1
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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 SEPTEMBER 29, 1996
COMMISSION FILE NUMBER 0-21314 COMMISSION FILE NUMBER 33-43734
U.S. CAN CORPORATION UNITED STATES CAN COMPANY
(Exact name of registrant (Exact name of registrant
as specified in its charter) as specified 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)
(630) 571-2500 (630) 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 (a wholly owned subsidiary of U.S.
Can Corporation) 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 October 31, 1996, 12,926,696 shares of U.S. Can Corporation's common stock
were outstanding. As of October 31, 1996, 1,000 shares of United States Can
Company's common stock were outstanding.
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2
U.S. CAN CORPORATION
UNITED STATES CAN COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
U.S. Can Corporation Condensed Consolidated Balance Sheets September 29, 1996
and December 31, 1995........................................................ 3
United States Can Company Condensed Consolidated Balance Sheets September 29,
1996 and December 31, 1995................................................... 4
U.S. Can Corporation Condensed Consolidated Statements of Operations
Quarterly Periods Ended September 29, 1996 and October 1, 1995............... 5
United States Can Company Condensed Consolidated Statements of Operations
Quarterly Periods Ended September 29, 1996 and October 1, 1995............... 6
U.S. Can Corporation Condensed Consolidated Statements of Cash Flows
Quarterly Periods Ended September 29, 1996 and October 1, 1995............... 7
United States Can Company Condensed Consolidated Statements of Cash Flows
Quarterly Periods Ended September 29, 1996 and October 1, 1995............... 8
Notes to Condensed Consolidated Financial Statements......................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 20
Item 6. Exhibits and Reports on Form 8-K............................................. 20
2
3
U.S. CAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000'S OMITTED, EXCEPT SHARE DATA)
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 3,940 $ 136
Accounts receivable, less allowances of $9,305 and $5,451 in 1996
and 1995, respectively............................................ 103,083 51,279
Inventories......................................................... 113,735 78,252
Prepaid expenses and other current assets........................... 10,794 10,786
Prepaid income taxes................................................ 4,274 6,732
--------- ---------
Total current assets.............................................. $ 235,826 $ 147,185
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................ 4,428 2,576
Buildings........................................................... 51,183 44,954
Machinery, equipment and construction in process.................... 394,475 306,319
--------- ---------
$ 450,086 $ 353,849
Less -- Accumulated depreciation and amortization................... (145,081) (123,748)
--------- ---------
Total property, plant and equipment............................... $ 305,005 $ 230,101
--------- ---------
MACHINERY REPAIR PARTS................................................ $ 5,888 $ 5,395
INTANGIBLES........................................................... 65,994 62,301
OTHER ASSETS.......................................................... 11,443 10,454
--------- ---------
Total assets...................................................... $ 624,156 $ 455,436
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................................ $ 17,946 $ 17,216
Cash overdrafts..................................................... 10,142 5,395
Accounts payable.................................................... 56,433 32,560
Accrued payrolls and benefits....................................... 27,100 19,282
Accrued insurance................................................... 5,892 5,830
Other current liabilities........................................... 27,321 17,954
--------- ---------
Total current liabilities......................................... $ 144,834 $ 98,237
--------- ---------
SENIOR DEBT........................................................... $ 232,206 $ 127,360
SUBORDINATED DEBT..................................................... 100,000 100,000
--------- ---------
Total long-term debt.............................................. $ 332,206 $ 227,360
--------- ---------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits............................................. $ 25,350 $ 25,080
Deferred income taxes............................................... 21,358 19,962
Other long-term liabilities......................................... 3,536 2,970
--------- ---------
Total other long-term liabilities................................. $ 50,244 $ 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
12,933,636 and 12,902,111 shares issued in 1996 and 1995,
respectively...................................................... 129 129
Paid-in capital..................................................... 104,557 103,913
Unearned restricted stock........................................... (1,735) (2,052)
Treasury common stock, at cost; 18,591 and 37,908 shares in 1996 and
1995, respectively................................................ (223) (319)
Retained deficit.................................................... (5,856) (19,844)
--------- ---------
Total stockholders' equity........................................ $ 96,872 $ 81,827
--------- ---------
Total liabilities and stockholders' equity..................... $ 624,156 $ 455,436
========= =========
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
3
4
UNITED STATES CAN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000'S OMITTED, EXCEPT SHARE DATA)
SEPTEMBER 29, DECEMBER 31,
ASSETS 1996 1995
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CURRENT ASSETS:
Cash and cash equivalents......................................... $ 3,940 $ 136
Accounts receivable, less allowances of $9,305 and $5,451 in 1996
and 1995, respectively......................................... 103,083 51,279
Inventories....................................................... 113,735 78,252
Prepaid expenses and other current assets......................... 10,794 10,125
Prepaid income taxes.............................................. 2,977 6,096
--------- ---------
Total current assets......................................... $ 234,529 $ 145,888
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land.............................................................. 4,428 2,576
Buildings......................................................... 51,183 44,954
Machinery, equipment and construction in process.................. 394,475 306,319
--------- ---------
$ 450,086 $ 353,849
Less -- Accumulated depreciation and amortization................. (145,081) (123,748)
--------- ---------
Total property, plant and equipment.......................... $ 305,005 $ 230,101
--------- ---------
MACHINERY REPAIR PARTS.............................................. $ 5,888 $ 5,395
LONG-TERM RECEIVABLE FROM PARENT.................................... 622 1,472
INTANGIBLES......................................................... 65,994 62,301
OTHER ASSETS........................................................ 11,443 10,454
--------- ---------
Total assets................................................. $ 623,481 $ 455,611
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - --------------------------------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt.............................. $ 17,946 $ 17,216
Cash overdrafts................................................... 10,142 5,395
Accounts payable.................................................. 56,433 32,560
Payable to Parent................................................. 1,265 1,057
Accrued payrolls and benefits..................................... 27,100 19,282
Accrued insurance................................................. 5,892 5,830
Other current liabilities......................................... 27,321 17,954
--------- ---------
Total current liabilities.................................... $ 146,099 $ 99,294
--------- ---------
SENIOR DEBT......................................................... $ 232,206 $ 127,360
SUBORDINATED DEBT................................................... 100,000 100,000
--------- ---------
Total long-term debt......................................... $ 332,206 $ 227,360
--------- ---------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits........................................... $ 25,350 $ 25,080
Deferred income taxes............................................. 22,097 20,701
Other long-term liabilities....................................... 3,536 2,970
--------- ---------
Total other long-term liabilities............................ $ 50,983 $ 48,751
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, 1,000 shares authorized and outstanding............. $ 1 $ 1
Paid-in capital................................................... 94,300 94,300
Retained deficit.................................................. (108) (14,095)
--------- ---------
Total stockholder's equity................................... $ 94,193 $ 80,206
--------- ---------
Total liabilities and stockholder's equity................ $ 623,481 $ 455,611
========= =========
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
4
5
U.S. CAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE DATA)
QUARTERLY PERIOD ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
1996 1995 1996 1995
------------- ---------- ------------- ----------
NET SALES....................................... $ 194,109 $ 154,345 $ 538,316 $ 474,387
COST OF SALES................................... 171,150 142,103 470,745 419,072
-------- -------- -------- --------
Gross income.................................. $ 22,959 $ 12,242 $ 67,571 $ 55,315
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... 7,173 6,898 21,103 20,590
-------- -------- -------- --------
Operating income.............................. $ 15,786 $ 5,344 $ 46,468 $ 34,725
INTEREST EXPENSE ON BORROWINGS.................. 6,993 6,241 19,513 18,388
AMORTIZATION OF DEFERRED FINANCING COSTS........ 330 396 1,132 1,135
CONSOLIDATION EXPENSE........................... -- 81 -- 245
OTHER EXPENSE................................... 480 499 1,483 1,216
-------- -------- -------- --------
Income (loss) before income taxes............. $ 7,983 $ (1,873) $ 24,340 $ 13,741
PROVISION (BENEFIT) FOR INCOME TAXES............ 3,402 (593) 10,352 5,939
-------- -------- -------- --------
NET INCOME (LOSS)............................... $ 4,581 $ (1,280) $ 13,988 $ 7,802
======== ======== ======== ========
PER SHARE DATA:
Net income (loss)............................. $ 0.35 $ (0.10) $ 1.07 $ 0.61
======== ======== ======== ========
Weighted average shares and equivalent shares
outstanding (000's)........................ 13,120 12,756 13,070 12,833
======== ======== ======== ========
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
5
6
UNITED STATES CAN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000'S OMITTED)
QUARTERLY PERIOD ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
1996 1995 1996 1995
------------- ---------- ------------- ----------
NET SALES....................................... $ 194,109 $ 154,345 $ 538,316 $ 474,387
COST OF SALES................................... 171,150 142,103 470,745 419,072
-------- -------- -------- --------
Gross income.................................. $ 22,959 $ 12,242 $ 67,571 $ 55,315
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... 7,173 6,898 21,103 20,590
-------- -------- -------- --------
Operating income.............................. $ 15,786 $ 5,344 $ 46,468 $ 34,725
INTEREST EXPENSE ON BORROWINGS.................. 6,993 6,241 19,513 18,388
AMORTIZATION OF DEFERRED
FINANCING COSTS............................... 330 396 1,132 1,135
CONSOLIDATION EXPENSE........................... -- 81 -- 245
OTHER EXPENSE................................... 480 499 1,483 1,216
-------- -------- -------- --------
Income (loss) before income taxes............. $ 7,983 $ (1,873) $ 24,340 $ 13,741
PROVISION (BENEFIT) FOR
INCOME TAXES.................................. 3,402 (593) 10,352 5,939
-------- -------- -------- --------
NET INCOME (LOSS)............................... $ 4,581 $ (1,280) $ 13,988 $ 7,802
======== ======== ======== ========
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
6
7
U.S. CAN CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
NINE MONTHS ENDED
---------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 13,988 $ 7,802
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization.................................... 24,844 21,285
Plant consolidation costs paid................................... -- (1,966)
Consolidation expense............................................ -- 245
Deferred income taxes............................................ 2,484 1,425
Change in operating assets and liabilities, net of acquired
businesses --
Accounts receivable.............................................. (23,598) (9,295)
Inventories...................................................... (16,667) 9,257
Accounts payable................................................. 6,155 (16,771)
Accrued payrolls and benefits, insurance and other............... (3,463) (1,925)
Postretirement benefits.......................................... 139 213
Other, net....................................................... (1,085) 577
--------- --------
Net cash provided by operating activities................... $ 2,797 $ 10,847
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ $ (23,400) $ (24,382)
Acquisition of businesses, net of cash acquired..................... (78,346) (29,167)
Proceeds from sale of property...................................... -- 600
Machinery repair parts usage, net................................... 118 62
--------- --------
Net cash used in investing activities....................... $(101,628) $ (52,887)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock............................................ $ 56 $ 100
Net borrowings under the revolving line of credit and changes in
cash overdrafts.................................................. 106,954 51,970
Borrowings of other long-term debt, including capital lease
obligations...................................................... 3,985 4,990
Payments of other long-term debt, including capital lease
obligations...................................................... (7,325) (13,993)
Payments of debt refinancing costs.................................. (835) (818)
Payments of common stock issuance costs............................. -- (22)
Purchase of treasury stock, net..................................... (200) (153)
--------- --------
Net cash provided by financing activities................... $ 102,635 $ 42,074
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS................................. $ 3,804 $ 34
CASH AND CASH EQUIVALENTS, beginning of period........................ 136 123
--------- --------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 3,940 $ 157
========= ========
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
7
8
UNITED STATES CAN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
NINE MONTHS ENDED
---------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 13,988 $ 7,802
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization.................................... 24,844 21,285
Plant consolidation costs paid................................... -- (1,966)
Consolidation expense............................................ -- 245
Deferred income taxes............................................ 2,484 1,425
Change in operating assets and liabilities, net of acquired
businesses--
Accounts receivable.............................................. (23,598) (9,295)
Inventories...................................................... (16,667) 9,257
Accounts payable................................................. 6,155 (16,771)
Accrued payrolls and benefits, insurance and other............... (3,463) (1,925)
Postretirement benefits.......................................... 139 213
Other, net....................................................... (1,085) 577
--------- --------
Net cash provided by operating activities...................... $ 2,797 $ 10,847
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ $ (23,400) $ (24,382)
Acquisition of businesses, net of cash acquired..................... (78,346) (29,167)
Proceeds from sale of property...................................... -- 600
Machinery repair parts usage, net................................... 118 62
--------- --------
Net cash used in investing activities............................ $(101,628) $ (52,887)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the revolving line of credit and changes in
cash overdrafts.................................................. 106,954 51,970
Changes in payable to Parent........................................ (144) (75)
Borrowings of other long-term debt, including capital lease
obligations...................................................... 3,985 4,990
Payments of other long-term debt, including capital lease
obligations...................................................... (7,325) (13,993)
Payments of debt refinancing costs.................................. (835) (818)
--------- --------
Net cash provided by financing activities........................ $ 102,635 $ 42,074
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS................................. $ 3,804 $ 34
CASH AND CASH EQUIVALENTS, beginning of period........................ 136 123
--------- --------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 3,940 $ 157
--------- --------
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
(UNAUDITED)
(1) PRINCIPLES OF REPORTING
The condensed consolidated financial statements of U.S. Can Corporation
(the "Corporation") include the accounts of the Corporation and its wholly owned
subsidiary, United States Can Company ("U.S. Can"). The condensed consolidated
financial statements of U.S. Can include only the accounts of U.S. Can and its
wholly owned subsidiaries. The consolidated group including the Corporation 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, manufactures plastic paint cans and pails in two sizes.
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.
In April 1996, the Company acquired from Alltrista Corporation
("Alltrista") substantially all of the machinery, equipment and coatings and
inks inventory of, 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. The Company
also agreed to purchase the Chicago, Illinois, Baltimore, Maryland and
9
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 29, 1996
(UNAUDITED)
Trussville, Alabama real property and buildings formerly used in AMS's business
for approximately $4.8 million. In a related transaction, in June 1996, the
Company completed the purchase of AMS's remaining inventory for approximately $8
million. AMS was engaged in the business of metal cutting and decorating, as
well as the manufacture, sale and licensure of certain proprietary products. In
July 1996, the Company discontinued operations at the former AMS operations in
Baltimore, Maryland and Trussville, Alabama.
On August 2, 1996, the Company completed the acquisition of all of the
outstanding stock of three related companies, CPI Plastics, Inc., CP Ohio, Inc.
and CP Illinois, Inc. (collectively, the "CPI Group"), engaged in manufacturing
molded plastic drums and pails and poultry products at locations in Newnan,
Georgia, Alliance, Ohio and Jerseyville, Illinois. To acquire the stock, the
Company paid approximately $15 million in cash to the stockholders of the CPI
Group, subject to adjustment for the change in net working capital (as defined
in the acquisition agreement) from December 31, 1995 through the closing date,
plus potential contingent payments (in an amount not to exceed $1 million) based
upon the CPI Group's financial performance for the years 1996 and 1997. This
acquisition was financed with borrowings under the Acquisition Facility. For
additional information regarding the Acquisition Facility, see Note (4) of the
Notes to Condensed Consolidated Financial Statements.
On September 11, 1996, the Company completed the acquisition of a portion
of Crown Cork & Seal Company, Inc.'s ("Crown's") European aerosol can businesses
("USC Europe") for $52.8 million and the assumption of net indebtedness of $5.8
million, subject to a post-closing adjustment for the change in working capital
from April 30, 1996 to the closing date. This acquisition included manufacturing
operations in the United Kingdom, France, Spain and Germany and the aerosol can
manufacturing equipment and assets from a Crown facility in Italy. USC Europe
produced approximately 24% of all European steel aerosol cans sold in 1995 and,
as a group, constituted the second largest manufacturer of steel aerosol cans in
Europe.
Each of the foregoing business acquisitions 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.
Amortization of any excess purchase price over the estimated fair value of the
net assets acquired is made over a period of forty years.
The following is a summary of the allocation of the aggregate purchase
price of the CPI Group and USC Europe acquisitions (000's omitted):
Current assets..................................................... $ 51,827
Net property, plant and equipment.................................. 55,199
Other assets....................................................... 1,087
Current liabilities................................................ (36,530)
Other liabilities.................................................. (8,189)
--------
Net assets....................................................... 63,394
Resulting goodwill................................................. 4,413
--------
Purchase price paid.............................................. $ 67,807
========
10
11
U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 29, 1996
(UNAUDITED)
The following data represents the unaudited pro forma results of operations
as if the CPI Group and USC Europe acquisitions had occurred on January 1 of the
applicable period (000's omitted, except per share data):
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 29, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
Net Sales.................................. $ 538,316 $ 644,678 $ 626,485 $ 774,942
Net income................................. 13,988 14,823 3,939 5,277
Earnings per share......................... $ 1.07 $ 1.13 $ 0.31 $ 0.41
The pro forma operating results include each company's results of
operations for the indicated periods with adjustments to reflect, among other
things, amortization of goodwill, interest expense on the acquisition borrowings
and the effect of income taxes thereon.
The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined during the periods presented and is not intended to be a projection of
future results or trends. Other than the CPI Group and USC Europe, the
acquisitions described above were not significant to the Company or U.S. Can.
On August 16, 1996, the Company completed its acquisition of a site in the
Dallas, Texas area for the establishment of a paint and general line
manufacturing plant. The decision to expand manufacturing capabilities in the
Southwest followed the Company's agreement with one of its major coating
customers on the material terms of a long-term supply arrangement. In October
1996, the Company and this customer signed a definitive long-term supply
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 production of certain of its other products.
The Company has selected Merthyr Tydfil, U.K. as the site of a new aerosol
container manufacturing facility. This plant, expected to be operational in
mid-1997, represents an initial investment of $20 million (spread over two to
three years), and will supply The Gillette Company's North Atlantic operations.
(3) INVENTORIES
Inventories are stated at cost determined by the last-in, first-out
("LIFO") cost method (for all but foreign inventories), not in excess of market.
Inventory costs include elements of material, labor and factory overhead.
Current (first-in, first-out) cost of such inventories approximated their LIFO
value at September 29, 1996, and December 31, 1995. Inventories of foreign
locations of approximately $17.3 million are valued at the lower of first-in,
first-out cost or market. Inventories reported in the accompanying balance
sheets were classified as follows (000's omitted):
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
Raw materials....................................................... $ 35,898 $ 21,066
Work in process..................................................... 49,556 34,138
Finished goods...................................................... 24,079 19,549
Machine shop inventory.............................................. 4,202 3,499
-------- -------
$ 113,735 $ 78,252
======== =======
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U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 29, 1996
(UNAUDITED)
(4) 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 September 29,
1996, $9,000,000 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. 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 1.0% 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
1.0% 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 .325% 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 inventories
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. 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. As of September 29, 1996,
borrowings under the Credit Agreement totaled $193.4 million, an additional
$11.7 million in letters of credit had been issued pursuant thereto, and $13.2
million of unused credit remained available thereunder.
In July 1996, the lenders under the Credit Agreement provided to U.S. Can a
supplemental $97 million credit facility (the "Acquisition Facility") to fund
certain permitted acquisitions and, at U.S. Can's option, prepay the Revolving
Credit Facility by an amount not to exceed $20 million on December 31, 1996.
While the Acquisition Facility is in place, U.S. Can may not use the Revolving
Credit Facility to fund acquisitions. The Acquisition Facility matures on April
30, 1997, but U.S. Can may, at its option and subject to certain restrictions,
elect to convert the outstanding borrowings thereunder to term loans with a
five-year amortization period. Base rate and Eurodollar loans outstanding under
the Acquisition Facility bear interest at a higher margin than other borrowings
under the Credit Agreement. Under the amended Credit Agreement, U.S. Can's
interest rate margins vary depending upon U.S. Can's ratio of total funded debt
to earnings, before interest, taxes, depreciation and amortization. In addition,
U.S. Can is required to pay an acquisition loan activation fee in an amount
equal to 0.25% of the amount by which the loans outstanding at any time under
the Acquisition Facility exceed $50 million. In connection with the Acquisition
Facility, U.S. Can pledged substantially all of its unencumbered personal
property (including machinery and equipment) and owned real estate to secure its
obligations under the Acquisition Facility. U.S. Can is also required to pledge
the stock and/or assets, and provide the guaranty, of any company or operations
acquired using a borrowing under the Acquisition Facility.
In connection with the USC Europe Acquisition, U.S. Can pledged 65% of the
stock of its European holding company to secure its obligations under the
Acquisition Facility and agreed that, so long as any obligations under the
Acquisition Facility remain outstanding, the European holding company shall not
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13
U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 29, 1996
(UNAUDITED)
(i) own any assets other than the capital stock of foreign subsidiaries, (ii)
make any expenditures other than expenditures necessary to maintain its separate
corporate existence, (iii) incur any debt, (iv) have employees or engage in any
trade or business, (v) merge with any other person, (vi) dispose of any assets
or (vii) permit any lien on its assets. None of the companies included in USC
Europe have provided guaranties of U.S. Can's obligations under the Credit
Agreement.
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 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 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 September 29,
1996.
(5) SUPPLEMENTAL CASH FLOW INFORMATION
U.S. Can paid interest on borrowings of $22,609,000 and $21,883,000 for the
nine-month periods ended September 29, 1996 and October 1, 1995, respectively.
The Corporation and U.S. Can paid approximately $3,847,000 and $5,046,000
of income taxes for the nine-month periods ended September 29, 1996 and October
1, 1995, respectively.
During the nine-month periods ended September 29, 1996 and October 1, 1995,
the Corporation issued stock valued at approximately $943,000 and $3,067,000,
respectively, into certain of its employee benefit plans. During the first
nine-months of 1996 the Company received no tax benefits on the exercise of
non-qualified stock options. The Company did receive approximately $87,000 of
such benefits during the first nine months of 1995.
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14
U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 29, 1996
(UNAUDITED)
(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 and reimbursement 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 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.
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. Representatives of the Company have met with the CDTSC
and agreed to undertake additional site assessment work. 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, and the Company agreed to
indemnify the purchaser against any environmental claims related to the
Company's ownership of the property.
On August 30, 1996, the Company received a general Notice of Potential
Liability from the Environmental Protection Agency (the "EPA") regarding the
Master Metals, Inc. site in Cleveland, Ohio. The letter alleges that the Company
is a Potentially Responsible Party ("PRP") in that it generated hazardous
materials disposed at this site. The Company is one of a number of PRPs and, as
of the date of this report, it is evaluating information regarding the site to
determine the extent, if any, of its liability.
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.
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15
U.S. CAN CORPORATION AND SUBSIDIARY
UNITED STATES CAN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 29, 1996
(UNAUDITED)
(7) SUBSEQUENT EVENTS
On October 17, 1996, the Corporation issued $275 million principal amount
of 10 1/8% Senior Subordinated Notes due 2006 (the "10 1/8% Notes") in a private
placement. The Noteholders have registration rights with respect to the 10 1/8%
Notes. Net proceeds from the issuance of the 10 1/8% Notes were $268.1 million
and were used to pay down amounts under the Credit Agreement ($158.4 million)
with $109.7 million being placed in an escrow account to be used to redeem the
$100 million principal amount of 13 1/2% Senior Subordinated Notes due 2002 (the
"13 1/2% Notes") and pay all remaining interest on the 13 1/2% Notes. The
10 1/8% Notes are fully and unconditionally guaranteed on an unsecured senior
subordinated basis by U.S. Can, excluding USC Europe. As the Corporation had no
assets or operations separate from its investment in U.S. Can and U.S. Can was
the Company's only subsidiary until the acquisition of USC Europe on September
11, 1996, separate financial statements of U.S. Can, excluding USC Europe, would
not provide additional information which would be useful in assessing the
financial composition of U.S. Can and, therefore, are not presented. The
Acquisition Facility and aggregate $30 million supplemental increases to the
Revolving Credit Facility were terminated on the closing date of the 10 1/8%
Note offering.
The amounts placed in the escrow account are invested in U.S. Government
obligations and must, pursuant to the amended and restated escrow agreement, be
used by the escrow agent to redeem the 13 1/2% Notes on or immediately after the
earliest redemption date (January 15, 1997) of such notes and pay all remaining
interest on the 13 1/2% Notes. Such redemption will include a $4 million premium
and unpaid interest earned on such notes through the redemption date.
Considering the interest income accruing on the funds in the escrow account, the
Company is not expected to make any additional payments for this redemption.
Accordingly, the Company recorded the early extinguishment of this debt as of
October 17, 1996, which resulted in an after-tax extraordinary charge in the
fourth quarter of 1996 of $5.5 million representing the difference between the
$109.7 million placed in escrow and the October 17, 1996, carrying value of the
13 1/2% Notes, related accrued interest and related unamortized deferred
financing costs.
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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 including the Corporation 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.
Inclusion of Forward-Looking Information
Certain statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this Report
constitute "forward-looking statements" within the meaning of Section 21E (i)(1)
of the Exchange Act. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: general economic and business and market
conditions, changes in product demand, changes in competition, the ability of
the Company to integrate acquisitions or complete future acquisitions, interest
rate fluctuations, currency fluctuations, dependence on raw material producers,
dependence on and availability of qualified personnel, changes in or failure to
comply with governmental regulations including environmental laws, ability to
obtain adequate financing in the future and other factors indicated in the
Company's registration statements and reports filed with the SEC. These
important factors may also cause the forward-looking statements made by the
Company in this Report, including but not limited to those contained under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere in this Report to be materially different from
actual results achieved by the Company. In light of these and other
uncertainties, the inclusion of a forward-looking statement herein should not be
regarded as a representation by the Company that the Company's plans and
objectives will be achieved.
RESULTS OF OPERATIONS
QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996 VS. QUARTERLY PERIOD ENDED OCTOBER 1,
1995
Net Sales
Net sales for the quarterly period ended September 29, 1996 totaled $194.1
million, an increase of 25.8% over the corresponding period in 1995. In the
third quarter of 1996, the Company realized additional sales in its Metal
Services and Paint and General Line operations as a result of the 1996
acquisitions of AMS and the CPI Group. A return to more normal markets for the
Company's products compared to the third quarter of 1995 resulted in increased
unit volumes in Aerosol and Paint and General Line. These increased unit volumes
and increased sales of Custom and Specialty products also contributed to the
sales growth.
Gross Income
Gross income of $23.0 million for the third quarter of 1996 was $10.7
million, or 87.5%, higher than gross income for the third quarter of 1995. Gross
margin increased to 11.8% of net sales during the third quarter of 1996 from
7.9% in the third quarter of 1995. Increased net sales and stable costs were the
primary factors contributing to improved gross income.
Operating Income
The Company's operating income of $15.8 million for the third quarter of
1996 was $10.4 million, or 195.4%, higher than operating income for the third
quarter of 1995. Income was favorably impacted by the increased sales, improved
gross margins and decreased selling, general and administrative expenses as a
percent of net sales. Operating income as a percent of net sales was 8.1% for
the third quarter of 1996 as
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compared to 3.5% for the third quarter of 1995. Selling, general and
administrative expenses increased slightly period to period and decreased as a
percent of net sales from 4.5% of net sales in the third quarter of 1995 to 3.7%
of net sales in the third quarter of 1996. Increased diversification into metal
services, plastics and Europe is expected to temporarily restrain margin growth
until those new operations are assimilated into the Company.
Interest and Other Expenses
Interest expense on borrowings increased in the third quarter of 1996 as
compared to the third quarter of 1995 by approximately $750,000. The increase is
a result of increased borrowing under the Credit Agreement to finance the AMS,
CPI Group and USC Europe acquisitions. Amortization of deferred financing costs
and other expense decreased slightly in the third quarter of 1996 as compared to
the third quarter of 1995 due to completed amortization of older items.
Net Income
Due to the factors discussed above, net income in the third quarter of 1996
was $4.6 million, compared to a loss of $1.3 million in the third quarter of
1995. Primary earnings per share were $0.35 in the third quarter of 1996
compared to a loss of $0.10 in the third quarter of 1995. Weighted average
shares outstanding increased slightly from period to period.
NINE-MONTH PERIOD ENDED SEPTEMBER 29, 1996 VS. NINE-MONTH PERIOD ENDED OCTOBER
1, 1995
Net Sales
Net sales for the nine-month period ended September 29, 1996 totaled $538.3
million, an increase of 13.5% over the corresponding period in 1995. Sales gains
for the year-to-date period reflect volume gained through acquisitions
(approximately $25.7 million) as well as volume growth in substantially all of
the Company's products. U.S. Can has realized additional sales as a result of
the MLI, Plastite, Hunter and Prospect acquisitions in 1995 and the AMS and CPI
Group acquisitions in 1996.
Gross Income
Gross income of $67.6 million for the first nine months of 1996 was $12.3
million, or 22.2%, higher than gross income for the first nine months of 1995.
The AMS and CPI Group acquisitions and higher margins on certain products
contributed to this increase. Gross margin increased to 12.6% of net sales in
the first nine months of 1996 from 11.7% of net sales in the first nine months
of 1995 despite a significant advance purchase of steel in late 1994 which
resulted in the Company not realizing the full impact of the 1995 steel price
increase in the first quarter of 1995. Volume gains with stable costs
contributed to improved performance.
Operating Income
The Company's operating income of $46.5 million for the first nine months
of 1996 was $11.7 million, or 33.8%, higher than operating income for the first
nine months of 1995. Income was favorably impacted by increased sales, improved
margins and the effect of an overhead reduction program begun in late 1995.
Operating income as a percent of net sales was 8.6% for the first nine months of
1996 as compared to 7.3% for the first nine months of 1995. The Company
experienced 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 nine months of 1995 to 3.9% of net sales in
the first nine months of 1996. Increased diversification into metal services,
plastics and Europe is expected to temporarily restrain margin growth until
those new operations are assimilated into the Company.
Interest and Other Expenses
Interest expense on borrowings increased by approximately $1.1 million in
the first nine months of 1996 as compared to the first nine months of 1995. The
increase is a result of increased borrowing, primarily to
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finance the Company's acquisitions. Amortization of deferred financing costs and
other expense remained flat in the first nine months of 1996 as compared to the
first nine months of 1995.
Net Income
Due to the factors discussed above, net income was $14.0 million, up 79.3%,
in the first nine months of 1996. Primary earnings per share were $1.07 for the
first nine months of 1996, compared to $0.61 per share in the first nine months
of 1995. Weighted average shares outstanding increased slightly from period to
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements for operations, acquisitions and capital
expenditures during the nine-month period ended September 29, 1996 were financed
by internally generated cash flows and borrowings under the Revolving Credit
Facility and the Acquisition Facility 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. Net cash
provided by operating activities decreased from $10.8 million for the first nine
months of 1995 to $2.8 million during the same period in 1996. The decrease is
primarily due to increases in accounts receivable and inventories as a result of
higher sales. A similar increase in accounts payable and higher 1996 earnings
partially offset the increase in current assets.
On October 17, 1996, U.S. Can Corporation sold $275 million principal
amount of 10 1/8% Notes in a private placement. Of the $268.1 million net
proceeds to the Company from the offering, (i) approximately $109.7 million was
deposited in an escrow account to be employed solely for the purpose of
redeeming the Company's outstanding 13 1/2% Notes on or immediately after
January 15, 1997, the first date for optional redemption thereof by the Company,
and for paying all remaining interest thereon; (ii) approximately $67.3 million
of the net proceeds were used to repay all outstanding indebtedness under the
Acquisition Facility; and (iii) approximately $91.1 million of the net proceeds
were used to repay a portion of the Revolving Credit Facility. Excluding
principal payments due under the Revolving Credit Facility and redemption of the
13 1/2% Notes, scheduled principal payments for 1997 and 1998 are $21.1 million
and $11.6 million, respectively.
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. In July 1996,
the Company's lenders provided U.S. Can the Acquisition Facility to fund certain
permitted acquisitions. All of these supplemental facilities were terminated on
the closing date of the 10 1/8% Notes offering.
In August 1996, the Company completed the acquisition of all of the
outstanding stock of the CPI Group for approximately $15.0 million, subject to
certain post-closing adjustments and potential future contingent payments which
payments are not to exceed $1 million. The Company completed the USC Europe
Acquisition on September 11, 1996. The purchase price included $52.8 million in
cash and the assumption of net indebtedness totaling $5.8 million, subject to a
post-closing adjustment for changes in working capital between April 30, 1996
and the closing of the USC Europe Acquisition. The cash portion of the purchase
price for each acquisition was funded by the Acquisition Facility. For a more
detailed discussion of these acquisitions, see Note (2) of the unaudited Notes
to Condensed Consolidated Financial Statements.
Under the terms of the Credit Agreement, $11,000,000 of the term loan had
been repaid as of October 31, 1996. As of September 29, 1996, U.S. Can had
borrowings of $193.4 million outstanding under the Credit Agreement, $11.7
million in letters of credit had been issued pursuant thereto, and $13.2 million
of unused credit remained available thereunder. As of November 7, 1996, U.S. Can
had borrowings of $34.0 million outstanding under the Credit Agreement, $11.7
million in letters of credit had been issued pursuant thereto, and $73.3 million
of unused credit remained available thereunder. As of September 29, 1996, U.S.
Can was in compliance with all restrictive covenants of the Credit Agreement and
its other long-term debt agreements.
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Management believes that cash flow from operations, amounts available under
its revolving lines of credit 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 believes it will be able to refinance the Revolving
Credit Facility on or prior to maturity. If future strategic acquisition
opportunities arise, the Company would expect to finance them though some
combination of cash, stock and/or debt financing.
USC EUROPE
As an indication of USC Europe's historic liquidity and capital resources,
USC Europe's liquidity needs since January 1995 have principally been met
through internally generated cash flows or advances from its previous owners.
Working capital increased to $25.1 million as of June 30, 1996, from $24.4
million and $15.0 million as of December 31, 1995 and 1994, respectively. Net
income plus depreciation and amortization charges and less the change in working
capital amounted to $4.5 million and ($0.5 million) for the six months ended
June 30, 1996 and the year ended December 31, 1995, respectively. Based on
information provided to the Company by USC Europe's previous owners, capital
expenditures for USC Europe were approximately $4.6 million, $8.5 million and
$4.8 million for the six months ended June 30, 1996, and the years ended
December 31, 1995 and 1994, respectively. Indebtedness of USC Europe decreased
from $12.6 million as of December 31, 1994 to $10.8 million as of December 31,
1995 and $8.9 million as of June 30, 1996. Changes to the previous owner's net
investment in USC Europe, excluding the effect of net income on such investment,
was an increase of $11.2 million during the year ended December 31, 1995 and a
decrease of $2.2 million during the six months ended June 30, 1996. Based on USC
Europe's performance in the six months ended June 30, 1996, the Company expects
that USC Europe will increase the Company's consolidated cash flows, enhance its
liquidity and improve consolidated results of operations.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 30, 1996, the Company received a General Notice of Potential
Liability from the EPA regarding the Master Metals, Inc. site in Cleveland,
Ohio. The letter alleges that the Company is a PRP in that it generated
hazardous materials disposed at the site. The Company is one of a number of PRPs
and, as of the date of this Report, it is evaluating information regarding the
site to determine the extent, if any, of its liability.
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................................... X3.3
4.1 Amendment No. 8 to Credit Agreement, dated September 9, 1996...........
4.2 Indenture for 10 1/8% Notes............................................
10.1 Stock Purchase Agreement dated as of August 2, 1996, among U.S. Can,
Irving A. Rubin, Robert Bonczyk and the other stockholders of the CPI
Group.................................................................. **2.1
10.2 Acquisition Agreement between the Company and Crown, dated as of August
1, 1996................................................................ @@2.1
10.3 Newnan, Georgia Lease..................................................
10.4 Alliance, Ohio Lease...................................................
99.1 Purchase Agreement for 10 1/8% Notes...................................
99.2 Amended and Restated Escrow Agreement for 13 1/2% Notes................
99.3 Registration Rights Agreement for 10 1/8% Notes........................
27.1 Financial Data Schedule (EDGAR version only)...........................
- - -------------------------
* 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 8-K Current Report of the Corporation and U.S.
Can, filed on August 9, 1996.
@ Previously filed with Form 10-K Annual Report of U.S. Can for the fiscal
year ended December 31, 1992.
@@ Previously filed with Form 8-K Current Report of the Corporation and U.S.
Can, filed on September 26, 1996.
& 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) U.S. Can Corporation and United States Can Company filed a joint report on
Form 8-K concerning the CPI Group acquisition on August 9, 1996, a joint
report on Form 8-K concerning the USC Europe acquisition on September 26,
1996, and a joint report on Form 8-K/A-1 including financial statements of
the CPI Group and USC Europe, as well as unaudited pro forma condensed
combined financials, on October 2, 1996.
20
21
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 13, 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: November 13, 1996 /s/ TIMOTHY W. STONICH
------------------------------------
Timothy W. Stonich
Executive Vice President-Finance,
Chief Financial Officer and
Secretary
21
22
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: November 13, 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: November 13, 1996 /s/ TIMOTHY W. STONICH
------------------------------------
Timothy W. Stonich
Executive Vice President-Finance,
Chief Financial Officer and
Secretary
22
23
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- - ------ -------------------------------------------------------------------------------------
4.1 Amendment No. 8 to Credit Agreement, dated September 9, 1996
4.2 Indenture for 10 1/8% Notes
10.3 Newnan, Georgia Lease
10.4 Alliance, Ohio Lease
99.1 Purchase Agreement for 10 1/8% Notes
99.2 Amended and Restated Escrow Agreement for 13 1/2% Notes
99.3 Registration Rights Agreement for 10 1/8% Notes
27.1 Financial Data Schedule (EDGAR version only)