1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 0-21314 COMMISSION FILE NUMBER 33-43734
U.S. CAN CORPORATION UNITED STATES CAN COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER) IN ITS CHARTER)
06-1094196 06-1145011
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
900 COMMERCE DRIVE 900 COMMERCE DRIVE
OAK BROOK, ILLINOIS 60521 OAK BROOK, ILLINOIS 60521
(ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE)
(708) 571-2500 (708) 571-2500
(REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE) INCLUDING AREA CODE)
Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have
been subject to such filing requirements for the past 90 days.
Yes X No
--- ----
(Explanatory Note: United States Can Company is not required by Section 13 or
15(d) of the Exchange Act to file such reports, but has agreed, pursuant to the
Indenture under which its 13 1/2% Senior Subordinated Notes Due 2002 were
issued, to file all reports required by Section 13 or 15(d) whether or not
required by law.)
As of April 30, 1996, 12,895,171 shares of U.S. Can Corporation's common stock
were outstanding. As of April 30, 1996, 1,000 shares of United States Can
Company's common stock were outstanding.
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U.S. CAN CORPORATION
UNITED STATES CAN COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
U.S. Can Corporation Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 ....................................... 3
United States Can Company Condensed Balance Sheets
March 31, 1996 and December 31, 1995 ....................................... 4
U.S. Can Corporation Condensed Consolidated Statements of Operations
Quarterly Periods Ended March 31, 1996 and April 2, 1995 ................... 5
United States Can Company Condensed Statements of Operations
Quarterly Periods Ended March 31, 1996 and April 2, 1995 ................... 6
U.S. Can Corporation Condensed Consolidated Statements of Cash Flows
Quarterly Periods Ended March 31, 1996 and April 2, 1995 ................... 7
United States Can Company Condensed Statements of Cash Flows
Quarterly Periods Ended March 31, 1996 and April 2, 1995 ................... 8
Notes to Condensed Consolidated Financial Statements and Condensed
Financial Statements ....................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................. 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings .......................................................... 17
Item 6. Exhibits and Reports on Form 8-K ........................................... 17
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U.S. CAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000'S OMITTED, EXCEPT SHARE DATA)
ASSETS MARCH 31, DECEMBER 31,
------ 1996 1995
--------- ------------
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 191 $ 136
Accounts receivable, less allowances of $5,878 and $5,451 in 1996 and
1995, respectively ................................................ 64,640 51,279
Inventories ......................................................... 88,205 78,252
Prepaid expenses and other current assets ........................... 9,495 10,786
Prepaid income taxes ................................................ 7,393 6,732
--------- ---------
Total current assets ............................................. $ 169,924 $ 147,185
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land ................................................................ $ 2,575 $ 2,576
Buildings ........................................................... 45,575 44,954
Machinery, equipment and construction in process .................... 309,723 306,319
--------- ---------
$ 357,873 $ 353,849
Less -- Accumulated depreciation and amortization ................... (130,685) (123,748)
--------- ---------
Total property, plant and equipment .............................. $ 227,188 $ 230,101
--------- ---------
MACHINERY REPAIR PARTS ................................................. $ 5,217 $ 5,395
INTANGIBLES ............................................................ 62,135 62,301
OTHER ASSETS ........................................................... 10,238 10,454
--------- ---------
Total assets ........................................................ $ 474,702 $ 455,436
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt ................................ $ 17,646 $ 17,216
Cash overdrafts ..................................................... 5,764 5,395
Accounts payable .................................................... 29,515 32,560
Accrued payrolls and benefits ....................................... 19,442 19,282
Accrued insurance ................................................... 6,157 5,830
Other current liabilities ........................................... 16,440 17,954
--------- ---------
Total current liabilities ......................................... $ 94,964 $ 98,237
--------- ---------
SENIOR DEBT ............................................................ $ 144,271 $ 127,360
SUBORDINATED DEBT ...................................................... 100,000 100,000
--------- ---------
Total long-term debt ................................................ $ 244,271 227,360
--------- ---------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits ............................................. 25,577 25,080
Deferred income taxes ............................................... 20,730 19,962
Other long-term liabilities ......................................... 2,476 2,970
--------- ---------
Total other long-term liabilities ................................. $ 48,783 $ 48,012
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares authorized,
none issued or outstanding ........................................ $ -- $ --
Common stock, $.01 par value; 50,000,000 shares authorized,
12,902,111 shares issued in 1996 and 1995 ........................... 129 129
Paid-in capital ..................................................... 104,042 103,913
Unearned restricted stock ........................................... (1,941) (2,052)
Treasury common stock, at cost; 6,989 and 37,908 shares in 1996
and 1995, respectively ............................................ (32) (319)
Retained deficit .................................................... (15,514) (19,844)
--------- ---------
Total stockholders' equity ........................................ $ 86,684 $ 81,827
--------- ---------
Total liabilities and stockholders' equity ........................ $ 474,702 $ 455,436
========= =========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
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UNITED STATES CAN COMPANY
CONDENSED BALANCE SHEETS
(UNAUDITED)
(000'S OMITTED, EXCEPT SHARE DATA)
ASSETS MARCH 31, DECEMBER 31,
------ 1996 1995
--------- ------------
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 191 $ 136
Accounts receivable, less allowances of $5,878 and $5,451
in 1996 and 1995, respectively ................................ 64,640 51,279
Inventories .................................................... 88,205 78,252
Prepaid expenses and other current assets ...................... 9,495 10,125
Prepaid income taxes ........................................... 6,096 6,096
---------- ----------
Total current assets ......................................... $ 168,627 $ 145,888
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land ........................................................... $ 2,575 $ 2,576
Buildings ...................................................... 45,575 44,954
Machinery, equipment and construction in process ............... 309,723 306,319
---------- ----------
$ 357,873 $ 353,849
Less -- Accumulated depreciation and amortization .............. (130,685) (123,748)
---------- ----------
Total property, plant and equipment .......................... $ 227,188 $ 230,101
---------- ----------
MACHINERY REPAIR PARTS ........................................... $ 5,217 $ 5,395
LONG-TERM RECEIVABLE FROM PARENT ................................. 1,047 1,472
INTANGIBLES ...................................................... 62,135 62,301
OTHER ASSETS ..................................................... 10,238 10,454
---------- ----------
Total assets ................................................... $ 474,452 $ 455,611
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt ........................... $ 17,646 $ 17,216
Cash overdrafts ................................................ 5,764 5,395
Accounts payable ............................................... 29,515 32,560
Payable to Parent .............................................. 1,159 1,057
Accrued payrolls and benefits .................................. 19,442 19,282
Accrued insurance .............................................. 6,157 5,830
Other current liabilities ...................................... 16,440 17,954
---------- ----------
Total current liabilities .................................... $ 96,123 $ 99,294
---------- ----------
SENIOR DEBT ...................................................... $ 144,271 $ 127,360
SUBORDINATED DEBT ................................................ 100,000 100,000
---------- ----------
Total long-term debt ........................................... $ 244,271 227,360
---------- ----------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits ........................................ 25,577 25,080
Deferred income taxes .......................................... 21,469 20,701
Other long-term liabilities .................................... 2,476 2,970
---------- ----------
Total other long-term liabilities ............................ $ 49,522 $ 48,751
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, 1,000 shares authorized, issued and outstanding .. $ 1 1
Paid-in capital ................................................ 94,300 $ 94,300
Retained deficit ............................................... (9,765) (14,095)
---------- ----------
Total stockholder's equity .................................... 84,536 80,206
---------- ----------
Total liabilities and stockholder's equity ................... $ 474,452 $ 455,611
========== ==========
The accompanying Notes to Condensed Financial Statements are an integral part
of these balance sheets.
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U.S. CAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE DATA)
QUARTERLY PERIOD ENDED
-----------------------------
MARCH 31, APRIL 2,
1996 1995
----------- ---------
NET SALES ................................................................ $ 163,611 $ 154,061
COST OF SALES ............................................................ 142,129 132,212
--------- ---------
Gross income ........................................................... $ 21,482 $ 21,849
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ............................. 6,850 6,591
--------- ---------
Operating income ....................................................... $ 14,632 $ 15,258
--------- ---------
INTEREST EXPENSE ON BORROWINGS ........................................... $ 6,186 $ 5,802
AMORTIZATION OF DEFERRED FINANCING COSTS ................................. 426 357
CONSOLIDATION EXPENSE .................................................... -- 82
OTHER EXPENSE ............................................................ 492 271
--------- ---------
Income before income taxes ............................................. $ 7,528 $ 8,746
PROVISION FOR INCOME TAXES ............................................... (3,198) (3,624)
--------- ---------
NET INCOME ............................................................... $ 4,330 $ 5,122
========= =========
PER SHARE DATA:
Net income ......................................................... $ 0.33 $ 0.40
========= =========
Weighted average shares and equivalent shares outstanding (000's) .. 13,005 12,864
========= =========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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UNITED STATES CAN COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000'S OMITTED)
QUARTERLY PERIOD ENDED
-----------------------------
MARCH 31, APRIL 2,
1996 1995
----------- ----------
NET SALES ..................................... $ 163,611 $ 154,061
COST OF SALES ................................. 142,129 132,212
--------- ---------
Gross income ................................. $ 21,482 $ 21,849
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 6,850 6,591
--------- ---------
Operating income ............................. $ 14,632 $ 15,258
--------- ---------
INTEREST EXPENSE ON BORROWINGS ................ $ 6,186 $ 5,802
AMORTIZATION OF DEFERRED FINANCING COSTS ...... 426 357
CONSOLIDATION EXPENSE ......................... -- 82
OTHER EXPENSE ................................. 492 271
--------- ---------
Income before income taxes ................... $ 7,528 $ 8,746
PROVISION FOR INCOME TAXES .................... (3,198) (3,624)
--------- ---------
NET INCOME .................................... $ 4,330 $ 5,122
========= =========
The accompanying Notes to Condensed Financial Statements are an integral part
of these statements.
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U.S. CAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
QUARTERLY PERIOD ENDED
----------------------
MARCH 31, APRIL 2,
1996 1995
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 4,330 $ 5,122
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization ........................... 7,957 6,764
Plant consolidation costs paid .......................... -- (1,181)
Consolidation expense ................................... -- 82
Deferred income taxes ................................... 768 870
Change in operating assets and liabilities--
Accounts receivable ..................................... (13,361) (6,579)
Inventories ............................................. (9,953) 4,499
Accounts payable ........................................ (3,045) (18,784)
Accrued payrolls and benefits, insurance and other ...... (790) (2,436)
Postretirement benefits ................................. 455 214
Other, net .............................................. 107 426
-------- --------
Net cash used in operating activities ................. $(13,532) (11,003)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................... (4,281) $ (9,938)
Acquisition of businesses, net of cash acquired ........... -- (15,884)
Machinery repair parts usage (purchases), net ............. 178 (25)
-------- --------
Net cash used in investing activities ................... $ (4,103) $(25,847)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the revolving line of credit and
changes in cash overdrafts .............................. 18,219 43,904
Borrowings of other long-term debt, including capital lease
obligations ............................................. 1,976 --
Payments of other long-term debt, including capital lease
obligations ............................................. (2,485) (6,667)
Payments of debt refinancing costs ........................ (11) (166)
Payments of common stock issuance costs ................... -- (22)
Purchase of treasury stock, net ........................... (9) 6
-------- --------
Net cash provided by financing activities .............. $ 17,690 $ 37,055
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS ....................... $ 55 $ 205
CASH AND CASH EQUIVALENTS, beginning of period .............. 136 123
-------- --------
CASH AND CASH EQUIVALENTS, end of period .................... $ 191 $ 328
======== ========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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UNITED STATES CAN COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
QUARTERLY PERIOD ENDED
---------------------------
MARCH 31, APRIL 2,
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 4,330 $ 5,122
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization ....................... 7,957 6,764
Plant consolidation costs paid ...................... -- (1,181)
Consolidation expense ............................... -- 82
Deferred income taxes ............................... 768 870
Change in operating assets and liabilities--
Accounts receivable ................................. (13,361) (6,579)
Inventories ......................................... (9,953) 4,499
Accounts payable .................................... (3,045) (18,784)
Accrued payrolls and benefits, insurance and other .. (790) (2,436)
Postretirement benefits ............................. 455 214
Other, net .......................................... 107 426
-------- ---------
Net cash used in operating activities .................. $(13,532) $ (11,003)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... $ (4,281) $ (9,938)
Acquisition of businesses, net of cash acquired ........ -- (15,884)
Machinery repair parts usage (purchases), net .......... 178 (25)
-------- ---------
Net cash used in investing activities ............... $ (4,103) $ (25,847)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the revolving line of credit and
changes in cash overdrafts .......................... $ 18,219 $ 43,904
Changes in receivable from/payable to Parent ........... (9) (16)
Borrowings of other long-term debt, including capital
lease obligations ................................... 1,976 --
Payments of other long-term debt, including capital
lease obligations ................................... (2,485) (6,667)
Payments of debt refinancing costs ..................... (11) (166)
-------- ---------
Net cash provided by financing activities ........... $ 17,690 $ 37,055
-------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS .................... $ 55 $ 205
CASH AND CASH EQUIVALENTS, beginning of period ........... 136 123
-------- ---------
CASH AND CASH EQUIVALENTS, end of period ................. $ 191 $ 328
======== =========
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
(1) PRINCIPLES OF REPORTING
The condensed consolidated financial statements include the accounts of
U.S. Can Corporation (the "Corporation") and its wholly owned subsidiary,
United States Can Company ("U.S. Can"), and the condensed financial statements
include only the accounts of U.S. Can. The consolidated group is hereinafter
referred to as the Company. These financial statements have been prepared in
accordance with generally accepted accounting principles for interim reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These financial statements, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation, have not been audited by independent public accountants.
Operating results for any interim period are not necessarily indicative of
results that may be expected for the full year.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission; however, management believes that the
disclosures contained herein are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the previously filed financial statements and footnotes
included in the Corporation's and U.S. Can's Joint Annual Report on Form
10-K/A-1 for the year ended December 31, 1995.
Quarterly accounting periods are based upon two four-week periods and one
five-week period. Management believes that this technique provides a more
consistent view of accounting data resulting in greater comparability than the
calendar month basis would provide.
(2) ACQUISITIONS
In early 1995, the Company completed its acquisition of the stock of Metal
Litho International, Inc. and the portion of a related partnership not
previously owned by MLI (collectively, "MLI") for approximately $10.1 million
in cash, plus the assumption of approximately $4.2 million of debt. The former
MLI plant, located in Trenton, New Jersey, is a full service metal decorating
facility, providing coil shearing and tin plate coating and printing. In March
1995, the Company completed its acquisition of the stock of Plastite
Corporation ("Plastite") for approximately $7.3 million, plus future contingent
payments of approximately $2.5 million. The former Plastite plant, located in
Morrow, Georgia, is the nation's largest manufacturer of plastic paint cans,
and also manufactures plastic pails in two sizes.
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
In April 1995, the Company completed an acquisition of certain assets of
Prospect Industries Corporation ("Prospect") for approximately $8.8 million.
The acquired assets, located in North Brunswick, New Jersey, are used to
manufacture metal pails for the chemical and coatings industries. U.S. Can's
North Brunswick operation includes coil cutting, coating and lithography, as
well as manufacturing of tops and bottoms. In May 1995, the Company completed
an acquisition of the stock of Hunter Container Corporation ("Hunter") for
approximately $4.0 million, plus the assumption of $2.5 million of debt. The
former Hunter facility, located in Vernalis, California, manufactures a broad
line of proprietary and specialty metal containers.
Each business acquisition was accounted for as a purchase for financial
reporting purposes. Accordingly, certain recorded assets and liabilities of
the acquired companies were revalued at estimated fair values as of the
acquisition date. Such revaluation adjustments, all made pursuant to the
purchase method of accounting, resulted in increased amortization and
depreciation in periods following the acquisition. Management has used its
best judgment and available information in estimating the fair value of those
assets and liabilities. Any changes to these estimates are not expected to be
material.
The operating results of each acquired business are included in the
consolidated statement of operations from the date of acquisition.
Amortization of any excess purchase price over the estimated fair value of the
net assets acquired is made over a period of forty years.
In February 1996, the Company announced its intention to establish a paint
can and general line manufacturing plant in the Dallas, Texas area. This
decision followed the Company's agreement with Sherwin-Williams on the material
terms of a long-term container purchase agreement. This Texas facility will
initially produce gallon round paint cans for the coatings industry. In the
future, if circumstances warrant, the Company may expand this facility to
include steel pails, plastic pails and/or other general line containers.
(3) INVENTORIES
Inventories are stated at cost determined by the last-in, first-out
("LIFO") cost method, not in excess of market. Inventory costs include
elements of material, labor and factory overhead. Current (first-in,
first-out) cost of inventories was lower than inventories valued at LIFO by
approximately $331,000 at March 31, 1996. At December 31, 1995, the current
cost of inventories was approximately $150,000 higher than inventories valued
at LIFO. The Company's gross income margin continues to be sufficient to
absorb the
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
higher-than-current-cost carrying value of its inventories. Inventories
reported in the accompanying balance sheets were classified as follows (000's
omitted):
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
Raw materials ........................... $ 20,510 $ 21,066
Work in process ......................... 44,338 34,138
Finished goods .......................... 19,766 19,549
Machine shop inventory .................. 3,591 3,499
--------- ---------
$ 88,205 $ 78,252
========= =========
(4) REVOLVING CREDIT AGREEMENT
On April 29, 1994, U. S. Can entered into a four-year credit agreement
(the "Credit Agreement") with a group of banks providing a $130 million line of
credit consisting of a $95 million revolving credit line (the "Revolving Credit
Facility") and a $35 million term loan (the "Term Loan"). As of March 31,
1996, $5,250,000 of the Term Loan had been repaid under the terms of the Credit
Agreement. Funds available under the Credit Agreement are used for working
capital and other general corporate purposes, including acquisitions. The
loans outstanding under the Credit Agreement bear interest at a floating rate
equal to, at the election of U.S. Can, one of the following: (i) the Base Rate
per annum (currently 8.25%), or (ii) based on the current pricing ratio, a
reserve-adjusted Eurodollar rate plus 1.125% per annum, for specified interest
periods (selected by U.S. Can) of one, two, three or six months. The "Base
Rate" is the higher of: (i) the Federal Funds rate plus 1/2 of 1% per annum
or (ii) the rate of interest publicly announced from time to time by Bank of
America Illinois, Chicago, Illinois as its "reference rate." For letters of
credit issued under the Credit Agreement, U.S. Can pays fees equal to: (a) the
applicable Eurodollar Margin, currently 1.125% per annum, multiplied by the
aggregate face amount outstanding on each such letter of credit and (b) an
amount payable to the issuing bank equal to 0.2% per annum of the aggregate
face amount outstanding on each such letter of credit, both of which are
payable quarterly in arrears. Currently, U.S. Can is required to pay a
commitment fee of 0.375% per annum of the average daily unused portion of each
lender's commitment under the Credit Agreement.
The Credit Agreement is secured by the accounts receivable and inventory
of U.S. Can. The Term Loan is also secured by a mortgage on U.S. Can's Elgin,
Illinois facility and certain equipment located at the Elgin facility. As of
March 31, 1996, borrowings under the Credit Agreement totaled $107.1 million,
an additional $11.7 million in letters of credit had been issued pursuant
thereto, and $6.0 million of unused credit
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
remained available thereunder. In early April 1996, the lenders under the
Credit Agreement provided U.S. Can a temporary $10 million increase in the
Revolving Credit Facility due to seasonal inventory requirements. In late
April 1996, these lenders provided U.S. Can an additional temporary $20 million
increase in the Revolving Credit Facility due to the acquisition of certain
assets from Alltrista Corporation ("Alltrista"). For a discussion of the
Alltrista acquisition, see Note (7) of these Notes.
The terms of the Credit Agreement impose restrictions that affect, among
other things, U.S. Can's ability to (i) incur additional indebtedness, (ii)
create liens on assets, (iii) sell assets, (iv) engage in mergers, acquisitions
or consolidations, (v) make investments, (vi) pay dividends or make
distributions and (vii) engage in certain transactions with affiliates and
subsidiaries. The Credit Agreement also requires U.S. Can to comply with
certain financial ratios and tests.
Under and pursuant to the Credit Agreement, U.S. Can may pay cash
dividends on account of any shares of any class of capital stock of U.S. Can
(or on any warrants, options or rights with respect thereto) in an amount not
to exceed 25% of Net Income (as defined in the Credit Agreement) in any given
fiscal year, but in any event not more than 25% of consolidated cumulative Net
Income attributable to the period commencing subsequent to April 29, 1994, and
ending on the date of such proposed cash dividends; provided that either: (i)
the Term Loan has been indefeasibly paid in full in cash or (ii) the Leverage
Ratio (as defined in the Credit Agreement) as of the last day of the last
fiscal quarter of such fiscal year does not exceed 3.50 to 1.00; and, provided
further, that no Default or Event of Default (as defined in the Credit
Agreement) exists immediately prior to any such cash dividend or would result
therefrom. Notwithstanding the foregoing, in no event may U.S. Can pay such
cash dividends prior to the later to occur of (a) April 29, 1995, and (b) the
delivery of the annual audited consolidated financial statements to the banks
for the fiscal year ended in which either of the conditions contained in
clauses (i) or (ii) above has been satisfied. Because amounts remain
outstanding under the Term Loan, the Credit Agreement currently prohibits U.S.
Can from paying cash dividends.
The Credit Agreement also contains subjective covenants providing that
U.S. Can would be in default if, in the judgment of the lenders, there is a
material adverse change in the financial condition of U.S. Can. Management is
not aware of, nor does it anticipate, any facts, events or occurrences which
could reasonably be expected to have a material adverse effect on the
operations of U.S. Can that would cause the lenders to demand repayment of the
amounts borrowed under the Senior Credit Agreement prior to April 29, 1998.
Accordingly, the borrowings thereunder have been classified as long-term debt
in the accompanying balance sheets.
U.S. Can was in compliance with all terms and restrictive covenants of the
Credit Agreement and its other long-term debt agreements as of March 31, 1996.
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
(5) SUPPLEMENTAL CASH FLOW INFORMATION
U.S. Can paid interest on borrowings of $9,374,000 and $9,097,000 for the
quarterly periods ended March 31, 1996 and April 2, 1995, respectively.
The Corporation and U.S. Can paid approximately $15,000 and $602,000 of
income taxes for the quarterly periods ended March 31, 1996 and April 2, 1995,
respectively.
During the quarterly periods ended March 31, 1996 and April 2, 1995, the
Corporation issued common stock valued at approximately $425,000 and $250,000,
respectively, into certain of its employee benefit plans.
(6) LEGAL PROCEEDINGS
On February 28, 1995, Continental Holdings Inc. ("CHI"), an affiliate of
Peter Kiewit Sons', Inc. ("Kiewit"), filed a Complaint against U.S. Can and
others in the United States District Court of the State of New Jersey,
asserting claims based upon alleged indemnity obligations of U.S. Can to
Kiewit, as successor in interest to Continental Can Company, USA, Inc. ("CCC"),
arising from the 1987 acquisition by U.S. Can of the general packaging business
of CCC. These alleged indemnity obligations relate to environmental
liabilities, reimbursable insurance deductibles and reinsurance amounts, and
certain personal injury claims and employment discrimination claims. The
Complaint includes counts for breach of contract, declaratory judgment,
indemnification and contribution, CERCLA remedies, state environmental law
remedies and unjust enrichment. CHI seeks unspecified compensatory damages,
consequential and incidental damages, interest, attorneys' fees and costs of
litigation, equitable relief, environmental response costs, and restitution.
No aggregate dollar amount of damages is specified in the Complaint. However,
in an initial discovery disclosure served on U.S. Can, CHI alleged that its
damages to the date of such disclosure were approximately $4.4 million. U.S.
Can has filed an Answer to the Complaint, asserted affirmative defenses and
made counterclaims against CHI seeking reimbursement for expenses and accruals
relating to postretirement medical and life insurance benefits for former
employees of CCC, and expenses incurred as a result of CCC's breach of its
contractual indemnification obligations to U.S. Can. The case has been
transferred to the United States District Court for the Northern District of
Illinois. U.S. Can believes it has meritorious defenses to all of CHI's
claims.
The National Labor Relations Board has issued a decision finding the
Company in violation of certain sections of the National Labor Relations Act as
a result of the Company's closure of certain facilities in 1991 and failure to
offer inter-plant job opportunities to affected employees. Management does not
believe that the resolution of this matter will have a material adverse effect
on the Company's financial condition or results of operations.
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
The Company understands that the groundwater in San Leandro, California is
contaminated at shallow and intermediate depths, and that the area of concern
partially extends to the groundwater below a facility formerly owned by the
Company. In late April 1996, the California Department of Toxic Substances
Control ("CDTSC") issued to certain of the past and present owners of this
facility, including U.S. Can, an order directing such owners to conduct
remediation activities at this site. Although there can be no assurance that
the Company will not incur material costs and expenses in connection with the
CDTSC order, extensive environmental testing has been performed at this
facility and management does not believe that substantial remediation
activities at this facility are justified. Management is evaluating the CDTSC
order to formulate an appropriate response. The San Leandro facility was
closed in 1989 and was sold, except for a related parcel of land, in 1994. The
remaining parcel was sold in 1995. In connection with the sale, the Company
agreed to indemnify the purchaser against any environmental claims related to
the Company's ownership of the property.
The Company is involved in various other environmental and legal actions
and administrative proceedings. Management is of the opinion that their
outcome will not have a material effect on the Company's financial position or
results of operations.
(7) RECENT DEVELOPMENTS
On April 29, 1996, U.S. Can acquired from Alltrista substantially all of
the machinery, equipment and coatings and inks inventory, as well as certain
proprietary technology used in, Alltrista Metal Services ("AMS"), a division of
Alltrista (collectively referred to hereinafter as the "Assets"), and assumed a
liability of approximately $0.5 million. The Assets were purchased for
approximately $9.6 million. U.S. Can has also agreed to purchase the Chicago,
Illinois; Baltimore, Maryland; and Trussville, Alabama real property and
buildings formerly used in AMS's business for approximately $4.8 million,
subject to satisfaction of certain conditions relating to title, survey and
environmental matters. AMS was engaged in the business of metal cutting and
decorating, as well as the manufacture, sale and licensure of certain
proprietary products. U.S. Can intends to operate the acquired plants with the
existing workforce while evaluating its facilities' alignment and integration
of the additional business into U.S. Can.
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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 Corporation and U.S. Can on a consolidated basis.
The consolidated group is referred to herein as the Company. The Corporation's
only business interest is in its ownership of U.S. Can's common stock.
Operating results for the Company and U.S. Can are identical. This section
should be read in conjunction with the Corporation's and U.S. Can's Joint
Annual Report on Form 10-K/A-1 for the fiscal year ended December 31, 1995.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained therein.
RESULTS OF OPERATIONS
QUARTERLY PERIOD ENDED MARCH 31, 1996 VS. QUARTERLY PERIOD ENDED APRIL 2, 1995
Net Sales
Net sales for the quarterly period ended March 31, 1996 totaled $163.6
million, an increase of 6.2% over the corresponding period in 1995.
Acquisitions completed in 1995 were the primary factor contributing to the
sales growth. U.S. Can has realized additional sales as a result of the 1995
acquisitions of the stock of MLI, Plastite and Hunter, and of certain assets of
Prospect. Increased unit volumes in aerosol containers and custom and specialty
products, as well as increased revenue from Metal Services, also contributed to
the sales growth.
Gross Income
Gross income of $21.5 million for the first quarter of 1996 was $0.4
million, or 1.7%, lower than gross income for the first quarter of 1995. Gross
margin declined to 13.1% of net sales in the first quarter of 1996 from 14.2%
of net sales in the first quarter of 1995. The Company made a significant
advance purchase of steel in late 1994 and, as a result, the Company did not
feel the full impact of the 1995 steel price increase in the first quarter of
1995. The cost savings in 1995 realized from this advance purchase of steel
and increased sales in 1996 in lower margin products contributed to the
decrease in gross income and margin.
Operating Income
The Company's operating income of $14.6 million for the first quarter of
1996 was $0.7 million, or 4.1%, lower than operating income for the first
quarter of 1995. Operating income as a percent of net sales was 8.9% for the
first quarter of 1996 as compared to 9.9% for the first quarter of 1995. The
decrease was attributable to lower gross income in 1996, as discussed above, in
addition to a slight increase in selling, general and administrative expenses
period to period. However, these expenses as a percent of net sales decreased
from 4.3% of net sales in the first quarter of 1995 to 4.2% of net sales in the
first quarter of 1996.
Interest and Other Expenses
Interest expense on borrowings increased by approximately $384,000 in the
first quarter of 1996 as compared to the first quarter of 1995. The increase
is a result of increased borrowing, primarily to finance the Company's 1995
acquisitions. Amortization of deferred financing costs and other expense
increased in the first quarter of 1996 by $290,000 as compared to the first
quarter of 1995. The increase is primarily a result of new borrowings and
goodwill amortization related to the 1995 acquisitions.
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16
Net Income
Due to the factors discussed above, net income in the first quarter of
1996 was $4.3 million, compared to $5.1 million in the first quarter of 1995.
Primary earnings per share were $0.33 in the first quarter of 1996 on a
slightly higher number of shares outstanding, compared to $0.40 in the first
quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements for operations, acquisitions and capital
expenditures during the quarterly period ended March 31, 1996 were financed by
internally generated cash flows and borrowings under the Revolving Credit
Facility. The Revolving Credit Facility is provided to U.S. Can under the
Credit Agreement. For a more detailed discussion of the Credit Agreement, see
Note (4) of the unaudited Notes to Condensed Consolidated Financial Statements
and Condensed Financial Statements.
In early April 1996, the lenders under the Credit Agreement provided U.S.
Can a temporary $10 million increase in the Revolving Credit Facility due to
seasonal inventory requirements. In late April 1996, these lenders provided
U.S. Can an additional temporary $20 million increase in the Revolving Credit
Facility due to the acquisition of certain assets from Alltrista. The
Revolving Credit Facility will be automatically reduced by $10 million on
September 30, 1996, and by $20 million on December 31, 1996. The Company is
exploring a number of financing alternatives due to the scheduled reductions in
availability under the Revolving Credit Facility.
In April 1996, U.S. Can completed the acquisition of certain assets from
Alltrista for a purchase price of approximately $14.9 million. The cash
portion of the purchase price was funded by the Revolving Credit Facility. For
a more detailed discussion of this acquisition, see Note (7) of the unaudited
Notes to Condensed Consolidated Financial Statements and Condensed Financial
Statements.
Under the terms of the Credit Agreement, $7,000,000 of the term loan had
been repaid as of April 30, 1996. As of March 31, 1996, U.S. Can had
borrowings of $107.1 million outstanding under the Credit Agreement, $11.7
million in letters of credit had been issued pursuant thereto, and $6.0 million
of unused credit remained available thereunder. As of May 9, 1996, U.S. Can
had borrowings of $121.9 million outstanding under the Credit Agreement, $11.7
million in letters of credit had been issued pursuant thereto, and $19.4
million of unused credit remained available thereunder (including the two
temporary increases to the Revolving Credit Facility). As of March 31, 1996,
U.S. Can was in compliance with all restrictive covenants of the Credit
Agreement and its other long-term debt agreements.
Management believes that cash flow from operations, amounts available
under the Revolving Credit Facility and proceeds from equipment financings
should provide sufficient funds to meet short-term and long-term capital
expenditure and debt amortization requirements, and other cash needs in the
ordinary course of business. The Company would expect to finance acquisitions
and investments through some combination of cash, stock and/or debt.
"SAFE HARBOR" statement under the Private Securities Litigation Reform Act
of 1995: With the exception of historical information, the matters discussed in
this Joint Form 10-Q are forward-looking statements that involve risks and
uncertainties including, but not limited to, market conditions, competition,
raw material costs, environmental laws and regulations, and other risks
indicated in the Company's other filings with the Securities and Exchange
Commission.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of the San Leandro, California remediation order, see
Note (6) of the unaudited Notes to Condensed Consolidated Financial Statements
and Condensed Financial Statements contained in Item 1 of Part I of this report
(which is incorporated herein in its entirety by this reference).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Incorporation
Exhibit by Reference
Number Description of Document (if applicable)
- ------- ----------------------- ---------------
3.1 Restated Certificate of Incorporation of U.S. Can Corporation * 4.3
3.2 Restated Certificate of Incorporation of United States Can Company @ 3.1
3.3 By-Laws of U.S. Can Corporation & 4.1
3.4 By-Laws of United States Can Company X 3.3
4.1 Amendment No. 5 to Credit Agreement, dated April 1, 1996
4.2 Amendment No. 6 to Credit Agreement, dated April 26, 1996
27.1 Financial Data Schedule
- ----------------------
* Previously filed with Registration Statement on Form S-3 of the
Corporation, filed on June 1, 1994 (Registration No. 33-79556).
@ Previously filed with Form 10-K Annual Report of U.S. Can for the
fiscal year ended December 31, 1992.
& Previously filed with Registration Statement on Form S-8 of the
Corporation, filed on March 23, 1994 (Registration No. 33-76742).
X Previously filed with Registration Statement on Form S-1 of U.S.
Can, filed on November 1, 1991 (Registration No. 33-43734).
(b) Neither U.S. Can Corporation nor United States Can Company filed any
reports on Form 8-K during the quarterly period ended March 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. CAN CORPORATION
Date: May 15, 1996 By: /s/ Timothy W. Stonich
------------------------------------------
Timothy W. Stonich
Executive Vice President--Finance,
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the
principal financial officer of the registrant.
Date: May 15, 1996 /s/ Timothy W. Stonich
------------------------------------------
Timothy W. Stonich
Executive Vice President--Finance,
Chief Financial Officer and Secretary
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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.
UNITED STATES CAN COMPANY
Date: May 15, 1996 By: /s/ Timothy W. Stonich
------------------------------------
Timothy W. Stonich
Executive Vice President--Finance,
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the
principal financial officer of the registrant.
Date: May 15, 1996 /s/ Timothy W. Stonich
---------------------------------------
Timothy W. Stonich
Executive Vice President--Finance,
Chief Financial Officer and Secretary
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EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibit Page Number
- ------- ---------------------- -----------
4.1 Amendment No. 5 to Credit Agreement, dated April 1, 1996
4.2 Amendment No. 6 to Credit Agreement, dated April 26, 1996
27.1 Financial Data Schedule
20