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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 4, 2004
Commission File Number 0-21314
U.S. CAN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
06-1094196
(I.R.S. Employer Identification No.)
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
700 EAST BUTTERFIELD ROAD
SUITE 250
LOMBARD, ILLINOIS 60148
(Address of Principal Executive Offices, Including Zip Code)
(630) 678-8000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") 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 |_| No |X|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).
Yes |_| No |X|
As of May 10, 2004, 53,333.333 shares of Common Stock were outstanding.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 2004
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations for the Three Months Ended
April 4, 2004 and March 30, 2003................................................................. 3
Consolidated Balance Sheets as of April 4, 2004 and December 31, 2003............................ 4
Consolidated Statements of Cash Flows for the Three Months Ended
April 4, 2004 and March 30, 2003................................................................. 5
Notes to Consolidated Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................ 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 22
Item 4. Controls and Procedures.......................................................................... 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 23
Item 6. Exhibits and Reports on Form 8-K................................................................. 23
INCLUSION OF FORWARD-LOOKING INFORMATION
Certain statements in this report constitute "forward-looking statements" within the meaning of the federal
securities laws. Such statements involve known and unknown risks and uncertainties which may cause the Company's actual
results, performance or achievements to be materially different than any future results, performance or achievements
expressed or implied in this report. By way of example and not limitation and in no particular order, known risks and
uncertainties include general economic and business conditions; the Company's substantial debt and ability to generate
sufficient cash flows to service its debt; the Company's compliance with the financial covenants contained in its various
debt agreements; changes in market conditions or product demand; the level of cost reduction achieved through
restructuring and capital expenditure programs; changes in raw material costs and availability; downward selling price
movements; currency and interest rate fluctuations; increases in the Company's leverage; the Company's ability to
effectively integrate acquisitions; changes in the Company's business strategy or development plans; the timing and cost
of plant closures; the success of new technology; and increases in the cost of compliance with laws and regulations,
including environmental laws and regulations. In light of these and other risks and uncertainties as described under
"Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and filed with the
Securities and Exchange Commission in March 2004, the inclusion of a forward-looking statement in this report should not
be regarded as a representation by the Company that any future results, performance or achievements will be attained.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's OMITTED)
For the Quarterly Period Ended
--------------------------------------------
April 4, 2004 March 30, 2003
------------------- --------------------
(Unaudited)
Net Sales $ 213,428 $ 198,890
Cost of Sales 191,033 177,546
------------- ------------
Gross income 22,395 21,344
Selling, General and Administrative Expenses 9,997 9,676
Special Charges 522 1,030
------------- ------------
Operating income 11,876 10,638
Interest Expense 12,670 13,088
Bank Financing Fees 1,378 1,014
------------- ------------
Loss before income taxes (2,172) (3,464)
Provision for Income Taxes 326 573
------------ ------------
Net Loss Before Preferred Stock Dividends (2,498) (4,037)
Preferred Stock Dividend Requirement (3,824) (3,246)
------------ ------------
Net Loss Attributable to Common Stockholders $ (6,322) $ (7,283)
============ ============
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's OMITTED, except per share data)
April 4, December 31,
ASSETS 2004 2003
---------------- -----------------
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 5,633 $ 23,540
Accounts receivable, net of allowances 94,805 87,609
Inventories 98,609 95,545
Other current assets 18,207 14,402
---------------- -----------------
Total current assets 217,254 221,096
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 235,324 243,373
GOODWILL 27,384 27,384
DEFERRED INCOME TAXES 31,135 30,816
OTHER NON-CURRENT ASSETS 52,851 54,519
---------------- -----------------
Total assets $ 563,948 $ 577,188
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations $ 19,992 $ 19,499
Accounts payable 88,853 90,851
Accrued expenses 40,955 46,485
Restructuring reserves 2,206 3,422
Income taxes payable 1,105 1,249
---------------- -----------------
Total current liabilities 153,111 161,506
LONG TERM DEBT 535,511 535,767
LONG TERM LIABILITIES PURSUANT TO EMPLOYEE
BENEFIT PLANS 71,944 71,779
OTHER LONG-TERM LIABILITIES 7,080 7,086
---------------- -----------------
Total liabilities 767,646 776,138
REDEEMABLE PREFERRED STOCK, 200,000 shares authorized,
106,667 shares issued & outstanding 150,779 146,954
STOCKHOLDERS' EQUITY:
Common stock, $10.00 par value, 100,000 shares authorized,
53,333 shares issued & outstanding 533 533
Additional paid in capital 52,800 52,800
Accumulated other comprehensive loss (28,044) (25,793)
Accumulated deficit (379,766) (373,444)
---------------- -----------------
Total stockholders' equity / (deficit) (354,477) (345,904)
---------------- -----------------
Total liabilities and stockholders' equity $ 563,948 $ 577,188
================ =================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these balance sheets
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's OMITTED)
For the Quarterly Period Ended
April 4, 2004 March 30, 2003
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net loss before preferred stock dividend requirements $ (2,498) $ (4,037)
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization 11,144 9,087
Special Charges 522 1,030
Deferred income taxes (324) 719
Change in operating assets and liabilities, net of effect of acquired and disposed
of businesses:
Accounts receivable (8,300) (10,753)
Inventories (4,382) (1,044)
Accounts payable (609) 5,092
Accrued expenses (7,471) (32)
Other, net (3,067) (1,611)
------------------ ------------------
Net cash used for operating activities (14,985) (1,549)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,720) (3,755)
Proceeds from the sale of property 1,018 5,186
------------------ ------------------
------------------ ------------------
Net cash provided by (used for) investing activities (2,702) 1,431
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving lines of credit - 200
Payments of other long-term debt, including capital lease obligations (602) (5,492)
Borrowings of other debt 881 1,048
------------------ ------------------
Net cash provided by (used for) financing activities 279 (4,244)
------------------ ------------------
------------------ ------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (499) (403)
------------------ ------------------
DECREASE IN CASH AND CASH EQUIVALENTS (17,907) (4,765)
CASH AND CASH EQUIVALENTS, beginning of period 23,540 11,790
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 5,633 $ 7,025
================== ==================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 4, 2004
(Unaudited)
(1) PRINCIPLES OF REPORTING
The consolidated financial statements include the accounts of U.S. Can Corporation (the "Corporation" or "U.S.
Can"), its wholly owned subsidiary, United States Can Company ("United States Can"), and United States Can's subsidiaries
(the "Subsidiaries"). The consolidated group is referred to herein as "the Company", "we", "us", or "our". All
significant intercompany balances and transactions have been eliminated. These financial statements, in the opinion of
management, include all normal recurring adjustments necessary for a fair presentation. Operating results for any
interim period are not necessarily indicative of results that may be expected for the full year. These financial
statements should be read in conjunction with the previously filed financial statements and footnotes included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2003. Certain prior year amounts have been
reclassified to conform with the 2004 presentation.
STOCK-BASED COMPENSATION
The Company periodically issues stock options under the U.S. Can 2000 Equity Incentive Plan. The Company
continues to utilize the intrinsic fair value method under APB Opinion No. 25 to account for its stock-based compensation
plan; therefore, no compensation costs are recognized in the Company's financial statements for options granted.
In accordance with SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure", the
following table presents (in thousands) what the Company's net loss would have been had the Company determined
compensation costs using the fair value-based accounting method for the quarters ended April 4, 2004 and March 30, 2003.
For The Quarters Ended
------------------------------------
April 4, 2004 March 30, 2003
------------------------------------
Net Loss Before Preferred Stock $ $
Dividends...................................(2,498) (4,037)
Stock-Based Compensation Cost,
net of tax - fair value method......... (30) (20)
------------------------------------
Pro-Forma Net Loss Before Preferred $ $
Stock Dividends......................... (2,528) (4,057)
====================================
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of approximately $21.9 million and $3.3 million for the quarterly periods ended April
4, 2004 and March 30, 2003, respectively. The Company paid $0.7 million in income taxes for the quarterly period ended
April 4, 2004 and $0.3 million for the quarterly period ended March 30, 2003.
(3) SPECIAL CHARGES
2004
- ----
During the first quarter of 2004, the Company recorded a restructuring charge of $0.5 million related to position
elimination costs in Europe. The position eliminations consisted of 23 employees and include eliminations related to an
early termination program in one European facility and a product line profitability review program in our German food can
business. Total cash payments in the first quarter of 2004 were $1.6 million (primarily severance and facility shut down
costs) and the Company anticipates spending another $6.7 million over the next several years. The remaining reserve
consists primarily of employee termination benefits paid over time for approximately eight salaried and 44 hourly
employees and other ongoing facility exit costs.
The table below presents the reserve categories and related activity as of April 4, 2004:
January 1, Additions Cash Other (b) April 4,
2004 Balance Payments 2004 Balance
-------------- ------------- ------------- --------------- --------------
-------------- ------------- ------------- --------------- --------------
Employee Separation $4.3 $0.5 $(1.3) $(0.1) $3.4
Facility Closing Costs 3.6 - (0.3) - 3.3
-------------- ------------- ------------- --------------- --------------
-------------- ------------- ------------- --------------- --------------
Total $7.9 $0.5 $(1.6) $(0.1) $6.7 (a)
============== ============= ============= =============== ==============
============== ============= ============= =============== ==============
(a) Includes $4.5 million classified as other long-term liabilities as of April 4, 2004.
(b) Non-cash foreign currency translation impact
2003
- ----
During the first quarter of 2003, the Company recorded a restructuring charge of $1.0 million related to position
elimination costs in the U.S. and Europe. The position eliminations consisted of 16 employees, including two management
level employees and an early termination program in one European facility. Total cash payments in the first quarter of
2003 were $4.4 million (primarily severance and facility shut down costs). The remaining reserve consisted primarily of
employee termination benefits to be paid over time for approximately 33 salaried and 51 hourly employees (approximately
600 positions were originally identified for elimination) and other ongoing facility exit costs.
The table below presents the reserve categories and related activity as of March 30, 2003:
January 1, March 30,
2003 Balance Net Additions Cash Payments 2003 Balance
---------------- -------------- ---------------- ------------------
---------------- -------------- ---------------- ------------------
Employee Separation $9.2 $1.0 $(2.6) $7.6
Facility Closing Costs 6.5 - (1.8) 4.7
---------------- -------------- ---------------- ------------------
---------------- -------------- ---------------- ------------------
Total $15.7 $1.0 $(4.4) $12.3 (a)
================ ============== ================ ==================
================ ============== ================ ==================
(a) Includes $3.8 million classified as other long-term liabilities as of March 30, 2003.
(4) INVENTORIES
All domestic inventories are stated at cost determined by the last-in, first-out ("LIFO") cost method, not in
excess of market. Subsidiaries' inventories of approximately $45.3 million at April 4, 2004 and $42.8 million at
December 31, 2003 are stated at cost determined by the first-in, first-out ("FIFO") cost method, not in excess of
market. FIFO cost of LIFO inventories approximated their LIFO value at April 4, 2004 and at December 31, 2003.
Inventories reported in the accompanying balance sheets are classified as follows (000's omitted):
April 4, December 31,
2004 2003
----------------- ----------------
Raw materials........................................................ $ 19,878 $ 21,382
Work in process...................................................... 41,012 39,286
Finished goods....................................................... 37,719 34,877
----------------- ---------------
$ 98,609 $ 95,545
================= ===============
(5) COMPREHENSIVE NET INCOME (LOSS)
The components of accumulated other comprehensive loss are as follows (000's omitted):
April 4, December 31,
2004 2003
------------- ---------------
Foreign Currency Translation Adjustment ................................... $(6,963) $(5,148)
Minimum Pension Liability Adjustment....................................... (21,081) (20,645)
------------ ---------------
Total Accumulated Other Comprehensive Loss................................. $(28,044) $(25,793)
============ ==============
The components of comprehensive loss for the quarterly periods ended April 4, 2004 and March 30, 2003 are as
follows (000's omitted):
For the Quarters Ended
-------------------------------
April 4, March 30,
2004 2003
------------- -------------
Net Loss Before Preferred Stock Dividends.................................. $ (2,498) $ (4,037)
Foreign Currency Translation Adjustment.................................... (2,251) 2,298
Unrealized Gain on Cash Flow Hedges (a).................................... -- 1,030
------------- -------------
Comprehensive Loss......................................................... $ (4,749) $ (709)
============= =============
(a) Net of reclassification of losses included in net loss of $1.6 million for the first quarter of 2003.
(6) BENEFIT PLANS
The Company maintains separate noncontributory defined benefit and defined contribution pension plans covering
most domestic hourly employees and all domestic salaried personnel, respectively. It is the Company's policy to fund
accrued pension and defined contribution plan costs in compliance with ERISA or the applicable foreign requirements.
The net periodic pension cost was as follows for the first quarter of 2004 and 2003 (000's omitted):
U.S.
- ----
April 4, 2004 March 30, 2003
---------------- -------------------
Service cost.................................................. $287 $ 227
Interest cost................................................. 724 679
Return on assets.............................................. (683) (569)
Recognized loss............................................... 28 68
Recognized prior service cost................................. 94 94
---------------- -------------------
Net periodic pension cost..................................... $450 $499
================ ===================
Non-U.S.
- --------
April 4, 2004 March 30, 2003
---------------- -------------------
Service cost.................................................. $ 88 77
Interest cost................................................. 1,129 938
Return on assets.............................................. (864) (655)
Recognized loss............................................... 208 197
---------------- -------------------
Net periodic pension cost..................................... $ 561 $ 557
================ ===================
The Company provides health and life insurance benefits for certain domestic retired employees in connection with
collective bargaining agreements.
Net periodic postretirement benefit costs for the Company's U.S. postretirement benefit plans for the quarters
ended April 4, 2004 and March 30, 2003, included the following components (000's omitted):
U.S.
- ----
April 4, 2004 March 30, 2003
---------------- -------------------
Service cost.................................................. $ 80 $ 66
Interest cost................................................. 369 372
Recognized loss............................................... 52 34
Recognized prior service cost................................. (226) (226)
---------------- -------------------
Net periodic pension cost..................................... $ 275 $ 246
================ ===================
The Company made $0.2 million in contributions to its U.S. based pension plan and $0.3 million of contributions
to its non-U.S. based pension plans in the first quarter of 2004. In addition, the Company made payments under its
postretirement benefit plan of $0.4 million in the first quarter of 2004. The Company does not anticipate its 2004
contributions to any of its plans to be significantly different from the amounts previously disclosed in the Company's
consolidated financial statements for the year ended December 31, 2003.
(7) BUSINESS SEGMENTS
Management monitors and evaluates performance, customer base and market share for four business segments. The
segments have separate management teams and distinct product lines. The Aerosol segment primarily produces steel aerosol
containers in the U.S. for personal care, household, automotive, paint and industrial products. The International segment
produces aerosol cans in the Europe and Latin America (through Formametal S.A., a joint venture in Argentina) as well as
steel food packaging in Europe. The Paint, Plastic & General Line segment produces round cans in the U.S. for paint
and coatings, oblong cans for items such as lighter fluid and turpentine as well as plastic containers for paint and
industrial and consumer products. The Custom & Specialty segment produces a wide array of functional and decorative
tins, containers and other products in the U.S. The Company notes that financial information used to produce its
financial statements is not recorded or reconciled on a product line basis, therefore it is not practicable for the
Company to disclose revenues by product line.
The following is a summary of revenues from external customers and loss from operations for the quarterly periods
ended April 4, 2004 and March 30, 2003, respectively (000's omitted):
April 4, March 30,
2004 2003
------------- ---------------
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol................................................................ $ 92,155 $ 88,778
International.......................................................... 78,359 63,065
Paint, Plastic & General Line...................................... 33,426 31,245
Custom & Specialty................................................. 9,488 15,802
------------- ---------------
Total revenues......................................................... $ 213,428 $ 198,890
============= ===============
INCOME (LOSS) FROM OPERATIONS:
Aerosol................................................................ $ 14,585 $ 14,008
International.......................................................... 1,032 (829)
Paint, Plastic & General Line...................................... 3,472 4,185
Custom & Specialty................................................. (347) 551
-------------- ---------------
Total Segment Income From Operations................................... 18,742 17,915
Unallocated Selling, General & Administrative Expenses (a)......... (6,344) (6,247)
Special Charges (b).................................................... (522) (1,030)
Interest Expense....................................................... (12,670) (13,088)
Bank Financing Fees.................................................... (1,378) (1,014)
------------- ---------------
Loss before income taxes............................................... $ (2,172) $ (3,464)
============= ===============
(a) Represents domestic Selling, General & Administrative expenses. The Company does not allocate these costs
to its domestic segments.
(b) Management does not evaluate segment performance including such charges. See Note (3) for further information
on the Company's special charges.
(8) COMMITMENTS AND CONTINGENCIES
Environmental
United States Can has been named as a potentially responsible party for costs incurred in the clean-up of the San
Leandro Plume, a regional groundwater plume partially extending underneath United Sates Can's former site in San Leandro,
California. When the Company acquired the San Leandro facility, it assumed certain liabilities subject to indemnification
by the former owner / operator for claims made on or before December 1986. The former owner / operator tendered its
obligations under the remedial action order to the Company. The Company accepted the tender with reservation of any
legal rights it may have to seek contribution or reimbursement. The Company is a party to an indemnity agreement related
to this matter with the current owner of the property, who purchased the property from the Company. In its 1994 agreement
with the current owner, the Company agreed to defend and indemnify the current owner and their successors and assigns for
any claims, including investigative or remedial action, required by any governmental agency that regulates hazardous
substances. Neither the agreement with the former owner or the operator contains any caps or limits. Extensive soil and
groundwater investigative work has been performed on the San Leandro Plume, including at the San Leandro site. Currently,
the State of California is overseeing remediation at an offsite source of contamination of the San Leandro Plume.
Periodically, the State of California conducts regional sampling to monitor the efficacy of the remediation. The
Company, along with other PRPs, participated in a coordinated sampling event in 1999. In November 2002, as part of a
larger sampling scheme, the State of California requested that we sample existing monitoring wells at the San Leandro
property. The Company completed a round of sampling in December 2002. The 2002 sampling results generally show that the
concentration of contamination is declining, which we view as a positive development. While the State has not yet
commented on either the 1999 or the 2002 sampling results, we believe that the source of contamination is unrelated to
our past operations. The Company receives quarterly invoices from the State of California for its oversight work and for
the regional sampling. At this time, the Company is unable to estimate reasonably possible losses related to the San
Leandro site or to the San Leandro Plume, but believes the sampling supports its position that the groundwater
contamination in the San Leandro Plume is unrelated to its past operation. To date, the Company has not been required to
implement any remedial action at the San Leandro site.
Legal
The Company is involved in litigation from time to time in the ordinary course of our business. In our opinion,
the litigation is not material to our financial condition or results of operations.
(9) SUBSEQUENT EVENTS
On April 22, 2004, U.S. Can Corporation announced that George V. Bayly, a member of the Company's Board of
Directors, had been named Chief Executive Officer of U.S. Can Corporation and that John Workman would step down from his
position as Chief Executive Officer. Mr. Bayly began overseeing the daily operations of U.S. Can on April 22nd.
Definitive agreements have not yet been executed with Mr. Bayly or Mr. Workman; however, potential employment and
separation costs are not expected to be material to the Company's financial position or results of operations.
(10) SUBSIDIARY GUARANTOR INFORMATION
The following presents the condensed consolidating financial data for U.S. Can Corporation (the "Parent
Guarantor"), United States Can Company (the "Issuer"), USC May Verpackungen Holding Inc. (the "Subsidiary Guarantor"),
and the Issuer's European subsidiaries, including May Verpackungen GmbH & Co., KG (the "Non-Guarantor Subsidiaries"),
as of April 4, 2004 and December 31, 2003 and for the three months ended April 4, 2004 and March 30, 2003. Investments
in subsidiaries are accounted for by the Parent Guarantor, the Issuer and the Subsidiary Guarantor under the equity
method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are, therefore, reflected in
their parent's investment accounts and earnings. This consolidating information reflects the guarantors and
non-guarantors of the 10 7/8% Senior Secured Notes and 12 3/8% Senior Subordinated Notes.
The 10 7/8% Senior Secured Notes and 12 3/8% Senior Subordinated Notes are guaranteed on a full, unconditional,
unsecured, senior subordinated, joint and several basis by the Parent Guarantor, the Subsidiary Guarantor and any other
domestic restricted subsidiary of the Issuer. USC May Verpackungen Holding Inc., which is wholly owned by the Issuer,
currently is the only Subsidiary Guarantor. The Parent Guarantor has no assets or operations separate from its investment
in the Issuer.
Separate financial statements of the Issuer or the Subsidiary Guarantors have not been presented as management
has determined that such information is not material to the holders of the 10 7/8% Senior Secured Notes and 12 3/8%
Senior Subordinated Notes.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarterly Period Ended APRIL 4, 2004
(unaudited)
(000's omitted)
USC May USC Europe/ May
United Verpackungen Verpackungen GmbH
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------ ------------- ----------------- -------------------- ------------- -------------
NET SALES...................... $ - $ 135,069 $ - $ 78,359 $ - $ 213,428
COST OF SALES.................. - 117,359 - 73,674 - 191,033
------- ---------- --------- ---------- ------- ---------
Gross income.............. - 17,710 - 4,685 - 22,395
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... - 6,344 - 3,653 - 9,997
SPECIAL CHARGES................ - - - 522 - 522
------- --------- --------- ---------- ------- ---------
Operating income.......... - 11,366 - 510 - 11,876
INTEREST EXPENSE............... - 10,922 1,353 395 - 12,670
BANK FINANCING FEES............ - 1,288 - 90 - 1,378
EQUITY IN LOSS
OF SUBSIDIARIES ............. (2,498) (1,911) (822) - 5,231 -
------- ---------- ----------- --------- -------- --------
Loss before income taxes (2,498) (2,755) (2,175) 25 5,231 (2,172)
PROVISION (BENEFIT) FOR
INCOME TAXES................. - (257) 75 508 - 326
------- ---------- --------- --------- ------- ---------
NET LOSS BEFORE
PREFERRED STOCK DIVIDENDS.... (2,498) (2,498) (2,250) (483) 5,231 (2,498)
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (3,824) - - - - (3,824)
------- --------- --------- --------- ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS.................. $(6,322) $ (2,498) $ (2,250) $ (483) $ 5,231 $ (6,322)
======= ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarterly Period Ended MARCH 30, 2003
(unaudited)
(000's omitted)
USC May USC Europe/ May
United Verpackungen Verpackungen GmbH
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------ ------------- ----------------- -------------------- ------------- -------------
NET SALES...................... $ - $ 135,825 $ - $ 63,065 $ - $ 198,890
COST OF SALES.................. - 117,080 - 60,466 - 177,546
------- ---------- --------- ---------- ------- ---------
Gross income.............. - 18,745 - 2,599 - 21,344
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... - 6,248 - 3,428 - 9,676
SPECIAL CHARGES................ - 527 - 503 - 1,030
------- ---------- --------- ---------- ------- ---------
Operating income.......... - 11,970 - (1,332) - 10,638
INTEREST EXPENSE............... - 10,628 1,596 864 - 13,088
BANK FINANCING FEES............ - 1,014 - - - 1,014
EQUITY IN LOSS
OF SUBSIDIARIES ............. (4,037) (4,241) (2,001) - 10,279 -
------- --------- ----------- --------- -------- --------
Loss before income taxes (4,037) (3,913) (3,597) (2,196) 10,279 (3,464)
PROVISION FOR
INCOME TAXES................. - 124 - 449 - 573
------- --------- --------- --------- ------- ---------
NET LOSS BEFORE
PREFERRED STOCK DIVIDENDS.... (4,037) (4,037) (3,597) (2,645) 10,279 (4,037)
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (3,246) - - - - (3,246)
------- --------- --------- --------- ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS.................. $(7,283) $ (4,037) $ (3,597) $ (2,645) $10,279 $ (7,283)
======= ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of APRIL 4, 2004
(unaudited)
(000s omitted)
USC May USC Europe/ May
Verpackungen Verpackungen
U.S. Can United States Holding GmbH U.S. Can
Corporation Can Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Eliminations Consolidated
-------------- --------------- ------------------ ----------------- -------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 1,608 $ - $ 4,025 $ - $ 5,633
Accounts receivable...... - 51,591 - 43,214 - 94,805
Inventories.............. - 53,274 - 45,335 - 98,609
Other current assets..... - 5,798 - 12,409 - 18,207
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 112,271 - 104,983 - 217,254
NET PROPERTY, PLANT AND
EQUIPMENT................... - 140,202 - 95,122 - 235,324
GOODWILL...................... - 27,384 - - - 27,384
DEFERRED INCOME TAXES......... - 31,009 - 126 - 31,135
OTHER NON-CURRENT ASSETS...... - 38,382 - 14,469 - 52,851
INTERCOMPANY
ADVANCES.................... - 253,372 - - (253,372) -
INVESTMENT IN
SUBSIDIARIES................ - - 59,493 - (59,493) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 602,620 $ 59,493 $ 214,700 $ (312,865) $ 563,948
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 2,033 $ - $ 17,959 $ - $ 19,992
Accounts payable......... - 37,124 - 51,729 - 88,853
Restructuring reserves... - 1,678 - 528 - 2,206
Income taxes payable..... - - - 1,105 - 1,105
Other current liabilities - 30,789 - 10,166 - 40,955
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 71,624 - 81,487 - 153,111
liabilities...................
TOTAL LONG TERM DEBT.......... 854 534,657 - - - 535,511
LONG-TERM LIABILITIES PURSUANT
TO EMPLOYEE BENEFIT PLANS... - 41,018 930 29,996 - 71,944
OTHER LONG-TERM
LIABILITIES................. - 2,594 - 4,486 - 7,080
PREFERRED STOCK............... 150,779 - - - - 150,779
INTERCOMPANY LOANS............ 112,055 - 123,023 18,294 (253,372) -
INVESTMENT IN
SUBSIDIARIES................ 90,789 43,516 - - (134,305) -
STOCKHOLDERS' EQUITY.......... (354,477) (90,789) (64,460) 80,437 74,812 (354,477)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 602,620 $ 59,493 $ 214,700 $ (312,865) $ 563,948
and
stockholders'
equity........................
============== =============== ================== ================= ============== ==================
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2003
(000's omitted)
U.S. Can United States USC May USC Europe/ May Eliminations U.S. Can
Verpackungen Verpackungen
Holding GmbH
Corporation Can Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- --------------- ------------------ ----------------- -------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 16,854 $ - $ 6,686 $ - $ 23,540
Accounts receivable...... - 44,157 - 43,452 - 87,609
Inventories.............. - 52,739 - 42,806 - 95,545
Other current assets..... - 7,126 - 7,276 - 14,402
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 120,876 - 100,220 - 221,096
NET PROPERTY, PLANT AND
EQUIPMENT................... - 143,777 - 99,596 - 243,373
GOODWILL...................... - 27,384 - - - 27,384
DEFERRED INCOME TAXES......... - 30,685 - 131 - 30,816
OTHER NON-CURRENT ASSETS...... - 39,570 - 14,949 - 54,519
INTERCOMPANY
ADVANCES.................... - 252,104 - - (252,104) -
INVESTMENT IN
SUBSIDIARIES................ - - 61,961 - (61,961) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 614,396 $ 61,961 $ 214,896 $ (314,065) $ 577,188
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 2,379 $ - $ 17,120 $ - $ 19,499
Accounts payable......... - 42,237 - 48,614 - 90,851
Restructuring reserves... - 2,831 - 591 - 3,422
Income taxes payable..... - - - 1,249 - 1,249
Other current liabilities - 35,683 - 10,802 - 46,485
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 83,130 - 78,376 - 161,506
liabilities...................
TOTAL LONG TERM DEBT.......... 854 534,913 - - - 535,767
LONG-TERM LIABILITIES PURSUANT
TO EMPLOYEE BENEFIT PLANS... - 41,069 930 29,780 - 71,779
OTHER LONG-TERM
LIABILITIES................. - 2,594 - 4,492 - 7,086
PREFERRED STOCK............... 146,954 - - - - 146,954
INTERCOMPANY LOANS............ 112,056 - 121,595 18,453 (252,104) -
INVESTMENT IN
SUBSIDIARIES................ 86,040 38,730 - - (124,770) -
STOCKHOLDERS' EQUITY.......... (345,904) (86,040) (60,564) 83,795 62,809 (345,904)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 614,396 $ 61,961 $ 214,896 $ (314,065) $ 577,188
and
stockholders'
equity........................
============== =============== ================== ================= ============== ==================
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 2004
(unaudited)
(000s omitted)
U.S. Can United USC May USC Europe / May U.S. Can
Verpackungen
States Can Holding Verpackungen
Corporation Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- ------------- ------------------ -------------------- -------------
CASH FLOWS USED FOR OPERATING ACTIVITIES.........$.....-..... $(11,040) $ (2,250) $ (1,695) $ (14,985)
- - --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (3,354) - (366) (3,720)
Proceeds from sale of property.......................-..... 1,018 - - 1,018
- -------- --------- -------- ---------
Net cash used for investing activities...........-..... (2,336) - (366) (2,702)
- -------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances.....................-..... (1,268) 2,250 (982) -
Payments of other long-term debt.....................-..... (602) - - (602)
Borrowings of other debt.............................-..... - - 881 881
- -------- --------- --------- ---------
Net cash (used for) provided by - (1,870)
-------- ----------
financing
activities.............................................. 2,250 (101) 279
---------- ---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - (499) (499)
- -------- --------- --------- ----------
DECREASE IN CASH AND - (15,246)
CASH EQUIVALENTS........................................... - (2,661) (17,907)
CASH AND CASH EQUIVALENTS, beginning of - 16,854
-------- ---------
period..................................................... - 6,686 23,540
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.........$.....-..... $ 1,608 $ - $ 4,025 $ 5,633
= = ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2003
(unaudited)
(000s omitted)
USC May
United Verpackungen USC Europe / May
U.S. Can States Can Holding Verpackungen U.S. Can
Corporation Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- ------------- ------------------ -------------------- -------------
CASH FLOWS (USED FOR) PROVIDED BY OPERATING $ - $ 3,463
-------- --------
ACTIVITIES................................................. $ (3,601) $ (1,411) $ (1,549)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (2,782) - (973) (3,755)
Proceeds from sale of property.......................-..... 13 - 5,173 5,186
- -------- --------- -------- ---------
Net cash (used for) provided by - (2,769)
-------- --------
investing activities......................................... - 4,200 1,431
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances.....................-..... (2,513) 3,601 (1,088) -
Net borrowings under revolving line of - 200
credit....................................................... - - 200
Payments of other long-term debt.....................-..... (265) - (5,227) (5,492)
Borrowings of other debt.............................-..... - - 1,048 1,048
- -------- --------- --------- ---------
Net cash (used for) provided by - (2,578)
-------- ----------
financing
activities.............................................. 3,601 (5,267) (4,244)
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - (403) (403)
- -------- --------- --------- ----------
DECREASE IN CASH AND - (1,884)
CASH EQUIVALENTS........................................... - (2,881) (4,765)
CASH AND CASH EQUIVALENTS, beginning of - 5,707
-------- ---------
period..................................................... - 6,083 11,790
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.........$.....-..... $ 3,823 $ - $ 3,202 $ 7,025
= = ========= ========= ======== =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following narrative discusses the results of operations, liquidity and capital resources for the Company on a
consolidated basis. This section should be read in conjunction with the financial statements and footnotes contained
within this report and the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (see
"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein).
Use of Estimates; Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Estimates are used for, but not limited to: customer rebate accruals
included in allowance for doubtful accounts; inventory valuation; restructuring amounts; asset impairments; goodwill
impairments; pension assumptions and tax valuation allowances. Future events and their effects cannot be perceived with
certainty. Accordingly, our accounting estimates require the exercise of management's current best reasonable judgment
based on facts available. The accounting estimates used in the preparation of the consolidated financial statements will
change as new events occur, as more experience is acquired, as more information is obtained and as the Company's
operating environments change. Accounting policies requiring significant management judgments include those related to
revenue recognition, inventory valuation, rebate accruals, goodwill impairment, restructuring reserves, tax valuation
allowances, pension benefit obligations and interest rate exposure.
The Company's critical accounting policies are described in Note (2) to the audited Consolidated Financial
Statements contained within the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
Significant business or customer conditions could cause material changes to the amounts reflected in our financial
statements. For example, the Company enters into contractual agreements with certain of its customers for rebates,
generally based on annual sales volumes. Should the Company's estimates of the customers' annual sales volumes vary
materially from the sales volumes actually realized, revenue may be materially impacted, however, we have not
historically been required to make material adjustments to our rebate accruals. Similarly, a large portion of the
Company's inventory is manufactured to customer specifications. Other inventory is generally less specific and saleable
to multiple customers. However, losses may result should the Company manufacture customized products, which it is unable
to sell. Since raw materials inventory is generally not customer-specific, losses would generally relate to work in
progress and finished goods inventory. An increase of 1% in the level of reserves for work in progress and finished
goods inventory would result in a pretax charge of less than $1 million. The Company has not historically experienced
major deviations in the level of reserve for unsaleable inventory, except in the case of discontinued product lines.
Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" requires that
goodwill and "indefinite-lived" intangibles are not amortized but are tested at least annually for impairment. On an
ongoing basis, the Company reviews its operations for indications of potential goodwill impairment and annually tests its
goodwill for impairment under SFAS 142 in November of each year. The Company identifies potential impairments of
goodwill by comparing an estimated fair value for each applicable business unit to its respective carrying value.
Although the values are assessed using a variety of internal and external sources, future events may cause reassessments
of these values and related goodwill impairments. The Company currently has $27.4 million of goodwill relating to its
Aerosol and Paint, Plastic and General Line segments included in its consolidated balance sheet. As of December 31,
2003, a 10% decrease in the Company's assessment of the fair value of the Aerosol or Paint, Plastic and General Line
businesses would have caused no impairment of the goodwill related to that segment.
In accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we continually
review whether events and circumstances subsequent to the acquisition of any long-lived assets have occurred that
indicate the remaining estimated useful lives of those assets may warrant revision or that the remaining balance of those
assets may not be recoverable. If events and circumstances indicate that the long-lived assets should be reviewed for
possible impairment, we use projections to assess whether future cash flows or operating income (before amortization) on
an undiscounted basis related to the tested assets is likely to exceed the recorded carrying amount of those assets, to
determine if a write-down is appropriate. Should an impairment be identified, a loss would be reported to the extent that
the carrying value of the impaired assets exceeds their fair values as determined by valuation techniques appropriate in
the circumstances that could include the use of similar projections on a discounted basis. Our estimates of future cash
flows are based on historical performance, our assessment of the impact of economic and industry-specific trends and
Company-prepared projections. These estimates are highly likely to change from period to period based on performance and
changes in market and economic conditions. A significant decline in our assessment of future cash flows and a
significant decline in our assessment of the fair value of long-lived assets could cause us to record material impairment
losses.
As more fully described in Note (3) to the Consolidated Financial Statements, several restructuring programs were
implemented in order to streamline operations and reduce costs. The Company has established reserves and recorded
charges against such reserves, to cover the costs to implement the programs. The estimated costs were determined based
on contractual arrangements, quotes from contractors, similar historical activities and other judgmental determinations.
Actual costs may differ from those estimated. During 2004, the Company recorded a charge of $0.5 million related to
position elimination costs in Europe. As of April 4, 2004, $6.7 million of reserves for restructuring programs were
included in the Company's consolidated balance sheet. $3.4 million of these reserves related to employee separation
costs for employees that have already been separated. As these payments will be made over time, actual payments may not
reflect the amounts accrued but they are unlikely to vary materially. $3.3 million of the reserve relates to future
costs related to facilities that the Company has closed. The Company has made assumptions regarding the period of time
that it will require to dispose of these facilities. In most cases, the Company has included costs through the life of
the leases. If the Company disposes of or subleases the facilities earlier than expected, the Company will reduce the
level of the reserve.
The Company accounts for income taxes using the asset and liability method under which deferred income tax assets
and liabilities are recognized for the tax consequences of "temporary differences" between the financial statement
carrying amounts and the tax bases of existing assets and liabilities and operating losses and tax credit carry
forwards. On an ongoing basis, the Company evaluates its deferred tax assets to determine whether it is more likely
than not that such assets will be realized in the future and records valuation allowances against the deferred tax assets
for amounts which are not considered more likely than not to be realized. The estimate of the amount that is more likely
than not to be realized requires the use of assumptions concerning the amounts and timing of the Company's future income
by taxing jurisdiction. Actual results may differ from those estimates.
The Company relies upon actuarial models to calculate its pension and post-retirement benefit obligations and the
related effects on operations. Accounting for pensions and post-retirement benefit plans using actuarial models requires
the use of estimates and assumptions regarding numerous factors, including the discount rate, the long-term rate of
return on plan assets, health care cost increases, retirement ages, mortality and employee turnover. On an annual basis,
the Company evaluates these critical assumptions and makes changes to them as necessary to reflect the Company's
experience. In any given year, actual results could differ from actuarial assumptions made due to economic and other
factors which could impact the amount of expense or liability for pensions or postretirement benefits the Company reports.
Two of the critical assumptions in determining the Company's reported expense or liability for pensions or
post-retirement benefits are the discount rate and the long-term expected rate of return on plan assets. The use of a
lower discount rate and a lower long-term expected rate of return on plan assets would increase the present value of
benefit obligations and increase pension expense and post-retirement benefit expense. A 1% decrease in the Company's
discount rate would have caused the Company's 2003 pension expense and post-retirement expense to increase by
approximately $1.2 million. A 1% decrease in our assumed return on plan assets would have increased our pension expense
by approximately $0.3 million. At December 31, 2003, the Company reduced its discount rate related to its U.S. plans by
0.5%. This increased the Company's annual 2004 pension expense and post-retirement expense by approximately $0.6
million.
Results of Operations
The following table presents the Company's Revenue and Gross Income by segment for the first quarter of 2004 as
compared to the first quarter of 2003.
For the three months ended April 4, 2004 and March 30, 2003
-----------------------------------------------------------------------------
Revenue Gross Income (Loss) Percentage to
Sales
-----------------------------------------------------------------------------
2004 2003 2004 2003 2004 2003
-----------------------------------------------------------------------------
Aerosol $ 92,155 $ 88,778 $ 14,585 $ 14,008 15.8% 15.8%
International 78,359 63,065 4,685 2,600 6.0% 4.1%
Paint, Plastic & General Line 33,426 31,245 3,472 4,185 10.4% 13.4%
Custom & Specialty 9,488 15,802 (347) 551 (3.7)% 3.5%
----------------------------------------------------------
Total $ 213,428 $ 198,890 $ 22,395 $ 21,344 10.5% 10.7%
==========================================================
Consolidated net sales for the first quarter ended April 4, 2004 were $213.4 million compared to $198.9 million
in the first quarter of 2003, an increase of 7.3%. Along business segment lines, Aerosol net sales for the first quarter
of 2004 increased to $92.2 million from $88.8 million for the same period in 2003, a 3.8% increase, due to increased unit
volume ($4.5 million) offset by changes in customer and product mix ($1.1 million). International net sales increased to
$78.4 million for the first quarter of 2004 from $63.1 million for the first quarter of 2003, an increase of $15.3
million or 24.3%. The increase was due to the positive impact of the translation of sales made in foreign currencies
based upon using the same average U.S. dollar exchange rates in effect during the first quarter of 2003 ($10.8 million),
an increase in volume ($3.1 million) and the positive impact of a change in product mix ($1.4 million). Paint, Plastic
& General Line net sales increased $2.2 million to $33.4 million for the first quarter of 2004 from $31.2 million for
the first quarter of 2003. This increase was due to an increase in plastics volume ($0.9 million) and increasing resin
prices in our plastics business ($1.9 million), which are contractually passed on to customers, partially offset by the
negative impact of decreased metal can volume ($0.6 million). In the Custom & Specialty segment, sales decreased
40.0% from $15.8 million for the first quarter of 2003 to $9.5 million for the first quarter of 2004, driven primarily by
a decline in volume.
Consolidated gross income increased $1.1 million for the quarter ended April 4, 2004 from the same quarter in
2003. Along business segment lines, Aerosol gross income dollars increased by $0.6 million while the percentage to sales
remained the same at 15.8%. The increase in Aerosol gross income dollars was due to an increase in volume in the first
quarter of 2004 versus the same period of 2003 partially offset by increased raw material costs associated with steel
surcharges as discussed in the "Liquidity and Capital Resources" section. The International segment gross income
increased $2.1 million versus the same period in 2003 and the percentage to sales increased to 6.0% from 4.1%. The
increase in International gross income was primarily due to increased International volume ($0.8 million) and cost
reduction programs and other operational efficiency improvements ($1.9 million), partially offset by accelerated
depreciation related to production lines to be idled in conjunction with the German food can business product line
profitability review ($0.6 million). The Paint, Plastic & General Line segment gross income decreased $0.7 million
versus the same period in 2003. The percentage to net sales decreased from 13.4% in 2003 to 10.4% in 2004. The decrease
in dollars and percentage was due to a change in demand in the first quarter of 2004 to less profitable product lines
($0.8 million) along with an increase in corporate allocated expenses ($0.2 million), partially offset by volume related
efficiencies in our plastics business ($0.3 million). The Custom & Specialty segment gross income decreased to a
loss of $(0.3) million, compared to income of $0.6 million in the first quarter of 2003. The decline was driven
primarily by the overhead absorption impact of producing fewer units due to a decline in volume ($1.9 million) partially
offset by cost reduction programs and operational improvements ($1.0 million).
Selling, general and administrative costs were $10.0 million or 4.7% of sales in the first quarter of 2004
compared to $9.7 million or 4.9% of sales in the first quarter of 2003. The increase in selling, general and
administrative costs in the first quarter is primarily due to the negative impact of the translation of expenses incurred
in foreign currencies to U.S. dollars.
During the first quarter of 2004, the Company recorded a restructuring charge of $0.5 million related to position
elimination costs in Europe. The position eliminations consisted of 23 employees and include eliminations related to an
early termination program in one European facility and a product line profitability review program in our German food can
business. Total cash payments in the first quarter of 2004 were $1.6 million (primarily severance and facility shut down
costs) and the Company anticipates spending another $6.7 million over the next several years. The majority of these cash
payments relate to restructuring programs completed in previous years, for which the Company has already realized the
associated cost savings. The remaining reserve consists primarily of employee termination benefits paid over time for
approximately eight salaried and 44 hourly employees and other ongoing facility exit costs.
The table below presents the reserve categories and related activity as of April 4, 2004:
January 1, Additions Cash Other (b) April 4,
2004 Balance Payments 2004 Balance
-------------- ------------- ------------- --------------- --------------
-------------- ------------- ------------- --------------- --------------
Employee Separation $4.3 $0.5 $(1.3) $(0.1) $3.4
Facility Closing Costs 3.6 - (0.3) - 3.3
-------------- ------------- ------------- --------------- --------------
-------------- ------------- ------------- --------------- --------------
Total $7.9 $0.5 $(1.6) $(0.1) $6.7 (a)
============== ============= ============= =============== ==============
============== ============= ============= =============== ==============
(a) Includes $4.5 million classified as other long-term liabilities as of April 4, 2004.
(b) Non-cash foreign currency translation impact
Interest expense in the first three months of 2004 decreased 3.2%, or $0.4 million, versus the same period of
2003. The decrease is due primarily to the expiration of the Company's interest rate protection agreements in the fourth
quarter of 2003 ($1.5 million) partially offset by higher interest rates due to the issuance of the 10 7/8% Senior
Secured Notes in July 2003 ($0.9 million) and higher average borrowings ($0.2 million) during the period. Bank financing
fees for the first quarter of 2004 were $1.4 million as compared to $1.0 million for the first quarter of 2003, due to
the amortization of deferred financing costs related to the 10 7/8% Senior Secured Notes.
Income tax expense was $0.3 million for the first quarter of 2004 versus income tax expense of $0.6 million for
the first quarter of 2003. During the fourth quarter of 2002, the Company recorded a valuation allowance as it could not
conclude that it is "more likely than not" that all of the deferred tax assets of certain of its foreign operations will
be realized in the foreseeable future. Accordingly, the Company did not record an income tax benefit related to the
first quarter 2004 and 2003 losses of those operations.
Payment in kind dividends of $3.8 million and $3.2 million on the redeemable preferred stock were recorded for
the first quarters of 2004 and 2003, respectively.
Liquidity and Capital Resources
During the first quarter of 2004, liquidity needs were met through cash on hand and internally generated cash
flow. Principal liquidity needs included operating costs, working capital and capital expenditures. Cash flow used by
operations was $15.0 million for the three months ended April 4, 2004 compared to cash used of $1.5 million for the three
months ended March 30, 2003. The increased use of cash by operations is due primarily to increases in working capital,
including the payment of $10.6 million of interest payments on our 12 3/8% Senior Subordinated debt in the first fiscal
quarter of 2004 versus the second fiscal quarter of 2003.
Net cash used for investing activities was $2.7 million for the first quarter of 2004 compared to net cash
provided of $1.4 million for the first quarter of 2003. First quarter 2004 investing activities include capital spending
of $3.7 million offset by the net proceeds received from the March 2004 sale of our closed Dallas, Texas facility of $1.0
million. Proceeds received from the sale of property during the first quarter of 2003 are composed primarily of the
payment received for the sale of the Company's Daegeling, Germany facility, which was sold at the end of 2002.
Net cash provided by financing activities in the first three months of 2004 was $0.3 million versus net cash used
of $4.2 million for the same period in 2003. The primary first quarter 2004 sources of cash were borrowings under the
revolving line of credit granted by one of May Verpackungen's lenders to fund May's seasonal working capital
requirements.
Starting in the fourth quarter of 2003, many domestic and foreign steel suppliers began experiencing a shortage
of coke, an important component of the steel-making process. The shortage is due to many factors, which include the
growing Chinese steel market and a fire at a coal mine in the U.S., which produces coke. The shortage is expected to
continue in at least the near future. While we cannot predict the long-term effects the shortage will have on our
tin-plate costs, the shortage has caused some steel manufacturers to charge a surcharge on steel, which has increased our
tin-plate prices.
Some customer contracts allow us to pass tin-plated steel price increases through to our customers. We informed
our customers of steel related price increases to be effective in the second quarter of 2004, and expect the future
impact of the current level of unrecovered steel price increases to be immaterial. However, customer contracts may limit
pass-throughs and also may require us to match other competitive bids.
At April 4, 2004, $42.1 million was outstanding under the $110.0 million revolving loan portion of the Senior
Secured Credit Facility. Letters of Credit of $12.7 million were also outstanding securing the Company's obligations
under various insurance programs and other contractual agreements. In addition, the Company had $5.6 million of cash and
cash equivalents at quarter end.
The Senior Secured Credit Facility, the 10 7/8% Senior Secured Notes and the 12 3/8% Senior Subordinated Notes
contain a number of financial and restrictive covenants. Under our Senior Secured Credit Facility, the Company is
required to meet certain financial tests, including achievement of a minimum EBITDA level, a minimum interest coverage
ratio, a minimum fixed charge coverage ratio and a maximum leverage ratio. The restrictive covenants limit the Company's
ability to incur debt, pay dividends or make distributions, sell assets or consolidate or merge with other companies.
The Company was in compliance with all of the required financial ratios and other covenants under both facilities at
April 4, 2004 and anticipates being in compliance in the remaining three quarters of 2004.
At existing levels of operations, cash generated from operations together with amounts to be drawn from the revolving
credit facility, are expected to be adequate to meet anticipated debt service requirements, restructuring costs, capital
expenditures and working capital needs. Future operating performance, unexpected capital expenditures, investments,
acquisitions and the ability to service or refinance the notes, to service, extend or refinance the Senior Secured Credit
Facility and to redeem or refinance our preferred stock will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond management's control.
The Company's amended Senior Secured Credit Facility permits, from time to time and subject to certain
conditions, the redemption of the subordinated debt. The Company intends to pursue opportunistic repurchases of its
outstanding 12 3/8% Senior Subordinated Notes as time and circumstances permit, subject to market conditions, the trading
price of the 12 3/8% Senior Subordinated Notes and the terms of the Company's Senior Secured Credit Facility.
The Company continually evaluates all areas of its operations for ways to improve profitability and overall
Company performance. In connection with these evaluations, management considers numerous alternatives to enhance the
Company's existing business including, but not limited to acquisitions, divestitures, capacity realignments and
alternative capital structures.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management does not believe the Company's exposure to market risk has significantly changed since year-end 2003.
Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company's management, with the participation of the
Company's principal executive officer and chief financial officer, has evaluated the effectiveness of its disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, the Company's principal executive officer and chief financial officer have concluded that as of such date,
the Company's disclosure controls and procedures were effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There was no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period
covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
Our operations are subject to environmental laws in the United States and abroad, relating to pollution, the
protection of the environment, the management and disposal of hazardous substances and wastes and the cleanup of
contaminated sites. Our capital and operating budgets include costs and expenses associated with complying with these
laws, including the acquisition, maintenance and repair of pollution control equipment, and routine measures to prevent,
contain and clean up spills of materials that occur in the ordinary course of our business. In addition, some of our
production facilities require environmental permits that are subject to revocation, modification and renewal. We believe
that we are in substantial compliance with environmental laws and our environmental permit requirements, and that the
costs and expenses associated with this compliance are not material to our business. However, additional operating costs
and capital expenditures could be incurred if, among other developments, additional or more stringent requirements
relevant to our operations are promulgated.
Occasionally, contaminants from current or historical operations have been detected at some of our present and
former sites. Although we are not currently aware of any material claims or obligations with respect to these sites, the
detection of additional contamination or the imposition of cleanup obligations at existing or unknown sites could result
in significant liability.
We have been designated as a potentially responsible party under Superfund laws at various sites in the United
States, including a former can plant located in San Leandro, California. As a potentially responsible party, we are or
may be legally responsible, jointly and severally with other members of the potentially responsible party group, for the
cost of environmental remediation at these sites. Based on currently available data, we believe our contribution to the
sites designated under U.S. Superfund law was, in most cases, minimal. With respect to San Leandro, we believe the
principal source of contamination is unrelated to our past operations.
Based upon currently available information, the Company does not expect the effects of environmental matters to
be material to its financial position.
Litigation
We are involved in litigation from time to time in the ordinary course of our business. In our opinion, the
litigation is not material to our financial condition or results of operations.
Item 6. Exhibits and Reports On Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 13a-15 of the Securities and Exchange Act of 1934
31.2 Certification of Chief Financial Officer Pursuant to Section 13a-15 of the Securities and Exchange Act of 1934
(b) Reports on Form 8-K
(i) The Company furnished to the Commission a Current Report on Form 8-K on February 24, 2004 to
announce its results of operations for the period ended December 31, 2003. The Company's fourth
quarter 2004 earnings press release was attached to the Current Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
U.S. CAN CORPORATION
Date: May 13, 2004 By: /s/ Sandra K. Vollman
---------------------
Sandra K. Vollman
Senior Vice President and
Chief Financial Officer
(Duly authorized officer and principal
financial officer)
US Can Inactive
Filed: 13 May 04, 12:00am