 0.32
Extraordinary loss............................................ -- -- (0.08)
-------- -------- -------
Net income (loss) attributable to common shareholders per
diluted share.................................................. ($ 0.11) ($ 0.37) $ 0.88
======== ======== =======
Weighted average shares outstanding--diluted..................... 31,620 29,337 28,767
======== ======== =======
See Notes to Consolidated Financial Statements.
16
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
--------------------------
2001 2000 1999
-------- ------- -------
Net income (loss).............................................................. $ 6,436 $(6,998) $25,259
-------- ------- -------
Other comprehensive income:
Foreign currency translation adjustments:
Adjustments arising during the period................................... (905) (355) 1,686
Reclassifications for amounts already included in net income............ -- -- 3,362
Interest rate swap agreements:
Cumulative effect of change in accounting principle,
net of tax of $2,012.................................................. (3,217) -- --
Recognition of hedge results to interest expense during the period,
net of tax of $1,861.................................................. 2,973 -- --
Change in fair value of cash flow hedges during the period,
net of tax of $2,753.................................................. (4,397) -- --
Change in minimum pension liability, net of tax of $9,103 in 2001,
$178 in 2000, and ($354) in 1999.......................................... (13,832) (267) 531
-------- ------- -------
Other comprehensive income (loss).............................................. (19,378) (622) 5,579
-------- ------- -------
Comprehensive income (loss).................................................... $(12,942) $(7,620) $30,838
======== ======= =======
See Notes to Consolidated Financial Statements.
17
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
At December 31,
----------------------
2001 2000
---------- ----------
ASSETS
Current assets
Cash and cash equivalents....................................................... $ 6,766 $ 4,012
Accounts receivable, less allowance for doubtful accounts of $1,769 in 2001 and
$2,970 in 2000................................................................ 57,679 73,871
Accounts receivable from Coors Brewing Company.................................. 1,795 1,316
Inventories..................................................................... 92,408 105,228
Deferred income taxes........................................................... 17,378 14,305
Other assets.................................................................... 15,778 14,656
---------- ----------
Total current assets........................................................ 191,804 213,388
Properties, net................................................................. 443,712 480,395
Goodwill, net................................................................... 559,696 580,299
Other assets.................................................................... 34,123 58,436
---------- ----------
Total assets....................................................................... $1,229,335 $1,332,518
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt............................................ $ 37,373 $ 58,642
Accounts payable................................................................ 59,002 38,902
Income taxes payable............................................................ 9,533 9,566
Accrued compensation............................................................ 20,431 11,624
Other accrued expenses and liabilities.......................................... 43,062 58,014
---------- ----------
Total current liabilities....................................................... 169,401 176,748
Long-term debt..................................................................... 488,386 582,030
Other long-term liabilities........................................................ 69,544 54,233
---------- ----------
Total liabilities............................................................... 727,331 813,011
Minority interest.................................................................. 4,356 4,356
Commitments and contingencies (Note 16)............................................ -- --
Shareholders' equity
Preferred stock, 20,000,000 shares authorized:
Series A, $0.01 par value, no shares issued or outstanding...................... -- --
Series B, $0.01 par value, 1,000,000 shares issued and outstanding at stated
value and liquidation preference of $100 per share 100,000 100,000
Common stock, $0.01 par value 100,000,000 shares authorized; 32,188,941 and
30,544,449 issued and outstanding at December 31, 2001 and 2000.................. 322 305
Paid-in capital.................................................................... 417,749 422,327
Retained deficit................................................................... (562) (6,998)
Accumulated other comprehensive loss............................................... (19,861) (483)
---------- ----------
Total shareholders' equity...................................................... 497,648 515,151
---------- ----------
Total liabilities and shareholders' equity......................................... $1,229,335 $1,332,518
========== ==========
See Notes to Consolidated Financial Statements.
18
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
--------------------------------
2001 2000 1999
--------- --------- ----------
Cash flows from operating activities:
Net income (loss)........................................................ $ 6,436 $ (6,998) $ 25,259
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Asset impairment and restructuring charges........................... 8,900 5,620 7,813
Gain from sale of businesses and other assets........................ (3,650) (19,172) (30,236)
Loss on disposal of Golden Aluminum.................................. -- -- 10,000
Depreciation......................................................... 58,757 62,460 63,602
Amortization of goodwill............................................. 20,649 20,634 15,393
Amortization of debt issuance costs.................................. 7,795 8,865 2,448
Change in net deferred income taxes.................................. (3,590) 11,676 (908)
Change in current assets and current liabilities, net of effects
from acquisitions..................................................
Accounts receivable............................................... 15,713 (3,271) 3,757
Inventories....................................................... 12,820 23,137 5,664
Other assets...................................................... (1,122) (3,592) (6,866)
Accounts payable.................................................. 20,100 (4,935) 29,237
Accrued expenses and other liabilities............................ (6,178) (31,954) 20,392
Change in deferred items and other................................... 15,069 409 (7,533)
--------- --------- ----------
Net cash provided by operating activities................................... 151,699 62,879 138,022
Cash flows from investing activities:
Additions to properties.................................................. (31,884) (30,931) (91,455)
Proceeds from sale of assets............................................. 8,950 43,580 170,526
Collection of note receivable............................................ -- 200,000 --
Acquisitions, net of cash acquired....................................... -- -- (905,069)
Other.................................................................... -- -- 13,812
--------- --------- ----------
Net cash provided by (used in) investing activities......................... (22,934) 212,649 (812,186)
Cash flows from financing activities:
Proceeds from borrowings................................................. 206,750 52,015 1,643,116
Repayment of debt........................................................ (320,965) (431,996) (960,084)
Debt issuance costs...................................................... -- (6,312) (29,716)
Proceeds from issuance of preferred stock, net of stock issuance
costs.................................................................. -- 98,558 --
Preferred stock dividends paid........................................... (12,083) (1,306) --
Common stock issuance and other.......................................... 287 1,656 10,521
--------- --------- ----------
Net cash provided by (used in) financing activities......................... (126,011) (287,385) 663,837
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents..................... 2,754 (11,857) (10,327)
Balance at beginning of year............................................. 4,012 15,869 26,196
--------- --------- ----------
Balance at end of year................................................... $ 6,766 $ 4,012 $ 15,869
========= ========= ==========
Cash flows from discontinued operations of CoorsTek for 1999 have been included
in the Consolidated Statement of Cash Flows.
See Notes to Consolidated Financial Statements.
19
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Retained Other
Preferred Common Paid-in Earnings Comprehensive
Stock Stock Capital (Deficit) Income (Loss) Total
--------- ------ -------- --------- ------------- --------
Balance at December 31, 1998............ $ -- $284 $451,401 $ 1,710 $ (5,440) $447,955
Issuance of common stock................ -- 2 3,816 -- -- 3,818
Net income.............................. -- -- -- 25,259 -- 25,259
CoorsTek dividend....................... -- -- (32,332) (26,969) -- (59,301)
Change in minimum pension liability,
net of tax............................ -- -- -- -- 531 531
Cumulative translation adjustment....... -- -- -- -- 5,048 5,048
-------- ---- -------- -------- -------- --------
Balance at December 31, 1999............ -- 286 422,885 -- 139 423,310
Issuance of common stock................ -- 19 4,690 -- -- 4,709
Issuance of preferred stock, net of
issuance costs........................ 100,000 -- (1,442) -- -- 98,558
Net loss................................ -- -- -- (6,998) -- (6,998)
Preferred stock dividends declared...... -- -- (3,806) -- -- (3,806)
Change in minimum pension liability,
net of tax............................ -- -- -- -- (267) (267)
Cumulative translation adjustment....... -- -- -- -- (355) (355)
-------- ---- -------- -------- -------- --------
Balance at December 31, 2000............ 100,000 305 422,327 (6,998) (483) 515,151
Issuance of common stock................ -- 17 5,422 -- -- 5,439
Net income.............................. -- -- -- 6,436 -- 6,436
Preferred stock dividends declared...... -- -- (10,000) -- -- (10,000)
Change in minimum pension liability,
net of tax............................ -- -- -- -- (13,832) (13,832)
Cumulative effect of a change in
accounting principle, net of tax...... -- -- -- -- (3,217) (3,217)
Recognition of hedge results to interest
expense during the period, net of tax. -- -- -- -- 2,973 2,973
Change in fair value of cash flow hedges
during the period, net of tax......... -- -- -- -- (4,397) (4,397)
Cumulative translation adjustment....... -- -- -- -- (905) (905)
-------- ---- -------- -------- -------- --------
Balance at December 31, 2001............ $100,000 $322 $417,749 $ (562) $(19,861) $497,648
======== ==== ======== ======== ======== ========
See Notes to Consolidated Financial Statements.
20
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Operations: Graphic Packaging International Corporation (the
"Company" or "GPIC") is a manufacturer of packaging products used by consumer
product companies as primary packaging for their end-use products. The Company's
strategy is to maximize its competitive position and growth opportunities in its
core business, folding cartons. Toward this end, over the past several years the
Company has acquired two significant folding carton businesses and has disposed
of several noncore businesses and under-performing assets.
CoorsTek, Inc. (formerly known as Coors Ceramics Company) develops,
manufactures and sells advanced technical products across a wide range of
product lines for a variety of applications. On December 31, 1999, the Company
distributed 100% of CoorsTek's shares of common stock to the GPIC shareholders
in a tax-free transaction. Shareholders received one share of CoorsTek stock for
every four shares of GPIC common stock held. The results of operations for
CoorsTek have been presented as a discontinued operation in the accompanying
1999 consolidated financial statements. CoorsTek issued a promissory note to
GPIC on December 31, 1999 totaling $200.0 million in satisfaction of outstanding
intercompany obligations at the time of the spin-off and as a one-time, special
dividend. The note was paid in full on January 4, 2000. No gain or loss was
recognized by GPIC as a result of the spin-off transaction.
Amounts included in the notes to the consolidated financial statements
pertain to continuing operations only, except where otherwise noted.
Consolidation: The consolidated financial statements include the accounts
of the Company and its wholly owned and majority owned subsidiaries. All
material intercompany transactions have been eliminated.
Use of Estimates: The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, using management's
best estimates and judgments where appropriate. Management has made significant
estimates with respect to asset impairment and restructuring charges, allowances
for accounts receivable collectibility, self-insurance reserves, minimum pension
liabilities and goodwill valuation. Actual results could differ from these
estimates making it reasonably possible that a change in these estimates could
occur in the near term.
Reclassifications: Certain prior period amounts have been reclassified to
conform to the current year presentation.
Revenue Recognition: Revenue is recognized when goods are shipped. Shipping
and handling costs invoiced to customers are included in revenue and associated
costs are recognized as costs of sales.
Concentration of Credit Risk: A significant portion of the Company's net
sales consist of sales to Kraft Foods, Inc. and affiliates, Coors Brewing
Company and General Mills, Inc. and affiliates. For the year ended December 31,
2001, sales to Kraft Foods Inc./Philip Morris USA Inc. accounted for
approximately 19% of the Company's gross sales, sales to Coors Brewing Company
accounted for approximately 11% of gross sales and sales to General Mills
Inc./The Pillsbury Company accounted for approximately 11% of gross sales. The
Company controls credit risk related to accounts receivable through credit
approvals, credit limits and monitoring procedures. Credit risk with respect to
accounts receivable is concentrated primarily in the food and beverage
industries.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
21
The classification of inventories, in thousands, were as follows:
At December 31,
----------------
2001 2000
------- --------
Finished goods....... $55,057 $ 61,038
In process........... 15,258 13,301
Raw materials........ 22,093 30,889
------- --------
Total inventories. $92,408 $105,228
======= ========
Properties: Land, buildings, equipment and purchased software are stated at
cost. The costs of developing an enterprise resource planning software system
are capitalized and amortized when placed in service over the expected useful
life of the software. Real estate properties are non-operating properties held
for sale. For financial reporting purposes, depreciation is recorded principally
on the straight-line method over the estimated useful lives of the assets as
follows:
Buildings.......................... 30 years
Machinery and equipment............ 3 to 15 years
Building and leasehold improvements The shorter of the useful life or lease term
Internal-use software.............. 8 years
The cost of properties and related accumulated depreciation, in thousands,
were as follows:
At December 31,
-----------------
2001 2000
-------- --------
Land and improvements........ $ 16,687 $ 17,863
Buildings and improvements... 119,439 122,820
Machinery and equipment...... 508,814 505,494
Internal-use software........ 1,781 1,490
Real estate properties....... 5,359 5,342
Construction in progress..... 42,101 23,926
-------- --------
694,181 676,935
Less accumulated depreciation 250,469 196,540
-------- --------
Net properties............ $443,712 $480,395
======== ========
Expenditures for new facilities and improvements that substantially extend
the capacity or useful life of an asset are capitalized. Ordinary repairs and
maintenance are expensed as incurred. Upon sale or retirement of assets, the
cost and related accumulated depreciation or amortization are eliminated from
the respective accounts and any resulting gains or losses are reflected in
operations.
Impairment of Long-Lived Assets and Identifiable Intangibles: The Company
periodically reviews long-lived assets, identifiable intangibles and goodwill
for impairment whenever events or changes in business circumstances, such as the
closure of a plant, indicate the carrying amount of the assets may not be fully
recoverable by undiscounted cash flows. Measurement of the impairment loss, if
any, is based on the fair value of the asset, which is generally determined by
the discounting of future estimated cash flows.
Goodwill: Goodwill is amortized on a straight-line basis over the estimated
future periods to be benefited, generally 30 years. Goodwill was $617.6 million
at December 31, 2001 and 2000, less accumulated amortization of $57.9 million
and $37.3 million, respectively.
Share Repurchase Program: In 1998, the Board of Directors authorized the
repurchase of up to 5% of the Company's outstanding common shares on the open
market. Terms of the Credit Agreement entered into in 1999 currently prohibit
additional share repurchases.
22
Derivatives and Hedging Activities: In accordance with the Company's interest
rate risk-management strategy, the Company has contracts in place to hedge the
interest rates on all of its variable rate borrowings. Interest rate swap
agreements are in place on $225.0 million of borrowings and interest rate cap
agreements are in place to hedge the remaining $244.8 million of variable rate
debt at December 31, 2001. The swap agreements lock in an average LIBOR rate of
6.5%, $150.0 million of the caps provide upside protection to the Company if
LIBOR moves above 6.75% and the remaining caps provide upside protection to the
Company if LIBOR moves above 8.13%. All of the swaps and caps expire in 2002.
The fair value of the interest rate swap agreements at December 31, 2001 was a
liability of $7.5 million, which has been recorded in other accrued expenses on
the accompanying balance sheet. The interest rate caps have no market value at
December 31, 2001.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities, on January 1,
2001. In accordance with the transition provisions of SFAS No. 133, as of
January 1, 2001 the Company recorded a net-of-tax cumulative loss adjustment to
other comprehensive income totaling $3.2 million which relates to the fair value
of previously designated cash flow hedging relationships. All $7.5 million of
the interest rate hedging pre-tax loss currently in other comprehensive income
is expected to flow through interest expense during the next twelve months.
All derivatives are recognized on the balance sheet at their fair value. On
the date that the Company enters into a derivative contract, it designates the
derivative as (1) a hedge of (a) the fair value of a recognized asset or
liability or (b) an unrecognized firm commitment (a fair value hedge); (2) a
hedge of (a) a forecasted transaction or (b) the variability of cash flows that
are to be received or paid in connection with a recognized asset or liability (a
cash flow hedge); or (3) a foreign-currency fair-value or cash flow hedge (a
foreign currency hedge). The Company does not enter into derivative contracts
for trading or non-hedging purposes. The Company's current interest rate
derivatives are designated as cash flow hedges and are recognized on the balance
sheet at their fair value. Changes in the fair value of the Company's cash flow
hedges, to the extent that the hedges are highly effective, are recorded in
other comprehensive income, until earnings are affected by the variability of
cash flows of the hedged transaction through interest expense. Any hedge
ineffectiveness (which represents the amount by which the changes in the fair
value of the derivative exceed the variability in the cash flows being hedged)
is recorded in current period earnings. Hedge ineffectiveness during the year
ended December 31, 2001 was immaterial.
The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair value, cash flow, or foreign currency
hedges to (1) specific assets and liabilities on the balance sheet or (2)
specific firm commitments or forecasted transactions. The Company also formally
assesses (both at the hedge's inception and on an ongoing basis) whether the
derivatives that are used in hedging transactions have been highly effective in
offsetting changes in the cash flows of hedged items and whether those
derivatives may be expected to remain highly effective in future periods. When
it is determined that a derivative is not (or has ceased to be) highly effective
as a hedge, the Company discontinues hedge accounting prospectively, as
discussed below.
The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item (including hedged items such as
firm commitments or forecasted transactions); (2) the derivative expires or is
sold, terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; (4) a hedged firm commitment no longer meets the
definition of a firm commitment; or (5) management determines that designating
the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued due to the Company's determination that
the derivative no longer qualifies as an effective fair value hedge, the Company
will continue to carry the derivative on the balance sheet
23
at its fair value but cease to adjust the hedged asset or liability for changes
in fair value. When hedge accounting is discontinued because the hedged item no
longer meets the definition of a firm commitment, the Company will continue to
carry the derivative on the balance sheet at its fair value, removing from the
balance sheet any asset or liability that was recorded to recognize the firm
commitment and recording it as a gain or loss in current period earnings. When
the Company discontinues hedge accounting because it is no longer probable that
the forecasted transaction will occur in the originally expected period, the
gain or loss on the derivative remains in accumulated other comprehensive income
and is reclassified into earnings when the forecasted transaction affects
earnings. However, if it is probable that a forecasted transaction will not
occur by the end of the originally specified time period or within an additional
two-month period of time thereafter, the gains and losses that were accumulated
in other comprehensive income will be recognized immediately in earnings. In all
situations in which hedge accounting is discontinued and the derivative remains
outstanding the Company will carry the derivative at its fair value on the
balance sheet, recognizing changes in the fair value in current period earnings.
Self-insurance: The Company is self-insured for certain losses relating to
workers' compensation claims and employee medical and dental benefits. The
Company has purchased stop-loss coverage in order to limit its exposure to any
significant levels of claims. Self-insured losses are accrued based upon the
Company's estimates of the aggregate uninsured claims incurred using certain
actuarial assumptions followed in the insurance industry and the Company's
historical experiences.
Environmental Expenditures and Remediation Liabilities: Environmental
expenditures that relate to current operations are expensed or capitalized as
appropriate. Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future revenue generation,
are expensed. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably estimated.
Foreign Currency Translation: The functional currencies for the Company's
United Kingdom and Canadian subsidiaries are the British pound and the Canadian
dollar, respectively. Translation into U.S. dollars is performed for assets and
liabilities at the exchange rates as of the balance sheet date. Income and
expense accounts are translated at average exchange rates for the year.
Adjustments resulting from the translation are reflected as a separate component
of other comprehensive income.
Debt Issuance Costs: Costs related to the issuance of debt are capitalized
and amortized to interest expense using the effective interest method over the
period the debt is outstanding.
Earnings per Share: Following is a reconciliation between basic and diluted
earnings per common share from continuing operations attributable to common
shareholders (in thousands, except per share information):
Year Ended December 31,
----------------------------------------------------------------------
2001 2000 1999
---------------------- ----------------------- ---------------------
Per Per Per
Share Share Share
Income Shares Amount Income Shares Amount Income Shares Amount
------- ------ ------ -------- ------ ------ ------- ------ ------
Income (loss) from
continuing operations
attributable to common
shareholders--basic EPS ($3,564) 31,620 ($0.11) ($10,804) 29,337 ($0.37) $18,410 28,475 $0.65
Other dilutive equity
instruments............ -- -- -- -- -- 292
------- ------ -------- ------ ------- ------
Income (loss) from
continuing operations
attributable to common
shareholders--diluted
EPS.................... ($3,564) 31,620 ($0.11) ($10,804) 29,337 ($0.37) $18,410 28,767 $0.64
======= ====== ====== ======== ====== ====== ======= ====== =====
24
The Company's outstanding preferred stock of $100.0 million is convertible
into 48,484,848 shares of common stock. The conversion of the preferred stock
into common stock is not reflected in the diluted earnings per share calculation
as conversion would be anti-dilutive for 2001 and 2000. Additional potentially
dilutive securities, in thousands, totaling 6,338, 6,627 and 4,262, were
excluded from the historical diluted income or loss per common share
calculations because of their anti-dilutive effect for 2001, 2000 and 1999,
respectively. The additional potentially dilutive securities are primarily stock
options.
Statement of Cash Flows: The Company defines cash equivalents as highly
liquid investments with original maturities of 90 days or less. Book overdrafts
totaling $1.3 million and $20.0 million at December 31, 2001 and 2000,
respectively, have been included as a liability on the accompanying balance
sheet. The Company received a net income tax refund of $7.5 million in 2001 and
$7.1 million in 2000 and paid income taxes totaling $2.8 million in 1999.
Total interest paid was $53.9 million, $80.9 million and $36.0 million in
2001, 2000 and 1999, respectively. Capitalized interest was $1.8 million, $1.1
million and $2.0 million in 2001, 2000 and 1999, respectively.
Non-cash investing and financing activities in 1999 include the receipt of a
$200.0 million short-term note in connection with the CoorsTek spin-off,
cancellation of a $60.0 million note receivable when Golden Aluminum was
returned to the Company, and the issuance of shares of common stock valued at
$3.2 million in exchange for compensation and other services. Non-cash investing
and financing activities in 2001 and 2000 include the issuance of shares of
common stock valued at $5.1 million and $4.2 million, respectively, relating to
the 401(k) employer match.
New Accounting Standards: SFAS No. 141, Business Combinations, was issued in
2001. This statement establishes new accounting and reporting standards that
will, among other things, eliminate the pooling-of-interest method of accounting
for business combinations and require that the purchase method of accounting be
used. This statement is effective for the Company for all future business
combinations.
SFAS No. 142, Goodwill and Other Intangible Assets, was issued in 2001. This
statement establishes new accounting and reporting standards that will, among
other things, eliminate amortization of goodwill and certain intangible assets
with an indefinite useful life. This statement is effective for the Company's
financial statements for the year beginning January 1, 2002. The Company does
not currently have any intangible assets with indefinite lives and does not
expect any impact from this element of the new statement.
Upon adoption of SFAS No. 142, the Company will stop amortizing its goodwill.
Based upon current goodwill levels, the annual reduction in amortization expense
will be $20.6 million before taxes. Because some of the Company's goodwill
amortization is nondeductible for tax purposes, the Company's effective tax rate
may be lower as a result of implementing the new accounting standard. The
Company currently follows the guidance in SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which permits the use of an undiscounted cash flow model, to evaluate its
goodwill for impairment. As required by the new standard, SFAS No. 142, the
Company's goodwill will be evaluated annually for impairment using a fair-value
based approach and, if there is impairment, the carrying amount of goodwill will
be written down to the implied fair value. Any impairment loss as a result of
the initial adoption of the new accounting standard will be recognized as a
cumulative effect of a change in accounting principle. Any impairment losses
incurred subsequent to initial adoption of the new accounting standard will be
recorded as a charge to operating income. Although management is still
evaluating the impact of SFAS No. 142, including the most appropriate method to
use in valuing the Company's goodwill, initial estimates using current market
data and discounted cash flow valuations indicate a significant goodwill
impairment could exist upon adoption, potentially up to $200 million.
25
In 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the recognition of a liability and offsetting
asset for any legal obligation associated with the retirement of long-lived
assets. The asset retirement cost is depreciated over the life of the related
asset. This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. Management does not believe SFAS No. 143
will have a significant effect on the Company.
In 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Asset. SFAS No. 144 replaces SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. SFAS No. 144 retains the fundamental provisions of SFAS No. 121
for the recognition and measurement of the impairment of long-lived assets to
be held and used and the measurement of long-lived assets to be disposed of by
sale. Under SFAS No. 144, long-lived assets are measured at the lower of
carrying amount or fair value less cost to sell. The Company has adopted this
statement as of January 1, 2002. Management does not believe SFAS No. 144 will
have a significant effect on the Company.
Note 2. Discontinued Operations
The historical operating results and losses on the sale of the following
business segments have been segregated as discontinued operations on the
accompanying Consolidated Income Statement for the year ended December 31, 1999.
Discontinued operations have not been segregated on the Consolidated Statement
of Cash Flows. Asset and business dispositions which do not constitute the
discontinuation of a business segment are discussed in Note 4.
CoorsTek Spin-off
On December 31, 1999, the Company distributed 100% of CoorsTek's shares of
common stock to the GPIC shareholders in a tax-free transaction. Shareholders
received one share of CoorsTek stock for every four shares of GPIC stock held.
CoorsTek issued a promissory note to GPIC on December 31, 1999 totaling $200.0
million in satisfaction of outstanding intercompany obligations at the time of
the spin-off and as a one-time, special dividend. The note was paid in full on
January 4, 2000. No gain or loss was recognized by GPIC as a result of the
spin-off transaction. Interest expense of $16.0 million was allocated to the
discontinued operations of CoorsTek in 1999, based upon intercompany debt plus
CoorsTek's allocation of total consolidated debt at the time of the spin-off in
1999.
Golden Aluminum
In 1996, the Board of Directors adopted a plan to dispose of the Company's
aluminum rigid-container sheet business operated by Golden Aluminum. In March
1997, Golden Aluminum was sold for $70.0 million, of which $10.0 million was
paid at closing and $60.0 million was due within two years. In December of 1998,
the Company extended the due date on the $60.0 million payment until September
1, 1999. In accordance with the purchase agreement, the purchaser exercised its
right to return Golden Aluminum to the Company on August 23, 1999 in discharge
of the $60.0 million obligation. The initial payment of $10.0 million was
nonrefundable. The Company subsequently sold the assets of Golden Aluminum to
another buyer for approximately $41 million on November 5, 1999. An additional
pre-tax charge of $10.0 million was recorded in 1999 relating to the ultimate
disposition of Golden Aluminum's assets.
26
Financial Data--Discontinued Operations
Financial data for CoorsTek and Golden Aluminum for the year ended December
31, 1999, in thousands, are summarized as follows:
Golden
CoorsTek Aluminum Total
-------- -------- --------
Net sales.................................... $365,061 $ -- $365,061
======== ======== ========
Income from operations before income taxes... $ 25,117 $ -- $ 25,117
Income tax expense........................... 9,480 -- 9,480
-------- -------- --------
Income from operations....................... 15,637 -- 15,637
Loss from disposal before taxes.............. -- (10,000) (10,000)
Income tax benefit........................... -- 3,544 3,544
-------- -------- --------
Net income (loss)............................ $ 15,637 $ (6,456) $ 9,181
======== ======== ========
Net income per basic share of common stock:
Income from operations....................... $ 0.55 $ -- $ 0.55
Loss on disposal............................. -- (0.23) (0.23)
-------- -------- --------
Net income (loss) per basic share............ $ 0.55 $ (0.23) $ 0.32
======== ======== ========
Net income per diluted share of common stock:
Income from operations....................... $ 0.54 $ -- $ 0.54
Loss on disposal............................. -- (0.22) (0.22)
-------- -------- --------
Net income (loss) per diluted share.......... $ 0.54 $ (0.22) $ 0.32
======== ======== ========
Note 3. Acquisitions
Fort James Packaging Business
On August 2, 1999, the Company acquired the assets and liabilities of the
Fort James Corporation's folding carton operations for cash consideration of
approximately $849 million. The Fort James acquisition, which included 13
operations located throughout North America, has been accounted for under the
purchase method. Accordingly, the excess of the purchase price over the fair
value of the assets and liabilities acquired of approximately $454 million is
being amortized using the straight-line method over 30 years. The folding carton
business of Fort James was a major supplier of folding cartons to leading
consumer product companies for packaging food. The folding carton business of
Fort James has been included in the Company's results since August 2, 1999.
On May 12, 2000, the Company announced the planned closure of the Perrysburg,
Ohio folding carton plant. Costs totaling $7.85 million to shut down the
Perrysburg facility, which was part of the acquisition of the Fort James
Corporation's folding carton operations, have been accounted for as a cost of
the acquisition. The Company completed the closure of the plant and the
transition of the plant's business to other Company facilities as of December
31, 2000. The Company sold the Perrysburg, Ohio building and land in July 2001
for cash proceeds of $1.9 million. No gain or loss was recognized on the sale.
The following unaudited pro forma information for GPIC has been prepared
assuming that the acquisition of the Fort James folding carton operations had
occurred on January 1, 1999. The pro forma information includes adjustments for
(1) amortization of goodwill, (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. CoorsTek and Golden Aluminum are
reflected as discontinued operations in the unaudited pro forma financial
information. The unaudited 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 actually occurred on
January 1, 1999 nor is it necessarily indicative of the results of operations
which may occur in the future.
27
Pro Forma Year
Ended
December 31, 1999
(Unaudited)
-----------------
(in thousands,
except per share
data)
Net sales................................................................................... $1,187,781
Loss from continuing operations, before extraordinary loss.................................. (2,867)
Net income.................................................................................. 3,982
Loss from continuing operations, before extraordinary loss per basic share of common stock.. (0.10)
Loss from continuing operations, before extraordinary loss per diluted share of common stock (0.10)
Net income per basic share of common stock.................................................. 0.14
Net income per diluted share of common stock................................................ 0.14
Edwards Enterprises
On March 1, 1999, CoorsTek acquired all of the outstanding shares of Edwards
Enterprises for approximately $18 million. The acquisition has been accounted
for under the purchase method. Accordingly, the excess of the purchase price
over the fair value of net assets acquired of $4.2 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. The results of Edwards Enterprises since March 1, 1999 are included in
the 1999 discontinued operations of CoorsTek.
Precision Technologies
On March 12, 1999, CoorsTek acquired the net assets of Precision Technologies
for approximately $22 million in cash and warrants to purchase 300,000 shares of
the Company's common stock at an exercise price equal to the fair market value
of the common stock on the date of closing. These warrants were converted into
warrants to purchase shares of CoorsTek stock following the spin-off. The
warrants were recorded as an increase in the purchase price at their estimated
fair value on the date of acquisition using the Black-Scholes pricing model. The
acquisition has been accounted for under the purchase method of accounting.
Accordingly, the excess of the purchase price over the fair value of net assets
acquired of $20.2 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.
The results of Precision Technologies since March 12, 1999 are included in the
1999 discontinued operations of CoorsTek.
Doo Young Semitek
In December 1999, CoorsTek acquired all of the outstanding shares of Doo
Young Semitek for $3.6 million. The name of Doo Young Semitek was subsequently
changed to CoorsTek-Korea. The acquisition has been accounted for under the
purchase method of accounting and goodwill of $2.5 million is being amortized
over 15 years. CoorsTek-Korea, located in Kyungbook, South Korea, manufactures
technical ceramic parts for the semiconductor industry. The results of
CoorsTek-Korea since December 1999 are included in the 1999 discontinued
operations of CoorsTek.
Note 4. Dispositions
2000 Dispositions
Malvern Packaging Plant
On October 31, 2000, the Company sold the net assets of its Malvern,
Pennsylvania packaging plant to Huhtamaki Van Leer for approximately $35 million
in cash. The proceeds from the sale were used to reduce debt. The Company
recorded a pre-tax gain of $11.4 million on the sale. The after-tax gain on sale
was $6.8 million, or $0.23 per basic and diluted share.
28
Other Assets
The Company sold patents and various other assets of its former developmental
businesses and an airplane for cash consideration of approximately $8.2 million.
A pre-tax gain of $7.8 million was recognized in 2000 relating to these asset
sales. The after-tax gain on sale was $4.7 million, or $0.16 per basic and
diluted share. In 2001, a pre-tax gain of approximately $3.6 million was
recognized upon receipt of additional consideration for assets of the Company's
former developmental businesses.
1999 Dispositions
Flexible Packaging Plants
On September 2, 1999, the Company sold its flexible packaging plants to
Sonoco Products Company for approximately $105 million in cash. The Company used
the proceeds from the sale, less transaction costs, to reduce debt associated
with its acquisition of the Fort James Corporation's folding carton operations.
The Company recorded a pre-tax gain of $22.7 million. The after-tax gain on sale
was $13.6 million, or $0.48 per basic share and $0.47 per diluted share.
Solar Electric Business
On August 3, 1999, the Company sold its majority interest in a group of solar
electric distribution companies to Kyocera International, Inc., a wholly owned
subsidiary of Kyocera Corporation. The Company realized $30.8 million in cash of
which $20.8 million was consideration for the Company's equity position and
$10.0 million was for the repayment of certain debt owed to the Company. The
Company used the proceeds from the sale, less transaction costs, to reduce debt
associated with its recent acquisition of the packaging business of Fort James.
The pre-tax gain recorded in conjunction with this transaction totaled $7.5
million while the after-tax gain was $4.5 million. Earnings per share on a basic
and diluted basis for the gain on this sale were $0.16.
Note 5. Asset Impairment and Restructuring Charges
The Company has recorded asset impairment and restructuring charges totaling
$8.9 million, $5.6 million and $7.8 million in 2001, 2000, and 1999,
respectively. Management reviews the relative cost effectiveness of the
Company's assets, including plant facilities and equipment, while integrating
acquisitions and in response to pressures on margins from industry conditions.
As a result, the Company has closed several plants and downsized its workforce
with the goal of maximizing the Company's profits and optimizing its
manufacturing resources.
Asset Impairment Charges
2001: The Company recorded an asset impairment charge of $3.5 million in the
fourth quarter of 2001 in conjunction with the announcement of the planned
closure of the Newnan, Georgia plant. The Company expects to complete the shut
down of the plant's operations during 2002 and sell the plant's building and
land. The net book value of the Newnan building and land was approximately $2.1
million at December 31, 2001. The plant's business will be transferred to other
plants in the Company's system.
The Company recorded an asset impairment charge of $1.5 million in the
quarter ended March 31, 2001 related to its Saratoga Springs, New York building.
This is in addition to a $3.0 million asset impairment charge taken in 1999
related to Saratoga Springs' assets. Operations of the Saratoga Springs plant
were transferred to other Company manufacturing locations and the building and
real property were sold in June 2001 for cash proceeds of $3.4 million. No gain
or loss was recognized on the June 2001 sale.
2000: The Company announced the planned closure of its Perrysburg, Ohio
folding carton plant in the second quarter of 2000. The Perrysburg plant was
part of the Fort James folding carton operations and was eliminated due to
excess capacity. The shutdown and restructuring plan for the Perrysburg facility
included asset
29
impairments totaling $6.5 million, which were recorded in the second quarter of
2000 as a cost of the acquisition, with a resultant adjustment to goodwill. The
Company completed the closure of the plant and transition of the plant's
business to other Company facilities by the end of 2000. On July 11, 2001, the
remaining real estate was sold for cash proceeds of approximately $1.9 million.
No gain or loss was recognized on the sale.
1999: The Company recorded $5.9 million of asset impairment charges in 1999
due to decisions to close its Boulder, Colorado and Saratoga Springs, New York
plants. The Boulder plant has been replaced by a new manufacturing facility in
Golden, Colorado, which uses advanced equipment to improve the production
process. Due to certain delays in production transition to Golden, the Boulder
facility remains partially operational. The Saratoga Springs plant operated at
higher overhead levels than other plants and used gravure press technology.
Therefore, the decision was made to sell the Saratoga Springs property, move the
business to other folding carton plants, and dispose of the gravure presses at
Saratoga Springs. Boulder writedowns totaled $2.9 million and Saratoga Springs
writedowns totaled $3.0 million. The Saratoga Springs facility shutdown was
complete at December 31, 2000, and the real estate was sold in June 2001 for
cash proceeds of approximately $3.4 million. No gain or loss was recognized on
the sale.
Restructuring Charges
2001: In connection with the announced closure of the Newnan, Georgia plant
discussed above, the Company recorded restructuring charges totaling $2.4
million in the fourth quarter of 2001. The charges relate to severance packages
for 105 plant personnel which were communicated to employees in December 2001.
The Company expects to complete the Newnan restructuring plan by the end of
2002.
2000: In December 2000 the Company announced a restructuring plan to reduce
fixed-cost personnel. The plan includes the elimination of approximately 200
non-production positions across the Company, including the closure of the
Company's folding carton plant in Portland, Oregon, and offers severance
packages in accordance with the Company's policies. The total cost of the
reduction in force is $5.0 million, of which $3.0 million was recognized in the
fourth quarter 2000 results. The remaining cost of approximately $2.0 million
was recognized in the first half of 2001 when severance packages were
communicated to employees. The restructuring plan is essentially complete at
December 31, 2001 with approximately $0.2 million remaining to be paid in 2002.
No additional charges related to this restructuring plan are expected.
In connection with the announced closure of the Perrysburg, Ohio plant,
restructuring reserves were recorded totaling approximately $1.3 million in the
second quarter of 2000. The reserves relate to severance of approximately 100
production positions and other plant closing costs. Consistent with the asset
impairments related to the Perrysburg closure, the restructuring costs have been
accounted for as a cost of the Fort James packaging business acquisition, with a
resultant adjustment to goodwill. As of December 31, 2001, all the restructuring
charges have been paid relating to the Perrysburg closure.
The Company recorded a restructuring charge of $3.4 million in the first
quarter of 2000 for severance costs for 172 plant personnel as a result of the
announced closure of the Saratoga Springs, New York plant. The Saratoga Springs
plant was closed pursuant to a plant rationalization plan approved by the
Company's Board of Directors in the fourth quarter of 1999. The Company has
completed the closure of the Saratoga Springs plant and the transition of the
plant's business to other Company facilities. In the first quarter of 2001, the
Company reversed approximately $0.5 million of severance accruals which were
unneeded to complete the Saratoga Springs restructuring plan.
Essentially all of the remaining restructuring charges have been paid through
December 31, 2001 related to the Saratoga Springs facility shutdown.
1999: The Company recorded a $1.9 million restructuring charge pursuant to a
plant rationalization plan approved by the Company's Board of Directors in the
fourth quarter of 1999. The Company instituted this plan to further its goal of
refining its focus on folding carton packaging and to reduce headcount. The
Company initially
30
planned to complete this restructuring plan by the end of 2000. However,
customer needs in both Boulder, Colorado and Lawrenceburg, Tennessee impacted
the completion of the restructuring and resulted in the savings of approximately
$0.8 million of anticipated restructuring costs related to severance at the
Lawrenceburg facility. The 2000 restructuring expense is net of this $0.8
million benefit. At December 31, 2001, no further restructuring accruals remain
relating to this rationalization plan.
During 1998, the Company instituted a restructuring plan related to certain
of its operations and recorded $2.8 million in restructuring charges. This plan
included the consolidation and realignment of certain administrative functions
and the downsizing of its Franklin, Ohio operation. This plan resulted in the
elimination of approximately 20 administrative and 65 manufacturing positions
with related severance costs of approximately $2.5 million. This plan also
included approximately $0.3 million in other exit costs relating to the closure
of a divisional office in North Carolina. The Company completed this
restructuring in 1999.
The following table summarizes accruals related to the Company's
restructurings (in millions):
1999 2000 2000 2000/2001 2001
Plant S/Springs Perrysburg Reduction Newnan
Rationalization Plant Plant in Plant
Plan Closure Closure Force Closure Totals
--------------- --------- ---------- --------- ------- ------
(in millions)
Balance, December 31, 1998.............. $ 1.8 $ -- $ -- $ -- $ -- $ 1.8
1999 restructuring charges.............. 1.9 -- -- -- -- 1.9
Cash paid............................... (1.8) -- -- -- -- (1.8)
----- ----- ----- ----- ---- -----
Balance, December 31, 1999.............. 1.9 -- -- -- -- 1.9
2000 restructuring charges, net of
reversals............................. (0.8) 3.4 -- 3.0 -- 5.6
2000 restructuring--Perrysburg.......... -- -- 1.3 -- -- 1.3
Cash paid............................... (1.0) (2.0) (0.7) (0.1) -- (3.8)
----- ----- ----- ----- ---- -----
Balance, December 31, 2000.............. 0.1 1.4 0.6 2.9 -- 5.0
2001 restructuring charges, net of
reversals............................. -- (0.5) -- 2.0 2.4 3.9
Transfer of enhanced benefits to pension
liabilities........................... -- -- -- (2.2) -- (2.2)
Cash paid............................... (0.1) (0.8) (0.6) (2.5) -- (4.0)
----- ----- ----- ----- ---- -----
Balance, December 31, 2001.............. $ -- $ 0.1 $ -- $ 0.2 $2.4 $ 2.7
===== ===== ===== ===== ==== =====
Note 6. Indebtedness
The following table summarizes the Company's outstanding debt, in thousands.
At December 31,
-----------------
2001 2000
-------- --------
Senior Credit Facilities
Term loan due August 15, 2001................ $ -- $ 33,500
Five-year term loan due August 2, 2004....... 247,035 312,500
Revolving credit facility due August 2, 2004. 222,750 289,100
-------- --------
469,785 635,100
Subordinated notes due August 15, 2008.......... 50,000 --
Various notes payable........................... 5,974 5,572
-------- --------
Total debt...................................... 525,759 640,672
Less current maturities...................... 37,373 58,642
-------- --------
Total long-term debt............................ $488,386 $582,030
======== ========
31
Senior Credit Facilities
The Company has a revolving credit and term loan agreement (the "Credit
Agreement") with a group of lenders, with Bank of America, N.A. as agent.
Currently, the Credit Agreement is comprised of two senior credit facilities
(the "Senior Credit Facilities") including a $325.0 million five-year term loan
facility and a $400.0 million five-year revolving credit facility. Proceeds from
the existing Senior Credit Facilities were used to finance the August 2, 1999
acquisition of the Fort James Corporation's folding carton operations and to
repay the Company's other outstanding borrowings. At December 31, 2001, the
Company's borrowings under the Senior Credit Facilities totaled $469.8 million
and bore interest based on LIBOR plus 2.25%. The Company also had $4.1 million
of letters of credit outstanding at December 31, 2001. Available borrowings
under the line of credit were $173.2 million at December 31, 2001.
Amounts borrowed under the Credit Agreement bear interest under various
pricing alternatives plus a spread depending on the Company's leverage ratio.
The various pricing alternatives include (i) LIBOR, or (ii) the higher of the
Federal Funds Rate plus 0.5% or the prime rate. In addition, the Company pays a
commitment fee that varies based upon the Company's leverage ratio and the
unused portion of the revolving credit facility. Mandatory prepayments under the
Credit Agreement are required from the proceeds of any significant asset sale or
from the issuance of any debt or equity securities. In addition, the five-year
term loan is due in quarterly installments. Total installments for 2002 through
2004, respectively, are $35.0 million, $40.0 million and $25.0 million, with the
remaining balance due on August 2, 2004.
The Credit Agreement is collateralized by first priority liens on all
material assets of the Company and all of its domestic subsidiaries. The Credit
Agreement currently limits the Company's ability to pay dividends other than
permitted dividends on the preferred stock, and imposes limitations on the
incurrence of additional debt, acquisitions, capital expenditures and the sale
of assets.
Interest expense of $16.0 million was allocated to the discontinued
operations of CoorsTek in 1999, based upon CoorsTek's $200.0 million allocation
of total consolidated debt at the time of the spin-off for 1999.
The Company incurred debt extinguishment costs in August 1999 of $3.6 million
when existing debt instruments were repaid in connection with the purchase of
the Fort James Corporation's folding carton operations through the issuance of
new credit facilities.
Subordinated Debt
Pursuant to terms in the Credit Agreement, the Company completed a $50.0
million private placement of subordinated unsecured debt on August 15, 2001. The
purchaser of the notes was Golden Heritage, LLC, a company owned by several
Coors family trusts and a related party. The notes accrue interest at 10% per
annum, payable quarterly, beginning September 15, 2001. The notes mature August
15, 2008, but are redeemable, subject to the terms of the Credit Agreement, at a
premium of 3% in the first year, 1.5% in the second year and at par thereafter.
Proceeds were used to repay the remaining balance on the one-year term note due
August 15, 2001 and the balance was applied against the five-year senior credit
facilities.
Other Notes Payable
The Company had various notes payable totaling $6.0 million and $5.6 million
at December 31, 2001 and 2000, respectively. The notes bear interest at rates
ranging from 5.25% to 13.06% and mature in 2002 through 2008. The notes are
generally collateralized by equipment purchased with the proceeds from the
notes.
32
The maturities of long-term debt are as follows (in thousands):
2002...................... $ 37,373
2003...................... 40,177
2004...................... 394,958
2005...................... 191
Thereafter................ 53,060
--------
$525,759
========
Pending Refinancing Transactions
The Company expects to enter into certain refinancing transactions subsequent
to December 31, 2001 consisting of the following:
. $300.0 million senior subordinated notes;
. a secured $150.0 million funded term loan; and
. a secured $300.0 million revolving line of credit that will be partially
funded at the closing of the refinancing transactions.
The Company expects to use the proceeds from the refinancing transactions to
retire the Senior Credit Facilities, to repurchase the $50.0 million of existing
subordinated notes at par, to pay expenses and for general corporate purposes.
In connection with the refinancing transactions, the Company will incur a
non-cash charge to write off its remaining unamortized debt issuance costs.
These costs amount to $17.0 million at December 31, 2001. If the Company
continues to reduce LIBOR-based borrowings through increased cash flows, it may
also incur a charge related to its existing interest rate swap agreements if
they no longer qualify as a hedge of interest rate risk. At December 31, 2001,
the Company had $225.0 million notional value of interest rate swap agreements,
which had a negative fair value of $7.5 million.
The issuance of the senior subordinated notes will be contingent upon the
successful refinancing of the existing Senior Credit Facilities.
Note 7. Fair Value of Financial Instruments
The fair value of cash and cash equivalents and current maturities of
long-term debt approximates carrying value because of the short maturity of
these instruments. The fair value of the Company's long-term debt is estimated
based on the current rates offered to the Company for debt of the same remaining
maturity and credit quality. Because the interest rates on the long-term debt
are reset monthly, the carrying value approximates the fair value of long-term
debt.
The Company has entered into interest rate swap agreements to hedge the
underlying interest rates on $100 million of borrowings at an average fixed
interest rate of 5.94% and an average risk-free rate of 6.98% on $125 million of
its borrowings. In addition, the Company has interest rate contracts that
provide interest rate cap protection on $350 million of floating rate debt.
The Company is exposed to credit loss in the event of nonperformance by the
commercial banks that issued the interest rate contracts. However, the Company
does not anticipate nonperformance by these banks. The fair value of the
Company's interest rate derivatives at December 31, 2001, in thousands, is as
follows:
Interest rate swaps.......... $(7,545)
======
Interest rate caps.......... $ --
======
33
Note 8. Operating Leases
The Company leases a variety of facilities, warehouses, offices, equipment
and vehicles under operating lease agreements that expire in various years.
Future minimum lease payments, in thousands, required as of December 31, 2001,
under non-cancelable operating leases with terms exceeding one year, are as
follows:
2002............... $2,772
2003............... 1,958
2004............... 1,258
2005............... 423
2006 and thereafter 215
------
Total........... $6,626
======
Operating lease rentals for warehouse, production, office facilities and
equipment amounted to $3.3 million in 2001, $3.1 million in 2000 and $4.3
million in 1999.
Note 9. Income Taxes
The sources of income (loss), in thousands, from continuing operations before
income taxes and extraordinary item were:
Year Ended December 31,
-------------------------
2001 2000 1999
------- -------- -------
Domestic........................................................ $10,689 $(11,228) $25,260
Foreign......................................................... 4 (448) 5,095
------- -------- -------
Income (loss) from continuing operations before income taxes and
extraordinary loss............................................ $10,693 $(11,676) $30,355
======= ======== =======
The total provision for income taxes, in thousands, included the following:
Year Ended December 31,
--------------------------
2001 2000 1999
------- -------- -------
Current provision:
Federal.............................. $(4,345) $(15,011) $13,940
State................................ 185 321 1,741
Foreign.............................. -- -- 4,347
------- -------- -------
Total current tax expense (benefit).. $(4,160) $(14,690) $20,028
======= ======== =======
Deferred provision:
Federal.............................. $ 9,250 $ 11,229 $ 800
State................................ (833) (1,217) 704
Foreign.............................. -- -- (4,963)
------- -------- -------
Total deferred tax expense (benefit). 8,417 10,012 (3,459)
------- -------- -------
Total income tax expense (benefit)...... $ 4,257 $ (4,678) $16,569
======= ======== =======
The total provision for income taxes, in thousands, is included in the
consolidated income statement as follows:
Year Ended December 31,
-----------------------
2001 2000 1999
------ ------- -------
Continuing operations................. $4,257 $(4,678) $11,945
Discontinued operations............... -- -- 5,936
Extraordinary item.................... -- -- (1,312)
------ ------- -------
Total income tax expense (benefit). $4,257 $(4,678) $16,569
====== ======= =======
34
Temporary differences that gave rise to a significant portion of deferred tax
assets (liabilities), in thousands, were as follows:
At December 31,
------------------
2001 2000
-------- --------
Depreciation and other property related....... $(43,570) $(37,500)
Amortization of intangibles................... (12,306) (7,965)
-------- --------
Gross deferred tax liability............... (55,876) (45,465)
-------- --------
Pension and employee benefits................. 20,551 11,854
Tax credit carryforwards...................... 13,719 8,251
Interest...................................... 3,414 156
Inventory..................................... 2,195 3,061
Accruals...................................... 7,557 7,075
Net operating loss and contribution carryovers 6,814 10,102
All other..................................... 279 111
-------- --------
Gross deferred tax asset................... 54,529 40,610
Less valuation allowance................... (256) (338)
-------- --------
Net deferred tax asset (liability)............ $ (1,603) $ (5,193)
======== ========
Financial statement classification:
Current deferred tax asset................. $ 17,378 $ 14,305
Long-term deferred tax liability........... (18,981) (19,498)
-------- --------
Net deferred tax liability.................... $ (1,603) $ (5,193)
======== ========
The valuation allowance for deferred tax assets was decreased by $82,000 in
2001 and increased by $215,000 in 2000. The changes in the valuation allowance
relate to uncertainty surrounding the ultimate deductibility of a foreign net
operating loss carryforward.
At December 31, 2001 the Company had federal net operating loss carryforwards
of approximately $7.9 million which will begin to expire in years after 2021.
The Company also has approximately $11.3 million of alternative minimum tax
credits which have an indefinite carryforward period and $2.5 million in
research and development credits which will begin to expire in years after 2017.
The principal differences between the effective income tax rate, attributable
to continuing operations, and the U.S. statutory federal income tax rate, were
as follows:
Year Ended December 31,
----------------------
2001 2000 1999
----- ----- ----
Expected tax rate............................... 35.0% (35.0%) 35.0%
State income taxes (net of federal benefit)..... 3.4 (3.2) 3.2
Nondeductible expenses and losses............... 19.7 26.7 2.4
Effect of foreign investments................... -- (0.1) (3.3)
Change in deferred tax asset valuation allowance (.8) 1.8 0.4
Research and development and other tax credits.. (14.4) (28.3) --
Other--net...................................... (3.1) (2.0) 1.7
----- ----- ----
Effective tax rate........................... 39.8% (40.1%) 39.4%
===== ===== ====
The Internal Revenue Service ("IRS") is examining the Company's Federal
income tax returns for the years 1999 and 2000. In the opinion of management,
adequate accruals have been provided for all income tax matters and related
interest.
As a result of certain restructuring actions, the undistributed earnings of
foreign subsidiaries previously considered as being permanently reinvested have
been distributed to the U.S. as a dividend. Foreign tax credits
35
eliminated the resulting U.S. income tax liability on the dividend. The Company
no longer provides for U.S. or additional foreign taxes on undistributed
earnings of foreign subsidiaries, since all foreign subsidiaries' income is
included in the U.S. return.
The Company and CoorsTek have executed a tax sharing agreement that defines
the parties' rights and obligations with respect to deficiencies and refunds of
Federal, state and other taxes relating to the CoorsTek business for tax years
prior to the spin-off and with respect to certain tax attributes of CoorsTek
after the spin-off. In general, the Company is responsible for filing
consolidated Federal and combined or consolidated state tax returns and paying
the associated taxes for periods through December 31, 1999. CoorsTek will
reimburse the Company for the portion of such taxes relating to the CoorsTek
business. CoorsTek is responsible for filing returns and paying taxes related to
the CoorsTek business for periods after December 31, 1999.
The tax sharing agreement is designed to preserve the status of the spin-off
as a tax-free distribution. CoorsTek has agreed that it will refrain from
engaging in certain transactions during the two-year period following the
spin-off unless it first provides the Company with a ruling from the IRS or an
opinion of tax counsel acceptable to the Company that the transaction will not
adversely affect the tax-free nature of the spin-off. In addition, CoorsTek has
indemnified the Company against any tax liability or other expense it may incur
if the spin-off is determined to be taxable as a result of CoorsTek's breach of
any covenant or representation contained in the tax sharing agreement or
CoorsTek's action in effecting such transactions. By its terms, the tax sharing
agreement will terminate when the statutes of limitations under applicable tax
laws expire.
Note 10. Stock Compensation
The Company has an equity incentive plan that provides for the granting of
nonqualified stock options and incentive stock options to certain key employees.
The equity incentive plan also provides for the granting of restricted stock,
bonus shares, stock units and offers to officers of the Company to purchase
stock. The number of shares made available for award under the plan was equal to
4.8 million shares and is being increased annually by 2% of the Company's
outstanding shares on each preceding December 31 beginning with 1997. Generally,
options outstanding under the Company's equity incentive plan are subject to the
following terms: (1) grant price equal to 100% of the fair value of the stock on
the date of grant; (2) ratable vesting over either a three-year or four-year
service period; and (3) maximum term of ten years from the date of grant.
Officers' options granted after 1998 generally provide for accelerated vesting
upon attainment of certain stock prices or debt to EBITDA ratios, as defined by
the equity incentive plan, but vest completely after five years.
In conjunction with the spin-off of CoorsTek at December 31, 1999, the
Company cancelled options held by CoorsTek employees and adjusted the remaining
options outstanding to reflect the new ratio of exercise price to market price
of the Company's stock immediately prior and subsequent to the spin-off. The
changes consisted of reducing the exercise price relative to the new market
price and increasing the number of shares underlying the outstanding options, so
as to restore the option holder to the economic position that existed
immediately prior to the spin-off.
36
Stock option activity was as follows (shares in thousands):
Year Ended December 31,
------------------------------------------------
2001 2000 1999
--------------- --------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Options outstanding at January 1......... 6,262 $6.04 4,281 $8.86 2,672 $17.80
Granted.................................. 251 $4.62 2,523 $1.66 1,912 $13.43
Exercised................................ -- -- -- -- -- --
Expired or forfeited..................... (490) $6.27 (542) $7.88 (177) $17.62
Cancellation of CoorsTek employee options -- -- -- -- (2,036) $15.63
GPIC employee options conversion......... -- -- -- -- 1,910 --
----- ----- ----- ----- ------ ------
Options outstanding at December 31....... 6,023 $5.96 6,262 $6.04 4,281 $ 8.86
===== ===== ===== ===== ====== ======
Exercisable.............................. 2,336 $9.64 2,302 $9.73 2,262 $ 9.41
===== ===== ===== ===== ====== ======
Available for future grant............... 2,315 1,458 664
===== ===== ======
The following table summarizes information about stock options outstanding at
December 31, 2001 (shares in thousands):
Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Range of Options Remaining Exercise Options Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- -------- ----------- --------
$1.56 to $7.52.. 3,189 7.92 years $ 2.86 501 $ 6.58
$7.56 to $10.17. 2,326 4.61 years $ 8.81 1,326 $ 9.75
$10.48 to $13.74 508 5.39 years $12.36 509 $12.36
----- ---------- ------ ----- ------
$1.56 to $13.74. 6,023 6.43 years $ 5.96 2,336 $ 9.64
===== ========== ====== ===== ======
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation expense has been recognized for its equity
incentive plan and employee stock purchase plan. If the Company had elected to
recognize compensation cost based on the fair value of the stock options at
grant date as allowed by SFAS No. 123, Accounting for Stock-Based Compensation,
pre-tax compensation expense of $1.7 million, $1.2 million and $3.5 million
would have been recorded for 2001, 2000 and 1999, respectively. Net income
(loss) attributable to common shareholders and earnings per share would have
been reduced to the pro forma amounts indicated below:
Year Ended December 31,
--------------------------
2001 2000 1999
------- -------- -------
Net income (loss) attributable to common
shareholders, in thousands:
As reported.......................... ($3,564) ($10,804) $25,259
Pro forma............................ ($4,584) ($11,524) $23,159
Earnings per share--basic:
As reported.......................... ($ 0.11) ($ 0.37) $ 0.89
Pro forma............................ ($ 0.15) ($ 0.39) $ 0.81
Earnings per share--diluted:............
As reported.......................... ($ 0.11) ($ 0.37) $ 0.88
Pro forma............................ ($ 0.15) ($ 0.39) $ 0.81
37
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: (1)
dividend yield of 0%; (2) expected volatility of 70% in 2001, 56.3% in 2000 and
30.8% in 1999; (3) risk-free interest rate ranging from 3.7% to 5.5% in 2001,
4.2% to 6.4% in 2000 and 5.7% to 6.7% in 1999; and (4) expected life of 4.5 to
9.0 years in 2001, 3 to 9.91 years in 2000 and 3 to 6.36 years in 1999. The
weighted average per-share fair value of options granted during 2001, 2000 and
1999 was $3.52, $1.09 and $6.82, respectively.
Note 11. Defined Benefit Plans
The Company maintains a defined benefit pension plan for the majority of
employees. Benefits are based on years of service and average base compensation
levels over a period of years. Plan assets consist primarily of equity and
interest-bearing investments. The Company's funding policy is to contribute
annually not less than the minimum funding required by the internal revenue code
nor more than the maximum amount that can be deducted for federal income tax
purposes.
Non-union retirement health care and life insurance benefits are provided to
certain employees hired prior to June 1999 and eligible dependents. Eligible
employees may receive these benefits after reaching age 55 with 10 years of
service. Prior to reaching age 65, eligible retirees may receive certain health
care benefits identical to those available to active employees. The amount the
retiree pays is based on age and service at the time of retirement. These plans
are not funded.
The following assets (liabilities), in thousands, were recognized for the
combined defined benefit plans of the Company at December 31:
Pension Benefits Other Benefits
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
Change in benefit obligation
Benefit obligation at beginning of year......... $121,486 $103,110 $ 18,241 $ 16,778
Service cost.................................... 4,447 5,094 431 633
Interest cost................................... 9,400 8,434 1,286 1,257
Plan amendments................................. 4,517 -- (1,832) --
Actuarial loss (gain)........................... (2,475) 6,755 -- --
Change in actuarial assumptions................. 8,906 -- 678 --
Benefits paid................................... (3,078) (1,907) (1,172) (427)
-------- -------- -------- --------
Benefit obligation at end of year............... 143,203 121,486 17,632 18,241
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at beginning of year.. 118,344 112,273 -- --
Actual return on plan assets.................... (5,794) 6,534 -- --
Company contributions........................... 2,306 1,444 -- --
Benefits paid................................... (3,078) (1,907) -- --
-------- -------- -------- --------
Fair value of plan assets at end of year........ 111,778 118,344 -- --
-------- -------- -------- --------
Funded status................................... (31,425) (3,142) (17,632) (18,241)
Unrecognized actuarial loss (gain).............. 30,208 6,181 (2,156) (2,959)
Unrecognized prior service cost/intangible asset 7,640 6,254 (3,187) (1,688)
Unrecognized transition asset................... -- (72) -- --
-------- -------- -------- --------
Net prepaid (accrued) benefit cost.............. $ 6,423 $ 9,221 $(22,975) $(22,888)
======== ======== ======== ========
Weighted average assumptions at year end
Discount rate................................... 7.25% 7.75% 7.25% 7.75%
Expected long-term return on plan assets........ 9.75% 9.75% -- --
Rate of compensation increase................... 4.75% 5.25% -- --
The Company had accumulated benefit obligations in excess of the fair value
of its plan assets totaling $24.9 million and $0.7 million at December 31, 2001
and 2000, respectively, which are reflected as a minimum pension liability in
other long term liabilities in the accompanying balance sheet.
38
It is the Company's policy to amortize unrecognized gains and losses in
excess of 10% of the larger of plan assets and the projected benefit obligation
("PBO") over the expected service of active employees (12-15 years). However, in
cases where the accrued benefit liability exceeds the actual unfunded liability
by more than 20% of the PBO, the amortization period is reduced to 5 years.
For measurement purposes, a 6.5%, 6.5% and 7.0% annual rate of increase in
the per capita cost of covered health care benefits was assumed for 2001, 2000
and 1999, respectively. The rate is assumed to decrease by 0.5% per annum to
4.75% and remain at that level thereafter.
The following, in thousands, represents the Company's net periodic benefit
cost.
Pension Benefits Other Benefits
-------------------------- ---------------------
2001 2000 1999 2001 2000 1999
-------- ------- ------- ------ ------ -----
Components of net periodic benefit cost
Service cost........................... $ 4,447 $ 5,094 $ 3,707 $ 431 $ 633 $ 423
Interest cost.......................... 9,400 8,434 5,466 1,286 1,257 831
Actual return on plan assets........... 5,794 (6,534) (1,805) -- -- --
Deferred investment loss............... (17,662) (4,939) (5,475) -- -- --
Amortization of prior service cost..... 755 552 262 (334) (422) (703)
Recognized actuarial loss (gain)....... 67 136 517 (125) (448) (385)
Transition asset amortization.......... (72) (69) (69) -- -- --
-------- ------- ------- ------ ------ -----
Net periodic benefit cost.............. $ 2,729 $ 2,674 $ 2,603 $1,258 $1,020 $ 166
======== ======= ======= ====== ====== =====
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects, in thousands:
1% Point 1% Point
Increase Decrease
-------- --------
Effect on total of service and interest cost components $ 290 $ (240)
Effect on postretirement benefit obligation............ $1,475 $(1,265)
Note 12. Defined Contribution Plan
The Company provides a defined contribution profit sharing plan for the
benefit of its employees, (the "Plan"). The Plan and its associated trust are
intended to comply with the provisions of the Internal Revenue Code and ERISA,
to qualify as a profit sharing plan for all purposes of the Code, and to provide
a cash or deferred arrangement that is qualified under Code Section 401(k).
Generally, employees expected to complete at least 1,000 hours of service per
year are immediately eligible to participate in the Plan upon employment.
Effective January 1, 2000, Company matching was increased to 60% of participant
contributions up to 3.6% of participant annual compensation and was denominated
in the Company's common stock. Prior to 2000, the Plan generally provided for
Company matching of 50% of participant contributions, up to 2.5% of participant
annual compensation. Company expenses related to the matching provisions of the
Plan totaled approximately $4.3 million, $4.2 million and $2.4 million in 2001,
2000 and 1999, respectively. The Plan also provides for discretionary matching.
The Company did not elect to provide discretionary matching under this provision
in 2001, 2000 or 1999.
Note 13. Shareholders' Rights Plan
On June 1, 2000, the Company effected a dividend distribution of shareholder
rights (the "Rights") that carry certain conversion rights in the event of a
significant change in beneficial ownership of the Company. One right is attached
to each share of the Company's common stock outstanding and is not detachable
until such time as beneficial ownership of 15% or more of the Company's
outstanding common stock has occurred (a "Triggering Event") by a person or
group of affiliated or associated persons (an Acquiring Person). Each Right
39
entitles each registered holder (excluding the Acquiring Person) to purchase
from the Company one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share, at a purchase price of $42.00.
Registered holders receive shares of the Company's common stock valued at twice
the exercise price of the Right upon exercise. Upon a Triggering Event, the
Company is entitled to exchange one share of the Company's common stock for each
right outstanding or to redeem the Rights at a price of $.001 per Right. The
Rights will expire on June 1, 2010.
Note 14. Preferred Stock
On August 15, 2000 the Company issued one million shares of 10% Series B
Convertible Preferred Stock (the "Preferred Stock") at $100 per share to the
Grover C. Coors Trust (the "Trust"). At the time of the issuance of the
Preferred Stock, the Trust owned 9% of the Company's outstanding common stock.
The Trust's beneficiaries are members of the Coors family. Individual members of
the Coors family and other Coors family trusts held a controlling interest in
the Company at the time of issuance of the Preferred Stock. As a condition to
the issuance of the Preferred Stock, a fairness opinion was obtained as to the
consideration received and the value of the Preferred Stock at issuance was
consistent with open market conditions and values for similar securities.
The Trust, as holder of the Preferred Stock, has the following rights and
preferences:
Conversion Feature
Each share of Preferred Stock is convertible into shares of the Company's
common stock at $2.0625 per share of common stock. The conversion price of
$2.0625 was 125% of the average NYSE closing price per share of the Company's
common stock for the five trading days prior to August 15, 2000 - which was
$1.65. The Preferred Stock was issued at $100 per share; therefore, a complete
conversion would result in the issuance of 48,484,848 additional shares of the
Company's common stock.
The Trust held 2,727,016 shares of the Company's common stock on December 31,
2001 which represents approximately 8% of all common shares outstanding
(32,188,941). On an as-converted basis, the Trust would hold 51,211,864 shares
of the Company's common stock on December 31, 2001, which would be approximately
63.5% of all shares outstanding (80,673,789).
Redemption Feature
The Company can redeem the Preferred Stock at $105 per share beginning on
August 15, 2005, reduced by $1 per share each year until August 15, 2010.
Dividends
Dividends are payable quarterly at an annual rate of 10%. Dividends are
cumulative and hold a preference to any dividends paid to other shareholders.
The Preferred Stock participates in any common stock dividends on an
as-converted basis. If dividends are not paid for two consecutive quarters, the
Trust may elect one director to the Company's Board. If dividends are not paid
for four consecutive quarters, the Trust may elect a majority of the directors
to the Company's Board and effectively control the Company.
Liquidation Preference
The Preferred Stock has a liquidation preference over the Company's common
stock at $100 per share, plus unpaid dividends. The Preferred Stock also
participates in any liquidation distributions to the common shareholders on an
as-converted basis.
Voting and Registration Rights
Every two shares of common stock underlying the Preferred Stock on an
as-converted basis receive one vote. Therefore, the Trust currently votes
24,242,424 shares, in addition to the 2,727,016 shares of common stock held. The
Trust may require the Company, with certain limitations, to register under the
Securities Act of 1933 the common shares into which the Preferred Stock may be
converted.
40
Note 15. Related Party Transactions
On December 28, 1992, the Company was spun off from Adolph Coors Company
("ACCo") and since that time ACCo has had no ownership interest in the Company.
However, certain Coors family trusts have significant interests in both the
Company and ACCo. At the time of spin-off from ACCo, the Company entered into
agreements with Coors Brewing Company, a subsidiary of ACCo, for the sale of
packaging and other products. The initial agreements had a stated term of five
years and have resulted in substantial revenues to the Company. The Company
continues to sell packaging products to Coors Brewing.
In 1998, the packaging supply agreement with Coors Brewing was renegotiated.
The new five-year agreement includes stated quantity commitments and requires
annual repricing.
Sales to Coors Brewing accounted for approximately 11%, 10% and 13% of the
Company's consolidated gross sales for 2001, 2000 and 1999, respectively. The
loss of Coors Brewing as a customer in the foreseeable future could have a
material effect on the Company's results of operations.
A Company subsidiary is a general partner in a limited partnership in which
Coors Brewing is the limited partner. The partnership owns, develops, operates
and sells certain real estate previously owned directly by Coors Brewing or
ACCo. Distributions were allocated equally between the partners until late 1999
when Coors Brewing recovered its investment. Thereafter, distributions are made
80 percent to the general partner and 20 percent to Coors Brewing. No
distributions were made in 2001. Distributions of approximately $1.8 million
were made to each partner in 1999. Distributions in 2000 were approximately $0.8
million to Coors Brewing and $3.2 million to the Company. Coors Brewing's share
of the partnership net assets was $4.4 million and is reflected as minority
interest on the Company's balance sheet.
In connection with the spin-off of CoorsTek at December 31, 1999, GPC and
CoorsTek entered into contracts governing certain relationships between them
following the spin-off, including a tax-sharing agreement, a transitional
services agreement and certain other agreements.
On March 31, 2000 the Company sold the net assets of its GTC Nutrition
subsidiary to an entity controlled by a member of the Coors family for
approximately $0.7 million. No gain or loss was recognized as a result of the
sale.
In August 2001, the Company completed a $50.0 million private placement of
subordinated unsecured notes. The purchaser of the notes was Golden Heritage,
LLC, a company owned by several Coors family trusts and a related party. See
Note 6 for further discussion.
In August 2000 the Company issued $100.0 million of preferred stock to the
Grover C. Coors Trust. See Note 14 for further discussion.
Note 16. Commitments and Contingencies
It is the policy of the Company generally to act as a self-insurer for
certain insurable risks consisting primarily of employee health insurance
programs. With respect to workers' compensation, the Company uses a variety of
fully or partially self-funded insurance vehicles. The Company maintains certain
stop-loss and excess insurance policies that reduce overall risk of financial
loss.
In the ordinary course of business, the Company is subject to various pending
claims, lawsuits and contingent liabilities, including claims by current or
former employees. In each of these cases, the Company is vigorously defending
against them. Although the eventual outcome cannot be predicted, it is
management's opinion that disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.
41
The Company is a partner in the Kalamazoo Valley Group, a partnership formed
to develop and operate a landfill for the partners' disposal of paper residuals
from their respective paperboard mills, and which borrowed $1.5 million for the
construction of the landfill. Recently, the other parties have closed their
paperboard mills and one minority partner has filed bankruptcy. The Company is
evaluating its alternatives and liabilities under the partnership agreement and
related note. The landfill remains in operation at December 31, 2001. However,
if the partnership were to close the landfill, the Company's share of estimated
closing costs, perpetual care obligations and debt repayment would approximate
$2.5 million under the terms of the partnership agreement. The Company's
investment of $1.3 million at December 31, 2001 is included in other long-term
assets on the accompanying balance sheet.
Some of the Company's operations have been notified that they may be
potentially responsible parties (PRPs) under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar state laws with
respect to the remediation of certain sites where hazardous substances have been
released into the environment. The Company cannot predict with certainty the
total costs of remediation, its share of the total costs, the extent to which
contributions will be available from other parties, the amount of time necessary
to complete the remediation or the availability of insurance. However, based on
the investigations to date, the Company believes that any liability with respect
to these sites would not be material to the financial condition, results of
operations or cash flow of the Company, without consideration for insurance
recoveries. There can be no certainty, however, that the Company will not be
named as a PRP at additional sites or be subject to other environmental matters
in the future or that the costs associated with those additional sites or
matters would not be material.
In connection with the sale of various businesses, the Company has
periodically agreed to guarantee the collectibility of accounts receivable and
indemnify purchasers for certain liabilities for a specified period of time.
Such liabilities include, but are not limited to, environmental matters and the
indemnification periods generally last for 2 to 15 years.
In connection with the resale of the aluminum business in 1999, the Company
guaranteed accounts receivable owed by the former owner of these assets. After
the resale, the former owner refused to pay the amounts owed, $2.4 million.
Pursuant to the terms of the resale agreement, the Company paid this amount and
sued the former owner. The $2.4 million is reflected as a receivable on the
Company's balance sheet. The former owner counterclaimed for an additional $11.0
million for certain spare parts and the Company claimed an additional $14.3
million in overpayment for raw materials to run the business prior to resale.
The parties have filed motions for summary judgment. The Company does not
believe that the result of this litigation will have a material adverse effect
on its consolidated financial position, or results of operations or cash flows.
42
Note 17. Segment Information
The Company's reportable segments are based on its method of internal
reporting, which is based on product category. Thus, the Company's one
reportable segment in 2001 and 2000 is Packaging. The Company's Other segment in
1999 includes a real estate development partnership, a majority interest in a
group of solar electric distribution companies prior to their August 3, 1999
sale and, prior to March 1999, several technology-based businesses.
The accounting policies of the segments are the same as those described in
Note 1 and there are generally no intersegment transactions. In 1999, the
Company evaluated the performance of its segments and allocated resources to
them based primarily on operating income.
The table below summarizes information, in thousands, about reportable
segments as of and for the years ended December 31. Discontinued operations
include CoorsTek.
Depreciation
Operating and Capital
Net Sales Income Amortization Assets Expenditures
---------- --------- ------------ ---------- ------------
2001
Packaging.......................... $1,112,535 $ 59,854 $ 79,406 $1,229,335 $ 31,884
========== ======== ======= ========= =======
2000
Packaging.......................... $1,102,590 $ 51,223 $ 83,094 $1,332,518 $ 30,931
========== ======== ======= ========= =======
1999
Packaging.......................... $ 805,593 $ 42,735 $ 55,406 $1,397,518 $ 74,273
Other.............................. 44,562 2,103 618 19,699 1,568
---------- -------- ------- --------- -------
Segment total................... 850,155 44,838 56,024 1,417,217 75,841
Corporate.......................... -- (10,479) 260 225,954 17
Discontinued operations, net assets -- -- 22,711 -- 15,597
---------- -------- ------- --------- -------
Consolidated total.............. $ 850,155 $ 34,359 $ 78,995 $1,643,171 $ 91,455
========== ======== ======= ========= =======
Corporate assets for 1999 consist primarily of a $200.0 million note
receivable from CoorsTek as a result of the spin-off, and debt issuance costs.
43
Certain financial information regarding the Company's domestic and foreign
operations is included in the following summary, which excludes discontinued
operating segments. Long-lived assets include plant, property and equipment,
intangible assets, and certain other non-current assets.
Long-Lived
Net Sales Assets
---------- ----------
(In thousands)
2001
----
United States................$1,109,293 $1,032,748
Canada....................... 3,242 1,736
Other........................ -- 2,066
---------- ----------
Total...................... $1,112,535 $1,036,550
========== ==========
2000
----
United States............... $1,100,491 $1,103,411
Canada....................... 2,099 1,974
Other........................ -- 2,694
---------- ----------
Total...................... $1,102,590 $1,108,079
========== ==========
1999
----
United States............... $ 798,277 $1,189,599
Canada....................... 51,878 3,689
Other........................ -- 2,694
---------- ----------
Total..................... $ 850,155 $1,195,982
========== ==========
Note 18. Supplemental Information
The Company is in the process of completing a private placement offering of
$300.0 million of senior subordinated notes. Under the proposed terms of the
senior subordinated notes, Graphic Packaging Corporation, a wholly owned
subsidiary of Graphic Packaging International Corporation, would be the issuer
of the notes.
The senior subordinated notes will be fully and unconditionally guaranteed by
Graphic Packaging International Corporation and its other domestic subsidiaries.
The foreign subsidiaries of Graphic Packaging International Corporation and a
real estate development partnership will not guarantee the senior subordinated
notes.
The following presents condensed financial information of (a) Graphic
Packaging Corporation (the "Issuer"); (b) Graphic Packaging International
Corporation (the "Parent"); (c) the guarantor subsidiaries; (d) the nonguarantor
subsidiaries; and (e) the Company on a consolidated basis.
Graphic Packaging Corporation and Graphic Packaging International Corporation
are co-borrowers under the Company's existing senior bank debt and subordinated
debt agreements. Interest expense under these borrowing agreements is recorded
by Graphic Packaging Corporation. In addition, Graphic Packaging Corporation
incurred $8.6 million of additional interest expense in 2001 pursuant to a $92.7
million intercompany loan from Graphic Packaging International Corporation.
The condensed consolidating financial statements are presented on the equity
method. Under this method, investments in subsidiaries are recorded at cost and
adjusted for the parent company's share of the subsidiaries' cumulative results
of operations, capital contributions, distributions and other equity changes.
The elimination entries relate primarily to investments in subsidiaries,
intercompany loans and other intercompany transactions.
44
CONDENSED CONSOLIDATING INCOME STATEMENT
Year Ended December 31, 2001
(in thousands)
Guarantor Nonguarantor Consolidated
Issuer Parent Subsidiaries Subsidiaries Eliminations Total
---------- -------- ------------ ------------ ------------ ------------
Net sales........................ $1,108,878 $ -- $ -- $3,657 $ -- $1,112,535
Cost of goods sold............... 956,631 -- -- 3,627 -- 960,258
---------- -------- ------- ------ ------- ----------
Gross profit..................... 152,247 -- -- 30 -- 152,277
Selling, general and
administrative expense......... 62,789 -- 33 52 -- 62,874
Goodwill amortization............ 20,649 -- -- -- -- 20,649
Asset impairment and
restructuring charges.......... 8,900 -- -- -- -- 8,900
Equity in (earnings) of
subsidiaries................... (2,471) (1,248) (101) -- 3,820 --
---------- -------- ------- ------ ------- ----------
Operating income (loss).......... 62,380 1,248 68 (22) (3,820) 59,854
Gain from sale of businesses and
other assets................... -- -- 3,650 -- -- 3,650
Interest (expense) income........ (61,941) 8,619 288 223 -- (52,811)
---------- -------- ------- ------ ------- ----------
Income (loss) before taxes....... 439 9,867 4,006 201 (3,820) 10,693
Income tax (expense) benefit..... (174) (3,928) (1,595) (80) 1,520 (4,257)
---------- -------- ------- ------ ------- ----------
Net income (loss)................ 265 5,939 2,411 121 (2,300) 6,436
Preferred stock dividends
declared....................... -- (10,000) -- -- -- (10,000)
---------- -------- ------- ------ ------- ----------
Net income (loss) attributable to
common shareholders............ $ 265 $ (4,061) $ 2,411 $ 121 $(2,300) $ (3,564)
========== ======== ======= ====== ======= ==========
45
CONDENSED CONSOLIDATING BALANCE SHEET
At December 31, 2001
(in thousands)
Guarantor Nonguarantor Consolidated
Issuer Parent Subsidiaries Subsidiaries Eliminations Total
---------- -------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents................ $ 1,145 $ 976 $ -- $ 4,645 $ -- $ 6,766
Accounts receivable, net................. 56,560 135,301 93 834 (133,314) 59,474
Inventories.............................. 92,154 -- -- 254 -- 92,408
Other assets............................. 33,101 -- -- 24,024 (23,969) 33,156
---------- -------- --------- --------- --------- ----------
Total current assets................... 182,960 136,277 93 29,757 (157,283) 191,804
Properties, net.......................... 434,549 -- -- 9,163 -- 443,712
Goodwill, net............................ 559,696 -- -- -- -- 559,696
Other assets............................. 18,626 471,914 3,566 18,075 (478,058) 34,123
---------- -------- --------- --------- --------- ----------
Total assets.............................. $1,195,831 $608,191 $ 3,659 $ 56,995 $(635,341) $1,229,335
========== ======== ========= ========= ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of
long-term debt......................... $ 36,156 $ -- $ -- $ 1,217 $ -- $ 37,373
Accounts payable......................... 58,110 534 -- 358 -- 59,002
Other current liabilities................ 59,929 33,286 2,730 1,500 (24,419) 73,026
---------- -------- --------- --------- --------- ----------
Total current liabilities.............. 154,195 33,820 2,730 3,075 (24,419) 169,401
Long-term debt............................ 579,006 -- -- 2,055 (92,675) 488,386
Other long-term liabilities............... 208,823 1,959 4,356 233,357 (374,595) 73,900
---------- -------- --------- --------- --------- ----------
Total liabilities........................ 942,024 35,779 7,086 238,487 (491,689) 731,687
Shareholders' equity
Preferred stock.......................... -- 100,000 -- -- -- 100,000
Common stock............................. -- 322 1,829 1,540 (3,369) 322
Paid-in capital.......................... 283,787 234,975 234,075 (180,753) (154,335) 417,749
Retained earnings (deficit).............. (8,993) 235,353 (239,331) (1,643) 14,052 (562)
Accumulated other comprehensive
income (loss).......................... (20,987) 1,762 -- (636) -- (19,861)
---------- -------- --------- --------- --------- ----------
Total shareholders' equity............. 253,807 572,412 (3,427) (181,492) (143,652) 497,648
---------- -------- --------- --------- --------- ----------
Total liabilities and shareholders' equity $1,195,831 $608,191 $ 3,659 $ 56,995 $(635,341) $1,229,335
========== ======== ========= ========= ========= ==========
46
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2001
(in thousands)
Guarantor Nonguarantor Consolidated
Issuer Parent Subsidiaries Subsidiaries Eliminations Total
--------- -------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities........ $ 141,944 $ 12,772 $(3,650) $ 633 $ -- $ 151,699
--------- -------- ------------ ------------ ------------ ------------
Cash flows from investing activities:
Additions to properties...... (31,884) -- -- -- -- (31,884)
Proceeds from sales of
assets..................... 5,300 -- 3,650 -- -- 8,950
--------- -------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities........ (26,584) -- 3,650 -- -- (22,934)
Cash flows from financing activities:
Proceeds from borrowings..... 206,750 -- -- -- -- 206,750
Repayment of debt............ (320,965) -- -- -- -- (320,965)
Preferred stock dividends
paid....................... -- (12,083) -- -- -- (12,083)
Common stock issuance and
other...................... -- 287 -- -- -- 287
--------- -------- ------------ ------------ ------------ ------------
Net cash used in financing
activities.................. (114,215) (11,796)- -- -- -- (126,011)
Cash and cash equivalents:
Net increase................. 1,145 976 -- 633 -- 2,754
Balance at beginning of year. -- -- -- 4,012 -- 4,012
--------- -------- ------------ ------------ ------------ ------------
Balance at end of year....... $ 1,145 $ 976 $ -- $4,645 $ -- $ 6,766
========= ======== ============ ============ ============ ============
47
Note 19. Quarterly Financial Information (Unaudited)
The following information summarizes selected quarterly financial
information, in thousands except per share data, for each of the two years in
the period ended December 31, 2001.
2001 First Second Third Fourth Year
---- -------- -------- -------- -------- ----------
Net sales.................................... $288,444 $283,252 $270,818 $270,021 $1,112,535
Cost of goods sold........................... 248,210 240,976 234,363 236,709 960,258
-------- -------- -------- -------- ----------
Gross profit................................. 40,234 42,276 36,455 33,312 152,277
Selling, general and administrative expense.. 14,489 16,428 16,061 15,896 62,874
Goodwill amortization........................ 5,169 5,143 5,175 5,162 20,649
Asset impairment and restructuring charges... 2,000 1,000 -- 5,900 8,900
-------- -------- -------- -------- ----------
Operating income............................. 18,576 19,705 15,219 6,354 59,854
Gain from sale of businesses and other assets 3,650 -- -- -- 3,650
Interest expense............................. (16,125) (13,530) (12,429) (10,727) (52,811)
-------- -------- -------- -------- ----------
Income (loss) before income taxes............ 6,101 6,175 2,790 (4,373) 10,693
Income tax expense (benefit)................. (2,420) (2,446) (1,160) 1,769 (4,257)
-------- -------- -------- -------- ----------
Net income (loss)............................ 3,681 3,729 1,630 (2,604) 6,436
Preferred stock dividends declared........... (2,500) (2,500) (2,500) (2,500) (10,000)
-------- -------- -------- -------- ----------
Net income (loss) attributable to common
shareholders............................... $ 1,181 $ 1,229 $ (870) $ (5,104) $ (3,564)
======== ======== ======== ======== ==========
Net income (loss) attributable to common
shareholders per basic share............... $ 0.04 $ 0.04 $ (0.03) $ (0.16) $ (0.11)
======== ======== ======== ======== ==========
Net income (loss) attributable to common
shareholders per diluted share............. $ 0.04 $ 0.04 $ (0.03) $ (0.16) $ (0.11)
======== ======== ======== ======== ==========
48
2000 First Second Third Fourth Year
---- -------- -------- -------- -------- ----------
Net sales.................................... $276,320 $273,189 $283,454 $269,627 $1,102,590
Cost of goods sold........................... 243,424 237,378 245,288 237,889 963,979
-------- -------- -------- -------- ----------
Gross profit................................. 32,896 35,811 38,166 31,738 138,611
Selling, general and administrative expense.. 15,777 16,076 14,259 15,022 61,134
Goodwill amortization........................ 5,184 5,088 5,179 5,183 20,634
Asset impairment and restructuring charges... 3,420 -- -- 2,200 5,620
-------- -------- -------- -------- ----------
Operating income............................. 8,515 14,647 18,728 9,333 51,223
Gain from sale of businesses and other assets 5,407 -- 2,405 11,360 19,172
Interest expense............................. (19,680) (21,650) (21,702) (19,039) (82,071)
-------- -------- -------- -------- ----------
Income (loss) before income taxes............ (5,758) (7,003) (569) 1,654 (11,676)
Income tax expense (benefit)................. (2,302) (2,742) (288) 654 (4,678)
-------- -------- -------- -------- ----------
Net income (loss)............................ (3,456) (4,261) (281) 1,000 (6,998)
Preferred stock dividends declared........... -- -- (1,306) (2,500) (3,806)
-------- -------- -------- -------- ----------
Net income (loss) attributable to common
shareholders................................ $ (3,456) $ (4,261) $ (1,587) $ (1,500) $ (10,804)
======== ======== ======== ======== ==========
Net income (loss) attributable to common
shareholders per basic share................ $ (0.12) $ (0.15) $ (0.05) $ (0.05) $ (0.37)
======== ======== ======== ======== ==========
Net income (loss) attributable to common
shareholders per diluted share.............. $ (0.12) $ (0.15) $ (0.05) $ (0.05) $ (0.37)
======== ======== ======== ======== ==========
See Note 5 for detail on asset impairment and restructuring charges in 2001
and 2000.
49
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 thereunto duly authorized.
Date: February 21, 2002 /s/ Jill B. W. Sisson
----------------------------------
Jill B. W. Sisson
(Secretary)
50