=======================================================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
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.
=======================================================================================================================
U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 2004
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Restated 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........................................................................ 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 25
Item 4. Controls and Procedures.......................................................................... 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 27
Item 6. Exhibits and Reports on Form 8-K................................................................. 27
EXPLANATORY NOTE
This Form 10-Q/A amends and restates the original Form 10-Q, which was filed with the Securities and
Exchange Commission on May 13, 2004, including the restatement of the Company's financial statements for the quarters
ended April 4, 2004 and March 30, 2003. See Note (2) to the Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations - Restatements.
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/A for the fiscal year
ended December 31, 2003 and filed with the Securities and Exchange Commission on November 18, 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
--------------------------------------------
--------------------------------------------
As Restated (See Note (2))
April 4, 2004 March 30, 2003
------------------- --------------------
(Unaudited)
Net Sales $ 213,467 $ 199,153
Cost of Sales 193,715 178,878
------------- ------------
Gross profit 19,752 20,275
Selling, General and Administrative Expenses 9,804 9,287
Special Charges 482 758
------------- ------------
Operating income 9,466 10,230
Interest Expense 12,717 13,068
Bank Financing Fees 1,378 1,014
------------- ------------
Loss before income taxes (4,629) (3,852)
Provision for Income Taxes 332 580
------------ ------------
Net Loss (4,961) (4,432)
Preferred Stock Dividend Requirement (3,824) (3,246)
------------ ------------
Net Loss Attributable to Common Stockholders $ (8,785) $ (7,678)
============ ============
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)
As Restated
(See Note (2))
April 4, December 31,
ASSETS 2004 2003
---------------- -----------------
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 5,297 $ 22,964
Accounts receivable, net of allowances 88,401 81,393
Inventories 98,023 95,140
Other current assets 17,978 14,713
---------------- -----------------
Total current assets 209,699 214,210
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 239,405 247,489
GOODWILL 27,384 27,384
DEFERRED INCOME TAXES 31,135 30,816
OTHER NON-CURRENT ASSETS 52,848 54,519
---------------- -----------------
Total assets $ 560,471 $ 574,418
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations $ 25,068 $ 23,457
Accounts payable 95,087 98,411
Accrued expenses 46,096 50,695
Restructuring reserves 2,125 3,412
Income taxes payable 391 362
---------------- -----------------
Total current liabilities 168,767 176,337
LONG TERM DEBT 535,511 535,767
LONG TERM LIABILITIES PURSUANT TO EMPLOYEE
BENEFIT PLANS 71,976 71,779
OTHER LONG-TERM LIABILITIES 5,568 5,492
---------------- -----------------
Total liabilities 781,822 789,375
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 (29,558) (28,124)
Accumulated deficit (395,905) (387,120)
---------------- -----------------
Total stockholders' equity / (deficit) (372,130) (361,911)
---------------- -----------------
Total liabilities and stockholders' equity $ 560,471 $ 574,418
================ =================
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
As Restated (See Note (2))
April 4, 2004 March 30, 2003
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net loss $ (4,961) $ (4,432)
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization 11,198 9,182
Special Charges 482 758
Deferred income taxes (508) 726
Change in operating assets and liabilities, net of effect of acquired and disposed
of businesses:
Accounts receivable (7,882) (11,205)
Inventories (4,182) (1,089)
Accounts payable (1,693) 6,022
Accrued expenses (6,188) 890
Other, net (2,349) (1,628)
------------------ ------------------
Net cash used for operating activities (16,083) (776)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,719) (3,858)
Proceeds from the sale of property 1,018 5,186
------------------ ------------------
------------------ ------------------
Net cash provided by (used for) investing activities (2,701) 1,328
------------------ ------------------
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 2,169 478
------------------ ------------------
Net cash provided by (used for) financing activities 1,567 (4,814)
------------------ ------------------
------------------ ------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (450) (403)
------------------ ------------------
DECREASE IN CASH AND CASH EQUIVALENTS (17,667) (4,665)
CASH AND CASH EQUIVALENTS, beginning of period 22,964 11,690
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 5,297 $ 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 financial statements and footnotes included in the
Corporation's Annual Report on Form 10-K/A 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 Quarterly Periods Ended
------------------------------------
April 4, 2004 March 30, 2003
------------------------------------
Net Loss................................... $ $
(4,961) (4,432)
Stock-Based Compensation Cost,
net of tax - fair value method......... (30) (20)
------------------------------------
Pro-Forma Net Loss..................... $ $
(4,991) (4,452)
====================================
(2) RESTATEMENT
These financial statements reflect adjustments to the Company's financial information previously reported on
Form 10-Q for the quarterly period ended April 4, 2004.
In August 2004, and subsequent to the issuance of its consolidated financial statements for the quarterly
period ended April 4, 2004, the Company became aware of certain issues relating to its Laon, France manufacturing
facility following the departure of the facility's financial controller. Following this discovery, management
informed its Board of Directors and its Audit Committee. The Audit Committee, with the assistance of outside legal
advisors and accounting consultants, conducted a review of the operations and financial condition of the Company's
facility in Laon, France. That review and work performed by the Company identified certain accounting and financial
reporting improprieties and related material errors in the Company's financial statements, all related to the Laon,
France facility. The effects of the restatement are set forth below:
For the quarterly period ended
-----------------------------------
-------------------- -------------------
April 4, 2004 March 30, 2003
------------- --------------
Net Loss, as reported.................................................. $(2,498) $(4,037)
Understatements of product costs and expenses.......................... (2,115) -
Reductions in asset values to net realizable values.................... 382 117
Underaccruals of liabilities........................................... (751) (369)
Other.................................................................. 21 (143)
-------------------- -------------------
-------------------- -------------------
Net Loss, as restated.................................................. $(4,961) $(4,432)
======== ========
........Understatements of product costs and expenses - Cost of Sales was understated by underreporting expenses
incurred and manufacturing variances, and by miscalculations of the cost of products sold. The errors were reflected
primarily by underreporting of accounts payable and current maturities of long term debt and overreporting of cash
and accounts receivable in the consolidated balance sheets.
Reductions in asset values to net realizable values - Assets (primarily accounts receivable and inventories)
that should have been written off or should have been reported at reduced amounts were not adjusted in the requisite
accounting periods in accordance with accounting principles generally accepted in the United States. This resulted
in a reduction to the net loss in the first quarter of 2003 and 2004, as amounts originally recognized in each of
these periods were recognized in earlier periods on a restated basis.
Underaccruals of liabilities - Amounts accrued for taxes other than income taxes, vacation and other employee
related liabilities were understated in all periods.
The following table presents the impact of the restatement adjustments discussed above on the Consolidated
Statement of Operations for the quarterly periods ended April 4, 2004 and March 30, 2003.
For the Quarterly Periods Ended
-------------------------------------------------------------------------
------------------------------------
April 4, 2004 March 30, 2003
-------------------------------------------------------------------------
AS AS
AS RESTATED PREVIOUSLY AS RESTATED PREVIOUSLY REPORTED
REPORTED
Net Sales $ 213,467 $ 213,428 $ 199,153 $ 198,890
Cost of Sales 193,715 191,033 178,878 177,546
----------------- ------------------ --------------- --------------------
Gross profit
19,752 22,395 20,275 21,344
Selling, General and Administrative Expenses 9,804 9,997 9,287 9,676
Special Charges 482 522 758 1,030
----------------- ------------------ --------------- --------------------
Operating income
9,466 11,876 10,230 10,638
Interest Expense 12,717 12,670 13,068 13,088
Bank Financing Fees 1,378 1,378 1,014 1,014
----------------- ------------------ --------------- --------------------
Loss before income taxes
(4,629) (2,172) (3,852) (3,464)
Provision for Income Taxes 332 326 580 573
----------------- ------------------ --------------- --------------------
Net Loss
(4,961) (2,498) (4,432) (4,037)
Preferred Stock Dividend Requirement (3,824) (3,824) (3,246) (3,246)
----------------- ------------------ --------------- --------------------
Net Loss Available to Common Stockholders $ (8,785) $ (6,322) $ (7,678) $ (7,283)
================= ================== =============== ====================
The following table presents the impact of the restatement adjustments discussed above on the Consolidated
Balance Sheet on a condensed basis as of April 4, 2004:
ASSETS April 4, 2004
(Unaudited)
----------------------------------
CURRENT ASSETS: AS RESTATED AS
PREVIOUSLYREPORTED
Cash and cash equivalents $ 5,297 $ 5,633
Accounts receivables, net of allowances 88,401 94,805
Inventories 98,023 98,609
Other current assets 17,978 18,207
---------------- -----------------
Total current assets
209,699 217,254
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 239,405 235,324
OTHER NON-CURRENT ASSETS 111,367 111,370
---------------- -----------------
Total assets $ 560,471 $ 563,948
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and
capital lease obligations $ 25,068 $ 19,992
Accounts payable 95,087 88,853
Accrued expenses 46,096 40,955
Other current liabilities 2,516 3,311
---------------- -----------------
Total current liabilities 168,767
153,111
LONG TERM DEBT 535,511 535,511
OTHER LONG-TERM LIABILITIES 77,544 79,024
---------------- -----------------
Total liabilities 781,822 767,646
PREFERRED STOCK 150,779 150,779
STOCKHOLDERS' EQUITY (a) (372,130) (354,477)
---------------- -----------------
Total liabilities and stockholders'
equity $ 560,471 $ 563,948
================ =================
(a) "As Restated" amounts include the cumulative impact due to the restatement of the net loss and the impact
of the changes in the consolidated balance sheet on the foreign currency translation adjustment.
(3) 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 $0.6 million in income taxes for the quarterly
period ended April 4, 2004 and $0.3 million for the quarterly period ended March 30, 2003.
(4) 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 Payments Other (b) April 4,
2004
2004 Balance 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 $4.6 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 $0.8 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 $9.4 $0.8 $(2.6) $7.6
Facility Closing Costs 6.5 - (1.8) 4.7
---------------- --------------- ---------------- ------------------
---------------- --------------- ---------------- ------------------
Total $15.9 $0.8 $(4.4) $12.3 (a)
================ =============== ================ ==================
================ ============== ================ ==================
(a) Includes $3.8 million classified as other long-term liabilities as of March 30, 2003.
(5) 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 $44.7 million at April 4, 2004 and $42.4 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........................................................ $ 20,289 $ 21,872
Work in process...................................................... 40,343 38,635
Finished goods....................................................... 37,391 34,633
----------------- ---------------
$ 98,023 $ 95,140
================= ===============
(6) COMPREHENSIVE NET LOSS
The components of accumulated other comprehensive loss are as follows (000's omitted):
April 4, December 31,
2004 2003
------------- ---------------
Foreign Currency Translation Adjustment ................................... $(8,477) $(7,479)
Minimum Pension Liability Adjustment....................................... (21,081) (20,645)
------------ ---------------
Total Accumulated Other Comprehensive Loss................................. $(29,558) $(28,124)
============ ==============
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 Quarterly Periods Ended
-----------------------------------
April 4, March 30,
2004 2003
------------- -------------
Net Loss................................................................... $ (4,961) $ (4,432)
Foreign Currency Translation Adjustment.................................... (1,434)
2,131
Unrealized Gain on Cash Flow Hedges (a).................................... -- 1,030
------------- -------------
Comprehensive Loss......................................................... $ (6,395) $ (1,271)
============= =============
(a) Net of reclassification of losses included in net loss of $1.6 million for the first quarter of 2003.
(7) 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
---------------- -------------------
ervice cost.................................................. $ $
S 287 227
nterest cost.................................................
I 724 679
eturn on assets..............................................
R (683) (569)
ecognized loss...............................................
R 28 68
ecognized prior service cost.................................
R 94 94
---------------- -------------------
$ $
Net periodic pension cost..................................... 450 499
================ ===================
Non-U.S.
- --------
April 4, 2004 March 30, 2003
---------------- -------------------
ervice cost.................................................. $ $
S 88 77
nterest cost.................................................
I 1,129 938
eturn on assets..............................................
R (864) (655)
ecognized loss...............................................
R 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
---------------- -------------------
ervice cost.................................................. $ $
S 80 66
nterest cost.................................................
I 369 372
ecognized loss...............................................
R 52 34
ecognized prior service cost.................................
R (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.
(8) 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.......................................................... 78,398 63,328
Paint, Plastic & General Line.......................................... 33,426 31,245
Custom & Specialty..................................................... 9,488 15,802
------------- ---------------
Total revenues......................................................... $ 213,467 $ 199,153
============= ===============
INCOME (LOSS) FROM OPERATIONS:
Aerosol................................................................ $ 14,585 $ 14,008
International.......................................................... (1,418) (1,509)
Paint, Plastic & General Line.......................................... 3,472 4,185
Custom & Specialty..................................................... (347) 551
-------------- ---------------
Total Segment Income From Operations................................... 16,292 17,235
Unallocated Selling, General & Administrative Expenses (a)............. (6,344) (6,247)
Special Charges (b).................................................... (482) (758)
Interest Expense....................................................... (12,717) (13,068)
Bank Financing Fees.................................................... (1,378) (1,014)
------------- ---------------
Loss before income taxes............................................... $ (4,629) $ (3,852)
============= ===============
(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 (4) for further information
on the Company's special charges.
(9) 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.
(10) 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.
(11) 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 quarterly periods ended April 4, 2004 and
March 30, 2003. The information as of April 4, 2004, and for the quarterly periods ended April 4, 2004 and March 30,
2003 has been restated (see Note (2)). 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
RESTATED For the Quarterly Period Ended APRIL 4, 2004
(unaudited)
(000's omitted)
Restated
Restated USC May USC Europe/ May
Restated United Verpackungen Verpackungen GmbH Restated
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Restated Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------ ------------- ----------------- -------------------- ------------- -------------
NET SALES...................... $ - $ 135,069 $ - $ 78,398 $ - $ 213,467
COST OF SALES.................. - 117,359 - 76,356 - 193,715
------- ---------- --------- ---------- ------- ---------
Gross profit.............. - 17,710 - 2,042 - 19,752
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... - 6,344 - 3,460 - 9,804
SPECIAL CHARGES................ - - - 482 - 482
------- --------- --------- ---------- ------- ---------
Operating income.......... - 11,366 - (1,900) - 9,466
INTEREST EXPENSE............... - 10,922 1,353 442 - 12,717
BANK FINANCING FEES............ - 1,288 - 90 - 1,378
EQUITY IN LOSS
OF SUBSIDIARIES ............. (4,961) (4,374) (822) - 10,157 -
------- ---------- ----------- --------- -------- --------
Loss before income taxes (4,961) (5,218) (2,175) (2,432) 10,157 (4,629)
PROVISION (BENEFIT) FOR
INCOME TAXES................. - (257) 75 514 - 332
------- ---------- --------- --------- ------- ---------
NET LOSS....................... (4,961) (4,961) (2,250) (2,946) 10,157 (4,961)
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (3,824) - - - - (3,824)
------- --------- --------- --------- ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS.................. $(8,785) $ (4,961) $ (2,250) $ (2,946) $10,157 $ (8,785)
======= ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
RESTATED For the Quarterly Period Ended MARCH 30, 2003
(unaudited)
(000's omitted)
Restated
Restated USC May USC Europe/ May
Restated United Verpackungen Verpackungen GmbH Restated
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Restated Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------ ------------- ----------------- -------------------- ------------- -------------
NET SALES...................... $ - $ 135,825 $ - $ 63,328 $ - $ 199,153
COST OF SALES.................. - 117,080 - 61,798 - 178,878
------- ---------- --------- ---------- ------- ---------
Gross profit.............. - 18,745 - 1,530 - 20,275
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... - 6,248 - 3,039 - 9,287
SPECIAL CHARGES................ - 527 - 231 - 758
------- ---------- --------- ---------- ------- ---------
Operating income.......... - 11,970 - (1,740) - 10,230
INTEREST EXPENSE............... - 10,628 1,596 844 - 13,068
BANK FINANCING FEES............ - 1,014 - - - 1,014
EQUITY IN LOSS
OF SUBSIDIARIES ............. (4,432) (4,636) (2,001) - 11,069 -
------- --------- ----------- --------- -------- --------
Loss before income taxes (4,432) (4,308) (3,597) (2,584) 11,069 (3,852)
PROVISION FOR
INCOME TAXES................. - 124 - 456 - 580
------- --------- --------- --------- ------- ---------
NET LOSS....................... (4,432) (4,432) (3,597) (3,040) 11,069 (4,432)
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (3,246) - - - - (3,246)
------- --------- --------- --------- ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS.................. $(7,678) $ (4,432) $ (3,597) $ (3,040) $11,069 $ (7,678)
======= ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
RESTATED As of APRIL 4, 2004
(unaudited)
(000s omitted)
Restated
USC May USC Europe/ May
Restated Restated Verpackungen Verpackungen Restated
U.S. Can United States Holding GmbH U.S. Can
Corporation Can Company (Subsidiary (Non-Guarantor Restated Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Eliminations Consolidated
-------------- --------------- ------------------ ----------------- -------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 1,608 $ - $ 3,689 $ - $ 5,297
Accounts receivable...... - 51,591 - 36,810 - 88,401
Inventories.............. - 53,274 - 44,749 - 98,023
Other current assets..... - 5,798 - 12,180 - 17,978
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 112,271 - 97,428 - 209,699
NET PROPERTY, PLANT AND
EQUIPMENT................... - 140,202 - 99,203 - 239,405
GOODWILL...................... - 27,384 - - - 27,384
DEFERRED INCOME TAXES......... - 31,009 - 126 - 31,135
OTHER NON-CURRENT ASSETS...... - 38,382 - 14,466 - 52,848
INTERCOMPANY
ADVANCES.................... - 262,230 - - (262,230) -
INVESTMENT IN
SUBSIDIARIES................ - - 59,493 - (59,493) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 611,478 $ 59,493 $ 211,223 $ (321,723) $ 560,471
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 2,033 $ - $ 23,035 $ - $ 25,068
Accounts payable......... - 37,124 - 57,963 - 95,087
Restructuring reserves... - 1,678 - 447 - 2,125
Income taxes payable..... - - - 391 - 391
Other current liabilities - 30,789 - 15,307 - 46,096
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 71,624 - 97,143 - 168,767
liabilities...................
TOTAL LONG TERM DEBT.......... 854 534,657 - - - 535,511
LONG-TERM LIABILITIES PURSUANT
TO EMPLOYEE BENEFIT PLANS... - 41,018 930 30,028 - 71,976
OTHER LONG-TERM
LIABILITIES................. - 2,594 - 2,974 - 5,568
PREFERRED STOCK............... 150,779 - - - - 150,779
INTERCOMPANY LOANS............ 112,055 - 123,023 27,152 (262,230) -
INVESTMENT IN
SUBSIDIARIES................ 108,442 70,027 - - (178,469) -
STOCKHOLDERS' EQUITY.......... (372,130) (108,442) (64,460) 53,926 118,976 (372,130)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 611,478 $ 59,493 $ 211,223 $ (321,723) $ 560,471
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)
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 $ - $ 16,854 $ - $ 6,110 $ - $ 22,964
Accounts receivable...... - 44,157 - 37,236 - 81,393
Inventories.............. - 52,739 - 42,401 - 95,140
Other current assets..... - 7,126 - 7,587 - 14,713
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 120,876 - 93,334 - 214,210
NET PROPERTY, PLANT AND
EQUIPMENT................... - 143,777 - 103,712 - 247,489
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.................... - 260,962 - - (260,962) -
INVESTMENT IN
SUBSIDIARIES................ - - 61,961 - (61,961) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 623,254 $ 61,961 $ 212,126 $ (322,923) $ 574,418
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 2,379 $ - $ 21,078 $ - $ 23,457
Accounts payable......... - 42,237 - 56,174 - 98,411
Restructuring reserves... - 2,831 - 581 - 3,412
Income taxes payable..... - - - 362 - 362
Other current liabilities - 35,683 - 15,012 - 50,695
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 83,130 - 93,207 - 176,337
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 - 2,898 - 5,492
PREFERRED STOCK............... 146,954 - - - - 146,954
INTERCOMPANY LOANS............ 112,056 - 121,595 27,311 (260,962) -
INVESTMENT IN
SUBSIDIARIES................ 102,047 63,595 - - (165,642) -
STOCKHOLDERS' EQUITY.......... (361,911) (102,047) (60,564) 58,930 103,681 (361,911)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 623,254 $ 61,961 $ 212,126 $ (322,923) $ 574,418
and
stockholders'
equity........................
============== =============== ================== ================= ============== ==================
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
RESTATED FOR THE QUARTERLY PERIOD ENDED APRIL 4, 2004
(unaudited)
(000s omitted)
U.S. Can United USC May Restated Restated
Verpackungen USC Europe / May
States Can Holding Verpackungen U.S. Can
Corporation Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- ------------- ------------------ -------------------- -------------
CASH FLOWS USED FOR OPERATING ACTIVITIES.........$.....-..... $(11,040) $ (2,250) $ (2,793) $ (16,083)
- - --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (3,354) - (365) (3,719)
Proceeds from sale of property.......................-..... 1,018 - - 1,018
- -------- --------- -------- ---------
Net cash used for investing activities...........-..... (2,336) - (365) (2,701)
- -------- --------- --------- ----------
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.............................-..... - - 2,169 2,169
- -------- --------- --------- ---------
Net cash (used for) provided by - (1,870)
-------- ----------
financing
activities.............................................. 2,250 1,187 1,567
---------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - (450) (450)
- -------- --------- --------- ----------
DECREASE IN CASH AND - (15,246)
CASH EQUIVALENTS........................................... - (2,421) (17,667)
CASH AND CASH EQUIVALENTS, beginning of - 16,854
-------- ---------
period..................................................... - 6,110 22,964
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.........$.....-..... $ 1,608 $ - $ 3,689 $ 5,297
= = ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
RESTATED FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2003
(unaudited)
(000s omitted)
USC May Restated
United Verpackungen USC Europe / May Restated
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) $ (638) $ (776)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (2,782) - (1,076) (3,858)
Proceeds from sale of property.......................-..... 13 - 5,173 5,186
- -------- --------- -------- ---------
Net cash (used for) provided by - (2,769)
-------- --------
investing activities......................................... - 4,097 1,328
--------- -------- ---------
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.............................-..... - - 478 478
- -------- --------- --------- ---------
Net cash (used for) provided by - (2,578)
-------- ----------
financing
activities.............................................. 3,601 (5,837) (4,814)
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - (403) (403)
- -------- --------- --------- ----------
DECREASE IN CASH AND - (1,884)
CASH EQUIVALENTS........................................... - (2,781) (4,665)
CASH AND CASH EQUIVALENTS, beginning of - 5,707
-------- ---------
period..................................................... - 5,983 11,690
--------- -------- ---------
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/A for the fiscal year ended December
31, 2003 (see "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained
therein).
Restatements
This Form 10-Q/A amends and restates the following sections of the original Form 10-Q, which was filed with
the Securities and Exchange Commission on May 13, 2004 (the "Original 10-Q"):
Part I...
o Item 1. Financial Statements
o Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
o Item 4. Controls and Procedures.
Part II
o Item 6. Exhibits and Reports On Form 8-K
The Company has restated its financial statements as of and for the years ended December 31, 2003 and 2002,
and for the first quarter of 2004 (the "Restatement") to reflect adjustments to its previously reported financial
information for such periods. The foregoing items have been amended to reflect the effects of the Restatement and
have not been updated to reflect other events occurring after the filing of the Original Form 10-Q or to modify or
update those disclosures affected by subsequent events, except for those disclosures provided in Note (2) to
Consolidated Financial Statements included in Item 1 of this Form 10-Q/A. As a result, you should read this Form
10-Q/A in conjunction with the Company's Form 10-K/A for the year ended December 31, 2003 (the "December 2003 10-K")
and the Company's periodic reports filed under the Securities and Exchange Act of 1934 (the "Exchange Act") following
the filing of this Form 10-Q/A. This Form 10-Q/A reflects balances and amounts on a restated basis. For the
convenience of the reader, this Form 10-Q/A amends in its entirety the Original 10-Q, but does not restate or update
the disclosure contained herein to reflect any events that occurred at a later date other than that set forth above.
For a discussion of the individual adjustments contained in the Restatement, see "Item 1. Financial
Statements --Note (2) Restatements."
In August 2004, and subsequent to the issuance of its consolidated financial statements for the quarterly
period ended April 4, 2004, the Company became aware of certain issues relating to its Laon, France manufacturing
facility following the departure of the facility's financial controller. Following this discovery, management
immediately informed the Company's Board of Directors and its Audit Committee, which conducted a review of these
issues assisted by outside legal advisors and accounting consultants, and also promptly informed the Company's
independent auditors, Deloitte & Touche LLP. That review and work performed by the Company identified certain
accounting and financial reporting improprieties and related material errors in the Company's financial statements,
all related to the Laon, France facility. On September 30, 2004, the Company disclosed its intent to restate its
financial statements for the years ended December 31, 2002 and 2003 and for the quarterly period ended April 4,
2004. Those changes are reflected in this Restatement.
The principal effects of the Restatement are:
o Increases in the reported amounts of cost of sales, causing corresponding increases in net loss of $5.9
million and $7.8 million for the years ended December 31, 2002, and December 31, 2003, respectively, and $0.4
million and $2.5 million for the quarterly periods ended March 30, 2003 and April 4, 2004, respectively;
o Decreased working capital, principally as a result of decreased accounts receivable and increased accounts
payable and accrued expenses; and
o Increased short-term borrowings by $5.1 million in the aggregate as of April 4, 2004.
The Company did not amend its Annual Report on Form 10-K or Quarterly Reports on Form 10-Q for periods
affected by the Restatement that ended prior to December 31, 2003, and the financial statements and related financial
information and disclosures contained in those reports should no longer be relied upon.
Use of Estimates; Critical Accounting Policies
The preparation of consolidated 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/A 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 (4) 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 Profit 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 Profit Percentage to Sales
-----------------------------------------------------------------------------
2004 2003 2004 2003 2004 2003
-----------------------------------------------------------------------------
Aerosol $ 92,155 $ 88,778 $ 14,585 $ 14,008 15.8% 15.8%
International 78,398 63,328 2,042 1,531 2.6% 2.4%
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 $ 213,467 $ 199,153 $ 19,752 $ 20,275 9.3% 10.2%
==========================================================
Consolidated net sales for the first quarter ended April 4, 2004 were $213.5 million compared to $199.2
million in the first quarter of 2003, an increase of 7.2%. 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 $63.3 million for the first quarter of 2003,
an increase of $15.1 million or 23.8%. 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
($1.2 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 profit decreased $0.5 million for the quarter ended April 4, 2004 from the same quarter
in 2003. Along business segment lines, Aerosol gross profit dollars increased by $0.6 million while the percentage
to sales remained the same at 15.8%. The increase in Aerosol gross profit 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 profit increased $0.5 million versus the same period in 2003 and the percentage to sales increased to
2.6% from 2.4%. The increase in International gross profit was primarily due to increased International volume ($0.8
million) and cost reduction programs and other operational efficiency improvements ($0.3 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 profit 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 profit 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 $9.8 million or 4.6% of sales in the first quarter of 2004
compared to $9.3 million or 4.7% 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 $4.6 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 2.7%, 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. The Company had previously (in 2002 and 2003) recorded valuation allowances 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 the applicable 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 $16.1 million for the three months ended April 4, 2004 compared to cash used of $0.8 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 $1.3 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 $1.6 million versus net cash
used of $4.8 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 and short-term borrowings by our
facility in Laon, France, both to fund 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 $5.3 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. As of April 4, 2004, the Company reported that it was in compliance with its covenants under the
aforementioned facilities. On a restated basis, the Company was not in compliance with certain of its financial
ratios under the Senior Secured Credit Facility; however, subsequent to April 4, 2004, the Company refinanced its
senior debt and was in compliance with the financial covenants of its new senior debt facility for all relevant
periods.
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
As of April 4, 2004, the Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the design and operations of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, as of April
4, 2004, that the Company's disclosure controls and procedures were effective for recording, processing, summarizing
and reporting the information the Company discloses in the reports that the Company files with the Commission.
During the quarter ended April 4, 2004, there was no change in the Company's internal controls over financial
reporting that materially affected, or was reasonably likely to materially affect, the Company's internal controls
over financial reporting.
Subsequent to April 4, 2004, and as a result of inquiries regarding accounting and financial reporting issues
at its Laon, France facility, the Company determined that it would restate its financial statements for the years
ended December 2002 and 2003, and the quarter ended April 4, 2004 (the "Restatement"). In addition, in connection
with the Restatement, the Company's auditors, Deloitte & Touche LLP, delivered a letter to the Company regarding
"material weaknesses" in the Company's internal controls concerning oversight of its European operations, in
particular its Laon, France facility. For a discussion of the restatement adjustments, see "Item 1. Financial
Statements - Note (2) Restatements."
In connection with the Restatement process and the inquiry by the Audit Committee, the Company has carried
out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures,
including an evaluation of such controls and procedures at a number of its other facilities, and has concluded that
the controls and procedures at such other facilities, and at the Company's corporate headquarters, are superior to
those that existed at its Laon, France facility. The Company has initiated the implementation of various measures to
strengthen its internal controls and has added more structure to the financial oversight of its European operations,
including its facility in France. The Company believes that, in connection with this effort, it has substantially
strengthened the organization and personnel of the senior financial and control functions in Europe and adopted more
rigorous policies and procedures with respect to its financial reporting.
The Company will continue to evaluate the effectiveness of its controls and procedures on an ongoing basis,
including consideration of recommendations identified through the investigation, and will implement further actions
as necessary in its continuing efforts to strengthen the control process.
The Company's management is committed to continuing to improve the state of its controls and procedures,
corporate governance and financial reporting. Other than as described above, since the evaluation date by the
Company's management of its internal controls, there have not been any significant changes in the internal controls or
in other factors that could significantly affect the internal controls.
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. Subsequent
to the filing of this report, the Company restated its financial statements and the
disclosures in the report should no longer be relied upon.
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: November 17, 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: 18 Nov 04, 12:00am