UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended JUNE 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number: 1-6690
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CONTINENTAL CAN COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2228114
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(State of Incorporation) (I.R.S. Employer Identification No.)
One Aerial Way, Syosset, New York 11791
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(Address of principal executive offices) Zip Code
(516) 822-4940
- ---------------------------------------------------
(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 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.
X YES NO
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The number of shares outstanding of the registrant's Common Stock ($.25 par
value) as of August 12, 1996 is 3,201,035.
FORM 10-Q
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 and June
30, 1995.
Consolidated Statements of Earnings and Retained Earnings for the Three Months
Ended June 30, 1996 and 1995
Consolidated Statements of Earnings and Retained Earnings for the Six Months
Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and
1995
Notes to Consolidated Financial Statements
2
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995 AND DECEMBER 31, 1995
(UNAUDITED)
(In thousands)
JUNE 30, DEC. 31, JUNE 30,
1996 1995 1995
-----------------------------------
ASSETS:
- -------
Current Assets:
Cash and cash equivalents $ 6,800 $ 8,925 $ 5,799
Investments - 285 -
Accounts Receivable:
Trade accounts 96,476 94,461 122,354
Other 13,160 13,215 19,103
Less allowance for doubtful accounts (5,720) (6,144) (5,575)
--------------------------------
Accounts receivable, net 103,916 101,532 135,882
Inventories 108,487 91,636 109,061
Prepaid expenses and other current 6,530 5,275 4,359
assets
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TOTAL CURRENT ASSETS 225,733 207,653 255,101
--------------------------------
Property, plant and equipment, at cost:
Land, building and improvements 50,775 52,090 51,809
Manufacturing machinery and equipment 273,114 263,331 237,843
Furniture, fixtures and equipment 9,757 9,591 9,718
Construction in progress 25,257 22,476 28,178
--------------------------------
358,903 347,488 327,548
Less accumulated depreciation and 160,041 148,874 136,894
amortization
--------------------------------
Net property, plant and equipment 198,862 198,614 190,654
Goodwill, net of accumulated 13,758 14,486 14,845
amortization
Other assets 22,969 24,658 19,460
--------------------------------
TOTAL ASSETS $461,322 $445,411 $480,060
================================
See accompanying notes to consolidated financial statements.
3
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 1996 AND 1995 AND DECEMBER 31, 1995
(UNAUDITED)
(In thousands)
JUNE 30, DEC. 31, JUNE 30,
1996 1995 1995
---------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
- ------------------------------------
Current Liabilities:
Short term borrowings $ 60,715 $ 47,945 $ 44,919
Accounts payable - trade 62,294 56,830 74,017
Accrued liabilities:
Employee compensation and benefits 19,585 18,238 18,599
Other accrued expenses 19,121 17,417 22,318
Current installments of long term
debt and
obligations under capital leases 26,367 10,665 13,993
Income taxes payable 1,778 1,610 1,860
Other current liabilities 9,843 8,753 9,411
-----------------------------
TOTAL CURRENT LIABILITIES 199,703 161,458 185,117
Long term debt, excluding current 112,475 130,023 125,882
installments
Obligations under capital leases,
excluding
current installments 15,657 13,115 13,974
Deferred income taxes 3,705 3,872 4,240
Other 29,236 30,365 39,287
-----------------------------
TOTAL LIABILITIES 360,776 338,833 368,500
Minority interest 27,315 30,280 32,868
STOCKHOLDERS' EQUITY:
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Capital stock:
First preferred stock, cumulative $25
par value.
Authorized 250,000 shares; no - - -
shares issued.
Second preferred stock, 4%
non-cumulative,
$100 par value. Authorized 1,535
shares;
no shares issued. - - -
Common stock, $.25 par value.
Authorized 20,000,000
shares; Outstanding 3,196,368
shares in 1996 and
Dec., 1995 and 3,165,057 shares in 800 799 791
June, 1995.
-----------------------------
800 799 791
Additional paid-in capital 43,945 43,868 43,132
Retained earnings 26,482 26,742 28,556
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71,227 71,409 72,479
Cumulative foreign currency translation 2,004 4,889 6,213
adjustment
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TOTAL STOCKHOLDERS' EQUITY 73,231 76,298 78,692
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TOTAL LIABILITIES AND $461,322 $445,411 $480,060
STOCKHOLDERS' EQUITY
==============================
See accompanying notes to consolidated financial statements.
4
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(In thousands, except per share data)
1996 1995
---------------------
Sales $141,263 $160,952
Cost of sales 118,044 135,636
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Gross profit 23,219 25,316
Selling, general and administrative 18,157 16,724
expenses
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OPERATING INCOME 5,062 8,592
Other income (expense):
Interest expense, net (5,144) (5,150)
Foreign currency exchange gain 155 31
Other - net 19 38
NET OTHER EXPENSE (4,970) (5,081)
Income before provision for income taxes
and minority interest 92 3,511
Provision for income taxes 232 1,153
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Income (loss) before minority interest (140) 2,358
Minority interest (321) 426
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NET INCOME $ 181 $ 1,932
=====================
NET EARNINGS PER COMMON SHARE $0.06 $0.58
=====================
See accompanying notes to consolidated financial statements.
5
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(In thousands, except per share data)
1996 1995
---------------------
Sales $272,645 $305,412
Cost of sales 229,483 256,389
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Gross profit 43,162 49,023
Selling, general and administrative 34,861 34,724
expenses
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OPERATING INCOME 8,301 14,299
Other income (expense):
Interest expense, net (9,821) (9,422)
Foreign currency exchange gain (loss) 222 (285)
Other - net 33 -
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NET OTHER EXPENSE (9,566) (9,707)
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Income (loss) before provision for
income taxes
and minority interest (1,265) 4,592
Provision for income taxes 95 1,756
---------------------
Income (loss) before minority interest (1,360) 2,836
Minority interest (1,100) 467
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NET INCOME (LOSS) $ (260) $ 2,369
=====================
NET EARNINGS (LOSS) PER COMMON SHARE $(0.08) $0.71
=====================
See accompanying notes to consolidated financial statements.
6
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(In thousands)
1996 1995
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (260) $ 2,369
Depreciation and amortization 17,226 17,451
Minority interest (1,100) 467
Other adjustments (14,827) (17,188)
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NET CASH PROVIDED BY 1,039 3,099
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,510) (20,075)
Other (273) (372)
-------------------
NET CASH USED IN INVESTING (20,783) (20,447)
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) 3,165 (6,436)
long term debt
Net proceeds from short term 14,492 20,113
borrowings
Other 78 263
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NET CASH PROVIDED BY 17,735 13,940
FINANCING ACTIVITIES
Effect of exchange rate changes on cash (116) 431
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Decrease in cash and cash equivalents (2,125) (2,977)
Cash and cash equivalents at beginning 8,925 8,776
of period
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CASH AND CASH EQUIVALENTS AT END OF $ 6,800 $ 5,799
PERIOD
===================
See accompanying notes to consolidated financial statements.
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CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(1) Accounting Policies and Other Matters
(a) Basis of Presentation
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's 1995 Annual Report to Stockholders.
(b) Adjustments
The results for the interim period reported herein have not been
audited; however, in the opinion of management, all adjustments
necessary for a fair presentation of the interim period statements
have been made.
(c) Earnings Per Common Share
Earnings per common share is based on the weighted average number of
common and common equivalent shares outstanding. Common equivalent
shares include dilutive stock options (using the treasury stock
method) exercisable under the Company's option plans. Weighted
average shares outstanding in the second quarter of 1996 and 1995,
were 3,283,646 and 3,350,726, respectively and for the first six
months of 1996 and 1995 were 3,284,837 and 3,339,292, respectively.
(2) Inventories
Inventories consist principally of packaging materials. The components of
inventory were as follows: (000's omitted)
June 30, December 31, June 30,
1996 1995 1995
------------------------------------
In thousands
Finished goods $ 54,620 $42,241 $ 54,164
Work in process 11,646 7,795 11,212
Raw materials & supplies 44,246 43,625 46,657
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$110,512 $93,661 $112,033
LIFO reserve (2,025) (2,025) (2,972)
------------------------------------
$108,487 $91,636 $109,061
====================================
(4) Plant Rationalization and Realignment
During the second quarter of 1996, the Company's subsidiary, PCI, recorded
a charge of $1,100,000 in connection with a plan to consolidate certain
manufacturing operations. The charge is included in
8
selling, general and administration expense and reflects primarily
severance costs from workforce reductions, write-down of excess equipment
and employee relocation costs. As of June 30, 1996, no amounts have yet
been paid in connection with the plan which is expected to be completed in
the first quarter of 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Sales during the second quarter of 1996 decreased 12% to $141,263,000, as
compared to $160,952,000 in the second quarter of 1995. Sales in the first
six months of 1996 decreased 11% to $272,645,000 from $305,412,000 in the same
prior year period. Lower 1996 sales resulted from reduced volumes, a change
in product mix, the effect of foreign currency translation rate differences
which reduced reported sales by the Company's European operations by
approximately $3 million in the first six months of 1996 and $4.4 million in
the second quarter of 1996, and resin price decrease pass-throughs which
reduced sales by $11.4 million in the first six months of 1996 and $6.4
million in the second quarter of 1996, all as compared to the same prior year
periods.
Gross profit was lower in each period of 1996 than the same prior year
period and gross profit as a percentage of sales declined to 15.8% from 16.1%
in the first six months of 1996, compared to 1995. Gross profit as a
percentage of sales increased to 16.4% in the second quarter of 1996, from
15.7% in the second quarter of 1995 These changes reflect resin pass-throughs
at PCI which affect both sales and costs resulting in fluctuating percentage
margins and competitive pressure at Ferembal and in the European flexible film
business.
Selling, general and administrative expense as a percentage of sales
increased to 12.8% in the first six months of 1996 from 11.4% in the same
prior year period. Selling, general and administrative expense as a
percentage of sales increased to 12.9% in the second quarter of 1996 from
10.4% in the second quarter of 1995. These increases reflect the fixed nature
of many of these expenses in relation to increased sales. In addition, in
the second quarter of 1996, a $1.1 million charge for plant rationalization at
PCI is included in selling, general and administrative expense. Because of
these various factors, operating income amounted to $5,062,000 and $8,301,000
in the second quarter and first six months of 1996, respectively, as compared
to $8,592,000 and $14,299,000 in the respective periods of 1995.
Net interest expense was approximately equal in the second quarters of
1996 and 1995. Net interest expense increased to $9,821,000 in the first six
months of 1996 as compared to $9,422,000 in the same period of 1995. This
increase resulted from higher debt levels in 1996 than 1995.
Provision for income taxes amounted to $232,000 and $95,000 in the second
quarter and first six months of 1996, respectively, as compared to
$1,153,000 and $1,756,000 in the second quarter and first six months of 1995,
reflecting offsetting levels of tax benefits for accounting purposes in loss
operations and tax expense in the Company's profitable operations. Minority
interest during each period reflects the interests of other shareholders in
some of the Company's subsidiaries.
Net income amounted to $181,000 ($.06 per share) in the second quarter of
1996 and net loss amounted to $260,000 ($.08 per share) in the first six
months of 1996. Net income amounted to $1,932,000 ($.58 per share)in the
second quarter of 1995. Net income in the first six months of 1995 amounted
to $2,369.000 ($.71 per share).
9
FINANCIAL CONDITION
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CAPITAL REQUIREMENTS
The Company acquired $9.2 million and $20.5 million of capital assets
during the second quarter and first six months of 1996, respectively,
consisting primarily of packaging equipment. These assets were acquired for
cash. Similar types of assets are expected to be acquired for the remainder
of 1996 and total annual capital expenditures are expected to amount to
approximately $29 million.
LIQUIDITY
The Company's liquidity position declined slightly during the first six
months of 1996. Working capital decreased to approximately $26 million, and
the current ratio amounted to 1.13 at June 30, 1996 compared to 1.29 at
December 31, 1995.
For the six months ended June 30, 1996, net cash provided by operating
activities amounted to $1 million. Operating activities also funded a large
increase in inventories. The Company's working capital requirements increase
in the second and third quarters of each year primarily as a result of the
seasonality of Ferembal's business which peaks at these periods because of the
harvest of vegetable crops for canning. Net cash used in investing
activities, primarily capital expenditures, amounted to $20.8 million during
the first six months of 1996. The cash required for the Company's investing
activities for this period in excess of that provided by operations was
financed with short term borrowings. The Company expects that, as Ferembal
collects receivables and reduces its seasonally high inventories relating to
vegetable canning, these short term borrowings will be repaid.
At June 30, 1996, the Company had an available credit line under a
Revolving Credit Agreement of $1.9 million. In addition, the Company's
consolidated subsidiaries had available approximately $54 million in credit
lines and bank overdraft facilities at June 30, 1996. However, the Company's
ability to draw upon these lines for other than its subsidiaries' needs is
restricted.
The Company expects that cash from operations and its existing banking
facilities will be sufficient to meet its operating needs for the remainder of
1996. Pursuant to the terms of an agreement entered into in 1992, Merrywood,
Inc., the 50% owner of PCI, has elected to sell its interest in PCI to the
Company for cash in the approximate amount of $44 million. The 1992 agreement
provides for a closing of the sale in early December (120 days after notice
of Merrywood's election). The Company's cash reserves and its existing
unrestricted banking facilities will not provide sufficient funds to make the
required payment to Merrywood. Although the Company has obtained preliminary
proposals to finance the purchase of Merrywood's 50% interest, such financing
has not yet been arranged.
10
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
At the annual meeting of stockholders on May 15, 1996, of the 2,657,689 shares
represented at the meeting, 2,622,099 votes were cast in favor of the election
as directors of each of Messrs. D. Bainton, K. Bainton, R. Bainton, Benson,
DiGiovanna, Greeven, Marquardt, O'Neill, Serrell, Utting, Yazgi, C. Zapata and
J.L. Zapata. Votes withheld were 35,590 for each person.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits Required
(11) Statement re computation of per share earnings See Note 1(c) on......Page 8
(10) Employment Agreement with Donald J. Bainton as Amended May 15, 1996 Page 12
(27) Financial Data Schedule............................................Page 13
All other items for which provision is made in the applicable
regulations of the Securities and Exchange omission have been omitted as
they are not required under the related instructions or they are
inapplicable.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended June 30,
1996.
SIGNATURE
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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.
CONTINENTAL CAN COMPANY, INC.
(REGISTRANT)
By: /s/ Abdo Yazgi
--------------
Principal Financial Officer
and on behalf of registrant
DATED: AUGUST 12, 1996
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