US Can 10Q 2005 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 2, 2005


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 333-53276

U.S. CAN CORPORATION

(Exact Name of Registrant as Specified in its Charter)


DELAWARE		06-1094196
(State or other jurisdiction		(I.R.S. Employer Identification No.)
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.

Yeso Noþ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

As of November 16, 2005, 52,825.233 shares of Common Stock were outstanding.

U.S. CAN CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 2005

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Operations for the Three and Nine Months Ended October 2, 2005 and October 3, 2004 as Restated		3

	Consolidated Balance Sheets as of October 2, 2005 and December 31, 2004		4

	Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 2005 and October 3, 2004 as Restated		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		24

Item 4.	Controls and Procedures		24

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		26

Item 5.	Other Information		27

Item 6.	Exhibits		27

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, 2004 and filed with the Securities and Exchange Commission on October 4, 2005, 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						For The
	Three Months Ended						Nine Months Ended
										As Restated
										(See Note (2))
	October 2,			October 3,			October 2,			October 3,
	2005			2004			2005			2004
	(Unaudited)
Net Sales	$	209,221		$	207,263		$	670,073		$	632,539

Cost of Sales		190,559			185,341			596,178			571,539


Gross Profit		18,662			21,922			73,895			61,000

Selling, General and Administrative Expenses		9,792			10,150			30,179			30,393

Special Charges		34			4,012			2,064			5,416

Other Income		(244	)		(54	)		(436	)		(432	)

Interest Expense		14,020			12,665			40,873			38,246

Bank Financing Fees		732			890			2,192			3,486

Loss on Early Extinguishment of Debt		—			—			—			5,508



Loss Before Income Taxes		(5,672	)		(5,741	)		(977	)		(21,617	)

Provision (Benefit) for Income Taxes		2,617			(466	)		4,293			(2,085	)



Net Loss		(8,289	)		(5,275	)		(5,270	)		(19,532	)

Preferred Stock Dividend Requirement		(4,252	)		(3,853	)		(12,534	)		(11,437	)



Net Loss Attributable to Common Stockholders	$	(12,541	)	$	(9,128	)	$	(17,804	)	$	(30,969	)

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)


	October 2,			December 31,
	2005			2004
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,105		$	7,108
Accounts receivable, net of allowances		78,515			78,523
Inventories		100,166			105,267
Deferred income taxes		6,573			7,525
Other current assets		35,105			30,811

Total current assets		226,464			229,234

PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation and amortization		206,156			227,022

GOODWILL		27,384			27,384

DEFERRED INCOME TAXES		20,442			23,199

OTHER NON-CURRENT ASSETS		46,346			50,913

Total assets	$	526,792		$	557,752

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations	$	5,029		$	9,445
Accounts payable		84,914			100,978
Accrued expenses		66,544			55,562
Restructuring reserves		2,948			4,347
Income taxes payable		1,889			479

Total current liabilities		161,324			170,811

LONG TERM DEBT		549,791			550,551

LONG TERM LIABILITIES PURSUANT TO EMPLOYEE BENEFIT PLANS		63,922			68,882

OTHER LONG-TERM LIABILITIES		3,624			3,684


Total liabilities		778,661			793,928

REDEEMABLE PREFERRED STOCK, 200,000 shares authorized, 106,667 shares issued & outstanding		174,788			162,253

STOCKHOLDERS’ DEFICIT:
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		(29,463	)		(19,038	)
Accumulated deficit		(450,527	)		(432,724	)

Total stockholders’ deficit		(426,657	)		(398,429	)

Total liabilities and stockholders’ deficit	$	526,792		$	557,752

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 Nine Months Ended
	October 2, 2005			October 3, 2004
				(Restated)
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(5,270	)	$	(19,532	)
Adjustments to reconcile net loss to net cash used in Operating activities -
Depreciation and amortization		28,651			32,442
Special charges		2,064			5,416
Loss from early extinguishment of debt		—			5,508
Deferred income taxes		2,720			(4,047	)
Change in operating assets and liabilities
Accounts receivable		(2,784	)		(4,828	)
Inventories		498			(10,098	)
Accounts payable		(9,875	)		(4,819	)
Accrued expenses		8,389			(3,204	)
Other assets		(9,650	)		2,564
Other liabilities		(535	)		(505	)

Net cash flows from operating activities		14,208			(1,103	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(14,509	)		(9,839	)
Proceeds from sale of property		375			1,075

Net cash flows from investing activities		(14,134	)		(8,764	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Term B loan		—			250,000
Net borrowings (payments) under the revolving line of credit		1,700			(42,100	)
Payments of Tranche A loan		—			(38,706	)
Payments of Tranche B loan		(1,875	)		(130,175	)
Payments of Tranche C loan		—			(20,000	)
Borrowings of other long-term debt		268			646
Payments of other long-term debt, including capital lease obligations		(4,830	)		(19,989	)
Payment of debt financing costs		(65	)		(6,845	)

Net cash flows from financing activities		(4,802	)		(7,169	)


EFFECT OF EXCHANGE RATE CHANGES ON CASH		3,725			(442	)


DECREASE IN CASH AND CASH EQUIVALENTS		(1,003	)		(17,478	)

CASH AND CASH EQUIVALENTS, beginning of year		7,108			22,964


CASH AND CASH EQUIVALENTS, end of period	$	6,105		$	5,486

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
OCTOBER 2, 2005
(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, 2004. Certain prior year amounts have been reclassified to conform with the 2005 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 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 Statement of Financial Accounting Standards (“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 three and nine months ended October 2, 2005 and October 3, 2004.


	Three Months Ended						Nine Months Ended
										As Restated
										(See Note (2))
	October 2,			October 3,			October 2,			October 3,
	2005			2004			2005			2004
Net Loss	$	(8,289	)	$	(5,275	)	$	(5,270	)	$	(19,532	)
Stock-Based Compensation Cost, net of tax — fair value method		(18	)		(25	)		(62	)		(81	)

Pro-Forma Net Loss	$	(8,307	)	$	(5,300	)	$	(5,332	)	$	(19,613	)

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which replaces SFAS No. 123 and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their fair values beginning with the first interim period after June 15, 2005. In April 2005, the United States Securities and Exchange Commission extended the implementation timing required under SFAS No. 123R to the beginning of a registrant’s next fiscal year, which is January 1, 2006 for the Company. The Company is currently evaluating the requirements of SFAS No. 123R and has not yet determined the method of adoption it will use. However, based on the Company’s current level of annual option grants and the number of unvested options the Company had outstanding at the end of the third quarter of 2005, the Company does not expect the adoption of SFAS No. 123R to have a material impact on its financial position or results of operations.

On October 19, 2005, the stockholders of the Company approved the U.S. Can Corporation 2005 Equity Incentive Plan, a detailed discussion of which is included in Note (12).

(2) RESTATEMENT

On September 13, 2005, in response to a comment letter from the staff of the Securities and Exchange Commission that, among other things, requested information relating to the Company’s accounting change from LIFO to FIFO during the second quarter of 2004 and the application of APB Opinion No. 20, the Audit Committee of the Board of Directors of the Company agreed with management’s recommendation to restate the Company’s financial statements for the effects of changing the Company’s inventory policy from LIFO to FIFO (the “Restatement”). On October 4, 2005, the Company filed the 2004 Form 10-K/A and 2005 Form 10-Q/A for the first and second quarters with the Securities and Exchange Commission. A summary of the significant effects of the restatement on the nine month period ended October 3, 2004 are as follows:


	For the Nine Months Ended
	October 3, 2004
	(Unaudited)
				AS
	AS			PREVIOUSLY
	RESTATED			REPORTED
Cost of Sales	$	571,539		$	571,905
Gross Profit		61,000			60,634
Loss before Income Taxes		(21,617	)		(22,415	)
Benefit from Income Taxes		(2,085	)		(2,390	)
Net Loss		(19,532	)		(20,025	)
Net Loss Attributable to Common Stockholders		(30,969	)		(31,462	)

(3) SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid interest of approximately $38.8 million and $47.1 million for the nine months ended October 2, 2005 and October 3, 2004, respectively. The Company received a net income tax refund of $0.1 million for the nine months ended October 2, 2005 and paid income taxes of $1.1 million for the nine months ended October 3, 2004.

(4) SPECIAL CHARGES

2005

During the first nine months of 2005, the Company recorded restructuring charges of $2.1 million. A $0.5 million charge and a $1.5 million charge were recorded in the first and second quarter, respectively. Charges in the third quarter were $0.1 million. During the first quarter of 2005, the Company recorded charges for position elimination costs related to the continuation of an early termination program in one European facility and a product line profitability review program in our German food can business. The second quarter charges were for European headquarters position elimination costs ($1.0 million), as well as a reassessment of previously recorded reserves for ongoing facility costs related to our closed Olive Can Customer & Specialty plant ($0.5 million). Total cash payments in the first nine months of 2005 were $3.1 million (primarily severance and facility shut down costs) and the Company anticipates spending another $5.9 million over the next few years. The remaining reserve consists primarily of employee termination benefits paid over time for approximately three salaried and 31 hourly employees and other ongoing facility exit costs.

The table below presents the reserve categories and related activity as of October 2, 2005 (in millions):


	January 1,										October 2,
	2005										2005
	Balance		Additions		Cash Payments			Other(b)			Balance
Employee Separation	$	3.2	$	1.4	$	(1.7	)	$	(0.4	)	$	2.5
Facility Closing Costs		4.1		0.7		(1.4	)		—			3.4

Total	$	7.3	$	2.1	$	(3.1	)	$	(0.4	)	$	5.9	(a)


(a)		Includes $3.0 million classified as other long-term liabilities as of October 2, 2005.

(b)		Non-cash foreign currency translation impact.

2004

During the first nine months of 2004, the Company recorded net special charges of $5.4 million. $1.4 million related to the elimination of 41 positions in Europe. The charge related to an early termination program in one European facility and a product line profitability review program in the Company’s German food can business, which resulted in the Company idling certain of its production lines. During the third quarter of 2004, the Company recorded a $4.0 million charge related to the closure of the New Castle, PA Lithography and the Elgin, IL (Olive Can) Custom & Specialty plants. The third quarter charge primarily related to employee separation costs connected to the facility closings ($1.1 million), and accelerated depreciation related to assets, which were idled in the fourth quarter ($2.9 million).

The table below presents the reserve categories and related activity as of October 3, 2004 (in millions):


	January 1,		Net					October 3,
	2004 Balance		Additions		Deductions(b)			2004 Balance
Employee Separation	$	4.3	$	2.5	$	(2.5	)	$	4.3
Facility Closing Costs		3.6		2.9		(3.7	)		2.8

Total	$	7.9	$	5.4	$	(6.2	)	$	7.1	(a)


(a)		Includes $4.5 million classified as other long-term liabilities as of October 3, 2004.

(b)		Includes cash payments of $3.2 million. The remaining non-cash deductions represent accelerated depreciation related to the New Castle, PA and Olive Can facility closings, which was recorded as a reduction in property, plant and equipment.

(5) INVENTORIES

Inventories reported in the accompanying balance sheets are classified as follows (000’s omitted):


	October 2,		December 31,
	2005		2004
Raw materials	$	30,082	$	35,849
Work in process		37,292		38,758
Finished goods		32,792		30,660

	$	100,166	$	105,267

(6) COMPREHENSIVE NET LOSS

The components of accumulated other comprehensive loss are as follows (000’s omitted):


	October 2,			December 31,
	2005			2004
Foreign Currency Translation Adjustment	$	(11,463	)	$	220
Minimum Pension Liability Adjustment		(18,000	)		(19,258	)

Total Accumulated Other Comprehensive Loss	$	(29,463	)	$	(19,038	)

The components of comprehensive loss for the three and nine months ended October 2, 2005 and October 3, 2004 are as follows (000’s omitted):


	Three Months Ended						Nine Months Ended
	October 2,			October 3,			October 2,			October 3,
	2005			2004			2005			2004
										(As Restated)
Net Loss	$	(8,289	)	$	(5,275	)	$	(5,270	)	$	(19,532	)
Foreign Currency Translation Adjustment		(374	)		(261	)		(10,425	)		(1,636	)

Comprehensive Loss	$	(8,663	)	$	(5,536	)	$	(15,695	)	$	(21,168	)

(7) INCOME TAXES

The third quarter 2005 income tax provision includes $2.7 million of additional valuation allowances against domestic deferred tax assets. Prior to 2005, the Company recorded valuation allowances as it could not conclude that it was “more likely than not” that not all of the deferred tax assets of its domestic operations and certain of its foreign operations would be realized in the foreseeable future. Accordingly, the Company did not record income taxes related to the third quarter and the first nine months of 2005 and 2004 for the applicable operations. The Company will continue to assess these valuation allowances and, to the extent it is determined that such allowances are no longer required, the related deferred tax assets will be recognized in the future. The third quarter 2005 income tax provision also includes a $0.4 million return of excess taxes paid by the Company’s Laon, France operations.

(8) 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 three months and nine months ended October 2, 2005 and October 3, 2004, respectively (000’s omitted):


U.S.	For the Three Months Ended						For the Nine Months Ended
	October 2, 2005			October 3, 2004			October 2, 2005			October 3, 2004
Service cost	$	249		$	252		$	747		$	756
Interest cost		697			686			2,091			2,058
Return on assets		(730	)		(678	)		(2,190	)		(2,034	)
Recognized loss		—			5			—			15
Recognized prior service cost		141			122			423			366


Net periodic pension cost	$	357		$	387		$	1,071		$	1,161


Non-U.S.	For the Three Months Ended						For the Nine Months Ended
	October 2, 2005			October 3, 2004			October 2, 2005			October 3, 2004
Service cost	$	81		$	89		$	276		$	224
Interest cost		1,052			1,113			3,258			3,289
Return on assets		(891	)		(849	)		(2,734	)		(2,577	)
Recognized loss		151			203			461			619


Net periodic pension cost	$	393		$	556		$	1,261		$	1,555

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 three months and nine months ended October 2, 2005 and October 3, 2004, respectively, included the following components (000’s omitted):


U.S.	For the Three Months Ended						For the Nine Months Ended
	October 2, 2005			October 3, 2004			October 2, 2005			October 3, 2004
Service cost	$	112		$	87		$	336		$	261
Interest cost		365			351			1,095			1,053
Recognized loss		80			48			240			144
Recognized prior service cost		(213	)		(226	)		(639	)		(678	)


Net periodic pension cost	$	344		$	260		$	1,032		$	780

The Company made $0.5 million in contributions to its U.S. based pension plan and $0.5 million of contributions to its non-U.S. based pension plans in the third quarter of 2005. The Company previously disclosed in its financial statements for the year ended December 31, 2004 that it expected to contribute approximately $1.4 million to its U.S. based pension plan in 2005. For the nine months ended October 2, 2005, $1.1 million of contributions have been made to the Company’s U.S. based pension plan. The Company presently anticipates contributing an additional $0.1 million to fund its pension plan in 2005 for a total of approximately $1.2 million. For the nine months ended October 2, 2005, $1.4 million of contributions have been made to the Company’s non-U.S. based pension plans. The Company does not anticipate its 2005 contributions to its non-U.S. based pension plans to be significantly different from the amount previously disclosed in the Company’s consolidated financial statements for the year ended December 31, 2004.

The Company made payments under its postretirement benefit plan of $1.0 million in the first nine months of 2005 and $0.3 million in the third quarter of 2005. The Company does not anticipate its 2005 payments under its postretirement benefit plan to be significantly different from the amount previously disclosed in the Company’s consolidated financial statements for the year ended December 31, 2004.

(9) 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 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. Financial information used to produce the Company’s 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 income (loss) from operations for the three and nine month periods ended October 2, 2005 and October 3, 2004, respectively (000’s omitted):


	Three Months Ended						Nine Months Ended
	October 2,			October 3,			October 2,			October 3,
	2005			2004			2005			2004
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol	$	98,344		$	94,361		$	310,915		$	280,688
International		68,608			70,386			221,788			219,307
Paint, Plastic & General Line		34,134			31,155			112,202			101,780
Custom & Specialty		8,135			11,361			25,168			30,764

Total revenues	$	209,221		$	207,263		$	670,073		$	632,539


INCOME (LOSS) BEFORE INCOME TAXES:
Aerosol	$	13,524		$	15,855		$	51,878		$	45,594
International		693			(2,587	)		(27	)		(6,840	)
Paint, Plastic & General Line		1,412			2,617			9,302			10,301
Custom & Specialty		1,131			1,796			4,903			1,016

Total Segment Income From Operations		16,760			17,681			66,056			50,071

Unallocated Selling, General & Administrative Expenses (a)		(7,890	)		(5,909	)		(22,340	)		(19,464	)

Special Charges (b)		(34	)		(4,012	)		(2,064	)		(5,416	)
Other Income (c)		244			54			436			432
Interest Expense		(14,020	)		(12,665	)		(40,873	)		(38,246	)
Bank Financing Fees		(732	)		(890	)		(2,192	)		(3,486	)
Loss from Early Extinguishment of Debt		—			—			—			(5,508	)

Loss Before Income Taxes	$	(5,672	)	$	(5,741	)	$	(977	)	$	(21,617	)


(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.

(c)		Other income represents the Company’s share of the net income of its joint venture equity investment in Argentina, and dividends related to a cost based investment.

(10) COMMITMENTS AND CONTINGENCIES

Environmental

United States Can has been named as a potentially responsible party (“PRP”) for costs incurred in the clean-up of the San Leandro Plume, a regional groundwater plume partially extending underneath United States Can’s former site in San Leandro, California and at the M&J Solvents site in Georgia. 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 its 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 nor with the current 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. With regard to M&J Solvents, over 1,000 contributors to the site have been identified. The initial compliance status report has not been finalized and thus, the nature, extent and source of contamination is unknown. On July 13, 2005, the Company, along with other PRPs, received a letter from the State of Georgia requiring the submission of a compliance status report and corrective action plan for the site by December 31, 2005. The Company, along with other PRPs, participates in a voluntary group that will prepare the required report and plan.

Based upon currently available information, the Company does not expect the effects of environmental matters to be material to its financial position.

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.

Local No. 24M of the Graphics Communications International Union, the union representing employees at the Company’s Weirton facility, filed an arbitration case challenging the Company’s decision to modify its health care plan for retirees. The Union contended that the Company had an obligation to bargain over plan changes and that it failed to do so. The Company contended that the matter was not arbitrable, that it only had an obligation to bargain with the Union regarding benefits for active employees represented by the Union, and that it had no obligation to bargain with regard to retiree benefits. On December 22, 2004, the arbitrator issued a decision finding that the dispute was arbitrable, that the Company was obligated to bargain with the Union regarding benefits for retirees, that the Company violated its duty to bargain by unilaterally modifying the health care plan as to retirees and that benefits under the health care plan are vested as to retirees. On March 16, 2005, the Company filed a lawsuit appealing the arbitration decision. The Union filed an answer to the complaint seeking enforcement of the arbitrator’s decision. Because this matter will be determined on the arbitration record, the court set a briefing schedule for the parties to file cross-motions for summary judgment. This matter has now been fully

briefed and is pending before the trial court. If neither motion is granted, the parties will proceed to trial. If a trial is necessary, the trial currently is set for January 2006.

(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 October 2, 2005 and December 31, 2004 and for the nine months ended October 2, 2005 and October 3, 2004. 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 NINE MONTHS ENDED OCTOBER 2, 2005
(unaudited)
(000’s omitted)


										USC Europe/ May
							USC May			Verpackungen GmbH
	U.S. Can			United States			Verpackungen			& Co., KG (Non-					U.S. Can
	Corporation			Can Company			Holding (Guarantor			Guarantor					Corporation
	(Parent)			(Issuer)			Subsidiaries)			Subsidiaries)			Eliminations		Consolidated
NET SALES	$	—		$	448,285		$	—		$	221,788		$	—	$	670,073
COST OF SALES		—			382,202			—			213,976			—		596,178

Gross profit		—			66,083			—			7,812			—		73,895
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		—			22,340			—			7,839			—		30,179
SPECIAL CHARGES		—			585			—			1,479			—		2,064
OTHER INCOME		—						—			(436	)		—		(436	)
INTEREST (INCOME) EXPENSE		—			36,160			4,887			(174	)		—		40,873
BANK FINANCING FEES		—			2,192			—			—			—		2,192
EQUITY INCOME (LOSS) FROM SUBSIDIARIES		(5,270	)		(7,356	)		3,112			—			9,514		—

Loss before income taxes		(5,270	)		(2,550	)		(1,775	)		(896	)		9,514		(977	)
PROVISION FOR INCOME TAXES		—			2,720			297			1,276			—		4,293

NET LOSS		(5,270	)		(5,270	)		(2,072	)		(2,172	)		9,514		(5,270	)
PREFERRED STOCK DIVIDEND REQUIREMENT		(12,534	)		—			—			—			—		(12,534	)

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(17,804	)	$	(5,270	)	$	(2,072	)	$	(2,172	)	$	9,514	$	(17,804	)

U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 3, 2004
(unaudited)
(000’s omitted)


				Restated			USC May			USC Europe/ May
	Restated			United			Verpackungen			Verpackungen					Restated
	U.S. Can			States Can			Holding			GmbH & Co., KG					U.S. Can
	Corporation			Company			(Guarantor			(Non-Guarantor			Restated		Corporation
	(Parent)			(Issuer)			Subsidiaries)			Subsidiaries)			Eliminations		Consolidated
NET SALES	$	—		$	413,232		$	—		$	219,307		$	—	$	632,539
COST OF SALES		—			356,321			—			215,218			—		571,539

Gross profit		—			56,911			—			4,089			—		61,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		—			19,464			—			10,929			—		30,393
SPECIAL CHARGES		—			4,103			—			1,313			—		5,416
OTHER INCOME		—			(224	)		—			(208	)		—		(432	)
INTEREST EXPENSE		—			33,146			4,059			1,041			—		38,246
BANK FINANCING FEES		—			3,275			—			211			—		3,486
LOSS FROM EARLY EXTINGUISHMENT OF DEBT		—			5,508			—			—			—		5,508
EQUITY LOSS FROM SUBSIDIARIES		(19,532	)		(14,099	)		(1,094	)		—			34,725		—

Loss before income taxes		(19,532	)		(22,460	)		(5,153	)		(9,197	)		34,725		(21,617	)
PROVISION (BENEFIT) FOR INCOME TAXES		—			(2,928	)		—			843			—		(2,085	)


NET LOSS		(19,532	)		(19,532	)		(5,153	)		(10,040	)		34,725		(19,532	)
PREFERRED STOCK DIVIDEND REQUIREMENT		(11,437	)		—			—			—			—		(11,437	)


NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(30,969	)	$	(19,532	)	$	(5,153	)	$	(10,040	)	$	34,725	$	(30,969	)

U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 2, 2005
(unaudited)
(000s omitted)


										USC Europe/
							USC May			May
							Verpackungen			Verpackungen
	U.S. Can			United States			Holding			GmbH (Non-					U.S. Can
	Corporation			Can Company			(Subsidiary			Guarantor					Corporation
	(Parent)			(Issuer)			Guarantor)			Subsidiaries)		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	390		$	—		$	5,715	$	—		$	6,105
Accounts receivable		—			61,702			—			16,813		—			78,515
Inventories		—			63,593			—			36,573		—			100,166
Deferred income taxes		—			6,573			—			—		—			6,573
Other current assets		—			6,748			—			28,357		—			35,105

Total current assets		—			139,006			—			87,458		—			226,464
NET PROPERTY, PLANT AND EQUIPMENT		—			120,286			—			85,870		—			206,156
GOODWILL		—			27,384			—			—		—			27,384
DEFERRED INCOME TAXES		—			20,148			—			294		—			20,442
OTHER NON-CURRENT ASSETS		—			34,285			—			12,061		—			46,346
INTERCOMPANY ADVANCES		—			295,689			—			—		(295,689	)		—
INVESTMENT IN SUBSIDIARIES		—			—			62,377			—		(62,377	)		—

Total assets	$	—		$	636,798		$	62,377		$	185,683	$	(358,066	)	$	526,792


CURRENT LIABILITIES
Current maturities of long-term debt	$	—		$	3,673		$	—		$	1,356	$	—		$	5,029
Accounts payable		—			38,677			—			46,237		—			84,914
Restructuring reserves		—			788			—			2,160		—			2,948
Income taxes payable		—			—			—			1,889		—			1,889
Accrued Expenses		—			52,688			—			13,856		—			66,544

Total current liabilities		—			95,826			—			65,498		—			161,324
TOTAL LONG TERM DEBT		854			548,937			—			—		—			549,791
LONG-TERM LIABILITIES PURSUANT TO EMPLOYEE BENEFIT PLANS		—			39,400			896			23,626		—			63,922
OTHER LONG-TERM LIABILITIES		—			2,628			—			996		—			3,624
PREFERRED STOCK		174,788			—			—			—		—			174,788
INTERCOMPANY LOANS		112,056			—			131,990			51,643		(295,689	)		—
INVESTMENT IN SUBSIDIARIES		138,959			88,966			—			—		(227,925	)		—
STOCKHOLDERS’ EQUITY / (DEFICIT)		(426,657	)		(138,959	)		(70,509	)		43,920		165,548			(426,657	)

Total liabilities and stockholders’ equity	$	—		$	636,798		$	62,377		$	185,683	$	(358,066	)	$	526,792

U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004
(unaudited)
(000s omitted)


										USC
							USC May			Europe/May
							Verpackungen			Verpackungen
	U.S. Can			United States			Holding			GmbH (Non-					U.S. Can
	Corporation			Can Company			(Subsidiary			Guarantor					Corporation
	(Parent)			(Issuer)			Guarantor)			Subsidiaries)		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	927		$	—		$	6,181	$	—		$	7,108
Accounts receivable		—			50,115			—			28,408		—			78,523
Inventories		—			62,861			—			42,406		—			105,267
Deferred income taxes		—			6,660			—			865		—			7,525
Other current assets		—			8,376			—			22,435		—			30,811

Total current assets		—			128,939			—			100,295		—			229,234
NET PROPERTY, PLANT AND EQUIPMENT		—			126,418			—			100,604		—			227,022
GOODWILL		—			27,384			—			—		—			27,384
DEFERRED INCOME TAXES		—			22,867			—			332		—			23,199
OTHER NON-CURRENT ASSETS		—			36,715			—			14,198		—			50,913
INTERCOMPANY ADVANCES		—			286,028			—			—		(286,028	)		—
INVESTMENT IN SUBSIDIARIES		—			—			64,954			—		(64,954	)		—

Total assets	$	—		$	628,351		$	64,954		$	215,429	$	(350,982	)	$	557,752


CURRENT LIABILITIES
Current maturities of long-term debt	$	—		$	3,965		$	—		$	5,480	$	—		$	9,445
Accounts payable		—			41,716			—			59,262		—			100,978
Restructuring reserves		—			1,947			—			2,400		—			4,347
Income taxes payable		—			—			—			479		—			479
Other current liabilities		—			39,244			—			16,318		—			55,562

Total current liabilities		—			86,872			—			83,939		—			170,811
TOTAL LONG TERM DEBT		854			549,697			—			—		—			550,551
LONG-TERM LIABILITIES PURSUANT TO EMPLOYEE BENEFIT PLANS		—			41,652			591			26,639		—			68,882
OTHER LONG-TERM LIABILITIES		—			2,782			—			902		—			3,684
PREFERRED STOCK		162,253			—			—			—		—			162,253
INTERCOMPANY LOANS		112,057			—			127,111			46,860		(286,028	)		—
INVESTMENT IN SUBSIDIARIES		123,265			70,613			—			—		(193,878	)		—
STOCKHOLDERS’ EQUITY / (DEFICIT)		(398,429	)		(123,265	)		(62,748	)		57,089		128,924			(398,429	)

Total liabilities and stockholders’ equity	$	—		$	628,351		$	64,954		$	215,429	$	(350,982	)	$	557,752

U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 2, 2005
(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 FROM OPERATING ACTIVITIES	$	—	$	20,064		$	(2,088	)	$	(3,768	)	$	14,208


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(9,969	)		—			(4,540	)		(14,509	)
Proceeds from sale of property		—		143			—			232			375

Net cash flows from investing activities		—		(9,826	)		—			(4,308	)		(14,134	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances		—		(9,659	)		2,088			7,571			—
Net borrowings under revolving line of credit		—		1,700			—			—			1,700
Payments of Tranche B loan		—		(1,875	)		—			—			(1,875	)
Payments of other long-term debt		—		(1,144	)		—			(3,686	)		(4,830	)
Borrowings of other debt		—		268			—			—			268
Payments of debt financing costs		—		(65	)		—			—			(65	)

Net cash flows from financing activities		—		(10,775	)		2,088			3,885			(4,802	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		—		—			—			3,725			3,725

DECREASE IN CASH AND CASH EQUIVALENTS		—		(537	)		—			(466	)		(1,003	)
CASH AND CASH EQUIVALENTS, beginning of period		—		927			—			6,181			7,108

CASH AND CASH EQUIVALENTS, end of period	$	—	$	390		$	—		$	5,715		$	6,105

U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -— (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 3, 2004
(unaudited)
(000s omitted)


									Restated
						USC May			USC Europe / May			Restated
	U.S. Can		United States			Verpackungen			Verpackungen (Non-			U.S. Can
	Corporation		Can Company			Holding (Subsidiary			Guarantor			Corporation
	(Parent)		(Issuer)			Guarantor)			Subsidiaries)			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—	$	2,376		$	(5,153	)	$	1,674		$	(1,103	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(7,858	)		—			(1,981	)		(9,839	)
Proceeds from sale of property		—		1,019			—			56			1,075

Net cash flows from investing activities		—		(6,839	)		—			(1,925	)		(8,764	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances		—		(22,354	)		5,153			17,201			—
Proceeds from Term B loan		—		248,750			—			—			248,750
Net payments under revolving line of credit		—		(42,100	)		—			—			(42,100	)
Payments of Tranche A loan		—		(38,706	)		—			—			(38,706	)
Payments of Tranche B loan		—		(130,175	)		—			—			(130,175	)
Payments of Tranche C loan		—		(20,000	)		—			—			(20,000	)

Payments of other long-term debt		—		(1,391	)		—			(17,348	)		(18,739	)
Borrowings of other long-term debt		—		646			—			—			646
Payments of debt financing costs		—		(6,845	)		—			—			(6,845	)

Net cash flows from financing activities		—		(12,175	)		5,153			(147	)		(7,169	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		—		—			—			(442	)		(442	)

DECREASE IN CASH AND CASH EQUIVALENTS		—		(16,638	)		—			(840	)		(17,478	)
CASH AND CASH EQUIVALENTS, beginning of period		—		16,854			—			6,110			22,964

CASH AND CASH EQUIVALENTS, end of period	$	—	$	216		$	—		$	5,270		$	5,486

(12) SUBSEQUENT EVENTS

Acquisition

On November 7, 2005, the Company, through its subsidiary U.S.C. Europe Netherlands B.V., acquired the remaining 63.5% equity interests of Formametal, S.A. (“Formametal”), an aerosol can manufacturer in Argentina, making Formametal a wholly owned subsidiary of the Company. The Company purchased its initial 36.5% interest in Formametal in 1998. Pursuant to the Stock Purchase Agreement, the purchase price paid at closing for the transaction was approximately $5.0 million, with additional contingent payments subject to the achievement by Formametal of the following earnings targets through 2007:

	•		Payment of $2.5 million by January 31, 2006, provided Formametal’s Consolidated EBITDA for the calendar year 2005, after the deduction of certain payments, is not less than $3.0 million, plus:

	•		Payment of $1.25 million by March 31, 2007, provided Formametal’s Consolidated EBITDA for the calendar year 2006, after the deduction of certain payments, is not less than $3.0 million, provided further that if Formametal’s Consolidated EBITDA for the calendar year 2006 exceeds $5.5 million, the Company shall pay to the Sellers an amount equal to 20% on the amount in excess of $5.5 million, plus:

	•		Payment by March 31, 2008, 20% of any excess over $5.5 million of Formametal’s Consolidated EBITDA for calendar year 2007.

In addition, subject to his continuing employment at Formametal through calendar year 2007, the Company will pay the selling majority shareholder up to $0.4 million. These payments will be expensed by the Company as incurred.

The acquisition will be accounted for using the purchase method as required by SFAS No. 141,Business Combinations. The purchase price will be allocated to the underlying assets and liabilities based on their estimated fair values. The Company is still in the process of determining the amount of goodwill, if any, from the purchase. Any required contingency payments would further increase the purchase price and goodwill at the time the payments are made. The Company financed the transaction with proceeds from its revolving credit facility. Over the past twelve months, Formametal had revenue of approximately $25.0 million and net income of approximately $1.4 million.

Equity Incentive Plan

On October 19, 2005, the stockholders of the Company approved the U.S. Can Corporation 2005 Equity Incentive Plan (the “Plan”).

The Plan provides for, among other things, the grant of restricted stock by the Board of Directors to employees and directors of, and consultants and advisors to, the Company or its affiliates who, in the opinion of the Board, are in a position to make a significant contribution to the success of the Company and its affiliates. The Plan permits the Board to determine the terms of the awards granted pursuant to the Plan, subject to the limitations provided in the Plan, including, without limitation, the time or times at which such awards will vest. Awards covering up to a maximum of 7,046 shares of Common Stock and 22,125 shares of Series B Preferred Stock of the Company are authorized for grant under the Plan, which has a ten-year term.

On October 19, 2005, the Board of Directors granted, pursuant to individual Restricted Stock Agreements, restricted stock awards totaling 20,703 shares of Series B Preferred Stock and 2,291 shares of Common Stock to executive officers and other employees of the Company. The aggregate offering price for the awards was $20,703 for purchases of the Series B Preferred Stock and $2,291 for purchases of Common Stock. A pro rata portion of the granted restricted Common Stock and Series B Preferred Stock will vest in each period pursuant to the individual Restricted Stock Agreements.

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, 2004 (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein).

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. 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, 2004, as supplemented by Note (1) to these financial statements.

Results of Operations

Three month period ended October 2, 2005, as compared to the three month period ended October 3, 2004

The following table presents the Company’s Revenue and Gross Profit by segment for the third quarter of 2005 as compared to the third quarter of 2004 (000’s omitted).


	For the three month period ended October 2, 2005 and October 3, 2004
									Percentage to
	Revenue				Gross Profit				Sales
	2005		2004		2005		2004		2005			2004
Aerosol	$	98,344	$	94,361	$	13,524	$	15,855		13.8	%		16.8	%
International		68,608		70,386		2,595		1,654		3.8	%		2.3	%
Paint, Plastic & General Line		34,134		31,155		1,412		2,617		4.1	%		8.4	%
Custom & Specialty		8,135		11,361		1,131		1,796		13.9	%		15.8	%


Total	$	209,221	$	207,263	$	18,662	$	21,922		8.9	%		10.6	%

Consolidated net sales for the three months ended October 2, 2005 were $209.2 million as compared to $207.3 million in the corresponding period in 2004. Along business segment lines, Aerosol net sales for the third quarter of 2005 increased to $98.3 million from $94.4 million for the same period in 2004, a 4.2% increase, driven by increased prices resulting from increased raw material costs that were passed on to customers and changes in customer and product mix ($7.2 million), offset by a decrease in unit volume ($3.3 million). International net sales decreased to $68.6 million for the third quarter of 2005 from $70.4 million for the third quarter of 2004, a decrease of $1.8 million or 2.5%. The decrease was primarily due to decreased unit volume in the third quarter ($9.5 million), partially offset by price increases and changes in customer and product mix ($8.0 million). Paint, Plastic & General Line net sales increased $2.9 million to $34.1 million for the third quarter of 2005. This increase was due primarily to volume increases ($5.7 million), offset by lower prices and changes in customer and product mix ($2.8 million). In the Custom & Specialty segment, sales decreased 28.4% from $11.4 million for the third quarter of 2004 to $8.1 million for the third quarter of 2005, driven primarily by a decline in volume ($3.9 million), partially offset by price increases and changes in customer and product mix ($0.7 million).

Consolidated gross profit decreased $3.3 million for the three months ended October 2, 2005 from the same quarter in 2004. Along business segment lines, Aerosol gross profit dollars decreased by $2.3 million while the percentage to sales decreased from 16.8% to 13.8%. The decrease in gross profit dollars and percentage to sales was due to lower volume and increases in material costs in excess of the amount passed on to customers. The International segment gross profit increased $0.9 million versus the same period in 2004 and the percentage to sales increased from 2.3% to 3.8%. The increase was driven by increased selling prices and changes in customer and product mix along with improved operating efficiencies. The Paint, Plastic & General Line segment gross profit decreased $1.2 million versus the same period in 2004. The percentage to net sales decreased from 8.4% in 2004 to 4.1% in 2005. The decrease was primarily driven by changes in customer and product mix. The Custom & Specialty segment gross profit decreased to $1.1 million, compared to $1.8 million in 2004. The decrease was driven by lower volumes.

Selling, general and administrative costs decreased from $10.2 million for the third quarter of 2004 to $9.8 million in the third quarter of 2005. The decrease was primarily due to the elimination of the European headquarters, offset by increases in outside services and salary expenses in the U.S. operations.

During the third quarter of 2005, the Company recorded restructuring charges of $0.1 million relating primarily to the European headquarters position elimination costs and the closure of the New Castle, PA Lithography plant. Total cash payments in the third quarter of 2005 were $0.5 million (primarily severance and facility shut down costs). The Company anticipates spending another $5.9 million over the next several years related to previously recorded special charges.

The table below presents the reserve categories and related activity as of October 2, 2005 (in millions):


											October 2,
	July 3, 2005										2005
	Balance		Additions		Cash Payments			Other(b)			Balance
Employee Separation	$	3.0	$	0.0	$	(0.4	)	$	(0.1	)	$	2.5
Facility Closing Costs		3.4		0.1		(0.1	)		0.0			3.4

Total	$	6.4	$	0.1	$	(0.5	)	$	(0.1	)	$	5.9	(a)


(a)		Includes $3.0 million classified as other long-term liabilities as of October 2, 2005.

(b)		Non-cash foreign currency translation impact.

Interest expense in the third quarter of 2005 increased $1.3 million to $14.0 million from $12.7 million in the same period of 2004. The increase is due primarily to higher interest rates. Total bank financing fees for the third quarter of 2005 were $0.7 million as compared to $0.9 million for the third quarter of 2004. The decrease in the third quarter bank financing fees was due to one time charges in the third quarter of 2004 for the Company’s new Credit Facility as discussed below.

During the third quarter of 2005, the Company recorded an income tax provision of $2.6 million versus a benefit of $0.5 million recorded for the same period of 2004. The third quarter 2005 income tax provision includes $2.7 million of additional valuation allowances against domestic deferred tax assets. Prior to 2005, the Company recorded valuation allowances as it could not conclude that it was “more likely than not” that not all of the deferred tax assets of its domestic operations and certain of its foreign operations would be realized in the foreseeable future. Accordingly, the Company did not record income taxes related to the third quarter and the first nine months of 2005 and 2004 for the applicable operations. The Company will continue to assess these valuation allowances and, to the extent it is determined that such allowances are no longer required, the related deferred tax assets will be recognized in the future. The third quarter 2005 income tax provision also includes a $0.4 million return of excess taxes paid by the Company’s Laon, France operations.

Payment-in-kind dividends of $4.3 million and $3.9 million on the redeemable preferred stock were recorded in the third quarter of 2005 and 2004, respectively.

Nine month period ended October 2, 2005, as compared to the nine month period ended October 3, 2004

The following table presents the Company’s Revenue and Gross Profit by segment for the first nine months of 2005 as compared to the first nine months of 2004 (000’s omitted).


	For the nine months ended October 2, 2005 and October 3, 2004
									Percentage to
	Revenue				Gross Profit				Sales
	2005		2004		2005		2004		2005			2004
Aerosol	$	310,915	$	280,688	$	51,878	$	45,594		16.7	%		16.2	%
International		221,788		219,307		7,812		4,089		3.5	%		1.9	%
Paint, Plastic & General Line		112,202		101,780		9,302		10,301		8.3	%		10.1	%
Custom & Specialty		25,168		30,764		4,903		1,016		19.5	%		3.3	%


Total	$	670,073	$	632,539	$	73,895	$	61,000		11.0	%		9.6	%

Net sales for the nine-month period ended October 2, 2005 increased $37.5 million, or 5.9%, to $670.1 million versus the corresponding period in 2004. Along business segment lines, Aerosol net sales in the first nine months of 2005 were $310.9 million as compared to $280.7 million in 2004, a 10.8 % increase versus the same period last year. The increase is primarily due to increased selling prices and changes in customer and product mix ($27.7 million) and volume increases ($2.5 million). International sales increased $2.5 million from $219.3 million for the first nine months of 2004 to $221.8 million for the first nine months of 2005, primarily due to price increases and changes in customer and product mix ($22.9 million) combined with the positive impact of the translation of sales made in foreign currencies using the same average U.S. dollar exchange rate in effect during the first nine months of 2004 ($6.0 million), offset by decreased unit volumes ($26.4 million). Paint, Plastic & General Line segment sales increased $10.4 million to $112.2 million for the nine months ended October 2, 2005. This increase was due primarily to increased volume. Custom & Specialty sales decreased $5.6 million to $25.2 million for the nine months ended October 2, 2005, driven primarily by a decline in volume ($8.6 million), partially offset by an increase in prices and changes in customer and product mix ($3.0 million).

Consolidated gross profit increased $12.9 million to $73.9 million for the nine-month period ended October 2, 2005 from the same period in 2004. Along business segment lines, Aerosol gross profit increased by $6.3 million and the percentage to sales increased from 16.2% to 16.7%. The increase in Aerosol gross profit dollars was primarily due to price increases and changes in the customer and product mix. The International segment gross profit increased $3.7 million versus the same period in 2004 and the percentage to sales increased from 1.9% to 3.5%. The increase was driven by pricing and operational improvements, which more than offset a 12.1% decrease in volume. The Paint, Plastic & General Line segment gross profit decreased $1.0 million to $9.3 million from the same period in 2004. The percentage to net sales decreased from 10.1% in 2004 to 8.3% in 2005. The decrease was driven by a shift to less profitable product lines. The Custom & Specialty segment gross profit increased $3.9 million to $4.9 million compared to the same period in 2004 and the percentage to sales increased from 3.3% in 2004 to 19.5% in 2005. The improvement was primarily due to price increases and changes in the customer and product mix.

Selling, general, and administrative expenses were $30.2 million in the first nine months of 2005, compared to $30.4 million for the same period in 2004. The decrease was primarily due to the elimination of the European headquarters, offset by increases in outside services and salary expenses in the U.S. operations.

During the first nine months of 2005, the Company recorded restructuring charges of $2.1 million. A $0.5 million charge and a $1.5 million charge were recorded in the first and second quarter, respectively. Charges in the third quarter were $0.1 million. During the first quarter of 2005, the Company recorded charges for position elimination costs related to the continuation of an early termination program in one European facility and a product line profitability review program in our German food can business. The second quarter charges were for European headquarters position elimination costs ($1.0 million), as well as a reassessment of previously recorded reserves for ongoing facility costs related to our closed Olive Can Custom & Specialty plant ($0.5 million). Total cash payments in the first nine months of 2005 were $3.1 million (primarily severance and facility shut down costs) and the Company anticipates spending another $5.9 million over the next few years. The remaining reserve consists primarily of employee termination benefits paid over time for approximately three salaried and 31 hourly employees and other ongoing facility exit costs.

The table below presents the reserve categories and related activity as of October 2, 2005 (in millions):


	January 1,										October 2,
	2005										2005
	Balance		Additions		Cash Payments			Other(b)			Balance
Employee Separation	$	3.2	$	1.4	$	(1.7	)	$	(0.4	)	$	2.5
Facility Closing Costs		4.1		0.7		(1.4	)		—			3.4

Total	$	7.3	$	2.1	$	(3.1	)	$	(0.4	)	$	5.9	(a)


(a)		Includes $3.0 million classified as other long-term liabilities as of October 2, 2005.

(b)		Non-cash foreign currency translation impact.

Interest expense increased $2.7 million from $38.2 million for the first nine months of 2004 to $40.9 million for the same period in 2005 due primarily to higher interest rates. Bank financing fees for the first nine months of 2005 decreased $1.3 million to $2.2 million from $3.5 million for the same period in 2004. The decrease in bank financing fees is due to lower fees and expenses associated with the Company’s new Credit Facility entered into in June 2004, which are being amortized

over the life of the applicable borrowings, versus the fees and expenses previously being amortized in conjunction with the Company’s former Senior Secured Credit Facility.

During the second quarter in 2004, the Company also recorded a loss from early extinguishment of debt of $5.5 million associated with the termination of the Company’s Senior Secured Credit Facility.

The Company recorded income tax expense of $4.3 million for the first nine months of 2005 versus an income tax benefit of $2.1 million for the first nine months of 2004. The third quarter 2005 income tax provision includes $2.7 million of additional valuation allowances against domestic deferred tax assets. Prior to 2005, the Company recorded valuation allowances as it could not conclude that it was “more likely than not” that not all of the deferred tax assets of its domestic operations and certain of its foreign operations would be realized in the foreseeable future. Accordingly, the Company did not record income taxes related to the third quarter and the first nine months of 2005 and 2004 for the applicable operations. The Company will continue to assess these valuation allowances and, to the extent it is determined that such allowances are no longer required, the related deferred tax assets will be recognized in the future. The third quarter 2005 income tax provision also includes a $0.4 million return of excess taxes paid by the Company’s Laon, France operations.

Payment-in-kind dividends of $12.5 million and $11.4 million on the redeemable preferred stock were recorded in the first nine months of 2005 and 2004, respectively.

Liquidity and Capital Resources

During the first nine months of 2005, 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 provided by operations was $14.2 million for the nine months ended October 2, 2005, compared to cash used of $1.1 million for the nine months ended October 3, 2004. The increase in cash provided was primarily due to improved net income.

Other net cash used in operations during the first nine months of 2005 included increase in accrued expenses primarily due to higher accrued payroll and employee benefits ($10.3 million) and accrued interest ($2.3 million), partially offset by restructuring payments ($3.1 million). These items were offset by (1) increases in accounts receivable of $13.5 million (including $10.7 million related to the Company’s European factoring arrangements which has been reclassified to other assets) related to higher can prices resulting from increased raw material costs that were passed on to customers, (2) decreases in accounts payable due to increased raw material purchases at year-end that were paid during the first nine months of 2005, and (3) increases in other assets primarily relating to the Company’s European factoring arrangements ($10.7 million) as discussed above.

During 2004, many domestic and foreign steel suppliers began experiencing increased raw material costs which they passed on to their customers, including the Company. The price increases took the form of surcharges and base price increases. During 2005, the Company has incurred price increases from its steel suppliers for as much as 26%. This is in addition to significant increases received in fiscal year 2004. Many of our domestic and some of our international multi-year supply agreements with our customers permit us to pass through tin-plate price increases and, in some cases, other raw material costs. In response to the unprecedented steel cost increases, the Company increased its selling prices during 2004 and has implemented significant price increases in 2005. The Company has generally been successful in passing along the majority of the steel cost increases to our customers although the majority of the price increases take place at the time of the customer contract negotiation, which typically occur at the beginning of the year . However, future steel surcharges or base price increases could occur and the Company cannot predict with certainty its ability to pass along future increases to customers or how its customers or competitors will respond to such increases. Additionally, customer contracts may limit pass-throughs and also may require us to match other competitive bids.

Net cash used in investing activities was $14.1 million for the first nine months of 2005 as compared to $8.8 million for the first nine months of 2004. Investing activities in the first nine months of 2005 included capital spending of $14.5 million, offset by the proceeds received from the sale of property of $0.4 million. Investing activities in the first nine months of 2004 included capital spending of $9.8 million, offset by proceeds received from the March 2004 sale of the closed Dallas, Texas facility for $1.0 million.

Net cash used financing activities in the first nine months of 2005 was $4.8 million, versus net cash used in financing activities of $7.2 million for the same period in 2004. In 2004, net cash was used for the payment of $6.8 million of fees related to the new Credit Facility.

At October 2, 2005, $1.7 million was outstanding under the $65.0 million revolving loan portion of the Company’s Credit Facility. Letters of Credit of $15.6 million were also outstanding securing the Company’s obligations under various insurance programs and other contractual agreements. The Company therefore had $47.7 million of availability under its revolving line of credit. In addition, the Company had $6.1 million of cash and cash equivalents as of October 2, 2005. Subsequent to October 2, 2005, the Company borrowed $5.0 million under the revolving line of credit to finance its acquisition of the remaining 63.5% equity interest in Formametal, S.A.

During the second quarter of 2004, the Company entered into a Credit Agreement among U.S. Can Corporation, United States Can Company and Various Lending Institutions with Deutsche Bank Trust Company Americas as Administrative Agent, dated as of June 21, 2004 (“Credit Facility”).

As required under the terms of the Credit Facility, the Company used the $250.0 million initial Term B proceeds to repay in full all amounts outstanding under the Company’s former Senior Secured Credit Facility and a secured term loan of $16.5 million, secured by a mortgage on the Company’s Merthyr Tydfil, U.K. facility.

The Company paid approximately $6.8 million of fees and expenses related to the new Credit Facility through October 3, 2004. In addition, the Company wrote off $5.5 million of remaining deferred financing fees related to the Company’s former Senior Secured Credit Facility.

At October 3, 2004, the Company did not have any borrowings outstanding under its revolving loan portion of the Credit Facility. Letters of Credit of $13.2 million were also outstanding securing the Company’s obligations under various insurance programs and other contractual agreements. In addition, the Company had $5.5 million of cash and cash equivalents as of October 3, 2004.

The 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 Credit Facility, the Company is required to meet certain financial tests, including achievement of a minimum interest coverage ratio, a maximum leverage ratio, a maximum first lien leverage ratio and maximum annual capital expenditures. The restrictive covenants limit the Company’s ability to incur debt, pay dividends or make distributions, repurchase debt and to make certain loans, investments or acquisitions. As of October 2, 2005, the Company was in compliance with all of the required financial ratios and other covenants under the aforementioned facilities.

At existing levels of operations, cash from operations together with amounts available under 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 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 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 Credit Facility and Senior Secured Notes.

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 believes the Company’s exposure to market risk has not changed significantly since year-end 2004.

Item 4.Controls and Procedures

As reported in the Company’s December 31, 2004 10-K/A, on September 13, 2005, in response to a comment letter from the staff of the Securities and Exchange Commission that, among other things, requested information relating to the Company’s accounting change from LIFO to FIFO during the second quarter of 2004 and the application of APB Opinion No. 20, the Audit Committee of the Board of Directors of the Company agreed with management’s recommendation to restate the Company’s financial statements for the effects of changing the Company’s inventory policy from LIFO to FIFO.

In addition, the Company reclassified amounts related to accounts receivable factoring from financing activities to operating activities in the consolidated statement of cash flows for the years ended December 31, 2004 and 2003.

Based upon the evaluation undertaken by the Company’s management in response to the restatement and taking into consideration the circumstances involved in the restatement described in Note (2) to the Consolidated Financial Statements and discussed above, the Chief Executive Officer and Chief Financial Officer concluded 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.

As reported in the Company’s December 31, 2003 10-K/A, in November 2004, 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 “2003 Restatement”). In connection with the 2003 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.

The Company has taken various steps to strengthen its internal controls and has added more structure to the financial oversight of its European operations, including its facility in Laon, France. In particular, the Company hired a new Finance Director for its Laon, France facility in December 2004 and has hired an internal auditor to provide internal audit services for the Company, including the Company’s European operations. In addition, the Company continues the process of implementing a detailed system at each European location to provide support to the audit process, including reports, checklists and site visits. The Company believes that the efforts that have been or will be taken will substantially strengthen the organization and personnel of the senior financial and control functions in Europe and the Company’s overall operations.

The Company has taken measures to strengthen its processes with respect to changes in accounting principles and reviewed guidance regarding the reporting of its financial information, including weekly review of SEC and other authoritative pronouncements. The Company will continue to evaluate the effectiveness of its controls and procedures on an ongoing basis, including consideration of recommendations identified through the 2003 Restatement, 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 the Company’s progress in implementing the plans described above, during the fiscal quarter ended October 2, 2005, 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.

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.

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 5. Other Information

None.

Item 6. Exhibits

(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

	32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350

	32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350

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 16, 2005	By:	/s/ Michael M. Rajkovic
		Michael M. Rajkovic
		Executive Vice President and Chief Financial Officer (Duly authorized officer and principal financial officer)

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US Can Inactive 10-Q2005 Q3 Quarterly report

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