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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-20704
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1208699
(State of incorporation) (IRS Employer 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
None
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 12, 2001 there were 31,171,969 shares of common stock
outstanding. The aggregate market value of such shares, other than
shares held by persons who may be deemed affiliates of the
Registrant, was $37,753,000.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement filed in connection with the 2001
Annual Meeting of Shareholders is incorporated by reference into
Part III.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION.
Annual Report on Form 10-K
December 31, 2000
TABLE OF CONTENTS
Page
No.
PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
PART II
Item 5. Market for the Registrant's Common
Stock and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 26
Item 8. Financial Statements and Supplementary
Data 27
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 59
PART III
Item 10. Directors and Executive Officers of
the Registrant 59
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial
Owners and Management 59
Item 13. Certain Relationships and Related
Transactions 59
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 60
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
PART I
ITEM 1. BUSINESS
Graphic Packaging International Corporation (the Company or
GPC), formerly ACX Technologies, Inc., is a manufacturer of
packaging products used by consumer product companies as primary
packaging for their end-use products. The Company's strategy is
to maximize its competitive position and growth opportunities in
its sole business, folding cartons. The Company's executive
offices are located at 4455 Table Mountain Drive, Golden,
Colorado 80403. The Company's telephone number is (303) 215-
4600.
(a) General Development of Business
The Company 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
(ACCo). Effective December 27, 1992, ACCo distributed to its
shareholders all outstanding shares of the Company's stock. The
Company's initial years of operation included packaging,
ceramics, aluminum and various developmental businesses. Through
various acquisitions, divestitures, a spin-off and other
transactions, the Company is now strategically focused on the
folding carton segment of the packaging industry.
To better reflect the nature of the Company's new business
focus, the Company changed its ticker symbol on the New York
Stock Exchange to "GPK" and formally changed the Company's name
from ACX Technologies, Inc. to Graphic Packaging International
Corporation in 2000.
CoorsTek Spin-Off
Effective December 31, 1999, the Company distributed to its
shareholders all the outstanding common stock of the ceramics
business, CoorsTek, and its subsidiaries (collectively referred
to as CoorsTek) in a tax-free spin-off transaction. One share of
CoorsTek common stock was distributed for every four shares of
Company common stock owned. The tax basis allocation of costs
for Company shares acquired pre-spin off is: GPC 55.56% and
CoorsTek 44.44%.
Integration and Optimization
The Company acquired Universal Packaging Corporation in 1998
and the packaging business of Fort James Corporation in 1999 in
order to complement the traditional Graphic Packaging Corporation
plants and to strengthen the Company's position in the folding
carton market. These acquisitions brought the advantages of both
expanded capacity and customer relationships with some of the
largest consumer product corporations in the United States. The
year ended December 31, 2000 provided the Company both challenges
and opportunities inherent in the integration of these businesses
and the optimization of the expanded capacity. As discussed
below, the Company proceeded with its restructuring plans and
dispositions of noncore assets during 2000 in order to facilitate
the optimization of its capacity and the integration of its new
facilities.
(b) Financial Information about Industry Segments, Foreign
Operations and Foreign Sales
The table below summarizes information, in thousands, about
reportable segments as of and for the years ended December 31.
Discontinued operations include CoorsTek.
Operating Depreciation
Net Income And Capital
Sales (Loss) Amortization Assets Expenditures
---------- --------- ------------ ---------- ------------
2000
Packaging $1,102,590 $51,223 $83,094 $1,331,450 $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[a] 17
Discontinued
operations,
net assets --- --- 22,711 --- 15,597
---------- --------- ------------ ---------- -----------
Consolidated
total $850,155 $34,359 $78,995 $1,643,171 $91,455
========== ========= ============ ========== ===========
1998
Packaging $623,852 $38,808 $35,924 $539,039 $47,498
Other 67,925 (3,047) 1,270 56,905 3,384
---------- --------- ------------ ---------- -----------
Segment total 691,777 35,761 37,194 595,944 50,882
Corporate --- (8,941) 336 101,359[b] 690
Discontinued
operations,
net assets --- --- 19,977 148,719 26,891
---------- --------- ------------ ---------- -----------
Consolidated
total $691,777 $26,820 $57,507 $846,022 $78,463
========== ========= ============ ========== ===========
[a] Corporate assets for 1999 consist primarily of a $200 million note
receivable from CoorsTek as a result of the spin-off, and debt
issuance costs.
[b] Corporate assets for 1998 include a $60 million note
receivable from the sale of Golden Aluminum, deferred taxes and
certain properties.
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.
Net Long-Lived
(In thousands) Sales Assets
---------- ----------
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
========== ==========
1998
United States $626,715
Canada 57,079
Other 7,983
----------
Total $691,777
==========
(c) Narrative Description of Operating Segments
Packaging
General: The Company develops, manufactures and sells value-
added paperboard packaging products used by manufacturers as
primary packaging for their end-use products. Value-added
packaging has characteristics such as high-impact graphics;
product protection; resistance to abrasion and radiant heat;
microwave management; and barriers to moisture, gas penetration,
solvent penetration and leakage.
The Company began business with a single plant in 1974 as
part of the vertical integration of ACCo's business. Since that
time, the Company has expanded its product capabilities and
geographic presence through plant expansions and acquisitions.
Sales to Coors Brewing Company represented approximately 10% of
the Company's net sales in 2000.
The Company acquired Universal Packaging Corporation in
January 1998 followed by the acquisition of the Fort James
packaging business in August 1999. These two acquisitions added
19 facilities and complemented GPC's capabilities with processes
such as web-fed and sheet-fed printing, electron beam curing of
inks and coatings, rotary die cutting and production of coated
recycled paperboard. The acquisitions have allowed the Company
to expand into several new end-use markets and added to its blue-
chip customer list. Coincident with the acquisitions, GPC sold
its flexible packaging business in September 1999, closed two
folding carton facilities during 2000, and sold a noncore
packaging facility in October 2000. These plant closures are
part of a plan to reduce overhead without impacting effective
capacity. See related discussion regarding asset impairment and
restructuring charges in Management's Discussion and Analysis of
Financial Condition and Results of Operations. As of December 31,
2000, the Company operated 20 manufacturing facilities in the
United States and Canada.
Markets and Products: The fiber-based product packaging
industry includes: paperboard packaging which consists of
corrugated products, folding cartons and rigid fiber boxes and
food service containers such as disposable clam-shells, plates
and cups; and flexible packaging such as printed and laminated
bags, overwraps and labels. GPC competes in the folding carton
segment of the industry.
The U.S. folding carton industry is currently an estimated
$8.4 billion market that experienced an average annual growth
rate from 1987 to 1997 of 2%. Shipments from 1997 to 1998
declined 1% and have been estimated to have grown slightly in
1999 and 2000. Over the last several years, in addition to
growth through acquisitions, the major portion of GPC's revenue
growth has come from sales to Coors Brewing and customers in the
detergent, cereal, premium bar soap, quick service restaurant
markets, dry and frozen food markets, and promotional packaging.
In manufacturing value-added folding cartons, GPC uses,
among other processes, an internally developed, patented
composite packaging technology, Composipac[R] (Composipac), which
provides finished products with high quality graphics that have
enhanced abrasion protection and moisture, air or other special
barrier properties. GPC's Composipac technology is designed to
meet the continuing specialized needs of its beverage, powdered
detergents, soap and promotional packaging customers. This
technology also provides the Company with the unique ability to
cost-effectively produce full web lamination holographic cartons.
The Company believes demand for holographic cartons is growing in
the toothpaste, promotional and other market segments.
In addition, GPC has been a leader in the development and
marketing of microwave packaging technology. The Company's Qwik
Wave[R] susceptor packaging provides browning and crisping
qualities for microwave foods. This is made possible through the
use of an ultra thin layer of aluminum that heats directly when
exposed to microwave power. GPC has added to the Qwik Wave[R]
technology with packaging branded under the Micro-Rite[R] name,
which consists of a series of aluminum circuits applied to
paperboard that provides power distribution for even cooking.
Interactive foil technology allows controlled heating that
results in conventional oven quality in microwave time.
Strategy: The Company's strategy is to maintain its focus
on valued customer relationships and market leadership. It plans
to continue to do so by employing capital and resources to remain
the industry's low-cost producer of folding cartons while
continuing to invest in the future through research and
development. Leveraging its expanded sales force from the
acquisitions of Universal Packaging and the Fort James folding
carton business, GPC emphasizes its ability to provide innovative
products with value-added characteristics that stand out from its
customers' competitors on the supermarket shelves.
Manufacturing and Raw Materials: GPC uses a variety of raw
materials such as paperboard, paper, inks, aluminum foil, plastic
films, plastic resins, adhesives and other materials which are
available from domestic and foreign suppliers. Historically, GPC
has not experienced difficulty in obtaining adequate supplies of
raw materials and difficulty is not anticipated in the future.
While many sources of each of these materials are available, the
Company prefers to develop strategic long-standing alliances with
vendors, including the use of multi-year supply agreements, in
order to provide a guaranteed source of materials that satisfies
customer requirements while obtaining the best quality, service
and price. Business disruptions or financial difficulties of a
sole source supplier, which the Company does not anticipate,
could have an adverse effect by increasing the cost of these
materials and causing delays in manufacturing while other
suppliers are being qualified.
GPC's operating margins were negatively impacted by rising
energy costs in 2000, including energy-related costs such as
transportation. Where available, the Company takes advantage of
forward purchase contracts for its seasonal energy needs in order
to stabilize these expenditures.
Sales and Distribution: Products are sold primarily to well-
recognized consumer product manufacturers in North America.
Sales are made primarily through direct sales employees of GPC
that work from offices located throughout the United States and,
to a lesser degree, through broker arrangements with third
parties. GPC's selling activities are supported by its technical
and development staff.
Most of the Company's sales are made under sales contracts
at prices that are subject to periodic adjustment for market
price changes of raw materials and other costs. Products are
made in accordance with customer specifications. The Company had
approximately $111 million in open orders in March 2001, as
compared to approximately $175 million in March 2000. The
Company expects to ship most of the open orders by the end of the
second quarter of 2001. Total open orders and comparisons vary
because of a number of factors and are not necessarily indicative
of past or future operating results.
Dependence on Major Customers: Sales to Kraft Foods, Inc.
and affiliates under various long-term contracts accounted for
approximately 14%, 20% and 15% of the Company's consolidated
sales for 2000, 1999 and 1998, respectively; however, future
sales may vary from historical levels. In 1999, GPC entered into
a new five-year supply agreement with Kraft Foods to supply one
hundred percent of their folding carton needs for specified
product lines.
Sales to Coors Brewing accounted for approximately 10%, 13%
and 17% of the Company's consolidated sales for 2000, 1999 and
1998, respectively; however, future sales may vary from
historical levels. In 1998, the Company entered into a five-year
supply agreement with Coors Brewing to supply packaging products.
The agreement includes stated quantity commitments and requires
annual repricing. The Company also sold refined corn starch to
Coors Brewing until the disposition of this business on January
31, 1999.
The loss of Kraft Foods or Coors Brewing as a customer in
the foreseeable future would have a material effect on the
Company's results of operations.
Competition: GPC is subject to strong competition in most
markets it serves. The packaging industry continues to
experience intense pricing pressures. The installation of state-
of-the-art equipment by manufacturers has intensified the
competitive pricing situation. A relatively small number of
large competitors hold a significant portion of the folding
carton segment of the paperboard industry. Major U.S.
competitors include Smurfit-Stone Container Corporation, Field
Container Company L.P, The Mead Corporation, Gulf States Paper
Corporation, Westvaco Corporation, Rock-Tenn Company, and
International Paper Company. Mergers and acquisitions have
contributed to a consolidation of the industry.
Product Development: GPC's development staff work directly
with the sales and marketing personnel in meeting with customers
and pursuing new business. The Company's development efforts
include, but are not limited to, extending the shelf life of
customers' products, reducing production costs, enhancing the
heat-managing characteristics of food packaging and refining
packaging appearance through new printing techniques and
materials. Potential new product development efforts are
expected to involve sift-proof cartons, linerless cartons, liquid
containment packaging, enhanced microwavable food containers and
other packaging innovations.
Patents, Proprietary Rights and Licenses: The Company holds
a substantial number of patents and pending patent applications
in the U.S. and in foreign countries. This portfolio primarily
consists of microwave and barrier protection packaging and
manufacturing methods. The patents and processes are significant
to Graphic Packaging's operations and are supported by trademarks
such as Qwik Wave[R], Micro-Rite[R] and Composipac[R]. In
addition, the Company licenses certain technology from third
parties to enhance its technical capabilities. The Company's
policy generally is to pursue patent protection that it
considers necessary or advisable for the patentable inventions
and technological improvements of its business and to defend
its patents against third party infringement. The Company
also relies significantly on its trade secrets, technical
expertise and know-how, continuing technological innovations and
other means such as confidentiality agreements with employees,
consultants and customers to protect and enhance its competitive
positions within its industry.
The Company believes that it owns or has the right to use
the proprietary technology and other intellectual property
necessary to its operations. Except as noted above, the Company
does not believe that its success is materially dependent on the
existence or duration of any individual patent, trademark or
license or related group thereof.
Other Businesses
The Company's other businesses have generally been sold or
reduced to investment holdings. The primary historical areas of
focus of the other businesses have been distribution of solar
electric systems (Golden Genesis); real estate development
(Golden Equities); and corn-wet milling, food additives and other
research and development products (Golden Technologies). The
Company's interest in Golden Genesis was sold on August 3, 1999,
Golden Equities has disposed of the majority of its real estate
holdings, the corn-wet milling operation was sold in January 1999
and the remaining research and development and food additive
businesses were sold in 2000. Therefore, Other segment
information generally represents the final operating results of
businesses disposed of before the end of 1999.
Discontinued Operations
Discontinued operations consist of two businesses: ceramics
(CoorsTek) and aluminum (Golden Aluminum).
CoorsTek (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. It has been in business since 1911 and is the
largest U.S. owned, independent manufacturer of advanced
technical ceramics. CoorsTek was spun off as a separate public
company effective December 31, 1999.
Golden Aluminum produced rigid container sheet used in
making can lids, tabs and bodies for the beverage and food can
industry and other flat-rolled aluminum products used principally
in the building industry. The assets of Golden Aluminum were
sold on November 5, 1999.
The Company purchased the Kalamazoo Recycled Paperboard Mill
(the Kalamazoo Mill) on August 2, 1999 as part of the acquisition
of the Fort James packaging business. The Kalamazoo Mill
produces coated recycled paperboard. In December 1999, the Board
of Directors approved a plan to offer the Kalamazoo Mill for
sale. The Kalamazoo Mill was reflected in the Company's
consolidated financial statements as a discontinued operation
from December 1999 through September 30, 2000. The Company has
been unable to sell the Kalamazoo Mill and, accordingly, has
reclassified the results of operations and net assets of the
Kalamazoo Mill into continuing operations for all periods
presented in the Company's consolidated financial statements.
The Company has integrated the Kalamazoo Mill into its packaging
operations and is no longer actively pursuing the sale of the
Kalamazoo Mill.
The following assets, liabilities, and components of
operating income from the Kalamazoo Mill's 1999 results have been
added to continuing operations (in thousands):
Total assets $243,068
========
Total liabilities $18,068
========
Net sales $18,750
========
Operating income $3,243
========
Research and Development
The Company's research and development activities consist of
the development of innovative technology, materials, products and
processes using advanced and cost-efficient manufacturing
processes. Total research and development expenditures for the
Company were $4.7 million, $3.8 million and $3.7 million for
2000, 1999 and 1998, respectively. The Company believes the
expenditures will be adequate to meet the strategic objectives of
its business.
Environmental Matters
The Company's operations are subject to extensive regulation
by various federal, state, provincial and local agencies
concerning compliance with environmental control statutes and
regulations. These regulations impose limitations, including
effluent and emission limitations, on the discharge of materials
into the environment, as well as require the Company to obtain
and operate in compliance with the conditions of permits and
other governmental authorization. Future regulations could
materially increase the Company's capital requirements and
certain operating expenses in future years.
In the ordinary course of business the Company is
continually upgrading and replacing equipment to comply with air
quality and other environmental standards. The estimated capital
expenditures for these types of projects for 2001 total $1.5
million.
Some of the Company's operations have been notified that
they may be potentially responsible parties under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 or similar 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 or results of operations of the Company,
without consideration for insurance recoveries. There can be no
certainty, however, that the Company will not be named as a
potentially responsible party 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 addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
Employees
As of December 31, 2000, the Company had approximately 4,400
full-time employees. Management considers its employee relations
to be good.
ITEM 2. PROPERTIES
The Company believes that its facilities are well maintained
and suitable for their respective operations. The table below
lists the Company's plants and most other physical properties and
their locations and general character:
Facility Location Character
- -------------------- ------------------------- ----------------------
Company Headquarters Golden, Colorado(1) Office/Administration
Manufacturing Boulder, Colorado(2) Converting Operations
Manufacturing Bow, New Hampshire Converting Operations/
Offices
Manufacturing Centralia, Illinois Converting Operations
Manufacturing Charlotte, North Carolina Converting Operations
Manufacturing Ft. Smith, Arkansas Converting Operations
Manufacturing Garden Grove, California Converting Operations
Manufacturing Golden, Colorado(1) Converting Operations
Manufacturing Gordonsville, Tennessee Converting Operations
Manufacturing Kalamazoo, Michigan Converting Operations
Manufacturing Kalamazoo, Michigan Paperboard Mill
Manufacturing Kendallville, Indiana Converting Operations
Manufacturing Lawrenceburg, Tennessee Converting Operations
Manufacturing Lumberton, North Carolina Converting Operations
Manufacturing Menasha, Wisconsin Converting Operations
Manufacturing Mississauga, Ontario(2) Converting Operations
Manufacturing Mitchell, South Dakota Converting Operations
Manufacturing Newnan, Georgia Converting Operations
Manufacturing Portland, Oregon(3) Converting Operations
Manufacturing Richmond, Virginia Converting Operations
Manufacturing Wausau, Wisconsin Converting Operations
(1) The Company headquarters and Golden, Colorado manufacturing
facility are located in the same building.
(2) Leased facilities.
(3) Two facilities, including one leased facility.
The operating facilities of the Company are not constrained
by capacity issues. From time to time the Company also leases
additional warehouse space and sales offices throughout North
America, on an as-needed basis.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company's
subsidiaries are subject to various pending claims, lawsuits and
contingent liabilities, including claims by current or former
employees relating to employment. In each of these cases, the
Company is vigorously defending against them. The Company does
not believe that disposition of these matters will have a
material adverse effect on the Company's consolidated financial
position or results of operations. For information regarding
environmental legal proceedings, see Environmental Matters.
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 in the United States District Court for the
District of Colorado and claimed an additional $14 million in
overpayment for raw materials to run the business prior to
resale. The former owner counterclaimed for an additional $10
million for certain spare parts. Although this lawsuit is in the
discovery stage, the Company does not believe that the result of
this litigation will have a material adverse effect on the
consolidated financial position or results of operations.
On April 14, 2000 Lemelson Medical, Education & Research
Foundation sued the Company and 75 other defendants in the United
States District Court for the District of Arizona for patent
infringement and unspecified damages. This case has been stayed
pending ruling on a motion for consolidation with three other
similar cases. Concurrently, the plaintiff is being sued by
manufacturers of equipment that utilize the technology. These
manufacturers of equipment are claiming noninfringement.
Although the case is in preliminary stages, the Company does not
believe that the lawsuit will have a material adverse effect on
the Company's financial position or results of operations.
In July 1999, Cinergy Resources, Inc. and the Cincinnati
Gas & Electric company sued Graphic Packaging in Warren County,
Ohio Court of Common Pleas claiming approximately $651,000, plus
interest, fees and costs, for gas supplied to Graphic Packaging's
Franklin, Ohio facility. Cinergy claims that, due to an
improperly installed meter, Graphic Packaging was not billed for
actual gas consumption. Graphic Packaging asserts that it has
paid for all gas supplied. The Company does not believe the
disposition of this matter will have a material adverse effect on
the Company's financial position or results of operation.
In February 1998, a subsidiary of Golden Technologies was
sued for breach of a supply agreement to purchase thermal energy
for the Johnstown, Colorado corn-wet mill. The Company sold the
Johnstown, Colorado corn-wet mill in January 1999. This case was
settled in November 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter ended December 31, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is quoted on the New York Stock
Exchange under the symbol GPK. The historical range of the high
and low sales price per share for each quarter of 2000 and 1999
was as follows:
2000 1999
--------------- ----------------
High Low High Low
----- ----- ------ ------
First Quarter $8.44 $2.56 $15.50 $11.25
Second Quarter $4.50 $2.13 $16.25 $11.50
Third Quarter $3.00 $1.44 $15.94 $9.50
Fourth Quarter $1.94 $1.06 $11.13 $7.63
As a result of the spin-off of CoorsTek on December 31,
1999, the market price of the Company's stock opened on January
3, 2000 at $5.875 per share, versus the closing price of $10.6875
per share on December 31, 1999.
During 2000, 1999 and 1998, no cash dividends were paid by
the Company to its common shareholders. During 2000, the Company
declared $3,806,000 of dividends on its 10% Series B preferred
stock. At this time, the Company anticipates that, except for
the 10% Series B preferred stock dividends, it will retain any
earnings and that the Company will not pay dividends to its
common shareholders in the foreseeable future. Also, the
Company's credit facilities currently prohibit the payment of any
cash dividends, except on the Series B preferred stock, and the
Company expects this limitation to remain in effect through 2001.
On March 12, 2001 there were approximately 2,313
shareholders of record of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights - Five Year Overview
In thousands, except
per share and
ratio data 2000 1999 1998 1997 1996
---------- -------- -------- -------- --------
Summary of Operations
Net sales [a] $1,102,590 $850,155 $691,777 $426,261 $436,028
---------- -------- -------- -------- --------
Gross profit 138,611 128,805 124,244 93,608 80,393
Selling, general and
administrative
expenses [b] 81,768 86,633 76,033 70,436 57,319
Asset impairment and
restructuring
charges [c] 5,620 7,813 21,391 21,880 34,642
---------- -------- ------- ------- --------
Operating income
(loss) 51,223 34,359 26,820 1,292 (11,568)
---------- -------- ------- ------- --------
Income (loss) from
continuing
operations (6,998)[f] 18,410[f] 5,453 (2,272) (13,793)
---------- -------- -------- ------- --------
Income (loss) from
discontinued
operations [d] --- 9,181 15,812 29,988 (78,231)
---------- -------- -------- ------- --------
Extraordinary loss
on early
extinguishment of
debt, net of tax --- (2,332) --- --- ---
---------- -------- -------- ------- --------
Net income (loss) (6,998) 25,259 21,265 27,716 (92,024)
Preferred stock
dividends declared (3,806) --- --- --- ---
---------- -------- -------- ------- --------
Net income (loss)
attributable to
common shareholders ($10,804) $25,259 $21,265 $27,716 ($92,024)
- ------------------------------------------------------------------------
Per basic share of
common stock:
Continuing
operations ($0.37) $0.65 $0.19 ($0.08) ($0.49)
Discontinued
operations --- 0.32 0.56 1.07 (2.81)
Extraordinary loss --- (0.08) --- --- ---
--------- -------- -------- ------- --------
Net income (loss)
attributable
to common
shareholders ($0.37) $0.89 $0.75 $0.99 ($3.30)
--------- -------- -------- ------- --------
Per diluted share
of common stock:
Continuing
operations ($0.37) $0.64 $0.19 ($0.08) ($0.49)
Discontinued
operations --- 0.32 0.54 1.04 (2.81)
Extraordinary loss --- (0.08) --- --- ---
--------- -------- -------- ------- -------
Net income (loss)
attributable
to common
shareholders ($0.37) $0.88 $0.73 $0.96 ($3.30)
- ------------------------------------------------------------------------
Financial Position
Working capital,
excluding current
maturities of debt $97,813 $292,776 $238,844 $158,551 $154,626
Total assets $1,331,450 $1,643,171[e] $846,022 $642,880 $623,520
Current maturities
of debt $58,500 $400,000[e] $86,300 --- ---
Long-term debt $576,600 $615,500 $183,000 $100,000 $100,000
Shareholders' equity $515,151[g]$423,310 $447,955 $430,531 $397,903
- ------------------------------------------------------------------------
Other Information
Total debt to
capitalization 55% 71% 38% 19% 20%
Net book value per
share of common
stock $16.87 $14.81 $15.76 $15.17 $14.24
- ------------------------------------------------------------------------
[a] Includes sales from ongoing Graphic Packaging folding carton
business (i.e., excluding sales from the flexible packaging
plants sold in 1999) of $1,103 million, $727 million, $504
million, $237 million and $230 million in 2000, 1999, 1998,
1997 and 1996, respectively.
[b] Includes goodwill amortization (in thousands) of $20,634, and
$2,224 for 2000, 1999, 1998, 1997 and 1996, respectively.
[c] Asset impairment and restructuring charges resulted in a loss
per diluted share impact of $0.11, $0.16, $0.44, $0.45 and
$0.73 in 2000, 1999, 1998, 1997 and 1996, respectively.
[d] Discontinued operations include the spin-off of CoorsTek and
the sale of Golden Aluminum Company. The income (loss) per
diluted share for each business is as follows:
2000 1999 1998 1997 1996
---- ------ ----- ----- ------
CoorsTek N/A $0.54 $0.54 $1.04 $0.82
Golden Aluminum Company N/A ($0.22) --- --- ($3.63)
[e] Reduced by $200 million on January 4, 2000 with repayment of
loan and special dividend from the CoorsTek spin-off.
[f] Includes $19.2 million and $30.2 million pre-tax gains
(approximately $11.5 million and $18 million, net of tax)
from sales of businesses in 2000 and 1999, respectively.
[g] Includes $100 million of convertible, redeemable preferred
stock issued in 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Overview
The Company is a manufacturer of packaging products used by
consumer product companies as primary packaging for their end-use
products. Over the past several years, and culminating with the
spin-off of CoorsTek on December 31, 1999, the Company has moved
from a diversified group of subsidiaries - each operating in
different markets - to a Company focused on the folding carton
segment of the packaging industry. By strategically disposing of
noncore businesses and underperforming assets; acquiring two
major businesses in the folding carton industry; and executing
rationalization plans, the Company has developed into a prominent
competitor in the folding carton industry.
The Selected Financial Data in Item 6 summarizes the
financial impact that the Company's acquisitions and dispositions
have had on consolidated operating results over the past five
years, and is primarily indicative of Graphic Packaging
Corporation's results after the recent dispositions and spin-off
of CoorsTek. Detailed analysis of Graphic Packaging Corporation's
contribution to the Company's consolidated results over the past
three years is provided in the Results from Continuing Operations
section below.
Total net sales have more than doubled from 1996 to 2000 -
with the most pronounced increases occurring in 1998 (the first
year of the Universal Packaging acquisition) and 2000 (the first
full year of the Fort James packaging business acquisition).
Sales from the Company's ongoing business - folding cartons -
have increased nearly five fold during the same time period.
This is directly due to the increased customer base and capacity
from the recent acquisitions, but also due to the Company's focus
on folding cartons.
Gross profit margins, although reaching 22% in 1997, have
declined to 13% in 2000. Gross profit fluctuations from year-to-
year are generally due to integration issues when adding new
plant locations and customers; changes in product mix; changing
raw material costs (such as rising energy costs in 2000); and
pricing pressures due to increased competition in the folding
carton industry. Delays experienced in bringing the new Golden,
Colorado facility into full production during 1999 and 2000 have
also negatively impacted gross profit margins.
Selling, general and administrative expenses, excluding
goodwill amortization, have declined from 13% of sales in 1996 to
6% in 2000. This is a reflection of the Company's higher
revenue base and restructuring efforts, particularly the
reduction of staff levels and administrative facilities. See
further discussion of the Company's restructuring activities over
the past three years below.
The Company has achieved operating income before asset
impairment and restructuring charges of approximately 6% of net
sales for the last five years despite the significant structural
changes taking place in the packaging industry and a change in
the Company's strategic focus. Deterioration in the Company's
income from continuing operations is significantly due to the
increased interest charges in 1999 and 2000 related to the August
2, 1999 purchase of the Fort James packaging business.
The Company's financial position and liquidity are discussed
in detail below. Generally, the Company's cash flow from
operations has sustained restructuring costs, capital
expenditures and debt service from year-to-year. Interest and
principal from additional borrowings used to finance the
acquisitions of Universal Packaging in 1998 and the Fort James
packaging business in 1999 have been reduced by cash generated
from operations, asset sales, and the sale of $100 million of
preferred stock in August 2000.
This financial review presents the Company's operating
results for each of the three years in the period ended December
31, 2000, and its financial condition at December 31, 2000 and
1999. This review should be read in connection with the
information presented in the Consolidated Financial Statements
and the related notes thereto.
Results from Continuing Operations
Net Sales
Net sales for 2000 totaled $1,102.6 million, an increase of
$252.4 million or 30% over 1999 sales. Net sales for 1999
totaled $850.2 million, an increase of $158.4 million or 23%,
over 1998 sales of $691.8 million. The increase in sales is
primarily the result of the acquisition of the Fort James
packaging business on August 2, 1999. The increase in sales was
offset in part by the sale of flexible packaging plants on
September 2, 1999. 1999 sales for the flexible packaging plants
were $123 million. After adjusting for the Fort James
acquisition and the sale of the flexible packaging plants, sales
for the Company grew approximately 4% in a relatively flat market
primarily because of volume increases with existing customers.
Net sales to Coors Brewing totaled $112.2 million, an
increase of $4.6 million or 4% over 1999 sales. The increase is
due to increased brewery sales in 2000 and the resulting higher
demand for packaging. Net sales to Coors Brewing totaled $107.6
million in 1999, a decrease of $12.3 million or 10%, over net
sales of $119.9 million in 1998. The decrease is due to the
disposition of the Company's corn starch business in early 1999.
The Company's business is largely within the United States,
particularly since the spin-off of CoorsTek. The Company had
sales to customers outside the United States, primarily in
Canada, which accounted for 0.2%, 6% and 9% of total sales during
2000, 1999 and 1998, respectively. The decrease in foreign sales
as a percentage of total sales is attributable to the sale of
several flexible packaging plants in Canada during 1999.
Net sales of the Company's Other segment totaled $44.6
million and $67.9 million in 1999 and 1998, respectively. These
sales accounted for approximately 5% and 10% of the Company's
consolidated sales for the same years. The decreasing sales of
the Other segment are due to the Company's divestiture of the
majority of these businesses by the end of 1999.
Gross Profit
Consolidated gross profit was 13%, 15% and 18% of net sales
in 2000, 1999 and 1998, respectively. The decreases in 2000 and
1999 reflect recent trends in the packaging industry in terms of
changing raw material costs, coupled with pricing pressures due
to increased competition. The decreases in 2000 and 1999 also
reflect the integration costs associated with the Fort James
packaging business acquisition. 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, for 2000, 1999 and 1998 were $61.1
million, $73.4 million and $68.2 million, which represented 6%,
9% and 10% of net sales, respectively. The percentage decreases
in 2000 and 1999 mainly reflect cost savings realized as a result
of the Company's restructuring efforts over the past several
years and the increased revenue base resulting from the Fort
James packaging business and Universal Packaging acquisitions.
Operating Income
Consolidated operating income for 2000, excluding asset
impairment and restructuring charges, increased to $56.8 million,
an increase of $14.6 million over 1999's operating income on the
same basis. The increase is directly due to increased sales.
Consolidated operating income for 1999, excluding asset
impairment and restructuring charges, decreased to $42.2 million,
a decrease of 12% over 1998 operating income of $48.2 million
before asset impairment and restructuring charges. The principal
reasons for the decrease are the increased goodwill amortization
and integration costs associated with the Fort James packaging
business acquisition and declining gross profit margins.
Operating Income from Continuing Operations by Segment
(In millions)
2000 1999 1998
----- ----- -----
Before asset impairment and
restructuring charges:
Packaging $56.8 $50.6 $60.1
Other businesses - 2.1 (3.0)
Corporate - (10.5) (8.9)
----- ----- -----
Operating income before asset
impairment and restructuring
charges 56.8 42.2 48.2
Asset impairment and restructuring
charges:
Packaging (5.6) (7.8) (21.3)
Other businesses --- -- (0.1)
----- ----- -----
Operating income after asset
impairment and restructuring
charges $51.2 $34.4 $26.8
===== ===== =====
Asset Impairment Charges
The Company recorded a total of $5.9 million and $19.4
million in asset impairment charges in 1999 and 1998,
respectively. Goodwill impairment of $5.5 million was included
in the 1998 charge. The remainder of the 1998 charge consisted
of fixed asset impairments. The 1999 charge consisted entirely
of fixed asset impairments as described below.
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, Colorado
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 at December 31, 2000, with the expectation that
complete shutdown will occur during 2001. 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. The
plant's property is currently being offered for sale.
1998: The Company recorded $18.5 million in asset impairment
charges in 1998. Deterioration of the performance at certain
flexible packaging facilities and increased competitive
conditions led management to review the carrying amounts of long-
lived assets and goodwill in conjunction with an overall
restructuring plan. Specifically, forecasted operating cash
flows did not support the carrying amount of certain long-lived
assets and goodwill at the Franklin, Ohio operation. In
addition, management decided to offer for sale the Vancouver,
British Columbia operation and close a divisional office in North
Carolina. Therefore, the long-lived assets and related goodwill
were written down to their estimated market values using the
asset held for sale model.
The Company recorded net asset impairment charges of $0.9
million in its other businesses during 1998. These charges
included a $1.0 million asset impairment charge to write down
long-lived assets of Solartec, S.A., a solar electric subsidiary
in Argentina. Since acquiring Solartec in November 1996,
operating cash flows were below original expectations. As a
result, the Company recorded this impairment to reduce the
carrying value of its investment in Solartec to its estimated
fair market value. In addition, the Company recorded a $0.4
million asset impairment charge related to the consolidation and
outsourcing of certain manufacturing activities at its solar
electric distribution business. As a result, certain long-lived
assets became impaired and were written down to their estimated
market value. Also during 1998, the Company sold certain
equipment formerly used in a biodegradable polymer project for
approximately $0.5 million. These assets had been previously
written off as an asset impairment, so the resulting gain on sale
of these assets was netted against the 1998 asset impairment
charge.
Restructuring Charges
The Company recorded restructuring charges totaling $5.6
million, $1.9 million and $2.0 million in 2000, 1999 and 1998,
respectively. In addition, restructuring reserves of $1.3
million related to the closure of the Perrysburg, Ohio plant were
recorded in 2000 as a cost of the Fort James packaging business
acquisition. The following table summarizes accruals related to
these restructurings.
Biodegradable Corn
Polymer Syrup Graphic Graphic
Exit Exit Packaging Packaging
(in millions) Plan Plan Corporate Operations Total
------------- ----- --------- ---------- -----
Balance,
December 31, 1997 $0.4 $0.9 $1.7 --- $3.0
1998 restructuring
charges --- (0.8) --- 2.8 2.0
Cash paid (0.4) (0.1) (1.7) (1.0) (3.2)
----- ---- ---- ----- -----
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 --- --- --- 5.6 5.6
2000 restructuring
- Perrysburg --- --- --- 1.3 1.3
Cash paid --- --- --- (3.8) (3.8)
----- ----- ----- ----- -----
Balance,
December 31, 2000 $--- $--- $--- $5.0 $5.0
===== ===== ===== ===== =====
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 and offers severance packages in
accordance with the Company's policies. The total cost of the
reduction in force is estimated at $5.0 million, of which $3.0
million was recognized in the fourth quarter 2000 results. The
remaining cost of approximately $2.0 million will be recognized
in the first half of 2001 when severance packages are
communicated to employees.
In connection with the announced closure of the Perrysburg,
Ohio plant, restructuring reserves were recorded totaling
approximately $1.3 million. 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,
2000, approximately $700,000 of 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 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 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. Approximately $2.0
million of restructuring charges have been paid through the
fourth quarter relating 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. The Company instituted this plan
to further its goal of refining its focus on folding carton
packaging and to reduce headcount. All of the 1999 charge
relates to severance, primarily at the Company's Lawrenceburg,
Tennessee manufacturing plant. The Company initially planned to
complete this restructuring plan by the end of 2000. At December
31, 2000, approximately $1.0 million of severance and related
costs have been paid. However, customer needs in both Boulder
and Lawrenceburg, coupled with the timing of the transition of
business to the Company's new Golden, Colorado facility, have
impacted the completion of the restructuring and resulted in the
savings of approximately $800,000 of anticipated restructuring
costs. The 2000 restructuring expense is net of this $800,000
benefit.
1998: During 1998, the Company instituted a restructuring
plan related to certain Graphic Packaging 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
made cash payments of $1.0 million in the fourth quarter of 1998
and $1.6 million during 1999. Remaining reserves at December 31,
2000 relate to operating lease obligations in connection with the
divisional office.
Gain from Sale of Businesses and Other Assets
The Company disposed of several noncore assets during 2000,
for which the following pre-tax gains were recognized:
Other
Malvern Intangible Long-lived
(In thousands) Plant Assets Assets Total
------- ---------- ---------- -------
Cash proceeds $35,000 $5,407 $2,600 $43,007
Net book value,
less costs (23,635) --- (200) (23,835)
------- ------ ------ -------
Gain recognized $11,365 $5,407 $2,400 $19,172
======= ====== ====== =======
The Company disposed of two businesses during 1999, for
which the following gains were recognized:
(In thousands) Flexible Golden
Plants Genesis Total
-------- ------- --------
Cash proceeds $105,000 $20,800 $125,800
Net book value, less
costs (82,300) (13,264) (95,564)
-------- ------- --------
Gain recognized $22,700 $7,536 $30,236
======== ======= ========
Interest Expense and Interest Income
Interest expense for 2000, 1999 and 1998 was $83.3 million,
$36.9 million and $22.0 million, respectively. The increase is
due to additional financing to acquire the Fort James packaging
business on August 2, 1999.
Interest expense of $16.0 million and $3.6 million was
allocated to the discontinued operations of CoorsTek in 1999 and
1998, respectively, based upon CoorsTek's $200 million
allocation of total consolidated debt at the time of the spin-off
for 1999 and $50 million of outstanding intercompany debt for
1998.
The Company capitalized interest of $1.1 million, $2.0
million and $0.3 million in 2000, 1999 and 1998, respectively.
The increase in capitalized interest during 1999 is attributable
to the construction of the Company's new Golden, Colorado
facility.
Interest income for 2000, 1999 and 1998 was $1.2 million,
$2.6 million and $5.4 million, respectively. The decreases in
2000 and 1999 relate directly to the use of funds to acquire the
Fort James packaging business and Universal Packaging.
See related discussions about Financial Condition and
Liquidity below.
Income Taxes
The consolidated effective tax rate for the Company in 2000
was 40% compared to 39% in 1999 and 47% in 1998. The higher tax
rate in 1998 resulted from a lower earnings base, which increased
the impact of non-deductible items. The Company expects to
maintain its effective tax rate for future years at the
historical rate of approximately 40%.
Other Segment
Net sales for the Other business segment in 1999 totaled
$44.6 million, a decrease of $23.3 million, or 34%, from 1998 net
sales of $67.9 million. The decrease in net sales is directly
due to the disposition of virtually all the assets and related
businesses of the Other group during 1999.
The Other businesses reported operating income of $2.1
million in 1999, a favorable increase over the operating loss of
$3.0 million in 1998. The improvement was directly due to the
Company's decisions to dispose of the noncore, underperforming
businesses operating in this segment.
As of December 31, 1999, the Company had disposed of
substantially all operating businesses in the Other segment.
Discontinued Operations
Coincident with the Company's strategic folding carton
acquisitions, several noncore businesses and underperforming
assets were selected for sale or other disposition by the Company
during 1999.
CoorsTek Spin-off
On December 31, 1999, the Company distributed 100% of
CoorsTek's shares of common stock to the Company's shareholders
in a tax-free transaction. Shareholders received one share of
CoorsTek stock for every four shares of GPC stock held. CoorsTek
issued a promissory note to the Company 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 the Company as a result
of the spin-off transaction. The tax basis allocation of costs
for GPC shares acquired pre-spin off is: GPC 55.56% and CoorsTek
44.44%.
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 conjunction with this decision, the Company
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 of 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 related to the ultimate
disposition of Golden Aluminum.
Kalamazoo Mill
The Company purchased the Kalamazoo Mill on August 2, 1999
as part of the acquisition of the Fort James packaging business.
The Kalamazoo Mill produces coated recycled paperboard. In
December 1999, the Board of Directors approved a plan to offer
the Kalamazoo Mill for sale. The Kalamazoo Mill was reflected in
the Company's consolidated financial statements as a discontinued
operation from December 1999 through September 30, 2000. The
Company has been unable to sell the Kalamazoo Mill and,
accordingly, has reclassified the results of operations and net
assets of the Kalamazoo Mill into continuing operations for all
periods presented in the Company's consolidated financial
statements. The Company has integrated the Kalamazoo Mill into
its packaging operations and is no longer actively pursuing the
sale of the Kalamazoo Mill.
The following assets, liabilities, and components of
operating income from the Kalamazoo Mill's 1999 results have been
added to continuing operations (in thousands):
Total assets $243,068
========
Total liabilities $18,068
========
Net sales $18,750
========
Operating income $3,243
========
Financial Data - Discontinued Operations
Financial data for CoorsTek and Golden Aluminum for the
years ended December 31, in thousands, are summarized as follows:
Golden
1999 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
======== ======== ========
Golden
1998 CoorsTek Aluminum Total
-------- -------- --------
Net sales $296,614 $--- $296,614
======== ======== ========
Income from operations before
income taxes $25,361 $--- $25,361
Income tax expense 9,549 --- 9,549
-------- -------- --------
Net income $15,812 $--- $15,812
======== ======== ========
Net income per basic share $0.56 $--- $0.56
======== ======== ========
Net income per diluted share $0.54 $--- $0.54
======== ======== ========
Financial Resources and Liquidity
The Company's liquidity is generated from both internal and
external sources and is used to fund short-term working capital
needs, capital expenditures and acquisitions. During 2000,
internally generated liquidity is measured by net cash from
operations, as discussed below, and the sale of non-strategic
assets.
On August 2, 1999, the Company entered into a $1.3 billion
revolving credit and term loan agreement (the Credit Agreement)
with a group of lenders, with Bank of America, N.A. as agent.
Subsequent to December 31, 1999, the Company reduced the amount
available under the Credit Agreement by $50.0 million. The
Credit Agreement is comprised of four senior credit facilities
including a $125 million 180-day term facility, a $400 million
one-year facility, a $325 million five-year term loan facility
and a $400 million five-year revolving credit facility
(collectively, the Senior Credit Facilities). Proceeds from the
Senior Credit Facilities were used to finance the August 2, 1999
acquisition of the Fort James packaging business and to prepay
the Company's other outstanding borrowings.
During 1999, approximately $200 million of repayments were
made from the Company's cash flow from operations, the sale of
Golden Aluminum, the sale of the Company's flexible packaging
plants and the sale of the solar electric businesses. Total
borrowings under the Senior Credit Facilities were $1,015.5
million as of December 31, 1999.
During 2000, the Company paid $6.3 million to amend the
Senior Credit Facilities to relax certain financial covenants,
extend the maturity date on the one-year facility to August 15,
2001, reduce the required amortization under the five-year
facility, and to allow cash dividends to be paid on the Company's
Series B preferred stock. The amended Credit Agreement increases
the applicable margin paid over LIBOR, includes a cash recapture
provision in the event of excess availability under the revolver
facility, and imposes further limitations on capital
expenditures, acquisitions and investments. In addition, the
Company agreed to use its best efforts to place at least $50
million of subordinated debt at economically reasonable terms
before August 15, 2001. If the Company does not place this
subordinated debt, the applicable margin over LIBOR will increase
by 75 basis points and the Company will pay an additional fee of
$750,000 to the lenders.
The Company reduced amounts outstanding under its Senior
Credit Facilities in 2000 by $380 million, with total borrowings
of $635.1 million remaining on December 31, 2000. The $380
million in debt repayments was generated from the proceeds of a
note receivable from CoorsTek as a result of the spin-off as
described above ($200 million), the issuance by the Company of
$100 million of Series B preferred stock which carries a 10% cash
dividend, the sale of one of the Company's plants ($35 million)
and operating cash flow. Borrowings under the revolving credit
facility on March 1, 2001 were approximately $275 million,
leaving $125 million available for future borrowing needs.
As of December 31, 2000, the Company's borrowings under the
Senior Credit Facilities were as follows (in thousands):
One-year term facility due August 15, 2001 $33,500
Five-year term facility due August 2, 2004
with required amortization of $6.25
million due March 31, 2001, June 30, 2001,
September 30, 2001 and December 31, 2001 312,500
Five-year revolving credit facility due
August 2, 2004 289,100
--------
Total 635,100
Less: Current maturities 58,500
--------
Long-term maturities $576,600
========
Amounts borrowed under the Senior Credit Facilities bear
interest under various pricing alternatives plus a spread
depending on the Company's leverage ratio. The various pricing
alternatives include (i) LIBOR, or (ii) the higher of the Federal
Funds Rate plus .5% or the prime rate. In addition, the Company
pays a commitment fee that varies based upon the Company's
leverage ratio and the unused portion of the revolving credit
facility. Mandatory prepayments under the Senior Credit
Facilities are required from the proceeds of any significant
asset sale or from the issuance of any debt or equity securities.
In addition, the five-year term loan is due in quarterly
installments. Total installments for 2001 through 2004,
respectively, are $25 million, $35 million, $40 million, and $25
million with the balance of the borrowings due on the maturity
date of August 2, 2004.
The Senior Credit Facilities are collateralized by first
priority liens on all material assets of the Company and all of
its domestic subsidiaries. The Credit Agreement currently limits
the Company's ability to pay dividends other than permitted
dividends on the Series B preferred stock, and imposes
limitations on the incurrence of additional debt, capital
expenditures, acquisitions and the sale of assets. At December
31, 2000, the Company was in compliance with all covenants.
In 2000, quarterly financial covenant levels were revised.
Although there can be no assurance that all of these covenants
will be met, management believes that the Company will remain in
compliance with the revised covenants based upon the Company's
expected performance and debt repayment forecasts. In the event
of a default under the Credit Agreement, the lenders would have
the right to call the Senior Credit Facilities immediately due
and refrain from making further advances to the Company. If the
Company is unable to pay the accelerated payments, the lenders
could elect to proceed against the collateral in order to satisfy
the Company's obligations.
The Company's capital structure also includes $100 million
of Series B preferred stock, issued on August 15, 2000. The
Series B preferred stock is convertible into shares of the
Company's common stock at $2.0625 per share and is entitled to
receive a dividend payable quarterly at an annual rate of 10%.
The Company may redeem the Series B preferred stock beginning on
August 15, 2005 at 105% of par reducing by 1% per year until
August 15, 2010 at which time the Company can elect to redeem the
shares at par. The Series B preferred stock has a liquidation
preference over the Company's common stock and is entitled to one
vote for every two shares held on an as-converted basis.
The Company has entered into contracts to hedge the interest
rates on approximately $575 million of its borrowings. Swap
agreements are in place on $225 million of borrowings and cap
agreements are in place on $350 million of borrowings. The swap
agreements lock in an average LIBOR rate of 6.5%, $150 million of
the caps provide upside protection to the Company if LIBOR moves
above 6.75% and $200 million of the caps provide upside
protection to the Company if LIBOR moves above 8.13%. $100
million of the swaps will expire on September 3, 2002.
The Consolidated Statement of Cash Flows includes the cash
generated or used by the operations shown in the income statement
as discontinued operations, namely Golden Aluminum Company and
CoorsTek. On this basis, net cash provided by operations was
$63.3 million, $135.1 million and $97.3 million for 2000, 1999
and 1998, respectively.
During 2000, 1999 and 1998, net cash from operations was
used to fund capital requirements and acquisitions. Capital
expenditures totaled $30.9 million, $91.5 million and $78.5
million for 2000, 1999 and 1998, respectively.
Capital spending at Graphic Packaging during 2000 was
primarily for an enterprise resource planning system (ERP) and
equipment that improves productivity and reduces costs. The
Company expects its capital expenditures for 2001 to be
approximately $35 million, primarily related to the ERP system
and manufacturing productivity improvements and upgrades to
equipment.
Acquisitions during 1999 included the acquisition of the
Fort James packaging business for approximately $849 million, as
well as acquisitions by CoorsTek for approximately $56 million in
cash primarily in the semiconductor industry. Acquisitions in
1998 utilized $300.8 million in cash, primarily for the
acquisition of Universal Packaging Corporation. The Company is
currently limited by its Senior Credit Facilities to pursue
acquisitions as a growth vehicle and is consequently focused on
utilizing cash flow to reduce its debt.
During 2000, the Company sold a facility in Malvern,
Pennsylvania for $35 million. Other noncore asset sales
generated $8.6 million of additional gross proceeds. Asset sales
during 1999 generated $170.5 million in proceeds and included the
final disposition of the assets of Golden Aluminum Company, the
sale of the Company's flexible packaging plants and the sale of
the solar electric businesses.
The Company currently expects that cash flow from
operations, and borrowings under its current credit facilities
will be adequate to meet the Company's needs for working capital,
temporary financing for capital expenditures and debt repayments.
The Company's working capital position as of December 31, 2000
was $39.3 million.
The impact of inflation on the Company's financial position
and results of operations has been minimal and is not expected to
adversely affect future results.
Environmental
Some of the Company's operations have been notified that
they may be potentially responsible parties under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 or similar 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 or results of operations of the Company,
without consideration for insurance recoveries. There can be no
certainty, however, that the Company will not be named as a
potentially responsible party 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 addition, the Company has received demands arising out of
alleged contamination of various properties currently or formerly
owned by the Company. In management's opinion, none of these
claims will result in liability that would materially affect the
Company's financial position or results of operations.
New Accounting Standard
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998. This statement, as amended, establishes
accounting and reporting standards for derivative instruments and
for hedging activities. It requires the recognition of all
derivatives as either assets or liabilities in the statement of
financial position at fair value. This statement is effective
for the Company's financial statements for the year ending
December 31, 2001 and the adoption of this standard is expected
to have a cumulative effect on the Company's statement of
financial position of approximately $6 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest Rate Risk
As of March 12, 2001, the Company's capital structure
includes approximately $625 million of debt that bears interest
based upon an underlying rate that fluctuates with short-term
interest rates, specifically LIBOR. The Company has entered into
interest rate swap agreements that lock in LIBOR at 5.94% on $100
million of borrowings and 6.98% on $125 million of its
borrowings. In addition, the Company has interest rate contracts
that cap the LIBOR interest rate at 8.13% for $200 million of
borrowings and 6.75% for $150 million of borrowings. With the
Company's interest rate protection contracts, a 1% change in
interest rates would impact annual pre-tax results by
approximately $6.2 million.
Factors That May Affect Future Results
Certain statements in this document constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of
the Company to be materially different from any future results,
performance or achievements expressed or implied by the forward-
looking statements. Specifically, a) revenue projections for
2001 and future years' revenue growth might be reduced because
customers experience lower demand, find alternative suppliers, or
otherwise reduce their demand for our products, or because the
Company, as a result of shutting down two plants, is unable to
efficiently move business or to qualify that business at other
plants, and future revenues are dependent on other factors,
including the strength of the U.S. economy, possible future
government regulations, the Company's ability to execute its
marketing plans and the ability of the Company to capture new
business; b) the new Golden plant startup might continue to have
technical and other challenges and therefore not be able to
achieve increased throughput and efficiency; c) margins might be
reduced due to market conditions for products sold and due to
increases in operating and materials costs, including energy,
recycled fiber and paperboard which might not be able to be
passed through to customers; d) the benefits of restructuring,
reorganization, integration, cost reduction and optimization to
be realized, including the benefits of an effective startup of
the Golden plant, are uncertain because of possible delays and
increases in costs; e) the ability to continue to reduce working
capital, including inventory, is dependent in part on customers'
order and inventory levels, and credit taken by them; f) selling,
general and administrative costs might increase based on adding
more staff and programs, and general cost increases; g) capital
expenditures might be higher than planned due to unexpected
requirements or opportunities; h) debt may not be reduced as
estimated due to lower than expected free cash flow; i) the
Company may be exposed to higher than predicted interest rates on
the unhedged portion of its debt and on any new debt it might
incur; j) if the Company is unable to meet the financial
covenants on its debt, it could be subject to higher interest
rates or possible default; k) the Company might not meet any
other estimates for 2001 as a result of higher integration costs
following the transfer of production within the system and the
transfer from two shutdown plants, market conditions for pricing
products, higher production costs, the inability to realize
savings from cost reduction programs, higher than predicted
interest rates, and other business factors; and l) the Company
might not be able to maintain its effective tax rate at 40% due
to the current and future tax laws, the Company's ability to
identify and use its tax credits and other factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Data
Consolidated Financial Statements: Page(s)
Report of Independent Accountants 28
Consolidated Income Statement for the years
ended December 31, 2000, 1999 and 1998 29
Consolidated Statement of Comprehensive Income
for the years ended December 31, 2000,
1999 and 1998 30
Consolidated Balance Sheet at December 31,
2000 and 1999 31
Consolidated Statement of Cash Flows for
the years ended December 31, 2000,
1999 and 1998 32
Consolidated Statement of Shareholders'
Equity for the years ended
December 31, 2000, 1999 and 1998 33
Notes to Consolidated Financial Statements 34-57
Schedule II - Valuation and Qualifying
Accounts for the years ended
December 31, 2000, 1999 and 1998 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Graphic Packaging
International Corporation:
In our opinion, the 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,
2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the
accompanying index presents fairly in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements and the
financial statement schedule 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 23, 2001
MANAGEMENT'S REPORT TO SHAREHOLDERS
The preparation, integrity and objectivity of the financial
statements and all other financial information included in this
annual report are the responsibility of the management of Graphic
Packaging International Corporation. The financial statements
have been prepared in accordance with generally accepted
accounting principles, applying estimates based on management's
best judgment where necessary. Management believes that all
material uncertainties have been appropriately accounted for and
disclosed.
The established system of accounting procedures and related
internal controls provide reasonable assurance that the assets
are safeguarded against loss and that the policies and procedures
are implemented by qualified personnel.
PricewaterhouseCoopers LLP, the Company's independent
accountants, provide an objective, independent audit of the
consolidated financial statements. Their accompanying report is
based upon an examination conducted in accordance with generally
accepted auditing standards, including tests of accounting
procedures and records.
The Board of Directors, operating through its Audit
Committee composed of outside directors, monitors the Company's
accounting control systems and reviews the results of the
auditing activities. The Audit Committee meets at least
quarterly, either separately or jointly, with representatives of
management, the Company's independent accountants and internal
auditors. To ensure complete independence, the Company's
independent accountants and internal auditors have full and free
access to the Audit Committee and may meet with or without the
presence of management.
GAIL A. CONSTANCIO JOHN S. NORMAN
Chief Financial Officer Corporate Controller
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENT
(in thousands, except per share data)
Year Ended December 31,
2000 1999 1998
Sales $990,390 $742,510 $571,899
Sales to Coors Brewing Company 112,200 107,645 119,878
--------- -------- --------
Total sales 1,102,590 850,155 691,777
Cost of goods sold 963,979 721,350 567,533
--------- -------- --------
Gross profit 138,611 128,805 124,244
Selling, general and
administrative expense 61,134 73,357 68,248
Goodwill amortization 20,634 13,276 7,785
Asset impairment and
restructuring charges 5,620 7,813 21,391
--------- -------- --------
Operating income 51,223 34,359 26,820
Gain from sale of businesses
and other assets 19,172 30,236 ---
Interest expense - net (82,071) (34,240) (16,616)
--------- -------- --------
Income (loss) from continuing
operations before income
taxes and extraordinary loss (11,676) 30,355 10,204
Income tax expense (benefit) (4,678) 11,945 4,751
--------- -------- --------
Income (loss) from continuing
operations before
extraordinary loss (6,998) 18,410 5,453
Discontinued operations,
net of tax
Income from discontinued
operations of CoorsTek --- 15,637 15,812
Loss on disposal of Golden
Aluminum --- (6,456) ---
--------- -------- --------
--- 9,181 15,812
--------- -------- --------
Income (loss) before
extraordinary item (6,998) 27,591 21,265
Extraordinary loss on early
extinguishment of
debt, net of tax of $1,312 --- (2,332) ---
--------- -------- --------
Net income (loss) (6,998) 25,259 21,265
Preferred stock dividends
declared (3,806) --- ---
--------- -------- --------
Income (loss) attributable to
common shareholders ($10,804) $25,259 $21,265
======== ======== ========
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENT
(in thousands, except per share data)
Year Ended December 31,
2000 1999 1998
--------- -------- --------
Net income (loss) attributable
to common shareholders
per basic share of common
stock:
Continuing operations ($0.37) $0.65 $0.19
Discontinued operations --- 0.32 0.56
Extraordinary loss --- (0.08) ---
--------- -------- --------
Net income (loss) attributable
to common shareholders
per basic share ($0.37) $0.89 $0.75
========= ======== ========
Weighted average shares
outstanding - basic 29,337 28,475 28,504
========= ======== ========
Net income (loss) attributable
to common shareholders
per diluted share of common
stock:
Continuing operations ($0.37) $0.64 $0.19
Discontinued operations --- 0.32 0.54
Extraordinary loss --- (0.08) ---
--------- -------- --------
Net income (loss) attributable
to common shareholders
per diluted share ($0.37) $0.88 $0.73
========= ======== ========
Weighted average shares
outstanding - diluted 29,337 28,767 29,030
========= ======== ========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
2000 1999 1998
--------- -------- --------
Net income (loss) ($6,998) $25,259 $21,265
--------- -------- --------
Other comprehensive income:
Foreign currency translation
adjustments:
Adjustments arising during
the period (355) 1,686 (3,218)
Reclassifications for
amounts already included
in net income --- 3,362 ---
Minimum pension liability
adjustment, net of tax
of $178 in 2000, ($354) in
1999 and $459 in 1998 (267) 531 (688)
--------- -------- --------
Other comprehensive income
(loss) (622) 5,579 (3,906)
--------- -------- --------
Comprehensive income (loss) ($7,620) $30,838 $17,359
========= ======== ========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
December 31,
2000 1999
ASSETS ---------- ----------
Current assets
Cash and cash equivalents $4,012 $15,869
Accounts receivable, less allowance
for doubtful accounts of $2,970 in
2000 and $2,260 in 1999 73,871 69,568
Accounts receivable from Coors
Brewing Company 1,316 2,348
Notes receivable --- 200,000
Inventories 105,228 128,365
Deferred income taxes 14,305 18,026
Other assets 17,329 13,737
---------- ----------
Total current assets 216,061 447,913
Properties, net 480,395 541,164
Goodwill, net 580,299 593,024
Other assets 54,695 61,070
---------- ----------
Total assets $1,331,450 $1,643,171
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $58,500 $400,000
Accounts payable 58,910 63,845
Accrued expenses and other liabilities 59,338 91,292
---------- ----------
Total current liabilities 176,748 555,137
Long-term debt 576,600 615,500
Other long-term liabilities 58,595 44,084
---------- ----------
Total liabilities 811,943 1,214,721
Minority interest 4,356 5,140
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 of $100 per share at
December 31, 2000 100,000 ---
Common stock, $0.01 par value
100,000,000 shares authorized;
30,544,449and 28,576,771 issued
and outstanding at December 31,
2000 and 1999 305 286
Paid-in capital 422,327 422,885
Retained earnings (deficit) (6,998) ---
Accumulated other comprehensive income
(loss) (483) 139
---------- ----------
Total shareholders' equity 515,151 423,310
---------- ----------
Total liabilities and shareholders'
equity $1,331,450 $1,643,171
========== ==========
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
2000 1999 1998
-------- -------- --------
Cash flows from operating
activities:
Net income (loss) ($6,998) $25,259 $21,265
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Asset impairment and
restructuring charges 5,620 7,813 34,488
Gain from sale of
businesses and other
assets (19,172) (30,236) ---
Loss on disposal of
Golden Aluminum --- 10,000 ---
Depreciation 62,460 63,602 48,764
Amortization of goodwill 20,634 15,393 8,743
Amortization of debt
issuance costs 8,865 2,448 ---
Change in net deferred
income taxes 11,676 (908) 7,305
Change in current assets
and current liabilities,
net of effects from
acquisitions
Accounts receivable (3,271) 3,757 2,865
Inventories 23,137 5,664 (1,232)
Other assets (3,592) (6,866) 5,369
Accounts payable (4,935) 29,237 (18,151)
Accrued expenses and
other liabilities (31,954) 20,392 (12,300)
Change in deferred items
and other 828 (10,417) 178
-------- -------- --------
Net cash provided by operating
activities 63,298 135,138 97,294
Cash flows from investing
activities:
Additions to properties (30,931) (91,455) (78,463)
Acquisitions, net of cash
acquired --- (905,069) (300,774)
Collection of note
receivable 200,000 --- ---
Proceeds from sale of assets 43,580 170,526 131,899
Other --- 13,812 (369)
-------- -------- --------
Net cash provided by (used in)
investing activities 212,649 (812,186) (247,707)
Cash flows from financing
activities:
Proceeds from issuance of
preferred stock, net of
stock issuance costs 98,558 --- ---
Proceeds from borrowings 51,500 1,643,116 126,800
Repayment of debt (431,900) (957,200) ---
Debt issuance costs (6,312) (29,716) ---
Preferred stock dividends
paid (1,306) --- ---
Common stock issuance and
other 1,656 10,521 454
-------- -------- --------
Net cash provided by (used in)
financing activities (287,804) 666,721 127,254
Cash and cash equivalents:
Net decrease in cash and
cash equivalents (11,857) (10,327) (23,159)
Balance at beginning of year 15,869 26,196 49,355
-------- -------- --------
Balance at end of year $4,012 $15,869 $26,196
======== ======== ========
Cash flows from discontinued operations of CoorsTek for 1999 and
1998 have not been excluded from the Consolidated Statement of
Cash Flows.
See Notes to Consolidated Financial Statements.
GRAPHIC PACKAGING INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Accumu-
lated
Other
Compre-
hensive
Preferred Common Paid-in Earnings Income
Stock Stock Capital (Deficit) (Loss) Total
--------- ------ -------- -------- --------- --------
Balance at --- $284 $451,336 ($19,555) ($1,534) $430,531
December 31, 1997
Exercise of stock
options --- 1 875 --- --- 876
Tax benefit of
option exercise --- --- 480 --- --- 480
Issuance of common
stock --- 1 1,097 --- --- 1,098
Share repurchase
program --- (2) (2,387) --- --- (2,389)
Net income --- --- --- 21,265 --- 21,265
Minimum pension
liability
adjustment --- --- --- --- (688) (688)
Cumulative
translation
adjustment --- --- --- --- (3,218) (3,218)
-------- ------ -------- -------- -------- ---------
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)
Minimum pension
liability
adjustment --- --- --- --- 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)
Minimum pension
liability
adjustment --- --- --- --- (267) (267)
Cumulative
translation
adjustment --- --- --- --- (355) (355)
--------- ------ -------- -------- -------- --------
Balance at
December 31, 2000 $100,000 $305 $422,327 ($6,998) ($483) $515,151
========= ====== ======== ======== ======== ========
See Notes to Consolidated Financial Statements.
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 GPC) is a manufacturer of packaging
products used by consumer product companies as primary packaging
for their end-use products. The Company's strategy is to
maximize its competitive position and growth opportunities in its
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 GPC shareholders in a
tax-free transaction. Shareholders received one share of
CoorsTek stock for every four shares of GPC stock held. The
results of operations for CoorsTek have been presented as a
discontinued operation in the accompanying 1999 and 1998
consolidated financial statements. CoorsTek issued a promissory
note to GPC 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 GPC 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. 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 1999 and 1998 amounts have been
reclassified to conform to the 2000 presentation.
Concentration of Credit Risk: A significant portion of the
Company's net sales consist of sales to Kraft Foods, Inc. and
affiliates under various contracts and Coors Brewing Company as
follows:
2000 1999 1998
---- ---- ----
Kraft Foods, Inc. 14% 20% 15%
Coors Brewing Company 10% 13% 17%
Revenue Recognition: Revenue is generally recognized when
goods are shipped. Shipping and handling costs invoiced to
customers are included in revenue. Associated costs are
recognized as costs of sales.
Inventories: Inventories are stated at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO)
method.
The classification of inventories, in thousands, at December
31, was as follows:
2000 1999
-------- --------
Finished $61,038 $63,491
In process 13,301 20,466
Raw materials 30,889 44,408
-------- --------
Total inventories $105,228 $128,365
======== ========
Properties: Land, buildings, equipment and purchased
software are stated at cost. The costs of developing internal-
use software 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, lease
term or 15 years
Internal-use software 8 years
The cost of properties and related accumulated depreciation,
in thousands, at December 31, consisted of the following:
2000 1999
-------- --------
Land and improvements $17,863 $17,077
Buildings and improvements 122,820 117,605
Machinery and equipment 506,984 471,022
Real estate properties 5,342 5,944
Construction in progress 23,926 79,946
-------- --------
676,935 691,594
Less accumulated depreciation 196,540 150,430
-------- --------
Net properties $480,395 $541,164
======== ========
Accelerated depreciation methods are generally used for
income tax purposes. 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.
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 indicate the carrying
amount of the assets may not be fully recoverable. Measurement
of the impairment loss is based on the fair value of the asset,
which is generally determined by the discounting of future
estimated cash flows.
Start-Up Costs: Non-construction start-up costs associated
with manufacturing facilities are expensed as incurred.
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, 2000 and
$609.7 million at December 31, 1999, less accumulated
amortization of $37.3 million and $16.7 million, respectively.
Share Repurchase Program: On September 3, 1998, the Board
of Directors authorized the repurchase of up to 5% of the
Company's outstanding common shares on the open market. During
1998, the Company repurchased 181,200 shares for approximately $2
million under this share repurchase program. No shares were
repurchased in 2000 or 1999. Terms of the Credit Agreement
entered into in 1999 currently prohibit additional share
repurchases.
Hedging Transactions: The Company periodically enters into
forward exchange contracts to hedge transactions and firm
commitments denominated in foreign currencies. Gains and losses
on foreign exchange contracts are deferred and recognized in the
basis of the transaction when completed. Through January 1999,
the Company also periodically entered into forward, future and
option contracts for commodities to hedge its exposure to price
fluctuations. The gains and losses on qualified hedge contracts
were deferred and recognized in cost of goods sold as part of the
product cost. The Company also enters into forward purchase
contracts periodically to purchase energy. The Company enters
into these contracts with the expectation of taking delivery of
the energy during the normal course of business. In addition,
the Company has entered into contracts to cap the underlying
interest rate on $350.0 million of borrowings and has also
entered into interest rate swap agreements for $225.0 million of
its borrowings. (See Note 7.) Gains and losses on these
contracts are recognized in interest expense when realized.
Earnings per Share: Following is a reconciliation between
basic and diluted earnings per common share from continuing
operations attributable to common shareholders for each of the
three years ended December 31 (in thousands, except per share
information):
Per
Share
Income Shares Amount
2000 ------- ------ ------
Income (loss) from
continuing perations
attributable to
common shareholders --
basic EPS ($10,804) 29,337 ($0.37)
Other dilutive equity
instruments --- ---
-------- ------
Income (loss) from
continuing operations
attributable to
common shareholders --
diluted EPS ($10,804) 29,337 ($0.37)
======== ====== ======
1999
Income (loss) from
continuing operations
attributable to
common shareholders --
basic EPS $18,410